Balance scorecard

Question	Answer
Balance scorecard	Translates an organization’s mission and strategy into a set of performance measures that provides the framework for implementing its strategy
What are the four perspectives a balance scorecard measures?	1. Financial 2.Customer 3. Internal Base Processes 4. Learning & Growing
For profit companies’ primary goal of the balance scorecard	Is to sustain long-run financial performance
Strategy map	Is a diagram that describes how an organization creates value by connecting strategic objectives in explicit cause and effect relationships with each other in the financial customer internal business process and learning and growing perspectives
Product differentiation	An organization’s ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors. Leads to brand loyalty and the willingness of customers to pay high prices
Cost leadership	An organization’s ability to achieve lower cost relative to competitors through productivity in efficiency improvements, elimination of waste and tight cost control. Leads to lower selling price.
5 aspects of industry analysis	1. Number and strength of competitors 2.Potential entrants to the market 3.Availability of a equivalent products 4. Bargaining power of the customer 5. Bargaining power of the input suppliers
Financial Perspective	Evaluates profitability of the strategy (includes budgets of course), Uses the most objective measures in the scorecard, other three perspectives eventually feedback into this dimension these are the links the cause-and-effect relationships
Customer perspective	Identifies targeted customer and market segments and measures the company success in these segments
Internal business perspective	Focuses on internal operations that create value for the customer that in turn furthers the financial perspective by increasing shareholder value includes three sub- processes: innovation, operations, and post-sales service
Learning and growth perspective	Capabilities the organization must excel at to achieve superior internal processes that create value for customers and share holders. Intellectual assets & an asset that you don’t see on the balance sheet
What is EVA?	Economic value added
What are the income and investment measures as part of the financial perspective	Economic value added and return on investment
Customer perspective	Market share, customer satisfaction,customer retention percentage, time taken to fulfill customer requests and number of customer complaints
Learning and growth perspective	Employee measures: employee education and skill levels, employee satisfaction ratings, employee turnover rates, percentage of employees suggestions implemented, percentage of the compensation based on individual and team incentives Technology measures: information system availability, percentage of processes with advanced controls
Why is it called the balance scorecard	Because it balances the use of financial and nonfinancial performance measures and short run and long run measures to evaluate performance
What are some non-measures	Net promoter score employee retention employee satisfaction
Can a scorecard be a dashboard?	Yes
What does a balanced scorecard do?	Helps communicate the strategy to all members of the organization by translating the strategy into a coherent and linked set of understandable and measurable operational targets
Features of a good balance scorecard	Must motivate managers to take actions that eventually result in improvement in financial performance predominately applies to for-profit entities but has some application to not for profit as well, limits the number of measures identifying only the most critical ones ( KPI’s ) and highlights less than optimal trade off that managers may make when they failed to consider operational and financial measures together example squeeze cost but sacrifices safety
Strategy definition	1. Specifies how an organization matches it’s own capabilities with the opportunities in the marketplace to accomplish its objectives 2. A thorough understanding of the industry is critical to developing a successful strategy
Financial perspective	Income Measures: Operating income, gross margin percentage Revenue and cost measures: revenue growth, revenues from new products, cost reduction in key areas return Income and investment measures: economic value added,(EVA), return on investment
Balanced scorecard implementation pitfalls	1. Manager should not assume the cause-and-effect linkage are always precise 2. Manager should not seek improvements across all of the measures all of the time 3. Managers should not use only objective measures: subjective measures are important as well for example employee satisfaction
What are the three components to strategic analysis of operating income	1. Growth component 2. price recovery component 3. productivity component
Growth component	Measures the change in OI attributable solely to the change in the quantity of output sold between the current and prior periods (also market size versus market share)
Price recovery component	Measures the change in operating income attributable Solely to change in prices of inputs and outputs between their current and prior periods (Product Differentiation)
Productivity component	Measures the change in cost attributable to a change in the quantity of inputs between the current and prior periods. That is, are inputs being used more efficiently and /or is capacity being reduced (cost leadership)
What two components are fairly easy to grasp and which component requires a bit more thought?	Growth and price recovery are fairly easy to grasp and productivity component is the one that takes a little bit more thought
Growth	Just because operating income increased does not necessarily mean strategy was successfully implemented and vice versa
Growth	Just because operating income decreased does not necessarily mean strategy was unsuccessfully implemented
Management of capacity	Managers can reduce capacity-based fixed costs by measuring and managing unused capacity - recall that unused capacity is not always a bad thing -Managing capacity =peak shaving and outsourcing
What is unused capacity	Is the amount of productive capacity available over and above the productive capacity employed to meet consumer demand in the current period.
What is downsizing	Rightsizing – is an integrated approach of configuring processes, products, and people to match cost to the activities that need to be performed to operate effectively and efficiently in the present and future (after an acquisition = synergies)
What are engineered costs?	Results from a cause and effect relationship between the cost driver and the resources used to produce that output. Examples are manufacturing, distribution
What are the two parts of discretionary cost?	1. They arise from periodic (annual) decisions regarding the maximum amount to be incurred 2. they may have a little measurable cause-and-effect relationship between Output and resources used -examples are advertising, R&D

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	Created by Roxann Daniello almost 6 years ago