Chapter2: The Balanced Scorecard and Strategy Map

Chapter 2
The Balanced
Scorecard and
Strategy Map
QUESTIONS
2-1 Financial performance measures, such as operating income and return on
investment, indicate whether the companys strategy and its implementation
are increasing shareholder value. However, financial measures tend to be
lagging indicators of the strategy. Firms monitor nonfinancial measures to
understand whether they are building or destroying their capabilitieswith
customers, processes, employees, and systemsfor future growth and
profitability. Key nonfinancial measures are leading indicators of financial
performance, in the sense that improvements in these indicators should lead to
better financial performance in the future, while decreases in the nonfinancial
indicators (such as customer satisfaction and loyalty, process quality, and
employee motivation generally predict decreased future financial
performance.
2-2 A !alanced "corecard is a systematic approach to performance measurement
that translates an organi#ations strategy into clear ob$ectives, measures, and
targets. %he !alanced "corecard integrates an appropriate mi& of short' and
long'term financial and non'financial performance measures used across the
organi#ation, based on the organi#ations strategy.
2-3 %he four measurement perspectives in the !alanced "corecard are ((
financial, () customer, (* process, and (+ learning and growth.
2-4 ,ncreasingly, in order to succeed, organi#ations are relying on competitive
advantage created from their intangible assets, such as loyal customers, high'
quality operating and innovation processes, employee s-ills and motivation,
data bases and information systems, and organi#ation culture. %he growing
importance of intangible assets complements the growing interest in the
!alanced "corecard because the !alanced "corecard helps organi#ations
measure, and therefore, manage the performance of their intangible,
-nowledge'based, assets. .ith the !alanced "corecard measurement system,
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companies continue to trac- financial results but they also monitor, with
nonfinancial measures, whether they are building or destroying their
capabilitieswith customers, processes, employees, and systemsand how
the company is managing intangible assets to create future growth and
profitability. %he !alanced "corecard provides a framewor- for describing
how intangible and tangible assets (such as property, plant, equipment, and
inventory will be combined to create value for the organi#ation.
2-5 %he two essential components of a good strategy are (( a clear statement of
the company0s adantage in the competitive mar-etplacewhat it does or
plans to do differently, better, or uniquely compared to competitors1 and ()
the scope for the strategywhere the company intends to compete most
aggressively, such as targeted customer segments, technologies employed,
geographic locations served ,or product line breadth.
2-6 First, it creates a competitive advantage by positioning the company in its
e&ternal environment where its internal resources and capabilities deliver
something to its customers better than or different from its competitors.
"econd, having a clear strategy provides clear guidance for where internal
resources should be allocated and enables all organi#ational units and
employees to ma-e decisions and implement policies that are consistent with
achieving and sustaining the companys competitive advantage in the
mar-etplace.
2-7 2 strategy map identifies lin-ages among essential elements for the
organi#ations strategy. %hat is, a strategy map provides a comprehensive
visual representation of the lin-ages among ob$ectives in the four perspectives
of the !alanced "corecard. For e&ample, employees process improvement
s-ills (learning and growth perspective drive process quality and process
cycle time (process perspective, which in turn leads to on'time delivery and
customer loyalty (customer perspective, ultimately leading to a higher return
on investment (financial perspective. %his e&ample shows how an entire
chain of cause'and'effect relationships can be described to interconnect
ob$ectives (and their measures in each of the four perspectives.
2-8 3nce the companys vision, mission, and strategy have been established, the
senior management team selects performance measurements to provide the
needed specificity that ma-es vision, mission, and strategy statements
actionable for all employees. 4ompanies generally start their !alanced
"corecard pro$ect by building a strategy map that contains the word
statements of their strategic ob$ectives in the four perspectives and the
lin-ages among them. %he process of building a !alanced "corecard should
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Chapter2: The Balanced Scorecard and Strategy Map
start with word statements, called o!"ecties that describe what the company
is attempting to accomplish. 3b$ectives concisely e&press actions and may
e&press the means and the desired results. 2n e&ample of an ob$ective for the
financial perspective might be to increase revenues through e&panded sales to
e&isting customers. Measures describe how success in achieving an ob$ective
will be determined. 2 measure should be specific in order to provide clear
focus for the ob$ective. 2n e&ample of a measure for the ob$ective above
might be to measure the percent increase in sales to e&isting customers each
month. Targets establish the level of performance or rate of improvement
required for a given measure. For e&ample, a target could be a two percent
increase in sales each month to e&isting customers.
2-9 %he two basic approaches to improving a companys financial performance
are (( productivity improvements and () revenue growth.
2-10 4ompanies can generate additional revenues by (( deepening relationships
with e&isting customers by selling additional products or services, or () by
introducing new products, selling products or services to new customers, or
by e&panding into new mar-ets.
2-11 5roductivity improvements can be achieved in two ways6 (( reducing costs
by lowering direct and indirect e&penses, and () utili#ing financial and
physical assets more efficiently to reduce the wor-ing and fi&ed capital
needed to support a given level of business.
2-12 7irtually all organi#ations try to improve in terms of customer satisfaction,
customer retention, customer profitability, and mar-et share, but
improvements in these measures do not necessarily constitute a strategy. %he
measures must be lin-ed to a company0s strategy in order to align the
enterprise around successful e&ecution of the strategy. For e&ample, a strategy
often identifies specific customer segments that a company is targeting for
growth and profitability, in order to achieve the organi#ations financial
ob$ectives. %hen the measures (customer satisfaction, customer retention,
customer profitability and mar-et share must be applied to the customer
segments in which they choose to compete.
2-13 2 value proposition defines the companys strategy by specifying the unique
mi& of product performance, price, quality, availability, ease of purchase,
service, relationship, and image that an organi#ation offers its targeted group
of customers in order to meet customers needs better or differently from its
competitors. %he lo#$total$cost value proposition is used by companies such
as %arget (http688www.target.com, "outhwest 2irlines, 9ell 4omputers, and
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.al':art. %he ob$ectives of this value proposition emphasi#e attractive prices
(relative to competitors, e&cellent and consistent quality for the product
attributes offered, good selection, short lead times, and ease of purchase.
:c9onalds, for e&ample, is ine&pensive, serves food of consistent taste and
quality, and serves customers quic-ly.
2-14 %he product$leadership value proposition is followed by companies such as
%e-troni& (which designs and produces measurement and monitoring
instrumentation, http688www.te-.com, 2pple, :ercedes, and ,ntel. %his value
proposition emphasi#es particular features and functionalities of the products
that leading'edge customers place value in and are willing to pay more to
receive. "pecific measures include speed, accuracy, si#e, power consumption,
design or other performance characteristics that e&ceed the performance of
competing products and that are valued by important customer segments. ,t is
important to be first'to'mar-et when using the product innovation and
leadership value proposition.
2-15 %he customer$solutions value proposition is followed by companies such as
Home 9epot (http688www.homedepot.com, whose salespersons can teach
customers how to use the products they buy at the store, ;oldman "achs, and
,!:. %his value proposition focuses on ma-ing customers feel that the
company understands them and is capable of providing them with customi#ed
products and8or services tailored to their needs and preferences. 4ertain
ob$ectives that are stressed include completeness of the solution, e&ceptional
service both before and after the sale, and the quality of the relationship
between the company and its customers.
2-16 %he !alanced "corecard is helpful in identifying critical processes because it
forces the company to determine the means by which it will produce and
deliver the value propositions for customers and achieve the productivity
improvements for the financial ob$ectives. Furthermore, the !alanced
"corecard includes ob$ectives and measures to evaluate performance on these
critical processes.
2-17 2n organi#ation will want to include measures that monitor customers
perspectives on processes, even if wor-ers often have little control over the
measure. %o illustrate, airlines will li-ely trac- on'time arrivals and departures
at each airport because these measures are important to customers. ,n this
e&ample, the process perspective should contain ob$ectives that are
controllable by employees, but perhaps not completely, since an individual
employee or department may control only one component of a process.
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Chapter2: The Balanced Scorecard and Strategy Map
<mployees can influence on'time departure but weather conditions might
disrupt an otherwise orderly process. %o achieve desired ground turnaround
time, multiple processes must operate efficiently6 cleaning, refueling, and
servicing the plane, loading drin-s and food, handling luggage, and boarding
passengers. ,f delays occur in any of these processes, the planes departure
may be delayed. %hus, the !alanced "corecard may include a common metric
for several different employee groups, none of which can completely
determine performance on the metric. :oreover, performance improvement
may involve teamwor- across processes.
2-18 %he four categories of processes that are useful in developing the process
perspective measures are (( 3perations management processes, ()
4ustomer management processes, (* ,nnovation processes, and (+
=egulatory and social processes.
2-19 3perations management processes are the basic, day'to'day processes that
produce products and services and deliver them to customers. "ome typical
ob$ectives for operations management processes are (( achieve superior
supplier capability, () improve the cost, quality and cycle times of operating
processes, (* improve asset utili#ation and (+ deliver goods and services
responsively to customers.
2-20 4ustomer management processes e&pand and deepen relationships with
targeted customers. %hree important ob$ectives for customer management
processes are (( 2cquire new customers, () "atisfy and retain e&isting
customers, and (* ;enerate growth with customers.
2-21 ,nnovation processes develop new products, processes, and services, often
enabling the company to penetrate new mar-ets and customers segments.
2lso, successful innovation drives customer acquisition, loyalty, and growth,
which lead to enhanced operating margins.
2-22 :anaging innovation involves two important subprocesses. %hey are ((
9eveloping innovative products and services, and () 2chieving e&cellence in
research and development processes.
2-23 =egulatory and social processes promote meeting or e&ceeding standards
established by regulations and facilitate achievement of desired social
ob$ectives. 4ompanies manage and report their regulatory and social
performance along a number of critical dimensions. %hese include ((
<nvironment, () Health and safety, (* <mployment practices, and (+
4ommunity investment.
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2-24 ,n developing their !alanced "corecard, managers identify which of the
process ob$ectives and measures are the most important for their strategies.
4ompanies following a product leadership strategy would stress e&cellence in
their innovation processes. 4ompanies following a low'total'cost strategy
must e&cel at operations management processes. 4ompanies following a
customer'solutions strategy will emphasi#e their customer management
processes
2-25 %ypically, the financial benefits from improving processes occur within
different time frames. 4ost savings from improvements in operational
processes deliver quic- benefits (within ? to () months to productivity
ob$ectives in the financial perspective. =evenue growth from enhancing
customer relationships accrues in the intermediate term (() to )+ months.
%nnoation processes generally ta-e longer to produce customer and revenue
and margin improvements ()+ to +@ months. %he benefits from regulatory
and social processes also typically ta-e longer to capture as companies avoid
litigation and shutdowns and enhance their image as employers and suppliers
of choice in all communities in which they operate.
2-26 %he three components of the learning and growth perspective are human
resources, information technology, and organi#ational culture and alignment.
2-27 %he following are desirable characteristics for a !alanced "corecard measure6
:eaningful6 ,t is a valid indicator of the underlying strategic ob$ective.
2vailable6 %he measure already e&ists in our data base or can be
obtained without e&cessive cost.
Anderstandable6 5eople can quic-ly interpret levels and changes in the
measure.
2ctionable6 %he measure can be influenced by the actions and
initiatives the organi#ation underta-es.
"imple6 Bou can e&plain the measure in one or two sentences.
%imely6 Bou can obtain the measure at an appropriate frequency and
without e&cessive delay.
2-28 !ecause financial success is not their primary ob$ective, nonproft and
government organizations (C5;3s cannot use the standard
architecture of the !alanced "corecard strategy map where financial
ob$ectives are the ultimate, high'level outcomes to be achieved. C5;3s
generally place an ob$ective related to their social impact and mission, such
as reducing poverty, school dropout rates, incidence or consequences from
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Chapter2: The Balanced Scorecard and Strategy Map
particular diseases, or eliminating discrimination, at the top of their scorecard
and strategy map. 2 nonprofit or public sector agencys mission represents the
accountability between it and society, as well as the rationale for its e&istence
and ongoing support.
2-29 !uilding and embedding a new measurement and management system into an
organi#ation is complicated and susceptible to at least the following four
common pitfalls described in the chapter6 (( "enior management is not
committed1 () "corecard responsibilities dont filter down1 (* %he solution
is over'designed, or the scorecard is treated as a one'time event1 and (+ %he
!alanced "corecard is treated as a systems or consulting pro$ect. 2n
additional pitfall is for one senior manager to try to build the scorecard alone.
EXERCISES
2-30 .al':art is a company that uses the lo#$total$cost value proposition. %he
ob$ectives of this value proposition emphasi#e attractive prices (relative to
competitors, e&cellent and consistent quality for the product attributes
offered, good selection, short lead times and ease of purchase. 5ossible
measures for .al':art include the following6
(( Financial6 =eturn on investment, profit, change in yearly profit, cost of
purchasing items, inventory turnover.
() 4ustomer6 :ar-et share, customer satisfaction in targeted segments such
as price'sensitive customers, customer satisfaction and8or mar-et share
for .al':art branded products, stoc-out rates, price inde&es compared to
competitors, return rates due to defective products.
(* 5rocess6 4ost of purchasing as a percentage of total purchase price, lead
time for suppliers to replenish customer purchases, distribution cost per
unit, supplier defect rates, percent suppliers that operate automatically for
continuous replenishment, chec-out speed.
(+ Dearning and growth6 <mployee satisfaction measured by a survey,
employee retention, percent of suppliers lin-ed electronically to point of
sale terminals, number of employee suggestions for cost reduction or
improved customer service, employee culture survey for continuous
improvement.
2-31 :ercedes uses the product$leadership value proposition, which emphasi#es
particular features and functionalities of the products that leading'edge
customers place value in and are willing to pay more to receive. "pecific
measures include speed, accuracy, si#e, power consumption, design or other
performance characteristics that e&ceed the performance of competing
products and that are valued by important customer segments. ,t is important
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to be first'to'mar-et when using the product innovation and leadership value
proposition. 5ossible measures for :ercedes include the following6
(( Financial6 <conomic value added, change in yearly profit, gross margin
per vehicle sold, benchmar-ed against competitors.
() 4ustomer6 :ar-et share and customer satisfaction in targeted segments
(such as high discretionary income customers, customer retention, peer
review of new product introductions compared to competitors, ratings of
specific driving attributespower, handling, comfort, convenience, brand
image, quality performance in customer surveys, such as F.9. 5ower and
4onsumer =eports.
(* 5rocess6 %ime spent with focus groups to learn about -nowledgeable
customer preferences, product development lead time, peer review of new
products in product development pipeline, number of new models or
features introduced each year.
(+ Dearning and growth6 <mployee satisfaction measured by a survey, -ey
employee retention, employee s-ill coverage (such as scientists and
engineers with leading'edge -nowledge of powertrain, suspension,
aerodynamics, etc., availability of information systems for virtual
prototyping and dynamic simulation of new vehicles, employee survey for
culture of creativity and innovation.
2-32 Cordstrom, an upscale retailer uses the customer$solutions value proposition,
which focuses on ma-ing customers feel that the company understands them
and is capable of providing them with customi#ed products and8or services
tailored to their needs. 3b$ectives that are stressed include completeness of
the solution, e&ceptional service both before and after the sale, and the quality
of the relationship between the company and its customers. Cordstroms sales
force is legendary for its customer service. ("ee case *'EG for more
information on Cordstrom. 5ossible measures for Cordstrom include the
following6
(( Financial6 =eturn on investment, change in yearly profit per store, profit
margins on merchandise, inventory turnover.
() 4ustomer6 :ar-et share in target segments, percent of customers who
return for more purchases, percent of customers HwardrobesI supplied by
Cordstrom, average number of items sold per customer visit, number of
referrals from delighted customers, customer lifetime profitability, percent
of sales from loyal customers.
(* 5rocess6 Dength of time elapsed between the time a customers desired
item arrives in a store and the customer is contacted, percent of customers
whose preferences are entered into Cordstroms database, employees
sales per hour (salespersons -nowledge of customers preferences should
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Chapter2: The Balanced Scorecard and Strategy Map
facilitate quic- sales, stoc-out rate, sales dollars per square foot,
chec-out speed.
(+ Dearning and growth6 <mployee satisfaction measured by a survey, -ey
employee retention, percent of salespersons with more than two years of
Cordstrom e&perience, percent of salespersons using the Cordstrom
customer relationship management (4=: system, culture survey on
customer focus, survey on employee alignment to Cordstroms values and
mission.
2-33 (a ,ncrease employees0 process improvement s-ills
9ecrease process defects 9ecrease cost of serving customers
9ecrease process defects ,ncrease customer satisfaction ,ncrease
revenues
,ncrease revenues and decrease cost of serving customers
,ncrease profit
(b =educe turnover of -ey design personnel
9ecrease product development time from idea to mar-et
,ncrease number of products that are first on the mar-et
,ncrease number of new customers
,ncrease revenues ,ncrease profit
(c ,ncrease employees customer relationships s-ill levels
,ncrease customer satisfaction with employees0 assistance
,ncrease number of products cross'sold to customers
,ncrease revenues
2-34 %he statement is incorrect. ,n the process perspective of the !alanced
"corecard, there are four groupings. %he fourth grouping, regulatory and
social processes, includes measures on environmental performance and
employee health and safety. <&amples of -ey measures found in this grouping
include (( number of environmental incidents, () energy and resource
consumption, (* number of 3"H2 recordable cases per (GG employees, and
(+ lost wor-days per (GG employees or per )GG,GGG hours wor-ed. 2lso, if
environmental and social issues are especially important to a company, some
actually introduce a fifth perspective, located near the process perspective in
the strategy map, to highlight ob$ectives and measures of the companys
performance for the environment and in the communities in which it operates.
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2-35 ,t is indeed possible for an organi#ation to focus on )G to *G different
measures in the !alanced "corecard. %he -ey is that the measures are not
independent of each other. ,f the measures were independent of each other,
they would be too difficult for an organi#ation and its employees to absorb.
However, a properly constructed !alanced "corecard provides the
instrumentation for a single strategy. 4ompanies can then formulate and
communicate this strategy with an integrated system of )G to *G measures
that identify the cause'and'effect relationship among the critical variables.
2-36 %his statement is incorrect. %he individual is assuming that identifying -ey
performance indicators and classifying them into the four scorecard
perspectives constitutes a !alanced "corecard. .hile these -ey performance
indicators are worthy of attention, they do not reflect a companys strategy.
4ause'and'effect relationships must be specified so the measures correspond
to ob$ectives that relate to the organi#ations strategy. 2s stated in the chapter,
a good test is whether one can understand the strategy by loo-ing only at the
strategy map and scorecard. Cote also that the list of -ey performance
indicators does not e&plicitly include indicators for processes.
2-37 2lthough this scorecard is more balanced than its previous one, which used
only a single financial measure, it is easy to identify the ma$or gaps in the
measurement set. %he +5 scorecard has no customer measures and only a
single measure each in the process and learning and growth perspectives. %his
K5, scorecard has no role for information technology (strange for a financial
service organi#ation, no lin-ages from its process measure (quality
certification to a customer value proposition or to a customer outcome, no
lin-age from the learning and growth measure (diverse wor-force to
improving its process metric (as achieving quality certification, no lin-age
from a customer measure to a financial outcome and no lin-age from a
process measure to a financial outcome.
2-38 %here are three main differences between a !alanced "corecard for a
nonprofit or governmental organi#ation (C5;3 and a for'profit organi#ation.
First, financial success is not the primary ob$ective of C5;3s. %herefore,
financial ob$ectives are not the high'level outcomes to be achieved at the top
of the strategy map and !alanced "corecard. ,nstead, a long'term mission
ob$ective such as reducing poverty, improving education, or increasing health
is identified as the high'level primary ob$ective. "econd, the customer
framewor- is different due to different classes of customers. ,n the case of
C5;3s, there are donors and ta&payers who pay for the service, and there
are citi#ens and beneficiaries who receive the service. %his dual'customer
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Chapter2: The Balanced Scorecard and Strategy Map
perspective must be considered when developing the strategy map and the
!alanced "corecard. Finally, many C5;3s do not have a clear strategy. %o
apply the !alanced "corecard, an C5;3s thin-ing must shift from what it
plans to do (activities to what it intends to accomplish (outcomes.
2-39 %he !alanced "corecard is both a performance measurement system and a
management system. %he !alanced "corecard was originally developed to
improve performance measurement by incorporating nonfinancial drivers of
performance, in addition to the usual financial performance measures. 3nce
the basic system was in place, managers reali#ed that measurement not only
has consequences for reporting on the past, but also creates focus for the
future. %he !alanced "corecard helps communicate the strategy, including
ob$ectives, measures, and targets, to all organi#ational units and employees,
thus serving also as a management system. %he strategy map illustrates the
causal relationships among the strategic ob$ectives across the four !alanced
"corecard perspectives.
PROBLEMS
2-40 "ince 5ioneer produced mostly commodity products (gasoline, heating oil, $et
fuel, it could not recover in higher prices, any higher costs or inefficiencies
incurred in its basic manufacturing and distribution operations. %he
differentiation, for 5ioneers new strategy, occurred at the gasoline station,
not in its refineries, pipelines, distribution terminals, or truc-ing operations.
Dittle that happened prior to the final point of purchase created a
differentiated product from the consumers perspective. ,f the basic
operations of refining and distribution did not create a differentiated product
or service, then any higher costs incurred in these processes could not be
recovered in the final selling price. %herefore, 5ioneers basic operating
processes had to achieve operational e&cellence. Having several measures in
the process perspective for cost reduction, fi&ed asset productivity, and yield
improvements signaled this important set of process ob$ectives.
2-41 (a ,nfosys most important assets are customer relationships (especially with
its new strategy, innovation, and employee recruitment and capabilities.
%hese are intangible assets that are not measured well by financial statements
alone. ,nfosys has evolved a continuing series of new strategies (body shop,
outsourcer, ,% service provider, and transformational partner. ,t needed a
system to clearly define each new strategy to align employees and to monitor
ongoing performance. 2n appropriately designed and implemented !alanced
"corecard is highly effective at helping companies manage intangible assets
consistent with the companys strategy. Furthermore, the !alanced "corecard
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can help management effectively communicate new strategies throughout the
company.
(b 5ossible customer measures for ,nfosys include the following6
( 4ustomer loyalty (K repeat business
) ;rowth in customer revenues year over year
* Cumber of customers with more than L)> (or L>G million in annual
billings
+ K of -ey customers ,% spending
> :ar-et share among competitive ,% service providers (2ccenture,
,!:, .ipro, etc.
(c 5ossible employee measures for ,nfosys include the following6
( Cumber of new hires from top schools
) 2cceptance rate of $ob offers
* <mployee satisfaction (and retention
+ :easures of employee capabilities and s-ills in new technologies
2-42 %each for 2merica (%F2 can use its strategy map and scorecard in the
following ways6
Fund raising6 %he clear representation of %F20s mission and strategy
should help it solicit funds from foundations or other donors who want to
invest in the %F2 strategy and mission.
4ommunication6 %F2 can e&plain the strategy map to all its employees and
corps members so that everyone understands the overall ob$ectives of %F2
and how they can contribute to achieving these ob$ectives.
Din- to 3perations6 %F2 can identify which processes are most important
for achieving its strategy, and focus more attention to improving those
strategic processes.
;overnance6 %F2 now has a performance contract to attract !oard
members, have the !oard approve the strategy, and hold the management
team accountable for e&ecuting the strategy.
=ecruiting6 %F2 can attract new employees with a clear statement of what
it is trying to accomplish, where the new employee HfitsI within the
mission and strategy, and how the employee could contribute to the
success of the strategy.
,nternal resource allocation6 %he !alanced "corecard can help
management ensure that %F2s resources (people and money and
initiatives are aligned, in a balanced way, across the organi#ations
multiple ob$ectives.
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Chapter2: The Balanced Scorecard and Strategy Map
2-43 %he discussion should begin by specifying the organi#ations ob$ectives and
how the manager contributes to achieving those ob$ectives. %his provides a
framewor- for the ensuing discussion. 5resumably the primary ob$ective for a
fast food restaurant is profitability, which becomes the primary ob$ective in
the !alanced "corecard system. %he response should identify reasonable
customer e&pectations regarding service, quality, and cost, and should specify
performance measures that reflect how the manager contributes to each of
these. %he response should identify how employees affect performance on the
primary ob$ective and how the managers activities affect employees
performance. For e&ample, while the manager may have no control over
wages or general employment conditions, through general management
practices the manager contributes to the general level of employee
satisfaction. %he manager is li-ely to have little interaction with suppliers
since in most fast food operations the head office handles these relationships.
"imilarly, while the corporate office handles most important community
initiatives, the local manager can contribute by participating in community
activitiesfor e&ample, by sponsoring various youth activities. %herefore, the
!alanced "corecard should include operational, customer, employee, and
community measures thought to influence profitability. "uch measures might
include costs, waste, and customer wait time.
2-44 %he first step in this e&ercise is to identify what we have referred to as the
schools ownerseither the state or the trustees, depending on whether the
university is privately or publicly funded, and their primary ob$ectives. %his is
an important step because it defines the basis for evaluating the schools other
choices. %he ne&t step is to identify the schools other sta-eholders.
5resumably, this would include customers (students, employees (faculty and
staff, suppliers (part'time instructors and other outsiders, and the
community.
%he ne&t step is to identify the primary strategy that the school has chosen to
compete for students. %his defines not only the proposed relationship with
students, but also the relationships with other sta-eholders, particularly
employees, that the school needs to pursue. %he last step is to build a
!alanced "corecard that reflects the schools strategic choices and the
relationships that it has negotiated with its other relevant sta-eholders.
For e&ample, suppose that the school is publicly funded and has as its
mandate to educate students so they can fill $obs and provide an economic
contribution to the community. ,n this setting, we could specify that the
schools primary ob$ective is to prepare students for $obs in which they will
ma-e an economic contribution within the constraints of the schools budget.
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%herefore, cost and effectiveness issues will be important parts of the
!alanced "corecard. However, the !alanced "corecard should reflect the
other sta-eholders, particularly faculty who are responsible for designing and
delivering the educational programs, staff who provide the infrastructure
within which the education process ta-es place, and the community that funds
the university and, ultimately, decides its fate.
%he performance measurement choices will reflect the mandate (strategy and
primary ob$ective, as well as what each sta-eholder group provides to, and
e&pects to receive from, the university. For e&ample, students provide tuition
fees and, through their numbers, continued state funding. ,n return, students
e&pect to receive an education that allows them to pursue their chosen
careers. :easuring what students receive in this setting may be difficult. For
e&ample, measuring success by the average starting salary of students is both
a crude and short'run measure. However, perhaps it is the best available.
:easuring faculty contribution to achieving the primary ob$ective could be
appro&imated by teaching evaluations and research publications. However,
this too is a crude measure of the facultys contribution to providing students
with what they need at the most reasonable cost. %his particular setting
provides a good basis for discussion because it deals with a situation that
most students will understand, but which raises important and difficult issues
about choosing ob$ectives, both primary and secondary, and how to measure
performance on those ob$ectives.
2-45 For government and nonprofit agencies, financial systems that budget
e&penses and monitor and control actual spending provide information about
whether the agency overspent its budgeted or authori#ed amount. However,
the financial systems do not provide useful information about whether the
agency has achieved its mission because for such agencies, success is not
measured in financial terms. "uccess should be measured in outcomes
achieved. %his requires the agency to have a clear definition of its mission and
its targeted customer base. .ith such a mission and a specified targeted set of
constituencies, it can then formulate ob$ectives and measures to motivate and
focus employees towards achieving organi#ational ob$ectives. <& post, the
agency can measure the outcomes from its activities to see whether it has
delivered on its mission and ob$ectives.
2 !alanced "corecard for a government or nonprofit agency can still have a
financial perspective. %his would allow for measurement of operating
e&penses as a targeted percentage of total funds raised or disbursed. For
nonprofits, the financial perspective could also include measurement of funds
raised relative to targets, and increases in contributions per donor.
/*+/
Chapter2: The Balanced Scorecard and Strategy Map
%he customer perspective would represent ob$ectives and measures for either
the specific beneficiaries of the agency or the donors who provide funds for
the agency. 4onsider a group li-e the Cature 4onservancy or the "ierra 4lub.
From the perspective of donors to these organi#ations (the customers,
ob$ectives could relate to acres preserved and species protected. For Anited
.ay organi#ations, ob$ectives could relate to improvements in the local
community served by agencies supported by Anited .ay. "o one would need
to thin- about ob$ectives and measures for both the providers of funds to the
organi#ation (ta&payers or donorswhich is one defining characteristic of
HcustomersI and the recipients of the services provided by the organi#ation
(another defining characteristic of a HcustomerI.
%he process perspective would represent the ob$ectives and measures for the
business processes required to meet the ob$ectives of donors (or ta&payers
and beneficiaries. "uch ob$ectives could include high quality delivery of
services, speedy and #ero defect responses to donors and beneficiaries,
innovative services for recipients, and recognition of donors and volunteers.
%he learning and growth perspective typically, as with private sector
companies, would include ob$ectives and measures relating to improving the
s-ills and motivation of employees, delegating greater decision'ma-ing to
employees, and improving access to information about donors, beneficiaries,
and volunteers.
2-46 %he companys approach may not produce a comprehensive !alanced
"corecard because it will not necessarily specify cause'and'effect
relationships with measures and ob$ectives that relate to the organi#ations
strategy. :oreover, the e&isting measures may not span the four !alanced
"corecard perspectives or represent the companys strategy. %he companys
view of the !alanced "corecard seems limited to using the e&isting
performance measures.
2-47 %his approach may encounter multiple common pitfalls. First, the senior
management team should be actively involved in order to articulate the
organi#ations strategy, ma-e decisions necessary for an effective strategy,
and develop their emotional commitment to the strategy and implementation
of the ensuing !alanced "corecard. 3therwise, the head of the information
technology group may not fully understand the companys strategy, mission,
and ob$ectives. "econd, the head of the information technology group may
attempt to build the scorecard alone rather than with the entire management
team, ma-ing implementation and acceptance of the !alanced "corecard
/*>/
Atkinson, Solutions Manual t/a Management Accounting, 6E
difficult. %he !alanced "corecard would li-ely be far less complete, useful,
and accepted than if the entire management team had participated in its
development. %hird, the company may face problems common when
development of the !alanced "corecard is treated as a systems pro$ect. ,n
addition to the potential problems already mentioned, the information
technology group may focus on the data'gathering aspects of the performance
measurement system and developing an e&ecutive information system so that
e&ecutives can access any data they want, rather than focusing on the -ey
data for monitoring and implementing the strategy. Finally, the ,% e&ecutive
may not have the interpersonal and organi#ational s-ills to be an effective
pro$ect leader for an interdisciplinary pro$ect (though she or he might indeed
have those s-ills. 4onsequently, the !alanced "corecard may not include a
structured strategy map with cause'and'effect lin-ages among strategic
performance measures.
CASES
2-48 (a %he principal advantage of lin-ing compensation to a !alanced
"corecard is the alignment of incentives with the organi#ational goals
represented in the !alanced "corecard. :onetary rewards often
provide very strong motivation to focus on the scorecard measures.
%his is an e&ample of He&trinsic motivationI in which people wor-
towards outcomes for which they are e&plicitly rewarded. %he
!alanced "corecard can also provide Hintrinsic motivation.I
<mployees, once they learn about the companys strategy and how they
can contribute to that strategy, will strive to help the organi#ation
achieve its strategic ob$ectives because they want to ta-e pride in
wor-ing for a successful organi#ation.
3ne concern in lin-ing compensation to a !alanced "corecard is
whether the measures are sensible. 2nother is to ensure that reliable
data collection processes e&ist for each measure used in the
compensation function, and that the measures are not easily
manipulated. %op management must try to anticipate whether managers
might choose actions that are undesirable for the organi#ation but that
have a beneficial effect on scorecard measures. %o alleviate these
concerns, organi#ations may delay lin-ing compensation to !alanced
"corecard measures for si& months to a year after the scorecards initial
implementation to gain confidence in the measures and data collection
processes. %he organi#ations must be cautious, during the initial trial
period, that the e&isting or temporary compensation scheme does not
/*?/
Chapter2: The Balanced Scorecard and Strategy Map
encourage a focus on only a narrow set of measures, such as short'term
financial performance.
2nother concern is how to design compensation based on multiple
ob$ectives. 2ssigning weights to individual ob$ectives allows
considerable incentive compensation to be paid when a business unit
performs well on some ob$ectives even if the business unit performs
quite poorly on other ob$ectives. 4ompanies can instead award
incentive compensation only if a specified minimum threshold is met on
all, or a subset, of crucial ob$ectives. %ypically, a minimum financial
hurdle is specified, such as >K return on sales or ?K return on capital,
before any bonus will be paid. %his ensures that bonuses are not paid
when the company is e&periencing financial difficulties.
(b :M= had a very detailed plan developed around the four !alanced
"corecard perspectives, with numerous metrics across the perspectives.
2ssigning percentage weights that determined how much the achieved
balanced scorecard measures would contribute to the bonus pool
suggests that the system was very balanced. 2ssigning degrees of
difficulty to achieving targets provided incentives for managers to set
stretch targets rather than easily achievable targets, -nowing that if they
missed a stretch target slightly, they would still receive an award that
was higher than a manager who $ust met a much more easily achievable
target. !ecause the performance factors underwent review by peers,
upper management, and the employees sub$ect to performance
evaluation based on the performance factors, everyone concerned
could have confidence that the performance factors were reasonable
and comparable across different units. Cote that all salaried employees
in :M=s Catural !usiness Anits had compensation lin-ed to
performance on !alanced "corecard measures.
%he use of three tiers of compensationcorporate, division, and
business unitaligns individual employees to areas where they can
have the most impact (their department or business unit, as well as the
broader organi#ation (division and corporation. <mployees will be
motivated to contribute to performance outside the particular
department or business unit where they wor-, yet still benefit from
achievements by their own unit, where their efforts will li-ely have the
largest impact.
%he issues in part (a also arise in :M=. ,n addition, the pros and cons
of e&trinsic motivation can be discussed. 2 concern with motivation
/*E/
Atkinson, Solutions Manual t/a Management Accounting, 6E
that is primarily e&trinsic is that individuals may e&hibit less creativity
and innovation in decision'ma-ing and problem solving than they
would if they were also intrinsically motivated.
2-49 %his question serves as a basis for discussing implementations of the
!alanced "corecard. %his e&ercise has two ob$ectives. %he first ob$ective is to
provide students with an understanding of what organi#ations e&pect from a
!alanced "corecard. %he second ob$ective is to provide students with an
illustration of the practical issues in choosing measurable primary and
secondary ob$ectives. %he question as-s the student to e&plore all facets of
the implementation, including what measures are used, why they are used,
how the measures relate to organi#ation strategy, and whether the !alanced
"corecard is internally consistent and rational.
2-50 %he following descriptions are drawn from the Aniversity of Deeds web site
(http688www.leeds.ac.u-, including its strategy map at
http688www.leeds.ac.u-8downloads8"trategyNmapNaw.pdf and its
,nternationalisation "trategy statement at
http688www.leeds.ac.u-8downloads8internationalisationNstrategy.pdf (all
accessed on Fune )>, )G(G.
(a %he Aniversity of Deeds strategy is essentially a product leadership
strategy that focuses on integrating world'class research, scholarship, and
education.
(b Deeds is developing a distinctive ability to integrate world'class research,
scholarship, and education that leads to its graduates and scholars ma-ing
a ma$or impact on global society. Deeds will accomplish this by partnering
with its sta-eholders, who include high'quality faculty, students, and
alumni, as well as business, public, and third'sector partners. 3ne of the
unique aspects of Deeds strategy is its international focus.
(c %he Aniversity of Deeds already has a strong reputation and aims to be
ran-ed among the top >G universities in the world by )G(>. ,ts strategy
map lists four -ey themes6
<nhance our standing as an international university
2chieve an influential world'leading research profile
,nspire our students to develop their full potential
,ncrease our impact on a local to global scale
/*@/
Chapter2: The Balanced Scorecard and Strategy Map
%he university offers a broad range of courses, including courses in arts,
biological and physical sciences, social sciences, education, law,
engineering, business, and medicine. Deeds offers both undergraduate and
graduate studies. %he university draws a relatively large population of
international students. ,n relation to achieving its world'leading research
profile, Deeds has an intention to H9eliver international e&cellence in all
our areas of research, with defined pea-s of world'leading performance.I
(d 2s an e&ample, Deeds internationali#ation strategy has three ob$ectives,
shown below with relevant measures.
1.<mbed internationali#ation into our core activities
a K research funding from outside the AK
b K of overseas staff and K of staff with overseas visiting
professorships
c K of students e&periencing some form of overseas placement
d Ouality of international student e&perience
e Cumber of students successfully completing Deeds degrees through
transnational programmes
f 9iversity of international student population
g Foint international publications per F%<
). 4reate sustainable recruitment of high quality international students
a Cumber of fulltime fee paying international students
b ,nternational student mar-et share by cohort
*. 9evelop and maintain high quality international strategic partnerships
a Cumber of institutional international strategic partnerships
2-51 %his case is an update of H4ity of 4harlotte (2I (Harvard !usiness "chool
4ase PJ'(JJ'G*?, which contains details on the early history of the 4ity of
4harlottes !alanced "corecard, as well as the scorecard measures. 9etails
also appear in Kaplan, =. ". and 9. 5. Corton, The Balanced Scorecard:
Translating Strategy into Action (Harvard !usiness "chool 5ress6 !oston,
:2, (JJ?, (@*'(@>.
%his case illustrates how a government organi#ation can adapt the typical
!alanced "corecard approach to implement its vision and mission. ,nstead of
the financial perspective that appears the top of a for'profit firm0s !alanced
"corecard, the 4ity of 4harlotte uses five focus areas, modified somewhat
from the initial areas, at the top of its !alanced "corecard. %he 4ity of
4harlotte then uses four perspectives in the following order6 customer
(citi#ens, financial, process, and learning and growth.
/*J/
Atkinson, Solutions Manual t/a Management Accounting, 6E
%he 4ity of 4harlotte0s fiscal year )G(G report (page *> at
http688charmec-.org8city8charlotte8!udget89ocuments8FB)G(GK)G"trategic
K)G3peratingK)G5lan.pdf lists the ob$ectives below for its four
perspectives. Further details on ob$ectives, measures, and targets are provided
on subsequent pages of the fiscal year )G(G report.
Strate!"
#$"%&
area&
4ommunity
safety
Housing and
neighborhood
development
%ransportation <nvironment <conomic
development
C!t( $# C)ar*$tte Ba*a+"e, S"$re"ar,
Per&-e"t!.e
C%&t$/er
=educe crime "trengthen
neighbor'
hoods
5rovide safe,
convenient
transportation
choices
"afeguard
the
environment
5romote
economic
opportunity
,ncrease
perception of
safety
0!+a+"!a*
<&pand ta&
base and
revenues
9eliver
competitive
services
,nvest in
infrastructure
:aintain
222 rating
Pr$"e&&
9evelop
collaborative
solutions
<nhance
customer
service
3ptimi#e
business
processes
Lear+!+
a+,
r$1t)
5romote
learning and
growth
=ecruit and
retain
s-illed,
diverse
wor-force
2chieve
positive
employee
climate
%he customer ob$ectives support the five focus areas6 community safety,
housing and neighborhood development, transportation, environment, and
economic development. 2s in the initial !alanced "corecard, the financial
ob$ectives should enable the city to fund needed pro$ects through ta&es and
credit availability. %he process ob$ectives help the city achieve its customer
ob$ectives cost'effectively, and the learning and growth ob$ectives support the
process, financial, and customer ob$ectives.
2-52 .ells Fargo describes itself as follows in its company overview at
https688www.wellsfargo.com8downloads8pdf8about8wellsfargotoday.pdf (Fune
(J, )G(G6
/+G/
Chapter2: The Balanced Scorecard and Strategy Map
.ells Fargo M 4ompany is a diversified financial services company
providing ban-ing, insurance, investments, mortgage,
and consumer and commercial finance through more than (G,GGG stores
and (),GGG 2%:s and the ,nternet (wellsfargo.com and wachovia.com
across Corth 2merica and internationally.
Further, the website elaborates on .ells Fargos vision as follows6
.e want to satisfy all our customers financial needs, help them
succeed financially, be the premier provider of financial services in
every one of our mar-ets, and be -nown as one of 2mericas great
companies.
%he firm reported assets of L(.) trillion as of :arch *(, )G(G.
,n the (JJGs, .ells Fargo already had a reputation for innovation and cost
management (H.ells Fargo 3nline Financial "ervices (2,I Harvard !usiness
"chool 4ase PJ'(J@'(+?, p. ). %he following table provides e&amples of
measures, targets, and initiatives (actions described in .ells Fargos )GG)
2nnual =eport (pages (@')G, strategic initiatives, )GG? annual report (page
()E, and web pagefor e&ample,
(https688www.wellsfargo.com8com8commercialNban-ing8inde&, focusing on
the process perspective and learning and growth perspective 2dditional
measures and initiatives are also provided.
Mea&%re& Taret& I+!t!at!.e&
(( ,nvestments,
bro-erage, trust and
insurance (satisfy
customers financial
needs
5ercentage of
.ells Fargos
profit.
,ncrease profit
of these
segments as a
group to )>K
of .ells
Fargos profit.
2dd more private
ban-ers, license more
ban-ers to sell mutual
funds.
() ;oing for Hgr'eightIQ
(cross'sell
Cumber of
products per
customer
,ncrease
average to @.
3ffer pac-ages of
products that save
customers time and
money. For e&ample, the
/+(/
Atkinson, Solutions Manual t/a Management Accounting, 6E
Homebuyers 5ac-age
offers new mortgage
customers a pac-age of
ban-ing products that
can save customers up to
L*+G per year.
(* 4ommercial ban- of
choice
Cumber of active
online middle'
mar-et8large
corporate
customers1
number of active
online small
business
customers1
=etention rate
for high'value
customers
Have more
lead
relationships
than any other
competitor in
every mar-et
we serve.
(GGK
Foster customer'focused
culture and attitudes1
provide training to
relationship managers in
specific target industries
(e.g., service, beverage,
agribusiness, technology,
healthcare, government,
and environmental.
(+ 9oing it right for the
customer (be advocates
for customers
5roportion of
customers lost
per year
4ut proportion
in half (to ( in
(G.
Foster customer'focused
culture and attitudes.
(> !an-ing with a
mortgage
5ercent of
mortgage and
home'equity
customers in
.ells Fargos
ban-ing states
who ban- with
.ells Fargo, and
vice versa
(GGK cross'
selling between
ban-ing
customers and
mortgage8
home'equity
customers
,nitiative to migrate
mortgage and home'
equity customers to
become .ells Fargo
ban-ing customers.
(? .ells Fargo cards in
every .ells Fargo wallet
5ercent of ban-
customers who
have a credit
card or debit
card with .ells
Fargo
(GGK for each
type of card
4ross'selling initiative to
e&isting ban-ing
customers without .ells
Fargo credit card.
(E .hen, where, and
how (match when,
where, and how
customers want to be
served
=an-ing of
online services1
number of active
online customers
in various
P( ran-ing ,ntegrate delivery
channels to match when,
where, and how
customers want to be
served. "ome machines
/+)/
Chapter2: The Balanced Scorecard and Strategy Map
categories and web services have
"panish or 4hinese
language options.
(@ ,nformation'based
mar-eting (analy#e and
meet customers needs
5ercentage of
customers
receiving
personali#ed
mar-eting
messages
3ffer right
product at the
right time to
save customer
time and
money.
9eploy customer
relationship management
and data mining
application pac-ages.
(J !e our customers
payments processor
,nternet
payments
business revenue
and transaction
volume
((G 5eople as a
competitive advantage
5ercentage of
-ey $obs staffed
with people with
requisite s-ills,
-nowledge, and
training
9evelop, reward, and
recogni#e Hteam
membersI1 build an
inclusive wor-place.
9evelopment of a partial !alanced "corecard for one of .ells Fargos
segments appears in H.ells Fargo 3nline Financial "ervices (2,I Harvard
!usiness "chool 4ase PJ'(J@'(+?.
2-534hadwic-, ,nc.6 %he !alanced "corecard (2bridged
(
, Harvard !usiness
"chool 4ase (H!" 4ase 9-104-073.
S%2&ta+t!.e I&&%e& Ra!&e,
9ivision managers at 4hadwic- had complained to the 4ontroller about the
continual pressure to meet short'term financial ob$ectives. 2s a producer of
consumer products and pharmaceuticals, divisions at 4hadwic- engaged in
long'term pro$ects with uncertain payoffs. :anagers did not believe that
(
4opyright R (JJE by the 5resident and Fellows of Harvard 4ollege. Harvard !usiness "chool
teaching note >'(J@'G)J. %his teaching note was prepared by .. F. !runs, Fr. as an aid to
instructors in the classroom use of H4hadwic-, ,nc.6 %he !alanced "corecard (2bridged,I
Harvard !usiness "chool 4ase J'(G+'GE*. =eprinted by permission of Harvard !usiness "chool.
2dditional notes appear in square brac-ets.
/+*/
Atkinson, Solutions Manual t/a Management Accounting, 6E
using a single target, return on capital employed, lin-ed current actions and
efforts to longer term value creation.
%he corporate controller has recently learned about the !alanced "corecard.
He presented the concept to the president and chief operating officer who
then issued a call to all 4hadwic- division managers to develop a scorecard
for their divisions. %he divisional controller at the Corwal- division was given
the tas- of heading the effort to formulate scorecard measures for the division.
Pe,a$!"a* O23e"t!.e&
2 discussion of the !alanced "corecard concept can focus on three
ob$ectives. First, the discussion should address questions about why financial
measures are insufficient when they are used alone. "econd, the discussion
should question and review the concept of the !alanced "corecard and its
perspectives. %hird, students should practice e&ploring lin-ages between
ob$ectives and measures on scorecard perspectives so that they can see how
performance on one perspective supports or encourages achievement on
others.
SFor part (a, see the H"uggestions for 4lassroom AseI section. 2lso see
te&tboo- questions )'(, )'), )'*, )'+, )'E, )'@ and )'(), and e&ercises )'*?,
)'*J, and )'+?.T
S(b and (cT
O--$rt%+!t!e& #$r St%,e+t A+a*(&!&
2lthough the case is short, it provides a remar-able amount of information
about 4hadwic-, ,nc. and the Corwal- 9ivision. Asing this information,
students are able to relate ob$ectives and measures to scorecard perspectives.
%hey can construct a scorecard by associating ob$ectives and measures along
each perspective and then putting these together into a proposed scorecard.
"ome of the things they will consider include the following.
For the customer perspective. 4ustomer retention, mar-et share, number of
new products released, -ey relationships with distributors and final
customers, number of new applications suggested by customers, number of
new applications suggested by salespeople, customers profitshow much do
distributors earn, customer ran-ings through surveys.
For the process perspective list, consider the Svalue'creatingT cycle of the
/++/
Chapter2: The Balanced Scorecard and Strategy Map
business6
,dentify unmet customer needs UV e&plore compounds UV test
compounds in laboratory SandT in field UV gain government approval S
UV launch productT UV release mar-eting, production, and
distribution Smar-et, produce, and distribute productT.
:easures for the innovation part of the process perspective could include
number of products in development, number of products in laboratory testing,
number of products in test in field testing, number of products under review
for government approval, average time in each stage of development cycle,
the yield ratio moving from stage to stage in development cycle, number of
new products released, Sratio of new product sales first two years to
total development costs, and the following measures that could also be
included in the learning and growth perspective6 percentage of sales from new
applications, number of fundamentally new compounds relative to e&tensions
of e&isting applications, gross margin on new products, and number of
suggestions from distributors and from customers.T
:anufacturing efficiencies, cost, quality, and distribution are candidates for
the operations management processes. S%he measures might include
manufacturing cycle times, order lead times, on'time delivery percentages,
inventory availability, and percentage of stoc-outs.T
For the learning and growth perspective. 5ercentage of sales from new
applications, number of new applications compared to e&tensions of e&isting
applications, gross margin on new products, number of suggestions from
distributors, and number of suggestions from customers. S5ossible employee'
related measures include employee climate or attitude survey (relative to
feelings of empowerment and decision'ma-ing autonomy, number of
employees with requisite technical s-ills (including, perhaps, new bio'
technology s-ills, number of employees with requisite commercial s-ills, and
retention percentage of -ey employees.T
For the financial perspective. 9ollars and percent of spending on research and
development, dollars and percent of spending on mar-eting, waste, and scrap,
and return on capital employed (=34<
"tudents will put these ob$ectives and their proposed measures together in
different combinations. ,t is the difference between student proposals that
generates a useful and productive class discussion. S%he instructor can also
as- the students to develop the cause'and'effect lin-ages between the
measures in the different perspectives.T
/+>/
Atkinson, Solutions Manual t/a Management Accounting, 6E
S%e&t!$+& #$r C*a&&r$$/ U&e
2 productive way to begin the class discussion is to focus for a few minutes
on why financial measures are not sufficient to direct managers attention to
what needs to be done. ,n some ways the power of financial measures is
derived from the fact that managers can approach achievement by putting
different combinations of inputs and outputs together. %his assumes that
managers -now the relationships between the change in inputs and the
outputs that will occur. 2 typical failing often cited for financial measures is
that they encourage a short'term orientation and actions that may not be in the
best interest of customers or long'term performance. SFor e&ample, investing
in product research and development, or in developing new customer
relationships, or in re's-illing employees, is ris-y since the desired outcomes
do not necessarily follow from spending on the inputs. 4onsequently,
managers may choose to increase their measured short'term financial
performance by reducing spending on new product development and on
enhancing customer relationships, or by not investing in employee
development.T
!y adding nonfinancial measures, the !alanced "corecard provides leading
indicators of long'term financial wealth creation and directs attention to
specific areas consistent with improvement in long'term corporate
performance. 5roperly selected, those measures teach managers what is
e&pected of them and what is important for achievement of corporate goals.
,n constructing a balanced scorecard, the -ey is not to include all of the
perspectives and measures that are possible, but, rather, $ust the right number
to focus activities on what must be done by individuals in the organi#ation for
the organi#ation as a whole to succeed.
"tudents should share their views on general impressions of a balanced
scorecard. .hy is each perspective important and separate from the othersW
%hey should also consider the nature of lin-ages between perspectives of the
scorecard. 9uring this discussion, it is useful to have the scorecard
framewor- Sa current version appears in <&hibit )'? in the te&tboo-T in front
of the class on a S5ower5oint slideT, transparency, or chal-board.
S%he discussion can proceed in at least two ways. Bou can go perspective by
perspective, encouraging students to generate measures for each perspective.
%his will undoubtedly lead to far more than five measures per perspective.
2fter this brainstorming has been completed, indicate that while all the
measures might have merit for the company, it needs to focus on the critical
few. ;o through a voting process in which students are allowed to vote for, at
/+?/
Chapter2: The Balanced Scorecard and Strategy Map
most, three measures per perspective. Bou can ta-e the votes on the measures
quic-ly. 3r you can list all the measures on flip charts (one per perspective
and give each student three green dots per perspective. %hey can then wal- up
to each chart and vote by placing their green dots ne&t to their desired
measures. Bou will usually see that a consensus e&ists for the most important
* or + measures.T
S2lternatively, itT is useful to get two or three different student scorecards in
front of the class. %he differences are the sub$ect of classroom discussion. ,n
practice, companies e&perience differences not unli-e those that will emerge
during this discussion, and it is typical for the development of the scorecard
to ta-e some time. =obert Kaplan has estimated that the time to develop the
first balanced scorecard in most organi#ations is somewhere between + and ?
months, and imbedding the balanced scorecard as a central part of
management systems occurs over the ne&t (@ to )+ months that follow.
)
3nce the nature of a balanced scorecard has been discussed, the discussion
should turn to whether ;reenfield and .agner at the Corwal- 9ivision of
4hadwic-, ,nc. are off to a good start in developing a scorecard. ;reenfield
has quic-ly s-etched out a business strategy. ,t provides some direction in
building a balanced scorecard and is responsive to the needs of Corwal-. ,n
constructing a scorecard, managers at Corwal- and students in the classroom
e&ercise have to decide whether the focus of their measures should be on
activities or on outcomes. <ventually, they will have to consider whether the
measures are those that will generate commitment. SFinally, discussion can
turn to how a !alanced "corecard for 4hadwic- might differ from ones
developed in its divisions, such as Corwal-, and what resolution should occur
given potential conflicts between divisional scorecards and the corporate
scorecard.T
%his is not a class in which agreement needs to be total. ,t is sufficient
students see that the balanced scorecard is a comprehensive approach to
ob$ective setting and performance measurement. ,t succeeds where managers
are committed to it and are willing to devote the time and effort necessary to
create an effective scorecard and to implement the measures that are required.
.ithout that commitment, organi#ations are li-ely to revert to simpler
)
"ee evolution of the !"4 management system for Cational ,nsurance described in =. ".
Kaplan and 9. 5. Corton, HAsing the !alanced "corecard as a "trategic :anagement "ystem,I
&arard Business 'eie# (Fanuary'February (JJ?, pp. E>'@>, (H!= =eprint P J?(GE, or in
4hapter () (pp. )E)')J), H,mplementing a !alanced "corecard :anagement 5rogram,I in
Kaplan and Corton, The Balanced Scorecard: Translating Strategy into Action (!oston6 H!"
5ress, (JJ?.
/+E/
Atkinson, Solutions Manual t/a Management Accounting, 6E
performance measurement systems and occasional attention to problem areas
which develop on perspectives not included in the simple system.
2-549omestic 2uto 5arts, Harvard !usiness "chool 4ase (H!" 4ase 9-105-078.
%he case discussion can proceed perspective by perspective, wor-ing from
the Financial through the 4ustomer, 5rocess, and Dearning and ;rowth
ob$ectives. 2fter developing a strategy map of ob$ectives, encourage students
to generate measures for each ob$ective. ,f students generate a large number
of measures per perspective, students can vote to determine which the critical
few are. 2n e&ample of a completed !alanced "corecard and strategy map
follow.
/+@/
Chapter2: The Balanced Scorecard and Strategy Map
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Atkinson, Solutions Manual t/a Management Accounting, 6E
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Chapter2: The Balanced Scorecard and Strategy Map
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