Balanced Scorecard

Introduction

Before the Balanced scorecard, there must first be a goal then a strategy. Goal is an abstract
expression of the enterprises desired state of affairs or things to accomplish. Enterprises have different goals
like to be the leading power of technology, the best producer, the most efficient distributor or the least-cost
provider. We set goals in order to accomplish the primary objective of companies, which is to increase the
shareholders value and wealth. That means, goal is translated into financial terms. To accomplish it while
minimizing business risk, a managerial planning and controlling process should be in place. Now, strategy
may be developed by zeroing-on in the income statement of an enterprise or on its balance sheet or
statement of cash flows. If the enterprise focuses on its income statement, its strategy may be product
differentiation or cost leadership. Other strategies are confrontational strategy and quick-response
strategy. Product Differentiation happens when you produce products where the enterprise can dictate
leadership through branding, unique, customer service, strategic pricing, technology orientation, and product
innovations while Cost leadership relates to the enterprises awareness and efforts to reduce its cost and
expenses through means and measures that would result to the least possible cost of producing goods and
services. Therefore, we can say that strategy describes how an organization matches its own capabilities
with the opportunities in the marketplace to accomplish its overall objectives.

Balanced Scorecard (BS)

Once the strategy is developed, the next step is to operationalize it. This is where the importance
of balanced scorecard takes place. It comes in after the business strategy is developed or chosen. It is not
used to find or invent strategy nor is it a toll in selecting a strategy. Balanced Scorecard is a system used to
effectively communicate strategies into concrete terms to all personnel of the organization, identify key
success areas to focus the attention of all members in the organization.

The BS Philosophy

In the process of measuring the performance of an enterprise in terms of money, there are activities
that need to be performed. The need of customer must be identified, the internal resources of the enterprise
must be harnessed, and the long term capability of the enterprise to sustain its business must take place.
The Balanced Scorecard has four important perspective of performance that need to be measured as an
indicator of enterprise success. These perspectives are customer perspective, internal business perspective,
innovation and learning perspective and financial perspective.

Lead Activities refers to the initial and required activities to be done to generate revenues, incur costs, derive profit,
and increase the enterprises wealth.

The Customer Perspective

It focuses on performance targets as they relate to customers and the market. It usually covers
customer growth and service targets as well as market share and branding objectives. Typical measures
and KPIs in this perspective include customer satisfaction, service levels, net promoter scores, market
share and brand awareness.

The Internal Business Perspective

It focuses on internal operational goals and covers objectives as they relate to the key processes
necessary to deliver the customer objectives. Here, companies outline the internal business processes
goals and the things the organization has to do really well internally in order to push performance. Typical
example measures and KPIs include process improvements, quality optimization and capacity utilization.

Innovation and Learning Perspective

Focuses on the intangible drivers of future and is often broken down into the following
components:
Human Capital (skills, talent, and knowledge)
Information Capital (databases, information systems, networks, and technology
infrastructure)
Organization Capital (culture, leadership, employee alignment, teamwork and knowledge
management).
Lag Activities

The Financial Perspective

It focuses on financial performance of an organization. It normally covers the revenue and profit targets of
commercial companies as well as the budget and cost-saving targets of not-for-profit organizations. The
financial health of an organization is a critical perspective for managers to track. It is important to note that
financial performance is usually the result of good performance in the other three scorecard perspectives.
 Advantages Disadvantages
1. It considers both the internal and external variables Conflicting measures.
2. It is related to corporate Selecting measures.
3. It includes financial and non-financial measures Expertise
Interpretation

Bench Marking

This refers basically standards-setting and standard getting. The idea to identify the best practices
in the organization and make it as a benchmark for others to emulate. It could be either financial or non-
financial in nature, internal or external in source. It does not end within a company but also in the industry,
country, or internationally. The benchmarking process creates benchmarking teams who are responsible in
identifying benchmark and guiding people in the process of beating the benchmarks.

Examples of key performance indicators -are established to monitor and measure operating & financial success

Perspectives Goals Measures

Customer New Product Percentage of sales from new product
Responsive supply On-time delivery
Preferred supplier Share of key accounts purchases
Ranking by key accounts
Customer partnership Number of cooperative engineering efforts
Internal business Technology capability Manufacturing configuration vs competition
Manufacturing excellence Cycle time, unit cost, yield
Design productivity Silicon efficiency, engeeniring efficiency
New product introduction Actual introduction sxchedule vs plan
Innovation and learning Technology leadership Time to develop next generation of products
Manufacturing learning Process time to maturity
Product Focus Percentage of products that equal 80% of sales
Time to market New product introduction vs competition
Financial Survive Cash flows
Succeed Monthly sales growth and operating income by division
Prosper Increase market share and ROI
Advanced Manufacturing Technology (AMT)

The manufacturing processes has been redefined as the sophistication in the market place increases.
Nowadays, the life cycle of product is shortened, the manufacturing systems has been flexible, the presence of robotics
and automatic production technology, and others have made manufacturing more responsive to unique customer
demands and orders.

Computer-aided Manufacturing

Computer-integrated manufacturing (CIM) uses a high level automated manufacturing system. It is

a holistic approach of dealing with the production process from the design stage to post sales services with
heavy application of electronic technology, automation and robotics. It has the advantages of flexibility,
integration, and synergism.

Materials Requirements Planning

It is a production planning, scheduling, and inventory control system used to manage manufacturing
processes. Most MRP systems are software-based, but it is possible to conduct MRP by hand as well. An
MRP system is intended to simultaneously meet three objectives: (1) Ensure materials are available for
production and products are available for delivery to customers. (2) Maintain the lowest possible material and
product levels in store (3) Plan manufacturing activities, delivery schedules and purchasing activities.

Manufacturing Resource Planning 2

Manufacturing Resource Planning (MRP II) is an integrated information system used by businesses.
Manufacturing Resource Planning (MRP II) evolved from early MRP systems by including the integration of
additional data, such as employee and financial needs. The system is designed to centralize, integrate and
process information for effective decision making in scheduling, design engineering, inventory management
and cost control in manufacturing.

Enterprise Resource Planning

It is an organization-wide planning technique of managing resources through the use of

computerized system. Organizational resources such as men, money, information, distribution networks,
marketing, engineering policies are interlinked and are connected with suppliers and customers.
Paretos Law

The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor
sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes. Management
consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who
noted the 80/20 connection while at the University of Lausanne in 1896. Since then, it has found its use in
inventory, management, customer profitability analysis, human resources production standards, problem
identification and many more.

Boston Consulting Group (BCG) Matrix

This helps in strategizing the individual role, position, and contribution of each product, throughout
its life cycle which has four stages infancy, growth, expansion and maturity or decline. In the first stage, it
still has an unknown product destination (Question Mark,) these are products with low market share but
operate in high market growth rates. The company puts a lot of resources in this product in the hope that it
will eventually increase market share and generate cash returns in the future. It could either become a star,
It has high market shares that operate in growing markets. The product at this stage should be generating
positive returns for the company. Or become a dog, these are products which have low market shares and
low market growth rates. The options for many companies is to phase these products out, however some
organization do go for the strategy of re-inventing and injecting new life into the product. If a product sustain
its star performance, it would eventually slow down its market growth but retain its market leadership. At this
stage it becomes a cash cow which are products at the mature stage of the lifecycle, they generate high
amounts of cash for the company, but growth rate is slowing. There are chances that the product may slip
into decline, appropriate marketing mix strategies should be employed to try to prevent this from happening.
Also during the product life cycle, an enterprise may follow any or a combination of the following
strategies: Build (turn a question mark into a star), Hold (preserving market share as a star or cash cow),
Harvest (cash cow to a star) or Divest (eliminating underperforming products that normally belong in the dog
category and question mark category.

Contingency Theory

In management accounting, this theory explains how management accounting methods have
developed in a variety of ways depending on the judgments or decisions required. It states that the design of
the accounting information systems depends on the need of management using it. It is evidently true that
there is not one best way of designing an organization or its accounting system, otherwise all successful
organizations and their accounting systems would be identical.

Mckinsey 7S Model

This describes the link between the organizations behavior and the behavior of the individuals within
it. There are three hard elements and four soft elements of business behavior and their interrelationship.

Elements 7Ss Comments

Hard Elements Structure The formal division of tasks in the organization and the hierarchy of
easily quantifiable authority from the most senior to junior.
and defined, and Strategy How the organization outperforms its competitors, if it is a business, or
deal with facts how it intends to achieve its objectives. This is linked to shared values.
and rules Systems These include the technical systems of accounting, personnel,
management information, and so forth. These are linked to the skills of
the staff.
Soft Elements Style It refers to the corporate culture which is the shared assumptions ways
of working, attitudes and beliefs.
Shared values These are guiding beliefs of people in the organization as why it exists
Staff The people in the organization
Skills It refers to the things the organization does well.