Lecture 6 - Strategic performance measures

Question 1

What is a balanced scorecard?

Answer 1

A balanced scorecard is a system of linked objectives, targets, initiatives and measures that collectively describe the strategy of an organization and how the organization will achieve this strategy

Question 2

What are the 4 perspectives of the balanced scorecard?

Answer 2

1. Financial perspective
2. Customer perspective
3. Business process perspective
4. Learning and growth perspective

Question 3

What is the financial perspective of the BSC?:

Answer 3

• To succeed financially how should we appear to our shareholders? How do we look to shareholders
• Recognises the need to achieve financial objectives

-Measures: ROI, RI, EVA

Question 4

What is the customer perspective of the BSC?:

Answer 4

-To achieve our vision how should we appear to
our customers? How do customers see us?
-Core themes include – customer relationship,
customer profitability, customer satisfaction,
customer retention and loyalty.
-No customers = No business

Question 5

What is the internal business perspective of the BSC?:

Answer 5

-To satisfy our shareholders and customers, what
business processes must we excel at? What must we
excel at internally to satisfy our customers?
-Quality, delivery times, innovative products
-Measures include – cost, quality, production time,
manufacturing cycle effectiveness.

Question 6

What is the learning and growth perspective of the BSC?:

Answer 6

-To achieve our visions how will we sustain our ability to
change and improve? Can we continue to improve and create value?
-What are we doing to ensure future success
-Measures include – employee satisfaction, employee
retention, information system capabilities, employee
productivity,

Question 7

The cause-and-effect relationships in the BSC involve:

Answer 7

BSC requires that each performance measure is a part
of a cause-and-effect relationship involving a link from
strategy formulation to financial outcomes.
Every measure selected for a BSC should be an
element of a chain of cause-and-effect relationship that
communicates the business unit’s strategy.

Question 8

Benefits of the balanced scorecard:

Answer 8

• Brings together in a single report four different perspectives on a company’s performance that relate to many of the disparate elements of a company’s competitive agenda.
• Provides a comprehensive framework for translating company’s strategic goals into a coherent set of performance measures.
• Helps managers to consider all important operational measures together – enables managers to see whether improvement in one area may have been at the expense of the other.
• Promotes the active formulation of organizational strategy by making it highly visible through the linkage of performance measures to business unit strategy.

Question 9

Criticisms of the balanced scorecard:

Answer 9

• The cause-and-effect relationships are too
ambiguous and lack theoretical underpinning or
empirical support.
• Omission of other important perspectives (e.g.
environmental impact on society and employee
perspectives)