Managerial Accounting Project 1 Balance d Scoreca rd focuses on Wells Fargo Bank. Balanced scorecard is a strategic planning and management system. The financial perspective addresses how shareholders view the firm. The Internal Business Process Perspective refers to internal business processes.
Managerial Accounting Project 1 Balance d Scoreca rd focuses on Wells Fargo Bank. Balanced scorecard is a strategic planning and management system. The financial perspective addresses how shareholders view the firm. The Internal Business Process Perspective refers to internal business processes.
Managerial Accounting Project 1 Balance d Scoreca rd focuses on Wells Fargo Bank. Balanced scorecard is a strategic planning and management system. The financial perspective addresses how shareholders view the firm. The Internal Business Process Perspective refers to internal business processes.
Section 1 Brief Description of the organization and its
Industry The company we are looking into in this project is Wells Fargo Bank. Being the fourth largest bank in the US by assets and the second largest bank by market capitalization, Wells Fargo & Company is an American multinational diversified financial services company with operations around the world.
Section 2 Description of Balanced Scorecard
2.1 - Background Information The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align and keep track of the execution of activities by staff within their control and monitor the consequences arising from these actions. As a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics, Drs. Robert Kaplan (Harvard Business School) and David Norton proposed the adoption of balanced scorecard so as to give managers and executives a more 'balanced' view when evaluating an organizations operational performance. 2.2 Four Perspectives of Balanced Scorecard 1
Managerial Accounting Project 1 Balance
d Scoreca rd The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:
The Financial Perspective
The financial perspective addresses the question of how shareholders view the firm and which financial goals are desired from the shareholders perspective. Besides including timely and accurate funding data, this perspective also addresses a need to include additional financial-related data, such as risk assessment and cost-benefit analysis.
The Customer Perspective
With increasing realization of the importance of customer focus and customer satisfaction in any business, the customer perspective addresses the question on how well the firm is serving its targeted customers and most importantly on how the firm is viewed by its customers from various perspectives. For instance, a customer may want to find out how responsive the supply chain is, so they focus on ontime delivery of goods they have purchased. Internal Business Process Perspective
The
Managerial Accounting Project 1 Balance
d Scoreca rd This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and more importantly, to assess which processes are critical for satisfying customers and shareholders so that the company has to concentrate its efforts to excel. For instance, if the company wants to observe an increase in design efficiency, it can look into the engineering processes of various machineries.
The Learning & Growth Perspective
This perspective addresses the question of how the firm must learn, improve and innovate to meet its objectives, including focusing efforts on employee training and corporate cultural attitudes related to both individual and corporate self-improvement. Other than this, the learning & growth perspective also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed.
2.3 Objectives, Measures, Targets, and Initiatives
Before looking into the four perspectives in Balanced Scorecard, it is indeed
Managerial Accounting Project 1 Balance
d Scoreca rd crucial for a firm to define the four supplementary aspects, known as strategic objectives, measures, targets, initiatives. For strategic objectives, we refer to what strategy is to achieve in one particular perspective. For measures, we refer to how progress for that particular perspective objective will be measured. For targets, we refer to target value sought for each measure. For initiative, we refer to what will be done to facilitate the reaching of the target. 2.4 Case Study: Wells Fargo Bank Since 1990s, Wells Fargo Bank has adopted Balanced Scorecard reduce operating cost when serving each customer. We may use the three out of four perspectives of Balanced Scorecard to see how well it is applied in practice to evaluate ordinary business operations. The first dimension is the financial Perspective. Since the objective is to reduce cost per customer, Wells Fargo Bank thus focuses on measuring and monitoring cost per transaction, cost per service call, call length, number of service call. The second dimension is the customer perspective. Wells Fargo Bank 4
Managerial Accounting Project 1 Balance
d Scoreca rd believes that making traditional sales more convenient is also one of the ways to effectively reduce cost per customer. So, the bank focuses on monitoring the transaction time as well as the percentage of transactions / services performed online among all transactions and services. And lastly, it is the Business Process Perspective. In order to effectively the operating cost of serving customers, Wells Fargo Bank decides to automate the call centre, and the bank works by measuring percentage of sales that are automated among all services. Furthermore, the bank keeps monitoring the number of customer representatives available from time to time to make sure that their customers are well approached and taken care of in the whole selling process.
Section 3 Discussion of Advantages of Balanced Scorecard
By so far as we have discussed, we know that balanced scorecard is a means of assessing overall business performance. From this, we may generalize four major advantages of this practice. 1. Balance Rather than focusing on a specific area of performance---usually financial---business leaders learn to consider the full spectrum of business
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d Scoreca rd performance. In addition to financial measures, they look at measures of customer experience, employee development and retention and process efficiency. This prevents the problems that may arise when performance in one area is improved simply by sacrificing another area, which renders the whole company unsustainable as a result. 2. Employee Focus By incorporating balanced scorecard, business executives can gain insights into the employee experience. Evaluating information about employee satisfaction, such as assessments of the success of employee development and succession planning efforts is crucial as this will ultimately affect employee retention which in turn determines business productivity and profitability. 3. Proactive rather than Reactive The balanced scorecard methodology helps leaders move from reactive mode to proactive mode. A balanced scorecard does not only tell various output or result metrics, but it also provides insight about ongoing performance and drivers that influence results. So, managers can always be
Managerial Accounting Project 1 Balance
d Scoreca rd informed of the performance levels of the operations in a timely manner.
Section 4 Evaluation of the potential problems in practice
Of course, there are a number of problems that may turn up when implementing Balanced Scorecard. 1. High Initial Cost Implementing a balanced scorecard system (or any new system) can cost a lot of money in training time and additional dollars for any consultants that are needed during the process. Add to this, the company may also incur cost of a cost for the software, plus software license expenses, and testing and installation of the software. All these costs may pose huge financial burden on companies. 2. Updates and maintenance There are many different elements that go into creating a balanced scorecard. Once the scorecard is created, the nature of your business can change over time, requiring you to change the scorecard. There are software programs that can manage the scorecard upkeep, but choosing the wrong one may affect a company's ability to evaluate employees. Companies may have to put in the time to create and change the
Managerial Accounting Project 1 Balance
d Scoreca rd scorecard from time to time. 3. Poor Linkage Much often, companies may come across with situations where strategies and goals are not linked to or say, have little relationship with performance drivers, measures, initiatives, and individual goals and incentives. So, the Balanced Scorecard may fail to keep track of the execution of activities by staff within their control and monitor the consequences arising from these actions.
Section 5 Conclusions + Recommendations
To conclude, Balanced Scorecard can be used to determine whether the set goals have been met by adding non-financial metrics to traditional financial metrics to give a well-rounded view of the performance in an organization. Still, there are some several recommendations that companies may adopt to apply Balanced Scorecard to its fullest extent. First of all, companies adopting Balanced Scorecard should ensure good communications among employees so that enables everyone to contribute to dynamic changes to meet customer requirements. Managements commitment is vital to the success in the implementation of Balanced Scorecard as well. Senior executive should adopt performance-
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d Scoreca rd based management principles with clear cause-effect relationship so that employees can have a more comprehensive idea on how business objectives can be achieved by various sets of strategies.
Figure 2 Four Supplementary Aspects Objectives, Measures, Targets,
Initiatives
References 10
Managerial Accounting Project 1 Balance
d Scoreca rd 1. Actionable Strategies. (2009). The Balanced Scorecard Background Discussion. Retrieved March 23, 2009, from http://www.actionablestrategies.com/resources/Balanced+Scorecard.pdf 2. Kaplan R.S. & Norton D.P. (2004).Strategy Maps: Converting intangible assets into tangible outcomes. Cambridge: Harvard Business School Press. 3. Makhijani N. (2008). Creating a balanced scorecard for financial services. The OTI thought Leadership Series, 1(4), 1-12 4. Niven, Paul R. (2006) "Balanced Scorecard. Step-by-step. Maximizing Performance and Maintaining Results". 5. Norreklit H. (2000), The balance on the balanced scorecard - a critical analysis ofsome of its assumptions, Management Accounting Research, 11, pp. 65-88.
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