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Strategy and the Balanced Scorecard. Based on Chapter 13, Cost Accounting, 12th ed. Horngren et al., Edited and Modified by C. Bailey. The Balanced Scorecard. The balanced scorecard translates an organization’s mission and strategy into a comprehensive set of performance measures.

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strategy and the balanced scorecard

Strategy and the Balanced Scorecard

Based on Chapter 13, Cost Accounting, 12th ed.

Horngren et al., Edited and

Modified by C. Bailey

the balanced scorecard
The Balanced Scorecard
  • The balanced scorecard translates an organization’s mission and strategy into a comprehensive set of performance measures.
  • Does not focus solely on financial objectives.
    • highlights nonfinancial objectives that an organization must achieve to meet its [long-term] financial objectives.
the balanced scorecard1
The Balanced Scorecard
  • Attempts to balance
    • financial and nonfinancial performance measures
    • short-run and long-run performance in a single report.
  • Why does the balanced scorecard reduce manager’s emphasis on short-run financial performance?
the balanced scorecard2
The Balanced Scorecard
  • Reduces short-term emphasis because:
    • nonfinancial and operational indicators measure fundamental changes
    • financial benefits of these changes may not appear in short-run earnings.
    • nonfinancial measures (leading indicators) signal the prospect of creating economic value in the future.
perspectives of the balanced scorecard
Perspectives of the Balanced Scorecard
  • There are four perspectives of the balanced scorecard:
    • Financial perspective
    • Customer perspective
    • Internal business process perspective
    • Learning and growth perspective
financial perspective
Financial Perspective
  • Evaluates the profitability of the strategy.
  • Focuses on how factors affect income:
    • Growth (units sold, inputs need)
    • Price Recovery (higher prices, lower costs)
    • Productivity (efficiency of resource use)
financial perspective1
Financial Perspective
  • Objective:
  • Increase shareholder value
  • Sample Measures:
  • Increase in operating income
  • Revenue growth
  • Cost reduction is some areas
  • Return on investment
customer perspective
Customer Perspective

Identifies the targeted market segment and measures the company’s success in these segments.

what are some of the customer perspective measures
What are some of the customer perspective measures?
  • Market share
  • Customer satisfaction
  • Customer retention percentage
  • Time taken to fulfill customers requests
internal business process perspective
Internal Business Process Perspective
  • Focuses on internal operations
    • Create value for customers
    • Further the financial perspective by increasing shareholder wealth.
  • Typical Objectives:
    • Improve manufacturing capability
    • Reduce delivery time to customers
    • Meet specified delivery dates
what are some of the internal business perspective measures
What are some of the internal business perspective measures?
  • Innovation Process
  • Manufacturing capabilities
  • Number of new products or services
  • New product development time
  • Number of new patents
internal business perspective measures cont d
Internal business perspective measures cont’d.
  • Operations Process
  • Yield
  • Defect rates
  • Time taken to deliver product to customers
  • Percentage of on-time delivery
  • Setup time
  • Manufacturing downtime
internal business perspective measures cont d1
Internal business perspective measures cont’d.
  • Post-sales service
  • Time taken to replace or repair defective products
  • Hours of customer training for using the product
learning and growth perspective
Learning and Growth Perspective
  • Emphasizes capabilities of
    • Employees
        • empowerment, training
    • Info systems
  • Typical Objectives:
      • Develop process skill
      • Empower work force
      • Enhance information system capabilities
some learning and growth perspective measures
Some Learning and Growth Perspective Measures
  • Employee education and skill level
  • Employee satisfaction scores
  • Employee turnover rates
  • Information system availability
  • Percentage of processes with advanced controls
features of a good balanced scorecard
Features of a Good Balanced Scorecard
  • It tells the story of a company’s strategy by articulating a sequence of cause-and-effect relationships.
  • It assists in communicating the strategy to all members of the organization by translating the strategy into a coherent and linked set of measurable operational targets.
features of a good balanced scorecard1
Features of a Good Balanced Scorecard
  • In for-profit companies, the balanced scorecard places strong emphasis on financial objectives and measures.
  • The scorecard limits the number of measures used by identifying only the most critical ones.
  • The scorecard highlights suboptimal tradeoffs that managers may make.
pitfalls when implementing a balanced scorecard
Pitfalls When Implementing a Balanced Scorecard
  • Don’t assume the cause-and-effect linkages to be precise.
  • Don’t seek improvements across all measures all the time.
  • Don’t use only objective measures on the scorecard.
pitfalls when implementing a balanced scorecard1
Pitfalls When Implementing a Balanced Scorecard
  • Don’t fail to consider both costs and benefits of initiatives such as spending on information technology and research and development.
  • Don’t ignore nonfinancial measures when evaluating managers and employees.