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CHAPTER 9

THE BALANCED SCORECARD

TRUE/FALSE

1. With the emergence of the information era, companies need to create value from their
intangible assets as well as their physical and financial assets.
a. True
b. False
2. The primary purpose of the Balanced Scorecard is to obtain increased operating profits for
the current year.
a. True
b. False
3. To achieve success, it is important to set nonfinancial objectives as well as financial
objectives.
a. True
b. False
4. Different value propositions lead to different Balanced Scorecards.
a. True
b. False
5. A properly constructed Balanced Scorecard tells the story of a business units strategy.
a. True
b. False
6. Strategy is about selecting the set of activities in which the organization will excel to create
a sustainable difference in the marketplace.
a. True
b. False
7. The vision and mission statement set the general direction for the organization.
a. True
b. False
8. To create the Balanced Scorecard, first measures are identified and then translated into
objectives.
a. True
b. False
9. One valuable measure for the customer perspective of the Balanced Scorecard is market
share.
a. True
b. False
10. The learning and growth perspective of the Balanced Scorecard evaluates the profitability
of the strategy.
a. True
b. False

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11. Employee satisfaction is a measure of the internal business perspective of the Balanced
Scorecard.
a. True
b. False

12. Success in the customer perspective of the Balanced Scorecard should lead to improvement
in the financial perspective.
a. True
b. False

13. Key performance indicator scorecards that dont reflect a companys strategy can be just as
effective as the Balanced Scorecard.
a. True
b. False

14. Key performance indicator cards will lead to local but not to global or strategic
improvements.
a. True
b. False

15. Nonprofit and government organizations cannot use the Balanced Scorecard since financial
performance is not their primary measurement.
a. True
b. False

16. Mission, rather than the financial perspective, drives the strategy of nonprofit and
government organizations.
a. True
b. False

17. Balanced Scorecard measurements create focus for the future.


a. True
b. False

18. CEOs and senior leadership can effectively implement strategy by themselves.
a. True
b. False

19. Poor scorecard design, rather than a poor organizational process, is the biggest threat to
successful Balanced Scorecard implementation.
a. True
b. False

20. If a Balanced Scorecard implementation team is really committed, they can initially
develop the perfect scorecard.
a. True
b. False

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MULTIPLE CHOICE

21. Moving from the industrial age to the information age, companies need to:
a. focus on the management of financial assets and liabilities
b. make prudent investment in physical assets
c. create value from their intangible assets as well as their physical and financial assets
d. present an expanded section of intangible assets on their balance sheets

22. Many intangible assets:


a. do not appear on the balance sheet since it is difficult to place a reliable financial
value on them
b. should be evaluated with ROI and other performance measures
c. can be measured and managed with current financial control systems
d. are unimportant because they have no physical substance

23. Intangible assets that are currently reported on the balance sheet include:
a. loyal and profitable customer relations
b. innovative products and services
c. employee skills and motivation
d. the cost of a patent giving exclusive rights to a process

24. The saying what gets measured gets done refers to measuring performance:
a. so that appropriate disciplinary actions can be taken
b. to ensure that employees perform equally in all dimensions of their jobs
c. so that essential tasks get accomplished
d. to ensure that the ethical code of conduct is also being enforced

25. The use of multiple-performance measures would be expected to lead to all of the
following EXCEPT:
a. more extensive use of financial measures such as cost and profit
b. employees recognizing the various dimensions of their work
c. the use of new performance measures such as customer satisfaction and employee
morale
d. group-level performance measures

26. Balanced Scorecard objectives are in balance when:


a. debits equal credits
b. financial performance measurements are less than the majority of measurements
c. the measurements are fair
d. the measurements reflect an improvement over the previous year

27. The Balanced Scorecard is said to be balanced because it measures:


a. short-term and long-term objectives
b. financial and nonfinancial objectives
c. internal and external objectives
d. All of the above are correct.

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28. __________ translate(s) an organizations mission, vision, and strategy into a
comprehensive set of performance measures that provide the framework for implementing
its strategy.
a. Critical success factors
b. The value proposition
c. Objectives
d. The Balanced Scorecard

29. Which of the following statements is NOT true of a good Balanced Scorecard?
a. It tells the story of a companys strategy by articulating a sequence of cause-and-
effect relationships.
b. It helps to communicate corporate strategy to all members of the organization.
c. It identifies all measures, whether significant or small, that help to implement
strategy.
d. It uses nonfinancial measures to serve as leading indicators of future financial
performance.

30. Which of the following statements is NOT true of the Balanced Scorecard?
a. Different strategies call for different scorecards.
b. Successful implementation requires commitment and leadership from top
management.
c. Only objective financial measures should be used, and subjective nonfinancial
measures should be avoided.
d. Cause-and-effect linkages may not be precise and should evolve over time.

31. A strategy map provides direct cause-and-effect linkages between the:


a. financial perspective and the learning and growth perspective
b. financial perspective and the internal perspective
c. customer perspective and the internal perspective
d. customer perspective and the learning and growth perspective

32. A chain of cause-and-effect relationships that appropriately link the four balanced
scorecard perspectives is:
a. a high return on investment causes customer loyalty that results in skilled production
workers that improve process quality
b. skilled production workers help to produce process quality that results in customer
loyalty that helps to increase return on investment
c. customer loyalty results in a high return on investment that results in the ability to
attract skilled production workers that improve process quality
d. improved process quality results in a high return on investment that causes customer
loyalty that results in the ability to attract skilled production workers

33. If a financial measure were growing revenues, then a driver from the customer perspective
would MOST likely be:
a. cross-selling other company products
b. trained employees
c. reduced cycle times
d. innovative processes

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34. If a customer measure were customer loyalty, then a driver from the internal perspective
would MOST likely be:
a. implementing cutting-edge technology
b. repeat sales
c. high-quality production processes
d. increased profits

35. If an internal measure were shorter cycle times, then a driver from the learning and growth
perspective would MOST likely be to:
a. lower cost of acquiring materials
b. achieve just-in-time supplier capability
c. offer a complete product line
d. expand product offerings

36. Which of the following statements is true?


a. Vision and mission set the general direction for the organization.
b. Strategy is a concise, internally-focused statement of how the organization expects to
complete and deliver value to customers.
c. Mission is a concise, externally-focused statement that expresses how the
organization wants to be perceived by the external world.
d. Vision is about selecting the set of activities to create a sustainable difference in the
marketplace.

37. The purpose of the Balanced Scorecard is BEST described as helping an organization:
a. develop customer relations
b. mobilize employee skills for continuous improvements in processing capabilities,
quality, and response times
c. introduce innovative products and services desired by target customers
d. translate an organizations mission, vision, and strategy into a set of performance
measures that help to implement the strategy

38. The FIRST step to successful Balanced Scorecard implementation is clarifying:


a. the organizations mission, vision, and strategy
b. who is the target customer
c. the owners expectations about the return on investment
d. the objectives of all four balanced scorecard measurement perspectives

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THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 39 AND 40.
Stewart Corporation plans to grow by offering a sound system, the SS3000, which is superior
and unique from the competition. Stewart believes that putting additional resources into R&D
and staying ahead of the competition with technological innovations is critical to implementing
its strategy.

39. Stewarts value proposition is:


a. product innovation and leadership
b. best total cost
c. complete customer solutions
d. employees recognizing customer needs

40. To further company strategy, measures on the Balanced Scorecard would MOST likely
include:
a. shorter cycle times
b. manufacturing quality
c. yield
d. lowest cost supplier

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 41 AND 42.


Riter Corporation manufactures water toys. It plans to grow by producing high-quality water toys
at a low cost that are delivered in a timely manner. There are a number of other manufacturers
who produce similar water toys. Riter believes that continuously improving its manufacturing
processes and having satisfied employees are critical to implementing its strategy.

41. Riters value proposition is:


a. product innovation and leadership
b. complete customer solutions
c. employees recognizing customer needs
d. best total cost

42. To further company strategy, measures on the balanced scorecard would MOST likely
include:
a. number of process improvements
b. first to market
c. longer cycle times
d. number of new products

43. __________ are (is) best stated as action phrases that articulate what the organization hopes
to accomplish.
a. Measures
b. The value proposition
c. Objectives
d. The balanced scorecard

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44. __________ describe(s) specifically how success in achieving objectives is determined.
a. Measures
b. The value proposition
c. Targets
d. The Balanced Scorecard

45. __________ establish the level of performance or rate of improvement required for a
measure.
a. Critical success factors
b. The value proposition
c. The Balanced Scorecard
d. Targets

46. Identify the BEST description below of the Balanced Scorecards financial perspective. To
achieve our firms vision and strategy:
a. How can we obtain greater profits for the current year?
b. How should we appear to our shareholders?
c. How will we obtain continuous improvements?
d. How can we secure greater customer satisfaction?

47. Identify the BEST description of the Balanced Scorecards internal perspective. To achieve
our firms vision and strategy:
a. How do we lower costs?
b. How do we motivate employees?
c. How can we obtain greater profits?
d. What must we excel at to satisfy our customers and shareholders?

48. All of the following questions relate to the Balanced Scorecards learning and growth
perspective EXCEPT:
a. How do we achieve greater employee satisfaction?
b. How do we increase profits and return on capital?
c. How do we provide information systems with updated technology?
d. How will we sustain our ability to change and improve?

49. Identify the BEST description of the Balanced Scorecards customer perspective. To
achieve our firms vision and strategy:
a. How do we obtain a greater market share?
b. What do our noncustomers consider to be most important?
c. What new processes do our customers value?
d. How do we obtain outcomes that meet or exceed customer expectations?

50. The return-on-investment ratio is an example of a Balanced Scorecard measure of the:


a. internal perspective
b. customer perspective
c. learning and growth perspective
d. financial perspective

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51. The number of complaints about a product is an example of a Balanced Scorecard measure
of the:
a. internal perspective
b. customer perspective
c. learning and growth perspective
d. financial perspective

52. Manufacturing cycle efficiency is an example of a Balanced Scorecard measure of the:


a. internal perspective
b. customer perspective
c. learning and growth perspective
d. financial perspective

53. Surveys of employee satisfaction is an example of a Balanced Scorecard measure of the:


a. internal perspective
b. customer perspective
c. learning and growth perspective
d. financial perspective

54. Measures of the Balanced Scorecards customer perspective include:


a. market share
b. number of on-time deliveries
c. number of process improvements
d. revenue growth

55. The following statements are true regarding the financial perspective EXCEPT:
a. Financial performance can be improved through two basic approaches revenue
growth and productivity.
b. Financial objectives typically relate to profitability.
c. A financial measure might be net income.
d. A financial objective might be to offer low prices to satisfy and retain price-sensitive
customers.

56. The following statements are true regarding the customer perspective EXCEPT:
a. Customer satisfaction leads to customer retention
b. A customer target might be to reduce cash expenses by 3%.
c. Customer retention generally leads to increased customer profitability
d. Success in the customer perspective should lead to improvement in the financial
perspective.

57. It is useful to think of the internal business processes perspective of the Balanced Scorecard
within four groupings that include all of the following EXCEPT:
a. operating processes
b. customer satisfaction processes
c. innovation processes
d. regulatory and social processes

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58. Managers for the learning and growth perspective of the Balanced Scorecard must invest in
all of the following EXCEPT:
a. reducing development cycle times
b. improving the skills of their employees
c. enhancing information technology and systems
d. aligning people to the companys objectives

59. Key performance indicator cards are scorecards that are developed:
a. with only a single measure for each of the Balanced Scorecard perspectives
b. without working from organizational strategy
c. to be more effective than the balanced scorecard
d. to define the compensation system for executives

60. Key performance indicator cards:


a. lead to local but not global or strategic improvements
b. include only financial measures
c. are organized into ten perspectives
d. measure only a single Balanced Scorecard perspective

61. Nonprofit and government organizations:


a. cannot use the Balanced Scorecard because they have no customers
b. cannot use the Balanced Scorecard because they have no financial objective
c. may use the Balanced Scorecard by adding a social impact perspective to the top of
the strategy map
d. may use the Balanced Scorecard by not linking it to mission and strategy

62. Success for nonprofit and government organizations is measured primarily by:
a. their financial performance
b. their effectiveness in providing benefits to constituents
c. whether they can raise money
d. whether they can balance their budgets

63. To effectively use the Balanced Scorecard, nonprofit and government organizations:
a. must identify a clear strategy with outcomes and initiatives identified
b. must identify an extended list of planned programs
c. must shift thinking to what it plans to do, not what it plans to accomplish
d. These organizations cannot effectively use the Balanced Scorecard.

64. Nonprofit and government organizations:


a. may identify the customer as the funder (taxpayer/donor) or the recipient of the
services
b. use the Balanced Scorecard to communicate mission and strategy more clearly to
employees
c. use the mission rather than shareholder objectives to drive strategy
d. All of the above are correct.

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65. Measurement for the Balanced Scorecard:
a. creates focus for the future
b. communicates an important message to all employees
c. focuses the entire organization on strategic implementation
d. All of the above are correct.

66. Translating the strategy to operational terms:


a. is an analytical exercise
b. results in the benefit of having the end product of the scorecard
c. often results in team building and commitment to the new strategy
d. All of the above are correct.

67. Which of the following statements regarding aligning the organization to strategy is true?
a. Measures of individual business units must add up to the corporate measure, just like
aggregating financial measures.
b. Support functions and shared units are exempt from the Balanced Scorecard process
since they have no external customer.
c. High-level strategic objectives on the corporate scorecard guide the development of
Balanced Scorecards for the decentralized operating units.
d. All of the above are correct.

68. Which of the following statements regarding strategy is correct?


a. All employees are challenged to develop team or individual objectives that support
corporate objectives.
b. CEOs and senior leadership can implement strategy by themselves.
c. It is safe to assume that the workforce is incapable of understanding these concepts
and ideas.
d. All of the above are correct.

69. To become a strategy-focused organization:


a. monthly management meetings should focus on variances between performance and
what was planned
b. the budgeting process must protect long-term initiatives from the pressures to deliver
short-term performance
c. scorecards and priorities should be updated annually when preparing next years
budget
d. All of the above are correct.

70. To mobilize change, leadership should:


a. actively involve the executive team
b. continually focus on the change initiatives
c. use teamwork to coordinate changes
d. All of the above are correct.

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71. The greatest threat to successful Balanced Scorecard implementation is:
a. poor scorecard design
b. a poor organizational process for development and implementation
c. too few scorecard measures
d. too many financial perspective measures

72. Senior management, rather than middle management, must be actively involved in the
Balanced Scorecard project because:
a. middle management lacks understanding of the strategy for the entire organization
b. middle management lacks authorization to make decisions
c. senior management needs to build an emotional commitment to the strategy
d. All of the above are correct.

73. Successful implementation of the Balanced Scorecard:


a. may be completed by one important member of the senior management team, such as
the chief financial officer
b. involves everyone in the organization knowing and understanding the strategy
c. should not begin until data are collected for all scorecard measures
d. starts with a process to acquire a new data collection system

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EXERCISE/PROBLEM

74. Draw a strategy map that identifies the cause-and-effect linkages of the following
objectives:

Process quality
Customer loyalty
Skilled production workers
Return on investment

75. Draw a strategy map that identifies the cause-and-effect linkages of the following
objectives:

Market share
Strategic technology availability
Grow revenues
Design and develop new products

76. Buck Corporation plans to grow by offering a computer monitor, the CM3000, which is
superior and unique from the competition. Buck believes that putting additional resources
into R&D and staying ahead of the competition with technological innovations are critical
to implementing its strategy.

Required:
a. Is Bucks strategy one of product innovation and leadership, best total cost, or
complete customer solutions? Briefly explain.

Identify at least one key element that you would expect to see included in the Balanced
Scorecard:

b. for the financial perspective;


c. for the customer perspective;
d. for the internal perspective; and
e. for the learning and growth perspective.

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77. Maloney Corporation manufactures plastic water bottles. It plans to grow by producing
high-quality water bottles at a low cost that are delivered in a timely manner. There are a
number of other manufacturers who produce similar water bottles. Maloney believes that
continuously improving its manufacturing processes and having satisfied employees are
critical to implementing its strategy.

Required:
a. Is Maloneys strategy one of product innovation and leadership, best total cost, or
complete customer solutions? Briefly explain.

Identify at least one key element that you would expect to see included in the Balanced
Scorecard:

b. for the financial perspective;


c. for the customer perspective;
d. for the internal perspective; and
e. for the learning and growth perspective.

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CRITICAL THINKING/ESSAY

78. Give at least two examples of knowledge-based intangible assets. Are knowledge-based
intangible assets critical for success? Explain.

79. What are the four key perspectives in the Balanced Scorecard? In a strategy map, what are
the cause-and effect linkages among these four perspectives?

80. What is the primary purpose of the Balanced Scorecard?

81. What is a key performance indicator scorecard and how does it differ from the Balanced
Scorecard? Which is more effective?

82. How does a Balanced Scorecard for nonprofit and government agencies differ from a for-
profit scorecard?

83. Describe at least two of the five principles that assist in making the transition to a strategy-
focused organization.

84. What is the key ingredient to successful Balanced Scorecard implementation? Explain.

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CHAPTER 9
THE BALANCED SCORECARD

TRUE/FALSE MULTIPLE CHOICE

LO1 1. a LO1 21. c LO4 51. b


LO2 2. b LO1 22. a LO4 52. a
LO2 3. a LO1 23. d LO4 53. c
LO2 4. a LO1 24. c LO4 54. a
LO3 5. a LO1 25. a LO4 55. d

LO3 6. a LO2 26. b LO4 56. b


LO3 7. a LO2 27. d LO4 57. b
LO4 8. b LO2 28. d LO4 58. a
LO4 9. a LO2 29. c LO5 59. b
LO4 10. b LO2 30. c LO5 60. a
LO6 61. c
LO4 11. b LO2 31. c LO6 62. b
LO4 12. a LO2 32. b LO6 63. a
LO5 13. b LO2 33. a LO6 64. d
LO5 14. a LO2 34. c LO7 65. d
LO6 15. b LO2 35. b
LO7 66. d
LO6 16. a LO3 36. a LO7 67. c
LO7 17. a LO3 37. d LO7 68. a
LO7 18. b LO3 38. a LO7 69. b
LO8 19. b LO3 39. a LO7 70. d
LO8 20. b LO3 40. b
LO8 71. b
LO3 41. d LO8 72. d
LO3 42. a LO8 73. b
LO4 43. c
LO4 44. a
LO4 45. d

LO4 46. b
LO4 47. d
LO4 48. b
LO4 49. d
LO4 50. d

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EXERCISE/PROBLEM

LO2
74. Skilled production workers Process quality Customer loyalty Return on
investment

LO2
75. Strategic technology availability Design and develop new products Market share
Grow revenues

LO2,3,4
76. Solution:
a. Bucks strategy is one of product innovation and leadership because the company
plans to offer a product that is superior and unique from the competition.

The companys Balanced Scorecard should describe the product innovation and leadership
strategy. Key elements should include:

b. operating income growth from charging higher margins for CM3000 for the financial
perspective;
c. market share in the high-end monitor market, customer satisfaction, and new
customers for the customer perspective;
d. manufacturing quality, new product features added, and order delivery time for the
internal business perspective; and
e. development time for new features, improvements in manufacturing technologies,
employee education and skill levels, and employee satisfaction for the learning and
growth perspective.

LO2,3,4
77. Solution:
a. Maloneys strategy is one of best total cost because there are a number of other
manufacturers who produce similar water bottles. To succeed, Maloney will have to
achieve lower costs relative to competitors through productivity and efficiency
improvements, elimination of waste, and tight cost controls.

The companys Balanced Scorecard should describe the best total cost strategy. Key
elements should include:

b. operating income growth from productivity gains and growth for the financial
perspective;
c. growth in market share, new customers, customer responsiveness, and customer
satisfaction for the customer perspective;
d. yield, time to complete customer jobs, and order delivery time for the internal
business perspective; and
e. number of process improvements, hours of employee training, and employee
satisfaction for the learning and growth perspective.

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CRITICAL THINKING/ESSAY

LO1
78. Give at least two examples of knowledge-based intangible assets. Are knowledge-based
intangible assets critical for success? Explain.
Solution: Yes, business has moved from the industrial age into the information age where
knowledge-based intangible assets create value and are critical for success. Examples
include loyal and profitable customer relations, high-quality processes, innovative products
and services, employee skills and motivation, and database and information systems.

LO2
79. What are the four key perspectives in the Balanced Scorecard? In a strategy map, what are
the cause-and effect linkages among these four perspectives?
Solution: The four key perspectives in the Balanced Scorecard are:
a. the financial perspective;
b. the customer perspective;
c. the internal perspective; and
d. the learning and growth perspective.

In a strategy map, the learning and growth perspective causes improvement in the internal
business processes perspective, which causes improvement in the customer perspective,
which helps to attain the objectives of the financial perspective.

Learning and growth Internal Customer Financial perspectives

LO3
80. What is the primary purpose of the Balanced Scorecard?
Solution: The primary purpose of the Balanced Scorecard is to translate an organizations
vision, mission, and strategy into a set of performance measures that put that strategy into
action with clearly-stated objectives, measures, targets, and initiatives.

LO5
81. What is a key performance indicator scorecard and how does it differ from the Balanced
Scorecard? Which is more effective?
Solution: The Balanced Scorecard translates an organizations strategy into a set of
performance measures that put that strategy into action with clearly-stated objectives,
whereas the key performance indicator scorecard does not link the performance indicators
to a strategy. The Balanced Scorecard is more effective because it links objectives to
strategy.

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LO6
82. How does a Balanced Scorecard for nonprofit and government agencies differ from a for-
profit scorecard?
Solution: The organizations mission drives the nonprofit and government agency
Balanced Scorecard, whereas the financial perspective objectives drive the for-profit
Balanced Scorecard.

The for-profit must satisfy customers, while the nonprofit and government agency must
satisfy funders and recipients.

LO7
83. Describe at least two of the five principles that assist in making the transition to a strategy-
focused organization.
Solution: Students should list at least two of the following principles:
1. translate the strategy to operational terms;
2. align the organization to the strategy;
3. make strategy everyones job;
4. make strategy a continual process; and
5. mobilize leadership for change

LO8
84. What is the key ingredient to successful Balanced Scorecard implementation? Explain.
Solution: The key ingredient to successful Balanced Scorecard implementation is to
actively involve senior management.

Only senior management understands the strategy of the whole organization and is
empowered to make the necessary decisions. Their involvement also builds emotional
commitment that is as important as their knowledge and authority.

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