Loading in 2 Seconds...
Loading in 2 Seconds...
Strategy, Balanced Scorecard, and Strategic Profitability Analysis. Chapter 13. April 18, 2005. Learning Objective 1. Recognize which of two generic strategies a company is using. What is Strategy?. Strategy describes how an organization matches
April 18, 2005
Recognize which of two generic
strategies a company is using.
Strategy describes how an organization matches
its own capabilities with the opportunities in the
marketplace to accomplish its overall objectives.
To do so requires a thorough understanding of the
industry in which it operates.
What is the focus of industry analysis?
Potential entrants into the market
Bargaining power of customers
Bargaining power of input suppliers
1. Product differentiation
2. Cost leadership
Management accountants design reports
to help managers track progress in
The scorecard measures an organization’s
performance from four perspectives:
1. Financial – reduce costs, sell more
2. Customer – satisfaction, market share
3. Internal business processes – manufacturing,
quality, delivery, service and support
4. Learning and growth – employee, systems
Identify what comprises
Reengineering is the fundamental rethinking
of business processes to achieve
improvements in critical measures of
performance such as cost, quality, service,
speed, and customer satisfaction.
Dallas Co. order delivery system:
Customers needs identified
Quantities to be shipped
matched against purchase order
Purchase order issued
Shipping documents sent
to Billing Department
Finished goods to inventory
Customer payment follow up
The following was determined:
Frequently, there is a long waiting time before
production begins in the manufacturing department.
Sometimes items are held in inventory until
a truck is available for shipment.
There is no one person responsible for tracking and following up on a customer
If the quantity shipped does not match the
number of items requested by the customer,
a special shipment must be scheduled.
Dallas discovered that the many transfers
across departments slowed down the
process and created delays.
A multifunctional team reengineered the
order delivery process.
A customer relationship manager is responsible
for each customer.
Dallas will enter into long-term contracts with
customers specifying quantities and prices.
The customer relationship manager will work
with the customer and manufacturing to specify
delivery schedules one month in advance.
The schedule of customer orders will be sent
electronically to manufacturing.
Completed items will be shipped directly from
the manufacturing plant to customer sites.
Each shipment will automatically trigger an
invoice to be sent electronically to the customer.
Present the four perspectives
of the balanced scorecard.
3. Internal business process
4. Learning and growth
Increase shareholder value
Increase in operating income
Manage costs and unused
capacity - productivity
Build strong customer
relationships - profit
Build strong customer
relationships - growth
Increase market share
Increase customer satisfaction
Market share in communication
Customer satisfaction survey
Increase market share,
Needs of customers
Identify new target
Increase customer focus
of sales organization
90% give top
87% gave top
quality and productivity
Meet specified delivery dates
Identify problems and
improve quality, yield
Reengineer order delivery
process, on time delivery
Align employee and
Improve manufacturing processes
Employee satisfaction survey
Improvements in process controls
to build teamwork
to modify processes
Different strategies call for different scorecards.
What are some of the financial
Cost reduction is some areas
Return on investment
What are some of the customer
Customer retention percentage
Time taken to fulfill customers requests
What are some of the internal business
Number of new products or services
New product development time
Number of new patents
Time taken to deliver product to customers
Percentage of on-time delivery
Time taken to replace or repair
Hours of customer training for
using the product
What are some of the learning and growth
Employee education and skill level
Employee satisfaction scores
Employee turnover rates
Information system capability
Processes with real time feedback
What pitfalls should be avoided when
implementing a balanced scorecard?
1. Don’t assume the cause-and-effect
linkages to be precise; it will evolve
2. Don’t seek improvements across all
measures all the time; may need tradeoffs
3. Don’t use only objective measures on the
scorecard; subjective such as satisfaction
4. Don’t fail to consider both costs and benefits
of initiatives such as spending on information
technology and research and development.
5. Don’t ignore nonfinancial measures when
evaluating managers and employees.
6. Don’t use too many measures.
Downsizing and the management
of excess capacity
First, distinguish between engineered
and discretionary costs.
Engineered costs result specifically from a clear
cause-and-effect relationship between output
and the resources needed to produce that output.
They can be variable or fixed in the short run.
Examples include direct material, labor and
overhead. These costs are activity driven.
Discretionary costs have two important features.
They arise from periodic (usually yearly)
decisions regarding the maximum
amount to be incurred.
They have no measurable cause-and-effect
relationship between output and resources used.
Examples include advertising, R & D, training,
legal, human resources and public relations
Identify unused capacity
and how to manage it.
What actions can management take
when it identifies unused capacity?
Attempt to eliminate the unused capacity.
Cutting processes, jobs can reduce morale
Attempt to use the unused capacity to grow revenue
A much better alternative