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(governmenl Austrolion corporote ond non-corporote meosure performonce ,- for-profit sector) orgonisotions : ved ln recent yeors. While, in the post, finonciol -^once meosurement wos the focus, orgonisotions ore performonce -.oected to use o more comprehensive set of ,,'es, comprising both finonciol ond nonJinonciol performonce of the . -'es, to evoluote ond monitor ihe - sotion ond i1s divisions, business segmenls' ond indlviduol of ves ond monogers. A formolly derived combinotion to express o couse-ond-effect relotionship ..lres, structured :en specific meosures ond overoll orgonisotlonol .,'ives,'is commonly referred to os o bolonced scorecord . rnced scorecord moy be prepored ot the corporote' to , rnol ond/or lndivlduol level ond is themed occording finonciol, cuslomer, internol business perspectives:

r,

performonce' whole ond the link between individuol executive As on exomple, Oontos reword syslems ond incentives. doto' communicoles to its slokeholders vio bolonced scorecord plons ond rewords for senior execuJives As porl of ond incentive ond monogers' its shorlierm incentive plon for senior execullves o set of finonciol ond non-finonciol meosures Qontos outlines

(see figure 1B.l clossifled withln o bolonced scorecord {romework

1o toicl The flnoncicl mecsure (PBT) contribuies 65 per cenl the rncentives for executives cnd senior monogers, vihlle a'r +ne unlf non-finonclol meosures

combinotron of 'reoi-esenlec r'purcir-oily cosl improvemenl, custon'rer servlce, operci cro 35 per cent io iotoi ond people/sofety meosuresl contrlbutes

incentivesforexecutivesondseniormonogersThelorgetsfor
oll scorecord meosures ore sel onnuolly by the boord on ihese Executives ond senior monogers being evoluoted will slrlve to ensure the torgets bolonced scorecord meosures

<ey

: well evoluoiing ond monitoring performonce' bolonced group :cord doto con be used to communicote to o wider of the orgonisotion os o .'rkeholders oboul the performonce

,:ss, ond leorning ond growth

oremet.Thotis,theywillensuretheirsubordinoles'ccllvilies
evoluote ore oligned with the meosures ond monitor ond occordingly The couse-ond-effect relotionships perforrionce ossume hypolhesised in this corporote bolonced scorecord

The bolonced scorecord ond slrolegy

mcps

695

thot Qqntos' profits will be increosed by meeting customer service expeclolions ond improving operoting e{{icienctes ond punctuolity requirements while operoting oi moximum copocily with o full contingenl of sloff ond low downlime due to stoff
injury.r

9ss*;** fr*ce this sc*ne se{9ar {e;! tr**k 9*r in 9i:* eh*p?*r inc':3e w The {ormql use o{ {inonciol qnd nonJinonciol meosures. m A bolonced scorecord should be odopted 1o the specific

environment of the orgonisotion. w Incentive plons ore commonly linked to bolonced scoreco.c performonce.

Finonciol

Profit before tox

(PBT)

ond group executives, group PBT is used; for business unit monogers, relevont business unit PBT is used.
For corporole

Unit cosl

Net expendilure + Group

Foctors such os fuel process voriotions ond restructuring cosls ore

improvemenl Customer
service

ovoiloble seot kilomelres Qontos performonce in Skylrox World Airline Awords Meosured ogoinst onJime deporture ond orrivol torgets Lost-iime injury (LTI) rote qnd serious injury role (SIR)

removed from the cqlculotion.

Skytrox Wodd Airline Awqrds is o globol, independent survey of

qirline stondqrds.
For corporole

Operotionol punctuolily People/sofety

ond group execulives, o combined result is used; for business unit monogers, the relevont business unil meqsure is used

Torgets ot the group level qre improving SIR by 1 9% for lhe 2008-09 yeor.

the

LTI

raleby 24ok ond the

x Figurc 1&.3 Bolonced scorecord meosures for Qontos

re
Understcnd how finsnci*l cnd non-finqncicl m*csures cre used tra evaluate orgoniscticnal performlnce

ffi*msu*nmg *r6*mEmmf$*m* pmn*$"*"ffi#ffifl#

of strategy in chapcer 12. From this discussion) we knou' rha: wharever the organisarional strategy might be, it should be reflected in the manaE.menr accounting and control system toois in place in the organisation. We will explt-r: rhe specifics of balanced scorecards and strategy maps in subsequent sections. For rh: moment) we need to escablish the importance of the links between strategy, strareg.' maps and balanced scorecards in measuring performance. \[/e know from chapter 1l that strategy sets rhe future direction of the organisation. Strategy maps take the orga;:isation's strategy, develop strategic themes linked to that strategy, and develop strates; objecrives wirhin each oF rhe four perspectives commonly used in the balance scorecari The balanced scorecard details the specific performance metrics that reflect che strategr;
We explored the concept

objectives. Figure 18.2 illustrates these relationships'

x N:lgure 3&.9 Slrotegy,

slrolegy mops ond the bolonced scorecord
\X/e

now explore strategy maps and balanced scorecards in more detail.

69

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and Norton published their straregy maps came ro prominence in 200'{ u'hen Kaplan strategy lo the measures bookVt atrg Maps, which focused on linking organisational figure 18.2, in some ways' strategy developed 6. tlr. b"lrt'tced scorecard. As illustrated in t"."-e the link berween strategy and the balanced scorecard' In Kaplan and

-rp,

Norton's own words:

a A strategl' map provides a visual representation of the strategy lt provides

single-pageui"*ofho*objectivesinthefourperspecdvesrntegrateandconrbine

toguidethesrrategy.Itillustratesthecause-and-effectrelationshipsthatlink
desired outcomes

il th. ..,rto-er and

fir-rancial perspectives

to

outstand'ing

perfornlanceincriticalinterrralprocesses-operations.management)custonef management; and in innovation and regulatory/social processes'2

. . .

The focus of the strategy map should be to: balanced scorecard provide a iink beru,een"th" org".isation's strategy and the developed from the i-h".. appropriate) convey the key strategic themes organisalion's strategY four balanced scorecard .o"rrrr.y rhe organisai.-ior'r', ,rr"r.gic objecdves in the p..rp..tiu.r. il't"r. ,r.","gic objectives should reflect hypothesised cause'then' statements' and-effect relationships represented by a series of if' and

Forexample,thestrategi.ob;..ti.,",developedforthelearningandgrorvth ,if' r.r,. l-pro,r" employee skills) should produce outcomes in the perspecd;e (say, lead times) and internal business process p".rp"..i r. (say, 'then' $'e $'i11 reduce rve tvi1l improve customer satisfaction)' In rhe customer perspeccive irry,-'th.rt' that rhe hypotl-resised evaluating the fin;l balancei scorecard, it is good to check through carefully cause-and-effect linkages are cofreclly Put into action if che cause-and-effect seiected measures. wl-ien reviewing the final measures, most likely been relationships are l-rarcl to idendfy, the wrong measures have usefulness put in place. In chis way, che strategy map is a good check on-the andappropriatenessolthebalancedscorecardmeasures.Whilesomeresearclr (see, for quesr;s .1"i-, about the cause-and-effecc links in balanced scorecards confident ot-pl., Norreklit3), we can, at a minimum) use strategy maPs to bethe balanced objectives and the measures in abour the links between the strategic
on the next page provides one The srrategy map for Hunter New England in figure 18.3 a not-for-profit entity' organisacions example of whar a strategy map could Look like for their specific needs, so not all strategy maps are likely ro adapt rhe strategy maP to meet that Hunter New England will look rhe same. For exaiple, fro- figure L8.3 we can see organisational perspectives: has d.eveloped strategic objectives around its specific . our people, culture and capability . external partners, internal networking and processes) resource accor-rntability . commttnilies and Patienrs' have been set' These witi-rin each of these persPectives a number of strategic objeccives it comes to setting specific measures within the objecrives provide ,rr.f.ri g.rid,"nce when is important to note that the concePt balanced scorecard. Beforle leaving this section, it we are likel;' to find of strategy maps and their use is sti1l evolving. For the momentl rvays (as is che case for other organisations using srraregy maPS in a ,turl:Iber of different
scorecard.

control tools).

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measure) manage and monitor perforsuggest organisations new a range of different measures including both financial and non-financial' mance using

And"'yet,thisispteciselywhatthebalancedscotecatddoes.originat\ptoposld by rap\an an6Nortor' io t\" ea\ \99\s an1 substque$ {ere\o1t{'rnto a' tu\ compiehensive stfateg\c and petlotnance measuiement too\, the ba\ance{ scote.".i i, used by many organisarions around the world. In understanding the bal-

anced scorecard, let's differentiate between financial and non-fi.nancial measures. In rhe first instance, the distinction may seem straightforward. For example' financial measures might be described as having a dollar sign in front of them such as sales or profit, while non-financial measures do not such as market share and customer satisfaction ratings.
Managers raditionally relied on financial ltreas$res that provide inFormation measured in dollars or ratios of dollars. Sales, costs or operating income are among those measures usualiy obtained From the financial accounting system, which is designed ro report financial measures for the overall organisation, divisions, product lines and d.p"ir-".rts. Financial measl-lres also compare budget to actual results.

urlrl,

r' ru

.r

:r -gosurs :- -: 'neosures thot

'i- --rollon meosured

of dollors,
,-

, '''rtios

,i

po re budget 1o

._

Non-&nancial rneasures provide performance information that cannot be measured in dollars. Defect rates, throughput time and employee retention are among the non-financial measLlres used more frequently in recent years to reflect performance that promores iong-term financial success. One important issue relating to non-financiai L.rr.rr., is that they still need to be quantified in some u'ay. For example, cuslomer satisFaction is nor a measure in itself but an important dimension rve rnight like to measure. Many enrities do this b)' developing a custolner satisfaction index based on formal feedback mechanisms from customers'

Non-financial measures are commonly classified as lead indicators.If the operations to which the lead indicators refer are managed well, this wiil lead to enhanced performance as reported in the financial measures) which are common11, classified as lag indicators. A baianced scorecard should comprise a combination of financial and non-financial measllres that represenr both lead and lag indicators. In many ways this is what the 'balanced' refers to in the title ofthe balanced scorecard' The aim ofthe balanced scorecard is to translate organisational visions and strategies into performance objectives and related measures that can be monitored over time. The balar1ced scorecard approach l-relps managers more fully integrate strategies throughout

rhe organisarion, anriiipare and prevent possible future problems, and idendfy and take advantage oF opporruni ties. At the heart otth. balanced scorecard is a continuous, strategic analysis of the organisation from multiple perspecrives. The most common approach is to use rhe lour perspectives shown in figure 18.4: financial, clrstomer, internal business process, and i."..rir'rg and growrh. Wirhin each perspective, managers and other employees such as

...o.,r.rrnt, study rhe organisation and identify linkages with other Perspectives. For example, if employees are better trained (under learning and growth), they are more

likel1. co make^ suggesrions that improve customer-related business Processes, such .ed,r.ir.g the time between receipt of a customer order and product delivery. As ". customer satisfacrion increases, financial performance is also more likely to increase' Tl-rese analyses help accounranrs and managers idencify the most irnportant performance objectives - the aspects of operations that must be successful for the organisation to achieve its vision. Measures are then developed for the performance objectives wichin eacl-r perspective to help managers and employees monitor and work towards

long-term goals.

*6"1&PTfiR

3# The bolonced scorecord ond slrolegy mops

Vision ond slrolegy

Figurc 3S.4 Four perspecllves in o bolonced scorecord

A balanced scorecard may be used at various levels within an organisation. Comr.-rrt', we see three main levels. First, an organisational-level balanced scorecard such as a-:,;l,anced scorecard prepared at the corporate level. A balanced scorecard at this level r','.-:-,ll.,,-rl caprure corporare-level metrics. Second, balanced scorecards may be prepared at rhe ::'rsional or segmenr level witl-rin an organisation. Finally, balanced scorecards are 5t'-:5 increasingly used ac the individual level. In this case, scorecards are structured ro :e:lr:: the environment under tl-re control of individual managers and executives. As er:::':l: in the Qantas scene setter at the start of the chapter) we are also seeing these indi'.:-'-uu scorecards used as a key input co the structure of incentive plans. This link to ince:::"'t plans will be explored further in chapter 19. \X/here the same organisarion uses s---::cards at all chree levels (that is, corporace, divisional and individual), we would exPe;: :: observe some common threads across the levels sr,rch as the reinforcement of stra:--g, with rhe measures likely to become increasingly specific and local as we move fror :--u.

corporale to the individual.

finoncisl perspective

method of onolysing the enlilY in which monogers ldeniifY deslred finonciol results, given the orgonisotion's vision

r:# ft cB* { &}#t:Ft"}*fi tir** tr ffi d r*i*'f*d frft #ffi sFJ rtrs When accountants and managers analyse their entities from a &nancial perspecrire they identifyr desired financial results, given the organisation's vision. For-profit enr:.; usually have goals of providing owners with some level of return on investmenr. \::;for-profit enrities rypicatly have financial goals oFmaintaining a certain levei of fina;:;::liquidiry and srability, accumulating suffi.cient resources for some long-term PurPose- --: gaining maximum efficiency from resources. Financial goals and objectives encou::Jl managers to evaluare the effecriveness of their strategies and operacing plans base; :', the economic wellbeing of rhe organisation. They also help employees relate the actiu:-.'. they perform to the entity's fi.nancial outcomes.
Fi

Financial perspecrive measures are designed to determine an organisation's pro{:r.'' towards desired financiai results. In for-profit entities, these measures are usually rela;:: to profitability, growth and owner value. Common measures include operating inco::-. return on investment, residual income and economic value-added. In not-for-profit er:::ties, financial rneasures often include opetating income, cost per service provided. a:-:

variances from budgets.

700

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:-: Ter perspec*ive

'

- :^

r of onolysing the entity

,. --:m

, _: strotegies

monogers identify ,:-cmers they wonl ond

to ge1 ond

groups are also used to measLrre image and reputation.

#ff sf* sffi e r F3# rs p#ct*v* # flt d rm $mfmd ffi:r ##_q {_j rffi when accountants and, mlnagers anaryse rhe entity from a custorner perspective, they are concerned with identifying rhe cusromers that they *"'rr, ..rJ d.eveloping strategies to get and keep them. The analysis includes identifying the rargerecl cusl tomers' markets and products that are most consistent with rhe organisation,s vision and core competencies. Entities that better meer cusromer needs - creating value for customers are also likely to generate desired financial results. Thus, this link _more connects the financial and customer perspectives. In assessing customer needs, managers consider their.organisational strategies, and exami.r" ih. nature of products or se^'ices compared to consumer views about trade-offs among price, qualiry and functionality. The customer's perspeclive is usuaily evaluated using outcome measures such as market share and customer satisfaction. The perform".J. -.rr,r.es used in for-profir and not-for-profit entities are often similar. These measures include cusromer retention and profitability, new customer acquisirion, and market share in a targeted market segment or geographical region. Customers are often surveyed to gather information on their perceptions about and interactions with the enrity. Marker surveys an4 focus
..ffi

Hnt*rmm8 furu,sist*sm p#"#flffi$s

rrilr,ii-,: business proeess ilBtt-;+ctive o melhod of ' -: lhe entily in which ::;-s ore concerned wilh -.--:ds ond proctices

p#rsp#er$v* rJffid rm{mtmd

fl"n##su$"ffi$

'

-. :e the entily 10 . : :rd deliver goods

:-:eS

When accountants and managers analyse tl're organisation from an internal 6usiness process petspective' they are concerned with the merhods and practices used inside rhe entity to produce and deliver goods and services. one goal of rhis analysis is ro improve processes that will increase custolrler satisfaction. Anorher goal is ro improve rhe efnciency of operations, which contributes directly to the organiiarion,s financial resulrs. Internal business processes can be analysed using a ,rd.re .llir-r approach. A value charn is the sequence ofbusiness Processes through which value is addei io good, and. services. Analysis of the value chain leads to the idendfication of processes rhar are crirical ro the organisation's success. often, customer-related process., ar" .nlphasised in balanced scorecards because these processes have the greatest impact o.r ..,ra-l-r"a satisfaction and financiai success' Figure 18.5 presents a generic customer-oriented value chain including three principal internal business processes: the innovation cycle, the operarions.ycl" arrJ
the post-sales service cycle.
post_soles

Innovotion cycle

Operolions

cycle

service cycle

r: , I re choin onolysis
An alternative to the value chain approach is an operarional audit cond.ucted by internal auditors. An operational audit is an objectiv. rrri ,yrr"-atic examination
,ilmn

'-. '3.5 Customer-

"1,v:-,ct cycle the first "= ,clue choin, il is =: ,','rth processes 10 :_:-:mer needs ond ; _-:cds ond services ' .:n- -- lse needs

activity or function. operational ar,rdits provide information to improve accounrabiliw and to faciiitare decision making.

dence ro provide an independent assessment of the performance of an entiry,

of evi-

p.og."-,

Innovation cyele ond rloted meosures The first step in the value chain, the innovation cycle, is concerned wirh processes to idendfy customer needs and to design goods and services that meet rhose needs.

CHAPTLR

lE

The bolonced scorecord ond slrotegy mops

701

prod ucrs.

Many entities mistakenly focus their efforts primarily on more efficient producri.-of existing produrcts. Yet goods ancl services musr rreer customer needs. The balance: scorecard encoLrrages managers to establish internal processes that identify cusrorn.: preferences for quaiity, functionality and price, a.rd rlro preclict th. pot..rrirl mar;esize' Organisations often use market rr.d ..rrto-er research to id.entifv and nurru:" neu' markets, new customers and new needs of current customers. Mr.r"glra Ur"lrrrro.=, completely new products, and also develop new opporrlrnities and markets for exisri:::

""r-ple, coStingandkaizencostingtoreduceproductpricesandimprovequa1iry.
operstiofis cycle lhe second
siep in the volue choin, it is concerned wilh the production ond dellvery of goods or services thol ore identified ond desiqned in the
innovotion cycle

innovation process also ensures that proposed goods and services are produ;.: ^The efficiently, given the organisation's core conperencie..lo. entiries use rar{.:

Operotions eyele ond relcted rneasures

The second step in the value chain, tl're operatioms cyele, is concerned with producr:--* and delivery of goods or services that are idendfied and d.esigned in rhe innovation o.c-: The operations cycle addresses the sl'rort-term wellbeing of Ih" ".rtif-ir u"gi"r-"r.i-., systems used to accept and process customer orders, anl i, .omplete with delivery ot :i* good or service. Qualiry efficiency, consistency and on-rime d"li.r".y are emphasisec ::this part of the value chain. Historically, many entities focused on the operations process. cosr conrainme::: goals and cost monitoring methods were often in place at t'he commencement of oi*.,rations. Tradidonal financial measures such as standard costs, budge., u"rlJr.;;, ;; often used to monitor operational performance. This focus soil.ri-", "r.d led. ro suboptimal behaviour. For example, etEciency measures creare incenrives ro b"ilJl";";;;:; so that labour and machines are kepr busy. Quality is sacrificecl ro increase efEcier--r Exce,ssive inventory' levels and poor quariry r." .oriry to organisations over time. -{s a result, tradirional measures of operarions may b" o.rly . ,-j1 part of a balanced scc:**

card approacir.

post-soles serviee cycle lhe finol slep in the volue choin, il

considers the service provided io customers ofler product delivery, e.g. providing worronty work, hondling returns, correcting defecls cnd collecting ond processing

over the lasr several decades, entities have increasingly competed on qualin- -::,ri timely delivery, in addicion to price. For example, oell coirputers'adverrir., ,h" qu;,:= and reliability of its systems as well as its ability to deliver compLrrers wirhin da's :d an order. Measurements of quarity, cycre time and cost rr" d"u.r,"p.a - ,-''o,,i.* ,-ri enhance performance in rhese areas. with the growth of interner rd"r, .o-p.ririo;: :,n price and product cr-rstomisation has intensified. For example, price informarion ab,.-,rr comPuters and peripl'rerals is rvidelv available on rhe internet,^borh by manufacrl::i:s such as Dell ancl Apple anci by reiail sellers. To be comperirive, organisations n:--*{ improve their operations processes ro meet or beat their competitors, p.i..rJ qua_::.r and reliability. Entities that specialise in custom products ofren measure the accuracy with u,i::m orders are completed and speed of delivery. The specific operaring characreristics icie:::* fied and monitored as performance objectives cleiend on ih" org"anisation,s vision. .l:e comPetencies and strategies. Managers choose paafoa-.na" ro monitor orJas -."Lrr", isational Progress, rewarding posirive trends in areas that lead ,o ..,rao,,'". ,r"rfr.="" and financial success.
Post-soles srvice cyele cnd reloted nnecsrlres
The final step in the value chain, the ;rost-sa-les service cycle, considers the service p:,:vided to customers after product delivery. Post-sales ,"rrric", include provicling warra-xi:n work, handling returns, correcting defects and collecting and processing paymenrs. r: addition, when products are highly sophisticated, enriries ofrer'r i.air', rhe Impioye"' ,.-rl wili be using them. Another aspect of the post-sales service cycle is rh. saf. disposa, .-,,,-" hazardous wasres and by-products.

poymenis

702

PART

.4rierfigg,n'eFt aecolrr'?tierg, r{tcnd;ng p*r+arrylcne ry..eqsurinsy}} ftnd sfrofegy

differentiacion strategy' For some organisations, posc-sales service is part of a product collection lrocesses of post-sales serH;;;; hauJr"c..,r1y focrrs"d on rhe billing and bills, ilospitals ha'u'e fewer claims denied vice. By emphasising accurate coding on pati;nt achieve greater accuracy in coding' by insurers and increase their operaiing revenues. To and hire better-educated employees lrry frorpirals provide in-depcl-r .-plly." training in tl-reir billing and collections departments' of performance measures fo. .ortt-..-related post-sales service could include aspects amount of bad debts and days in rhe billing and collecti,ons cycle, such as the iollar work and rework can be measured' accounts receivable. In addition, costs for warranty can be tracked' Measures for or rhe number of defective products returned or reworkecl of kilograms of rvaste and clean-up number wasre and by-product drsporal could include
costs.

r':
*;

growth :^-lty in which

success by

flffi##sufl## il*e*r'nlffig #ffi# {#r#wfh p*n*p**tiqd* mnd rmlmt*d a, learning a'ld growth when accountanrs and managers analyse an entiry from new and
perspecrive, tl-rey are

better strategies. They also want to improve

'"i--:

:r= ::nCerned With

r -:,r ond beller

with. acirieving future success by discovering Jrrrro-.. satisfaction and internal busihave sufficient knowledge and expertise' and at-rt, ness process.r, ",,'ptoyees exlsting strategies. The learning and growth "rrr.,J. check that inrernal processes supPort business process perspective. As man;;;;pJ;" i, ',.rt.r."ily linked -- ih" .inrernal they also identify opporrunities agers focus on ir1lp.ouir'rg internal business Processes' information systems and operating Profor enl-rancing rhe capablhties of

.on...'r.i

cedures. --ih.".

"^ploy"er,

. . .

and growth persPective: key areas of interest6 have emerged in the learning de.,elopJrenr, which relaces to the skill set, knowledge human capital and employee and capacities of emPloYees and associated informatior-r.rpir"l,'-hich relates to the information technology organisation's strategy infrastructure to suPPort the alignment of goals, organisarion crpital, *t-ri.n ,.1"t!, to cullure, leadership,

inJenti.res and strategy, and teamwork' aligned with its strategy' Kaplan When an organisation frr, .t.ft of the three comPonents * itlglt degree of organisation readiness' and. Norton argue rhe organisation Possesses able to execute slrategy and is which essentially means i-r. o.g".tir"tion is "dtpt"bl.,
read1. fe1 change.

salisfaction, retention, training and Employee learning and grou,th measures include type of organisation and industry. skill development. These #"r.rr., are railored for the ptodttce timely, reliable and To assist in decision making, information systems -.,st and oPerations Measures of inforaccurate information about customers, comPetitors of time a...rru.y include ,r,r-b.. oF days to close (the amount mation timeliness per report' "r-rd to managers) and errors ,-n* .trpr., before financial statements are available outdated.. Periodically, these policies need to be policies become

over rime, company a.,alys.dtodeterminewhethertheyarecurrentorshouldbechangedinresponsetonew knor,vledgeortechnoiogies.Aperformancemeasurecouldbethenumberoftimesthat period..To monitor learning and policies and procedu..I "r. reviewed over a five-year baseline and performance of op.r"tions is usually used as a growrh measures, ;;;; itrrp.orr"-.nts are evaluated over time' the needs of the

be structured to meet clearly, any baianced scorecard developed ml-lst types 18.6 (a) and (b) overleaf demonstrates tl-re different to*hi.h ir."*.r. Figure 20 we "r.tity organisational needs' In chapter of balanced ,.o.".r.J, thaimight evolve to meel particularly as it relates to issues ofsustainability rcor.card"ftrther,

explore the balanced management accounting'

mops *i"ApTf;fi 1S The bolonced scorecord ond strotegy

7o3

(o)

Bolonced scorecord meosures ot Royol Philips ElectronicsT

Vision ond strotegy

lb) Bolonced scorecord meosures of the Heollh Insuronce Commission

(HIC)8

Customer perspective
Communiiy solisfoction
92
71

Medicol proctitioner sotisfqction

Phormocisi sotisfoction Prompt processing

90 93 93 49 86

90 72 92 93 98 50 86
73

93 75
91

90% cr 80% ar 90% cr 90% o99%

93 98 50 90

Internol business processes perspective

Cloim processing occurocy Medicore tronsociions online* Generol proclices online

t\'t\l | Improverrufll
refleciec r,r 2004 surre*'

Growth ond development perspective

Stoff sqlisfoction 66
72

Figure |&.6 Somple

onced scorecords

:c

*lncludes Medicloims ond internet electronic tronsocfions. tTo be colculoted differenlly from 2002. tiCurrently no lorgel set olthough proctices ore being encourcged

1o move online

tO4

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Frepcring n bclsneed secrecqrd set cf Mountain rne{isN.,,res

Mlist Ereweny In the early 1980s, Bernard Hancock built a small brewerY on his 150-acre ProPerry in the
Macedon Ranges. The brewerY,
named Mountain Mist BrewerY, was designed with ales in mind

and Bernard introduced a number of cutting-edge and

innovarive technologies to make the well-known, popular pale ale Misty Hop and ochers such as Hazy Heidi, Mountain Maid and Sunny Sherpa. The brewery's highest selling pale ale (Misty Hop) is widely recognised as a I'righ-quality boutiq.,'e beer andls^sold, along with the brewery's other ales, to clubs and res,",r."nr, around. Australia. All Mountain Mist Brewery ales are distributed in kegs (large concainers) and l2-bortle cartons through its Victorian and national whole,al""rs. fh" brewery has continued to expand capacity on its site to meet growing
consumer demands.

2009, total Australian beer production was 1736 megalitres with total key revenues of $4406 million. The Australian industry is dominated by four Limited, Lion Nathan players - the large narionals including Foster's Group Li*ited, Coopers Brewery Limited and J Boag & Son which account for 87 per cent of induri.y .",r.r-tr.. The industry is becoming less concentrated with Little a Creatures, Coopers and other breweries expanding production._There are also areas, including number of micro breweries successfully servicing sma1l regional Mouncain Misr Brewery in Victoria with 3 per cent of industry revenue.9 Mountain Mist Brewerfs capaciW is currently running at 52 megalitres of beer per annum. Bernard strives to leverage economies of scale, with invest-

In

menr

high-tech brewing equipment and automated packaging machines. Bernard believes the qualiry of his product is lhe most significant influence on cusromer satisfacdon, increased sales and the corporate profile. Bernard claims rhe main selling feature of his Mountain Mist ales is the use of specialty hop flowers, ,orrr..Jf.o* Tasmania and brewed according co his innovative brewing grown in processes. The other major ingredienr, malt, is sourced from barley is made according to .rorth.r., parts of Vicroria. The pale malt for Misry Hop strict Mountain Mist specifications. Bernard claims that the natural spring water raken directly from the spring on the Mountain Mist brewery site offers superior tasting q,r"lity that will match, or betceq the quality of any pale ale around the

in

world.

Bernard's key objectives and strategic intent for Mountain Mist Brewery are: 1. to grow proficably with incremental investment into selected markets to become one of the top six breweries in Australia 2. to continuously improve perceived consumer qualiry by improving taste) freshness, package integriry and package apPearance

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: I

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,:

to enhance disributor service v'ith better lead times, accurate order filis and lower product damage +. to continuousiy lower company costs per litre of beer so Mountain Misr can maintain resources for long-term productivity and success, while ensuring rhar producr quality is nor compromised by cost-cutring iniriarives 5. to continuously improve business performance through engaging and developing employees to ensure that all employees understand the crirical
.-)
_

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importance of quality in all processes and rheir contriburion ro the success of the organisation. While Australian boudque beers such as Misty Hop are becoming more prominent in the market, overall volume growth for the entire indusry is flat. The industry has also been faced with declining levels of consumprion as well as increased competition from other beverages such as wine and spirits Bernard wants to constrllct a suitable organisational-level balanced scorecard incorporating measures that reflect Mountain Mists' key objectives and strategic intent. Provided below are sample measures suitable for each balanced scorecard perspective.

YW
::1..:,:l:ll::::il:i

Flernnciel perspeetive
Strategic objective
To reduce the cost per litre ofbeer produced To achieve profitable growth parcicularly in new markets Grow profitably through incremental invescment

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Measure
Cost per litre of beer
Revenue growth in new markets Profit achieved in new markecs

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ffi

Return on investment

eusfcrner perspecfive

W W
W

Strategic objective
Improve customer/consumer satisfaction
Become one of top six brewers in the

Measure
Customer satisfaction index

W W
wwtx
Wrg:l&

Market share Number of new outlers

achieved per year

country
Increase the number of distribution

(customer) outlets
t::t,::lliii uit,J
::::::l:a:,::lia:lril

Internol business process perspecti\re

Strategic objective
Improve distribution performance

Increase order-fill rates and

accu.facy

Measure Distribucion lead times Order-fill accuracv Manufacturing cycle times Cost per unit (keq or bottle) Percentage of sales in new outlets

Increase productivity

Enhance customer relationships

l
I
I

:::- :

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Innovotion end growtlr perspeetive

Strategic objective
Increase emPloYee develoPment

Measure Staff training hours/participation for:

customer relationship management itv management Employee satisfaction index

Develop satisfaction of employees

Increase managemen!/emPloYee part iciPation in 6 nancial

E*PltY"t

agers ln of inetion Participatlon rate o manaqers in and Planning Processes budgeting

'"t"t"tffi

planning ( organisarion-wide understandi Atcract and retain qualiry

Develop IT infrastrucrure to support knowledge sharing

0."."".,

n*ittg

of new emPloYees'technical

N,t-b.. of ttighly engaged ;;;i;;;;; ",.i3i1,"i'iil;;i.;;;;;;;; employees

(intranet ParticiPation)

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Asdetailedinchapterl2,conrrolsystemtoolslikethebalancedscorecard,maybeused byorganisacionsindifferentways.TwocommonusesrelateroSimons'sleversofcontrol: diagnosric use and inreracttve use' diagnostically' the focus is on the achievement When a controly';;; cool is used In ro measures linked. to organisational straceg'v of pre-ser rargers. These targets relate Someways)diagnosticusei*sallabotfimeasure,monitorandfeedback.Thatis,measure theperformancearoundkeyperformancemecrics'monitorperformanceoutcomes target r".auack ro managers to focus on achieving
againsr pte_ser

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oerformanceinthenextperiod.Theobjectiveistofo".,,,o,',.theintendedstrategyand so' tJ:;il.il;;.;. il; ir,1 che intended srratesv is the right one, bal":r.,-prio,, i' via the control system 1it't this case' the 'ool alternative straregies r." "., .ipf"red ar using the tool rhe focus

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the organisation's strategic uncertainties' to review srrategy - i"rp i""r with is used diagnostiin much tl're same way rs *h"r1 the tool are in place ,rra ,"rg* ie ser to stay on track feedback on the pt'fot'.rltttt" metrics ca1ly. Howev"., i'-"t"J of tt'i'''g t""f in.a revie* "ttl:rtl*tded strategy' This as intended, the feedback Process -ty in by an organisarion such as changes may be largeiy dri"""";;;i. *...rr"ir.iesfaced system cools control an intense.o-p.titirr. "n,it"'rlt''tt' the regulatory environment or itt addressing uncertainty' For example' can be ,,,"d such as the balanceJ ,.o..."rd signals f."db,.k about uncertainties and ear\ warning carefuily selected

sysrem roor is used interacrively,

:,11::.r.0

Measures

io inai.t..

-.;r;;;r;;;;iJ.

issues

u'ith the currenc strategic path'

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Balancedscorecard'sprovidetheopporruniryforanorganisationtoarticulateitsstrategr' core values and beliefs of the

over, rhe process

and mission. w. -o|'ti'.";.:, .J?"i-ri.'r.t"d'am.itt1 and in the targets set. More. in metric selection organisation that underpi', i,, ,,.","gy to reflect the beliel s)/stem of

,r;; ;

develop ,r,,"

,."*.lri

i, tit "iy

ond slrolegy *Ft&pTfrg 'BS The bolonced scorecord

mops 707

the organisation. For example, an organisation with open communication and a cu-:1rc of group consultation is likely to use a collaborative and consultative sryle of bala:r.ad
scorecard i mplemenrarion. With respect to boundary systems, through the measures used and targers ser, bala:l'dl scorecards are able to articulate the expecred behaviour from managers and emplo.ec:; This is particularly so when balanced scorecards are used on an individual basis- Frm example, the scene setter at the start of the chapter iliustrates the use of individual *-mecards r-rsed by Qantas for executives and managers. These individual scorecards u'oruMi heaviiy influence the behavior and decision making of these executives, particularlr- ll'hm scorecard performance is linked to incentives. This, of course, highlighcs the imporra:cre of sound metric selection, otherwise the wrong kind of behaviour and decision maiu:ng

would be encouraged.

Expicin how a bqlanced scorecord is impler,'ienf*d

The process of implementing a balanced scorecard is summarised in figure 18.7. Th,em general steps are customised for each entity. Note that these steps focus on the rechl::n:an! aspects of implemenration. A range of behavioural aspects will also influence rhe suc;em or otherwise of the implementation. These include: . toP management support . achieving a management buy-in

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frar

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use ol-mulriple champions adequate communication throughout rhe implementation process use of implementation feedback protocols

organisarion-wide parriciparion.

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Clarifying the entity's vision, core competencies and strategies is cenrral to rhe balarcC scorecard approach. The vision provides an overall direction for the organisation. -n-:c core competencies and strategies provide guidance for achieving the organisari.-::iail vision over the long term. To clarify the vision, statements are developed at che ori;:sisational level and for divisions, product lines or departments. This process leads ro i:s". cussion and consensus, which further clarify an enriry's purpose. Similarly, rhe procesm of clarifying core competencies and strategies helps others understand how to achere the organisation's vision.
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The next scep is to analyse rhe organisation from the four perspectives. This step rra::; lates the organisation's vision and strategies into a set of performance objectives *irh= each perspective. The analyses idencify what the organisation must do well to arrain ::s vision, focusing on the linkages between perspectives. The performance objecrives sho'.:.i be limited to factors that achieve the organisation's vision and strategies. The four perspectives introduced earlier are most commonly used for balanced sco:ecards. However, different entities define their perspecrives differently. These perspecdr.es differ by ownership type (for-profit versus not-for-profit), by industry, by organisarir-::. and by subunit within organisations. For each performance objective, one or more measures are identified to monitor chs organisation's progress. Corrective action is then taken, as needed. The measures re financial and non-financial, covering both quanritative and qualitative data. Accoun:ants are often more comfortable with quantitative measures, such as the average time ic

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extr*di*g perfer*n*n**

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However, qualcomplete a customerrs order or the number of new customers obtained. are useful itative data, such as the results of customer and employee satisfaction surveys' for some performance objecdves.

--:--

3.7 Sleps in 19 o bolonced

results' Input measures caprure activiry or effort whereas outcome measures caPture overall, balanced scorecards Balanced scorecards fo.rrs o.r th.s" type, of expected links. measures used for usually contain a range of measures,'with foui to seven per6ormance each of the persPectives.

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scorecard framework is As ourlined previously, rhe use of srrategy maps in a balan_ced are abie to confirm the userulness of their a more re."r.t deu.lopmenr. Organisations representation of the links measures through construction of on.-p"ge diagrammatic " the perspectives. This can occur at a relatively broad level berween the measures in each of 18.3 (page 698), or like the srraregy map of Hunter Ne- England NSW Health in figure links between most of the measures' specifi.c, showing it might b.

-1."

?fr:r*rupfu**t fhm m*.64xntismf!mr: mm*J reflms High-level execThe balanced scorecard is usually presented as a top-down plan. the organisation, then utives define rhe vision, .o.. .o-p.rencies and strategies of

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mops 709

communicate rhem to divisions and departments. yer success of the balancei card approach depends on the efforts of individuals rhroughour the enriry. To s: tl're balanced scorecard must be communicated both ,rp a'.rd down the orgal:

Linl<s must be develo_ped between organisationai, d.ivisional, departmln:,i

together. Sometimes the resulrs of multiple units are formally combined with the res-:jqs another unir. For example, the results of individual departments might be cLi:::r:r6 inro the results of a division. Part of this balanced scorecard combines d.ara for aL rffi within the physical plant departmenr. For insrance, the safery office is responsibie

individual objectives. Aligning goals increases rhe likelihood rhat all emplo'e*

receive peer review safety training. similarly, the human hiring employees within a desired timeframe.

lost time from work-relared injuries and for ensuring that all physical pi".r.

.-.

."ro.rr.", otfice ii respo..,:,rc

Sometimes a common set of balanced scorecard measures is used across : ments. Tl'rese measures are common because some of the performance objec;:i.es the same. common measures help ensure consensus throrrgho,rt the enciry, min:::r:: che need to develop separare sysrems for data collection. Measures rhat diffe: offices relare to operating acriviries rhar are unique ro individ,ual offices/ divisions.

organisation-wide implementarion

of a balanced scorecard.

amounrs of communicarion and rime. The process ofren begins with pilor proiJ.-:s expands across rhe entiry as experience is gained ancl more ,..,o., of the endo :,a: pate in the process. Refinements are often made to the original balanced r.o...".a organisarions have implemented it at the lowest levels.

requires si.--=

not improve profits.

lowards its long-term vision and strategies. The organisation must also establish s: performance targets and related action plans, all of which are usually ried d-ira;:tr r each performance objective in the balanced scorecard. Performance rargers are ser ffi three- to five-year periods witl'r interim milestones, increasing the organisarion's t-ocs long-term results. some entiries formally reward individualJ o. g.olrp, of empio",-+es attaining performance rargers. The action plans give employees specific guidance their efforts rowards rargets. When the balanced scorecard is used to compensate employees, differenr ,,r'eigh:-. nm be placed on various measures in empioyee bonus pr.k"g.r. For exampie, if cus:l6' satisfaction ratings are inadequate, bonuses are made -or. d"pend.enr onimpro\-ei s;r:ffr faction rarings. However, finding the optimal weighting among measures ii aitr:c:: ltr' too much weight is put on cuslomer satisfaction and not atlo,rgh on financiai me;-+-::r!; employees may spend a great deal of time in activiries that increase satisfaction i:::: .du

st* h ish p#rf#rrr!# r'rfr # t# rf#{*g.s m rud {*{f $#f.$ p $r* n* It is not sufficient for an enrity ro creare a balanced scorecard. ro measure
ffi
$

F,:.

anced scorecard measures are analvsed.

mmcxfyss* sr#fl#c*H# dttfm rrt*rrlf*$" $3er"f#$.f,.{^}**ce Balanced scorecard measures are captured periodically - monthly, quarterly, annu;-.:, cr other timeframes. Scorecard data are collected and analysed fo, iiffer"rrr measures r--.;ry different timeframes. Before calculations and comparisons ro targers can be pertir::::,C systems for data collection must be established. In some ..r"r, r.ao.r.rring q,sren:. armc, developed to caPture relevant data. Non-financial measuremenr instruments mar.- ::,ead to be developed' Survey instruments are either acquired or developed. Merhods :l-:eo need to be established for collecting samples and summarising results. Trends ia :ar.

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g * * # r*w*: r*t u* le p r:y*mn determine rvlrether the results Acrual results are compared to performance targets to variances are anaiysed to identify their are berrer or worse thai desired. ih.n significant
i.

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causes) leacling ro modifications

in futr..J plans. If the balanced scorecard is also used for ."-tff.y"" coJpensation, rewards are comPuted and distributed'
feedback loop that uses An importanr parr of che balanced scorecard method is the use their analysis of balanced results and experience to refine the process. Managers their sirat"gi"s and operating plans' This scorecard. results ro evaluace th" ,t...r, of core comPelencies' strategies and evaluation leads to revisions in organisations'visions, gauged' .f..*irrg p1ans. The effectiveness Lf ,h" balanced scorecard is alsothe entityAccountants and to promeasures to ad.apt to changes in ;J"r";;"rs modifi rhe ser of
vid-e better information over rime. Some measures maY be added' ff n*,,ui *j

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be dropped or changed, and new

of a balanced scorecard comprehensive example 2 demonstrates the implementation in a hospital setting.

Implernenting c belsneed sforees!'d

Two hospitals in a large regional area have emergeficy deParcments, but

neirher departmenr is 6nan-

cially successful.

Because

the region needs at least one emergency dePartment, the scate and local governments

met with hosPital officials to determine the best course of action. Both hospitals had sPent considerable time reviewing their visions, core comPerencies and current business stratcontinue operaring an .gJr- fh.y agree that only the teaching hospital should mission is to provide both highemergency d.eparcment. The teaching horpitJ's -fo. medical students. The teaching hosquality padent care and a learning .J.rrr" pit"t.'".d,anemergencydepartmentsothatmedicalstudentscanPreParemore ihoroughly for careers as GPs and specialists' balanced scorecard' i"; trir"g"., at the reaching hospital decide to institute abecause many more They focus h.ra on service in the emergency department' hospical closes ics emergency deparr;r;;;.r, will be admitted when the orher of effrciency could help ease che ment. These managefs believe that new -.trrr..,
transition.

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mops 7l I

emer+ The managers are also concerned about the cufrenl losses incurred by the Clinical Processes in the emergency department need to be t'o:h .n.y d.pt.trr:tent.
cosi effective and high quality ro maintain the hospitai's rePutation.
i i

elerlfy vision" core cornpetencies snd stretesies

io A team of hospital adminisrrarors and emergency deparrment employees mee. that the hosp'ldiscuss the bafanced. scorecard implementation' The team decides and strategies also apply to the emergency departtal's vision, core competencies ment. The hospiral *r.d .-".g".rcy department's patient care goals are lo prorriie and at a low cost for all patients. The hosprral high-quality ."i" ir-r a timely
rrr?

for

department's teaching goals are co provide a high-qualiry educatiom "*".g.r-tcy medild inrder-rts, focusing on technological developments and innovacrt
fCI

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palienl care rreatment'

Anclyse perspeefive$

develop performo{rce sbiectives end

rnegSL,res The team decides rhat the standard four perspectives (financial, customer, inremli rhe business process, and learning and growth) are appropriace for analysing emergency department's strategies and operations' FrJm a'financial perspective, the hospital needs to at least break even to guarantee ongoing operarion;. TLre controller analyses historical records for the deparrme:rt granrs arrd and. finds thac it has always operated at a loss. Untii last year, research broke er-e:r governmenr subsidies were uiually enough so that the department

ih" fin"n.i"l

because the department needs finanial to proride resources to continuously updare the equipment and technology needed high-quality parienr care. After discussing performance measures, three are chosen thlt ar" identical ro rhose used by the hospital as a whole (see figure 18.8). T\ro of the measures are profit margin ratios, which address the emergency department's abitity to control costs relative to revenues. The operating margin ratio inclurias costs and revenues, while the excess income margin ratio includes perspective

is important

only operating

suppir ,rorr-op.rari.rg revenue in the form of donations and grants, which typically expansion or new technology. The third measure addresses rhe needed frlnds for reimbursement levels for the emergency department'

Next, the team anaiyses the customer Perspective' The hospital outsources patient satisfaction surveying, and it monitors average satisfaction by departmenr onlv io fo.,r, on pacienrs' pe.."ir.Jd quality of care. However, the survey results are wants measures that predict Patient sansavailable qorrt".1y. The department will t'e faction and that can be monitored daily. with dmely feedback, problems too many Patients are unhappy with some identified and corrected quickly, before

about the average aspecr of service. The team decides that most patients would care several qualiry-of-care measures dme they wait ro be seen by a doctor. In addition,

waiting could be monitored, such as the error rate in medication delivery, time referral' The final list is included before admission to wards and cime for specialist

t"*f;]|".*tten

analyses the internal business process perspective. The hospital's long-term goals include managing Patient care and clinical Processes efficientll'ro ,,'"irt"i., f,igh quality "r-rd .Jt'tt"itr costs. The team decides thac four aspecrs of Ir processes are cricical to rhe emergency department's success'

internal business then focuses on identifying measures for those four aspects'

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Colculotions
oRolio of operoting Income lo operoting revenue. bRotio of operoling plus

non-operoling income to operoting plus non-operoling

revenues. K

F!S*r* i&"& Bolonced scorecord meosures for lhe leoching hospitol's emergency deporiment

For innovation processes, the team would like co motivate improvemenrs in routine care such as delivering medications, arranging x-rays and blood. tests, and cleaning and restocking cubicles for quick parienr rurnaround. process improvements include innovative ways to streamline daily routines and to increase parienc comforr. The number of process improvements in routine care will be tracked. clinical processes involve the technical aspects of care giving, such as setting up moniroring equipment and rhen using che information provided. The team decides to focus on the rime raken for a padenr to be discharged as a performance measure for clinical Processes. In addition to focusing on rhe decision to discharge Patients at an apProPriate lime, tracking this measure will also ericourage nurses to focus on the discharge process. The team believes that time spenr on discharge instructions is linked to fuil patient recovery. For exampie, patients are sometimes readmitted because rhey become dehydrated ar home. Some medications require Patients to drink extra amounts of water; if this requiremenr is nor carefully explained during the discharge instruction process, parienrs do nor recover as
quickly and may require readmission.

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The ceam considers several possible ways to measure cost containmenf. l-:
decides to focus initially on a general measure of cost - the average cost per Fa:--:1: by diagnosis type. This measure can be monicored as frequently as desired, allc'.'.:. " emergency department managers to quickly identify any adverse trends in cc-.: -:

also provides away for managers to monitor cost effects when new proceduras ;'r implemented. The emergency department's managers consider post-treatment service {r-,-:.: needed) to be very important. Service after a patient leaves the centre conrrii-:.: to the qualicy of the patient's care. The team decides to measure this aspecr u.:: :

the time spent on discharge instructions. \X/ith more time spent on disch:-,=-. instructions, patients should receive better home care, reducing the probab:,:: that they will be readmitted. The team considers measuring the number of r.-.phone calls made and emails sent with follou.up questions about patient he-::-,: care, but decides that it is more imporrant to focus on instructions before :-.. patient goes home. Finally the team focuses on rhe learning and growth perspective. To ma:',tain and improve the emergency department's reputation for innovarive pal::-i treatment, the team decides to track the number of new treatment procesi:-.
developed. Because new technologies and care-giving practices are developed c..:r-

tinually, the hospital provides a variety of medical education classes for nurs.' and other department staff. To encourage employees to take advantage of rha,.. classes, the team chooses number of hours of training per employee as peri.:mance measufe.

Conrmc"'niesfe, link thr*r.sgh*u* *h* crgcmis*?i*n cnd refinee Once the team develops a tentative balanced scorecard for the emergency depa::ment, rhe plan is presented to top hospital administrators and to employees :rhe department. The administrators consider whether the emergency deparrmerobjectives align with the overall hospital mission, strategies and objectives. The', believe that this scorecard appropriately addresses the hospital mission and prais:s the team. Employees and medical students also feel that the scorecard helps rhe:::
understand how the emergency department's objectives should be carried out.

Sstsblisl-r perfer{mene* fsrs?s #nd datisn pg#E}s Tl're balanced scorecard team believes that the measures in figure 18.8 are appropriate for analysis. They ask the accounting department to collect informatio:: about last year's operations so they will have baseline information for compariso;r with future results. The team recommends that management and employees revies rhe trends each month. After three months, the usefulness of this list of performance measures will be reassessed and the balanced scorecard can be changeci
accordingly. Figure 18.9 summarises the informarion developed by the accollnting deparr-

ment for last year's operations. The hospital's accounting system cracks patient charges for supplies and services by department; however, reimbursement is tracked at the hospital 1evel because different payers pay different portions of charges, and some patients do not pay due to full reimbursement from their medical insurance provider. Therefore, the patient revenue is assigned to the emergency department based on its average mix of care for Medicare,

lr4

ai:,::','i-::: -r{*r.rrStiir{3, *x3+*di*04 5*,evf*ryngnr:g

*:*r;illriR'l+*i r:*** :F*f*gy

As a result, revenue is measured with error' privately insured and other patienls. performance

and the information

measure.

maY ,-rot

b" of quality high

enough

for a

Overoll deportment finonciol informotion: Pqtient revenue Operoting costs (cost of potient core) Non-oPeroting revenues Non-oPeroting costs operotions Informotion on emergency deportment in emergency Number of potients seen (200 potients) Time to be seen by doctor before odmission to word 1200 polients)

$5 040 000 6 300 000

r 500000 300 000

252
2 000 4 000 4 000

fime woitlng

potients) Time for speciolist referrql {200

Number of medicotion errors quolity of treoiment core Polient solisfoction survey results for Number surveYed sotisfied) Averoge sotisfoction roting i1 to 5 = verY Other Potient-reloted doto
Totol Potient doYs Time token for dischorge {200 potients)

l0
130
J.O

2 142
4 000
5

Minutes spent on dischorge instructions EmploYee-reloted informotion (hours) Totol time spent in trolning Number of emPloYees Process imProvement in core Number of process improvemenis process improvements in treotment Number of

040 875
35
3 2

eF!s{,''*1&,sBoloncedscorecorddoloforlheteochinghospitol,semergencydeportmenl

departmenr is quite accuThe cosr data about parienr care in the emergency

rate,althoughpatientcostsincludefrxedcostallocations.Anychangeinthe of patient cost information aliocation bases or merhods reduces comparability is gathered by the quality and utilisadon over rime. parienr survey informarion information about customer a"pt.rrn.n,. Although 'ht '""rrl would like daily services provided surveys about patient satisfaction with
satisfaction measures,

The survey resPonse information "r.-giu"nrandomiy't.o20'percentoftheemergencydepartment'spatients during the firsc .ht"" dty' of each month' on the chird day' The accounring is forwarded to the accounting department ciack this measure more frequentiy. Employees deparrmenc d,oes nor have timelo month. Because they do not always filI out esrimare rheir time ln training each each month to.update any missing rhe reports, rhey arc.o'l"t'"Jby accounting

i.trt.rr.ti.-o.t, for each Patienl will be reported estimares. Time spenc on discharge developed by the accounting deparcment' by discharge nurses using a ttt- io'rn with physicians and nurses to determine Once a month, t..ottt"J"" will meet

thenumberandtypeofimproveme,,.t,a.,'d'i,,.'ovalionsintreatmentandcaregiving
Processes.

j
I I

"if

*s"c&Pt'ilft

*S

The bolonced scorecord ond sirolegy

mops 715

to calculr'm The balanced scorecard team uses the information in figure 18.9 members review this in-frm last year's performance as shown in figure 18.10. Team collect informancm mation and then meet with personnei at the other hospital to it, emergency d"p".t-.r-rt. They then determine appropriate benchrn"a:ftr period" "bo,rt plan"s for the emergency department during the transition
"rrd ".rion
Finonciql perspeclive performonce meqsures Operoting morgin rolio: Ooerolino m0rqin Polient revenue
5 040

:nd

v',

: clon

000
5

6 300 000

040 000

Excess income morgin rotio:

Operoting plus non-operoiing income Operoting plus non-operoting revenue

Rotio of reimbursemenl to cost

${60 000} $6 540 000

Potientrevenue $5040000
Operoting

morgin

56 300 000

Customer perspeclive performonce meqsures

(minutes) Averoge time to be seen by doclor (minutes) Time token for odmission to word Time for speciolist referrol {minules) Medicotion errors Averoge solisfoction with quolity of treotment core

,s
ZCI

:0
3"S

Internol business process perspeclive

Innovotion of Processes Number of process improvements in rouline core Clinicol processes Time loken for dischorge Cosi contoinmenl Averoge cost per potieni (Operoting cosls + No of odmissions) Posi-treotment service (minutes) Time spenl on dischorge instructions

2A

$2s 000 20

leorning ond growih PersPedive

Number of new treotment processes developed Averoge troining hours per employee
2

25

* Bisur

lroumo centre 1&"is Boseline bolonced scorecord resulls for the teoching hospitol's

be needed to determine ferent from the current cen[re) a rransicion period will staff rfpr"p.itr" benchmarks' During the transition time' emergency departmenc \X/ithin several the scorecard' hired, from the other hospital toln U. introduced lo will can be r"t fot every performance measure' and monitoring -o.rrt r, targecs areas in need to determine U"gi". f"f".iacion from ch" ,.or".triwi11 be evaluated In addition, the current balanced scorecard will be re-evaluated of i-p.o,r.-enr.
and changed as aPProPriate'

are likely to be diiBecause measures for rhe combined. emergency departments

S(

'l??

$*d x$-r*t*gy Monogeffie*? s{es#ntirrg, crrtendirlg perf$nr"l*rtc* '$4$sa.!fsffiefi{

":

ffi
:-.englhs
=sses oi the

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s*mr*crur

ruf ?hm hm$mm**d

- .- ...^rd

Similar to other new accounting techniques, the balanced scorecard has both strengths
and weaknesses.
Str'r'**-r6tfum

Entities are under increasing pressure to meet customer needs, use resources efficienrly, compere effectively under changing conditions, employ new technologies and operaring methods, and provide a good return to shareholders. These demands require more effective implementation of vision and strategies. The proponents of the b"l"rl."d scorecard method argue that it improves performance by helping organisarions inregrate their visions and strategies into operations more completely. Many of the advantages of chis approach, already described, afe summarised in figure 18.11.

Communicolion ond linkoges Encouroges clorificotion ond updoting of vision ond strotegies lmproves communicotion ond consensus throughout the entitY

Implementotion is expensive ond timeconsuming Uncerlointies Approprioteness of vision ond strotegies Accurocy of identified core competencies Best set of performonce objectives ond meosures Reliobility of scorecord dolo Reosonobleness of torgets Doubt obout links omong perspectives

. .

Links

shorlJerm ond long{erm

performonce objectives to the vision ond strotegies

. . .

Guidonce for improvements Enqbles periodic performonce reviews o{ progress towords vision ond strolegies Leods to improved finonciol performonce Helps monogers use operotionol doto

for decision moking Motivotion Aligns unit ond individuol gools wilh the orgonisotionol vision ond strotegies Motivotes employee effort Reduces optimisolion of subunits ot the expense of the entilY qs o whole Promoles oction towqrds ochieving strotegies

Mistokes in implementolion Ambiguous or generclly defined objectives Informotion systems nol integroted Insufficient resources Lock of senior monogement support Focusing on inoppropriote objectives

. . . .

Bioses

Monoger selection of fomilior or

eosily ottoinoble objectives ond meosures Resistonce from units ond individuols Process viewed os o temporory fod

. . .

. .

Moy be inoppropriote for compensotion

Vision moy nol odequotelY coPture core vqlues including relotions with regulotors, opprooch towords the environment etc.

: ll

5llhQThSOllO

-s of o bolonced

*FepY*tr T& The bolonced scorecord ond strotegy

mops

7 17

tr#*xkra*****

Any method designed to help entities improve management decision making inl weaknesses because the process of management decision making is inherently unc*: No perfect solutions have yet been discovered. Major weaknesses of the balanceci si ."rJr.. summarised in figure 18.11. First, the balanced scorecard faces questions a its cosrs and benefirs. Considerable time and effort are needed to develop and ire balanced scorecard. Outside consultants are often employed, and the time inr.oh'ai
key managers can be considerable.

Uncertointies
Uncertainry is part of any balanced scorecard. The underlying assumptions are rha: vision and core competencies have been properly identified and that implementa;lon the organisation's strategies leads to success. However, tire best choices for a visio: set of strategies are ambiguous; managers might incorrectly identify the enclry's sre: relative to competitors. Furchermore, the Process of identifying appropriate perforr: objectives and measures is not straightforward. The balanced scorecard methoc.-'; requires managers to identify the most important aspects of operadons, yet the\- . be known with certainty. Once performance objectives are selected, additional u: tainry about the best set oFmeasures arises. Some measures are more reliable than .-rhtmh although less-reliable measures can at times address a more relevant asPect of operai"-rm Uncertainties about choices of information for a balanced scorecard chailenge =,magers and accountants. For example, potential customer satisfaction measures in;rrulb market share, number of return cLlstomers) number of new customers, and ratings *m satisfacrion surveys. Although the number of return customers and number oi asm customers can be measured with a high degree of accuracy, this information mal- :lil! be as relevant for gauging customer satisfaction as other measures. Market share :r,il or may nor be reliable, depending on the accuracy of information about total ini::mv saies. Many factors influence the reliabiliq, of survey ratings, including the survet'desr{Mu merhods for collecting samples and the types of customers surveyed. To decide ol inc best measure, managers and accountants need to weigh the qualiry and reiet'ance cd' information across potential measures. Another uncertainry is rhe best choice for performance targets, including hou'qui;k$r an enriry should be able ro achieve its performance objectives. Low targets ma1' t-al ro morivate sufficient effort. High rargets discourage performance when employees Perc.:'it them as unrealistic. The balanced scorecard also assumes specific linkages among the four perspeci"ts In particulaq it assumes that improved performance in internal business processes ;::nJ in iearning and growth lead to improved customer-related measures. In turn, impro',"e"d customer-related measures are assumed to lead to improved financiai performance. Thesc assumptions, however, might not hold because of uncertainties abour the measures a:lJ aboutlhe interrelationships among aspects of an organisation's activities. Researchcs found cause-and-effect relationships only between the customer Perspective measures a:.1 financial performance measures. Although research studies do not Prove the absence ofl links, they raise doubts about the linkage that managers and accountants need to consii*.
Analysts and consultants poinc out a number of areas where mistakes are often made i: balanced scorecard implementations, leading to poor resulcs. Sometimes performan.-e objectives are ambiguous or defined too generally, reducing the balanced scorecari's effectiveness in communicacing the actions needed to achieve the entity's vision and straregies. Sometimes the organisation's information systems are not designed adequatelv to

Mistokes in implernentstion

:. ,r,to4*g*a:*nf

*e**:.rx{.rngl. *Hf*t'sdi*s

penf*rm*n** fi!a#$#r6ffi*** t5*d s?r*f*gy

be expensive to implement, and capture information need,ed. The balanced scorecard. can communicating, foilowing ,,,ay faceinadequate resources for designing, implementing, Although senior managers thro,rgh on ,.r.r1r, and refining the methodology over dme' give the ,." g#"r.tty involved in rhe inlcial adoption of a balanced scorecard, they may process inadequate suPPort.

and related Anorher misrake ."Lr", to the selection of inappropriate objectives ..ttiti.t focus on the wrong financial measures. Author Jim Collins argues that many best-performing companies often measures. His research suggests ,lr, -"r-rtg"rs of rhe ro monitor cheir businesses' For succeed because rhey adoil more insightful measures customer' This .""-pt., Gillette shift"d it, fo.r* froi profit per division to profit per of high-margin importance of repeatable purchases shifr ieiped Gillette recognise the failed to adopc p.odrr.t, such as Mach3 razor.artriig"s. Companies where managers li-il".ly insighdul measures were not as successful'10
Bisses
balanced scorecard' Recent research Several types of biases reduce the effectiveness of a measures with which they are most familiar suggests that managers select Performance

financiai success'11 In addition' measures thar may not induce behaviour that leads to objectives and measures that highlight managers have incentives ro choose performance improvement. Any organisational areas that are strengths instead of tr.", that need example, employees may view the balanced change is likely co encounter resistance. For Joes not deserve their attention' These scorecard. as a temporary management whim that .r.r p..,r.nr"rhe endry-wide commitment and effort required for balrypes of resistance anced scorecard success.

Other foctors

scorecard should be used to Some questions surround whether or how the balanced akeady discussed, many employees .o-p..rrrr. employees. Because of the uncertainties calculations' p....i r. balanced ,.o.".r.d measures to be unfair for use in compensation in compensating managers is how i' irrrr. regarding the use of the balanced scorecard ,-.Ighr, the measures. some organisationl dgvelog a balanced scorecard io "a.q.rrrJty rh; balanced scorecard pe.for-a.tce and linking it to compensation (see

i.rd"", ..fl".ting

reward systems)' In-addition' chapter 19 for an in-depth discussion of .o-p.nr"tion and to game*"iirrr, or orher formulaic approaches for using balanced scorecard results lead scorecard' pl#tg and suboptimirttio", to"trary to the purpose of a balanced not adequately caprhar it does Another criticism ofthe balanced scorecard ippio".h is environinciuding relations with regulators or apProaches towards the rure core values, and strategies' in its vision menr. An enriry's .o.. ,riio", are theoretically embedded on the balanced scorecard places little emphasis on values' However, cufrent literature

$*{mw vexlu:*him is ?$'le hmlmrreed $fisl"#cffifr"d? some people are inclined Given these perceived weaknesses in the balanced scorecard, benefits' However' any to dismiss chi, -ethodoiogy; they want greater certainry about implement business strategies is merhod. that manager, .rr."ro heip them-develop and 1 about the path co highersubjecr to significairt ,..r...t"i.rry. we learned in chapter

qualiq,managementdecisions,presentedagaininfigure18.l2.Higher-qualirydecisions occur from use of che foliowing: ' higher-qualitY information

' .

higher-qualitY rePorrs higher-qualiry decision-making processes'

f;L{ApTfiffi 1& The bolonced scorecord ond sirolegy

mops 779

Figure 18.i? Poth lo higher-quolily monogement

decisions

The besr questions to ask about the balanced scorecard methodology are u,herhe: u helps managers and employees throughour the entity make higher-qualiry ds6i5ic,rr{i and whether the benefits from improved decision making exceed rhe cosrs of irner,*. menting and maintaining a balanced scorecard. Is the information in a balanced sc,-ie card of higher quality than the informarion managers previously used? Are balar:cerd scorecard reports more relevant, understandable and available on a timely basis? D..'es use of the balanced scorecard encourage managers and other employees to be mo,r'c thorough, less biased, more focused, and more srraregic, creative and visionarr'? P;oponents of the balanced scorecard methodolo gy arglre that the answer ro each of rhesc questions is 'yes.' They also point out that the balanced scorecard should nor be vienleld as a static formulaic approach. Instead, it must be re-evaluated and refined periodr.=ilrr to provide better information for monitoring and motivaring performance. Perio.foc re-evaluation allows managers to eliminate or alter measures rhat do not fit well anc lo identify potential new measures that offset unintended negative effects. As the en;:llearns, it can do a berter job ofdesigning and using a balanced scorecard. Organisadons that fail to engage in continuous improvement are less likely to achieve high-qua-:n
results.

Undersiqnd how financial ond n0fiJin0ncial meosures ore used to evalucte

orgonisfl iion0l performcnce.

Oulline the role 0f stroiegy

mops in the bolanced

SCOreCCrd process.

A strategy map provides a visual representation of the straregy with a single-page r.ie*' of how objectives in the four balanced scorecard perspectives (financial, cusromerinternal business process, and learning and growth) integrate and combine to guide rhe strategy. It illustrates the cause-and-effect relationships that link desired ourcomes in the customer and financial perspectives to outstanding performance in critical internal

2 r^da*tg=:e**? *e*+::*;ti*gt

x***dFrlpj paa'f*r*r**** *r*ttsurel':rs*f *+S rrl"rf,fe#y

managemenl' innovation and regulatory/ oPeradons, management' customer processes social processes. srraregy map should be ro:

. .

The focus oF a and the balanced scorecard provide a link betw# *"'otgt"i"t1""-::,'**gy from the key strategic themes developed (where appropriate) convey the
scorecard srraregic objecrives in rhe four balanced

. ::1ffil'::;:x,1T.il",s
Derspectlves' r 'r _ -

ffirPoratebothfi.nancia1andnon.financia1performancemeasureS lt:':-: ]..T:::'ii'f:'::::".tJJ::l;:*Tt'r'"t'fi into organisari.""r -"'Jg""';'": t"""""' tha'c can be monitored

ii::;#:1:::.".il:T::ffi; fi;lo ffi'-"""

over time.

Innovation

cYcle

Ooerarions cYcie
Posr-sales service cYcle

mary

",.'d ffiffI"il:##;*'"'J'til;;;'t' wh".'

and. feedback

us

p'.

o, J'

r;;;l;;;;; ;elp

'g::::::lt:'i::ii:;:'Jt strategic uncertalncles deai with the organisation's

;; ;i;;; ;l ;s;; ;; ;";'

the prieracdvely relates essentially to t?;

"l ":'-" *:":li iitlff wavs' diagno:::

:::':,1]"*:*

t;::;;, jl i n^easure' lnonxtor n ;,i;

'n"
toor to review

i'-t th" form of a boundary direct managerial attentio"

""a 'ntorrgh system'

the metrics used

ond strotegy *b4rAP'!ft 1& The bolonced scorecord

mops 721

Exploin how o bolonced scorecord is implemented

ffi ffi&tu#
identify fhe strengths qnd weoknesses of the bqlqnced scorecord.
Communicoiion ond linkoges Encouroges clorificotion ond updoting of vision ond strotegies Improves communicotion ond consensus throughout the entily Links shortJerm ond long-term performonce objeclives to the vision ond strotegies

r . .

Implementotion is expensive ond timeconsumrng Uncerloinlies Approprioteness of vision ond strotegies o Accurocy of identified core competencies o Best sel of performonce objectives ond meosures Reliobility of scorecord dolo Reosonqbleness of torgels Doubt obout links o.ong perspeciives

. . . . .

Guidonce for improvemenls Enobles periodic performonce reviews of progress towqrds vision ond strotegies Leods lo improved finonciol performonce Helps monogers use operotionol doto for decision moking

r . .

Mistokes in implemenlotion Ambiguous or generolly defined objectives e Informolion systems not integroled Insufficient resources o Lock of senior monogement supporl Focusing on inoppropriole objectives

. .

22

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Bioses

Motivolion

.'

. . .

gools with the O"n.. ,"n ond individuol slrolegies orJonisotionol vision ond effort M6tivotes emPloYee ol the B"Jr."t optimisolion of subunits entitY os o whole oi rhe "*P"nt" oction lowords ochieving strotegies Promoles

l'l*"*on"t

. .

selection of fomilior or eosily meosures ottoinoble obiectives ond units ond individuols n"rirton." from viewed os o temPororY fod

oto."tt

for compensoiion MoV be inoppropriote

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srraregy is ro

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enrity operates three
r

pr*x e*nd e*r:s se*reesrd ln:plemeng*tl*n;

l.

duces. A Fourth

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:

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(a)DescribetheimplementationcycleforthebalancedscorecardaclvlountDandenong

tu)BJf:;ib"therourp:"P::'ll:'^:::T-t":t::::il::::fi:;':"tJ:ffi :".:fi T: objecrives for each persPectr

nerlormance

i::J:;'.',T:'"::?"i:'J'?il1:::il##; '''H:{l',3i1:il#ki: or lTrore Potentlal scorecard for Mount ff:?:r lfi cons of implementing a balanced a, |:T,"fl
Dandenong Bikes'
4@

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tr.p, fb;Plt-"**g fr". ng.tr. tg7 orl Page709): cr ar tf1,. i: y " o uid ar i"zi:,:;,i,?;I,",:,1,^:;;lx,i,,a,a,gyg';;,.y:;::;l*nr.'ffo. co n i de r :' :: :?:: t i;;H;;; ;"'g" r, haddition, the managers its mrssron tt":'^:':^:-'-i',".'.."r"-.rir' In addition' lhe manal developed developed , ..'.o*"rir' h-r
s s

tor Mounr Dandenong Bikes a balanced scorecard

ixi:
s

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;;;;A

need to clatfi [:: i: il:'i,T

vision sratement

rhe manr sPecified its strategies'

-^.-^ -'^1'.^c t::""]*:t 1li .';;; ;J *"^-;ers'should nv.., tho.rgh lti ."*o"rencies. "',:;#: :T:lil: i: : Moult.ijanoerrurr5

tf,e

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i:*"::: m

and ffiTreview them ?: i revrse

;::il,*H

i:

,r;fr:';;:;::;;:;tod'euetopp*r"*':':i!1:::::'"^:::?K"",,timanasers t"d 'rategies' from each-:l::'" t"tbusiness .o analyse tr'tt "l'i"'yt i'i'io'-' ,t..J n""titial' customer' internal ro idenrily perspectives for the ;il|;;;to'1' .' and rearnrng and growrh.,wi.hir';;:;-f.rrfrr"*' ':tl-"ttd nrocess,
i
: : :i the managers must

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ond slrotegy The bolonced scorecord

mops 723