Chapter 7

• Balanced Scorecard


  A tool to implement strategy by translating an organization's mission and strategy into a coherent set of performance measures
• Balanced Scorecard


  • Provides a framework for implementing strategy
  • Consists of an integrated system of performance measures derived from and supporting company strategy
• Strategic Information


  Critical success factors provide a roadmap for a firm to chart its competitive course and serve as a benchmark for competitive success
• Four Perspectives of the Balanced Scorecard

  • Financial Perspective
  • Customer Satisfaction
  • Internal Business Process
  • Innovation and Learning
• Financial Perspective


  Measures how well the firm satisfies its owners and shareholders, including profitability and market value
• Customer Satisfaction Perspective


  Measures how customers see the firm, including quality, service and cost
• Internal Business Process Perspective

  Measures efficiency and effectiveness of the firm's production of products/services
• Innovation and Learning Perspective


  Measures the firm's ability to develop and utilize human resources to meet strategic goals now and in the future
• Good Balanced Scorecard


  • Tells the story of the company's strategy by articulating a sequence of cause and effect relationships
  • Links strategy formulation to performance
  • Communicates strategy to all members of the organization
  • Focuses only on the most critical measures
• Growth Component


  Similar to sales volume or quantity factor
• Cost Effect of Growth Component

  Actual units of input or capacity used to produce this year's output - Actual units of input or capacity used last year x Input price last year
• Price Recovery Component


  Measures the revenue and cost effects of changes in output and input prices
• Productivity Component


  Measures the effect of changes in the efficiency of input utilization
• Delivery Cycle Time


  Amount of time from when an order is received from a customer to when the completed order is shipped
• Throughput (Manufacturing Cycle) Time


  Amount of time required to turn raw materials into completed products
• Process Time


  Amount of time work is actually done on the product
• Inspection Time


  Time required to ensure the product is not defective
• Move Time


  Time required to move materials or partially completed products
• Queue Time


  Amount of time product spends waiting to be worked on, moved, inspected or shipped
• Value Added Time

  Process time
• Non-Value Added Time

  Wait time, inspection time, move time, queue time
• Pitfalls in implementing Balance Scorecard

  • Don't assumes cause and effect linkage is precise
  • Don't seek improvement across all measure of time
  • Don't fail consider both cost and benefits
  • Don't ignore non financial measures when evaluating managers and employees
  • Don't use to many measures
• Cost formula

  Actual unit of input used this year - Actual unit used last year x input price last year
• Growth component composed of:

  • Revenue effect of growth component
  • Cost
• Price Recovery Component composed of :

  • Revenue affect price Recovery component
  • Cost effect price recovery component
  • Productivity components
• Revenue affect of price recovery component

  Output price this year - Output price last year x Actual input sold this year
• Cost effect of price recovery component

  Input price this year - Input price last year x actual units / capacity used to produced last year
• Manufacturing Cycle Efficiency

  • Concern on effort to eliminate non value added activities, reduce throughout lead to have delivery cycle time from month to week.
• MCE = Value added time / Throughput Time 


  Throughout time = Process time + Inspection Time + Move time + Queue Time

  Delivery cycle time = Wait time + Throughput Time