Alaa.aliasrei@gmail.

com @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Chapter 2
The Balanced
Scorecard and
Strategy Map

QUESTIONS

2-1 Financial performance measures, such as operating income and return on

investment, indicate whether the company’s strategy and its implementation
are increasing shareholder value. However, financial measures tend to be
lagging indicators of the strategy. Firms monitor nonfinancial measures to
understand whether they are building or destroying their capabilities—with
customers, processes, employees, and systems—for future growth and
profitability. Key nonfinancial measures are leading indicators of financial
performance, in the sense that improvements in these indicators should lead to
better financial performance in the future, while decreases in the nonfinancial
indicators (such as customer satisfaction and loyalty, process quality, and
employee motivation) generally predict decreased future financial
performance.

2-2 A Balanced Scorecard is a systematic approach to performance measurement

that translates an organization’s strategy into clear objectives, measures, and
targets. The Balanced Scorecard integrates an appropriate mix of short- and
long-term financial and non-financial performance measures used across the
organization, based on the organization’s strategy.

2-3 The four measurement perspectives in the Balanced Scorecard are (1)
financial, (2) customer, (3) process, and (4) learning and growth.

2-4 Increasingly, in order to succeed, organizations are relying on competitive

advantage created from their intangible assets, such as loyal customers, high-
quality operating and innovation processes, employee skills and motivation,
data bases and information systems, and organization culture. The growing
importance of intangible assets complements the growing interest in the

–21–
Atkinson, Solutions Manual t/a Management Accounting, 6E

Balanced Scorecard because the Balanced Scorecard helps organizations

measure, and therefore, manage the performance of their intangible,
knowledge-based, assets. With the Balanced Scorecard measurement system,
companies continue to track financial results but they also monitor, with
nonfinancial measures, whether they are building or destroying their
capabilities—with customers, processes, employees, and systems—and how
the company is managing intangible assets to create future growth and
profitability. The Balanced Scorecard provides a framework for describing
how intangible and tangible assets (such as property, plant, equipment, and
inventory) will be combined to create value for the organization.

2-5 The two essential components of a good strategy are (1) a clear statement of
the company's advantage in the competitive marketplace—what it does or
plans to do differently, better, or uniquely compared to competitors; and (2)
the scope for the strategy—where the company intends to compete most
aggressively, such as targeted customer segments, technologies employed,
geographic locations served ,or product line breadth.

2-6 First, it creates a competitive advantage by positioning the company in its

external environment where its internal resources and capabilities deliver
something to its customers better than or different from its competitors.
Second, having a clear strategy provides clear guidance for where internal
resources should be allocated and enables all organizational units and
employees to make decisions and implement policies that are consistent with
achieving and sustaining the company’s competitive advantage in the
marketplace.

2-7 A strategy map identifies linkages among essential elements for the
organization’s strategy. That is, a strategy map provides a comprehensive
visual representation of the linkages among objectives in the four perspectives
of the Balanced Scorecard. For example, employees’ process improvement
skills (learning and growth perspective) drive process quality and process
cycle time (process perspective), which in turn leads to on-time delivery and
customer loyalty (customer perspective), ultimately leading to a higher return
on investment (financial perspective). This example shows how an entire
chain of cause-and-effect relationships can be described to interconnect
objectives (and their measures) in each of the four perspectives.

2-8 Once the company’s vision, mission, and strategy have been established, the
senior management team selects performance measurements to provide the
–22–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
needed specificity that makes vision, mission, and strategy statements
actionable for all employees. Companies generally start their Balanced
Scorecard project by building a strategy map that contains the word
statements of their strategic objectives in the four perspectives and the
linkages among them. The process of building a Balanced Scorecard should
start with word statements, called objectives that describe what the company
is attempting to accomplish. Objectives concisely express actions and may
express the means and the desired results. An example of an objective for the
financial perspective might be to increase revenues through expanded sales to
existing customers. Measures describe how success in achieving an objective
will be determined. A measure should be specific in order to provide clear
focus for the objective. An example of a measure for the objective above
might be to measure the percent increase in sales to existing customers each
month. Targets establish the level of performance or rate of improvement
required for a given measure. For example, a target could be a two percent
increase in sales each month to existing customers.

2-9 The two basic approaches to improving a company’s financial performance

are (1) productivity improvements and (2) revenue growth.

2-10 Companies can generate additional revenues by (1) deepening relationships

with existing customers by selling additional products or services, or (2) by
introducing new products, selling products or services to new customers, or
by expanding into new markets.

2-11 Productivity improvements can be achieved in two ways: (1) reducing costs
by lowering direct and indirect expenses, and (2) utilizing financial and
physical assets more efficiently to reduce the working and fixed capital
needed to support a given level of business.

2-12 Virtually all organizations try to improve in terms of customer satisfaction,

customer retention, customer profitability, and market share, but
improvements in these measures do not necessarily constitute a strategy. The
measures must be linked to a company's strategy in order to align the
enterprise around successful execution of the strategy. For example, a
strategy often identifies specific customer segments that a company is
targeting for growth and profitability, in order to achieve the organization’s
financial objectives. Then the measures (customer satisfaction, customer
retention, customer profitability and market share) must be applied to the
customer segments in which they choose to compete.

–23–
Atkinson, Solutions Manual t/a Management Accounting, 6E

2-13 A value proposition defines the company’s strategy by specifying the unique
mix of product performance, price, quality, availability, ease of purchase,
service, relationship, and image that an organization offers its targeted group
of customers in order to meet customers’ needs better or differently from its
competitors. The low-total-cost value proposition is used by companies such
as Target (http://www.target.com), Southwest Airlines, Dell Computers, and
Wal-Mart. The objectives of this value proposition emphasize attractive
prices (relative to competitors), excellent and consistent quality for the
product attributes offered, good selection, short lead times, and ease of
purchase. McDonald’s, for example, is inexpensive, serves food of consistent
taste and quality, and serves customers quickly.

2-14 The product-leadership value proposition is followed by companies such as

Tektronix (which designs and produces measurement and monitoring
instrumentation, http://www.tek.com), Apple, Mercedes, and Intel. This value
proposition emphasizes particular features and functionalities of the products
that leading-edge customers place value in and are willing to pay more to
receive. Specific measures include speed, accuracy, size, power consumption,
design or other performance characteristics that exceed the performance of
competing products and that are valued by important customer segments. It is
important to be first-to-market when using the product innovation and
leadership value proposition.

2-15 The customer-solutions value proposition is followed by companies such as

Home Depot (http://www.homedepot.com), whose salespersons can teach
customers how to use the products they buy at the store, Goldman Sachs, and
IBM. This value proposition focuses on making customers feel that the
company understands them and is capable of providing them with customized
products and/or services tailored to their needs and preferences. Certain
objectives that are stressed include completeness of the solution, exceptional
service both before and after the sale, and the quality of the relationship
between the company and its customers.

2-16 The Balanced Scorecard is helpful in identifying critical processes because it

forces the company to determine the means by which it will produce and
deliver the value propositions for customers and achieve the productivity
improvements for the financial objectives. Furthermore, the Balanced
Scorecard includes objectives and measures to evaluate performance on these
critical processes.

–24–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
2-17 An organization will want to include measures that monitor customers’
perspectives on processes, even if workers often have little control over the
measure. To illustrate, airlines will likely track on-time arrivals and
departures at each airport because these measures are important to customers.
In this example, the process perspective should contain objectives that are
controllable by employees, but perhaps not completely, since an individual
employee or department may control only one component of a process.
Employees can influence on-time departure but weather conditions might
disrupt an otherwise orderly process. To achieve desired ground turnaround
time, multiple processes must operate efficiently: cleaning, refueling, and
servicing the plane, loading drinks and food, handling luggage, and boarding
passengers. If delays occur in any of these processes, the plane’s departure
may be delayed. Thus, the Balanced Scorecard may include a common metric
for several different employee groups, none of which can completely
determine performance on the metric. Moreover, performance improvement
may involve teamwork across processes.

2-18 The four categories of processes that are useful in developing the process
perspective measures are (1) Operations management processes, (2)
Customer management processes, (3) Innovation processes, and (4)
Regulatory and social processes.

2-19 Operations management processes are the basic, day-to-day processes that
produce products and services and deliver them to customers. Some typical
objectives for operations management processes are (1) achieve superior
supplier capability, (2) improve the cost, quality and cycle times of operating
processes, (3) improve asset utilization and (4) deliver goods and services
responsively to customers.

2-20 Customer management processes expand and deepen relationships with

targeted customers. Three important objectives for customer management
processes are (1) Acquire new customers, (2) Satisfy and retain existing
customers, and (3) Generate growth with customers.

2-21 Innovation processes develop new products, processes, and services, often
enabling the company to penetrate new markets and customers segments.
Also, successful innovation drives customer acquisition, loyalty, and growth,
which lead to enhanced operating margins.

–25–
Atkinson, Solutions Manual t/a Management Accounting, 6E

2-22 Managing innovation involves two important subprocesses. They are (1)
Developing innovative products and services, and (2) Achieving excellence in
research and development processes.

2-23 Regulatory and social processes promote meeting or exceeding standards

established by regulations and facilitate achievement of desired social
objectives. Companies manage and report their regulatory and social
performance along a number of critical dimensions. These include (1)
Environment, (2) Health and safety, (3) Employment practices, and (4)
Community investment.

2-24 In developing their Balanced Scorecard, managers identify which of the

process objectives and measures are the most important for their strategies.
Companies following a product leadership strategy would stress excellence in
their innovation processes. Companies following a low-total-cost strategy
must excel at operations management processes. Companies following a
customer-solutions strategy will emphasize their customer management
processes

2-25 Typically, the financial benefits from improving processes occur within
different time frames. Cost savings from improvements in operational
processes deliver quick benefits (within 6 to 12 months) to productivity
objectives in the financial perspective. Revenue growth from enhancing
customer relationships accrues in the intermediate term (12 to 24 months).
Innovation processes generally take longer to produce customer and revenue
and margin improvements (24 to 48 months). The benefits from regulatory
and social processes also typically take longer to capture as companies avoid
litigation and shutdowns and enhance their image as employers and suppliers
of choice in all communities in which they operate.

2-26 The three components of the learning and growth perspective are human
resources, information technology, and organizational culture and alignment.

2-27 The following are desirable characteristics for a Balanced Scorecard measure:
 Meaningful: It is a valid indicator of the underlying strategic objective.
 Available: The measure already exists in our data base or can be
obtained without excessive cost.
 Understandable: People can quickly interpret levels and changes in the
measure.
 Actionable: The measure can be influenced by the actions and
initiatives the organization undertakes.
–26–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
 Simple: You can explain the measure in one or two sentences.
 Timely: You can obtain the measure at an appropriate frequency and
without excessive delay.

2-28 Because financial success is not their primary objective, nonprofit and
government organizations (NPGOs) cannot use the standard architecture of
the Balanced Scorecard strategy map where financial objectives are the
ultimate, high-level outcomes to be achieved. NPGOs generally place an
objective related to their social impact and mission, such as reducing poverty,
school dropout rates, incidence or consequences from particular diseases, or
eliminating discrimination, at the top of their scorecard and strategy map. A
nonprofit or public sector agency’s mission represents the accountability
between it and society, as well as the rationale for its existence and ongoing
support.

2-29 Building and embedding a new measurement and management system into an
organization is complicated and susceptible to at least the following four
common pitfalls described in the chapter: (1) Senior management is not
committed; (2) Scorecard responsibilities don’t filter down; (3) The solution
is over-designed, or the scorecard is treated as a one-time event; and (4) The
Balanced Scorecard is treated as a systems or consulting project. An
additional pitfall is for one senior manager to try to build the scorecard alone.

EXERCISES

2-30 Wal-Mart is a company that uses the low-total-cost value proposition. The
objectives of this value proposition emphasize attractive prices (relative to
competitors), excellent and consistent quality for the product attributes
offered, good selection, short lead times and ease of purchase. Possible
measures for Wal-Mart include the following:
(1) Financial: Return on investment, profit, change in yearly profit, cost of
purchasing items, inventory turnover.
(2) Customer: Market share, customer satisfaction in targeted segments such
as price-sensitive customers, customer satisfaction and/or market share
for Wal-Mart branded products, stockout rates, price indexes compared
to competitors, return rates due to defective products.
(3) Process: Cost of purchasing as a percentage of total purchase price, lead
time for suppliers to replenish customer purchases, distribution cost per
unit, supplier defect rates, percent suppliers that operate automatically for
continuous replenishment, checkout speed.

–27–
Atkinson, Solutions Manual t/a Management Accounting, 6E

(4) Learning and growth: Employee satisfaction measured by a survey,

employee retention, percent of suppliers linked electronically to point of
sale terminals, number of employee suggestions for cost reduction or
improved customer service, employee culture survey for continuous
improvement.

2-31 Mercedes uses the product-leadership value proposition, which emphasizes

particular features and functionalities of the products that leading-edge
customers place value in and are willing to pay more to receive. Specific
measures include speed, accuracy, size, power consumption, design or other
performance characteristics that exceed the performance of competing
products and that are valued by important customer segments. It is important
to be first-to-market when using the product innovation and leadership value
proposition. Possible measures for Mercedes include the following:
(1) Financial: Economic value added, change in yearly profit, gross margin
per vehicle sold, benchmarked against competitors.
(2) Customer: Market share and customer satisfaction in targeted segments
(such as high discretionary income customers), customer retention, peer
review of new product introductions compared to competitors, ratings of
specific driving attributes—power, handling, comfort, convenience, brand
image, quality performance in customer surveys, such as J.D. Power and
Consumer Reports.
(3) Process: Time spent with focus groups to learn about knowledgeable
customer preferences, product development lead time, peer review of new
products in product development pipeline, number of new models or
features introduced each year.
(4) Learning and growth: Employee satisfaction measured by a survey, key
employee retention, employee skill coverage (such as scientists and
engineers with leading-edge knowledge of powertrain, suspension,
aerodynamics, etc.), availability of information systems for virtual
prototyping and dynamic simulation of new vehicles, employee survey for
culture of creativity and innovation.

2-32 Nordstrom, an upscale retailer uses the customer-solutions value proposition,

which focuses on making customers feel that the company understands them
and is capable of providing them with customized products and/or services
tailored to their needs. Objectives that are stressed include completeness of
the solution, exceptional service both before and after the sale, and the quality
of the relationship between the company and its customers. Nordstrom’s sales
force is legendary for its customer service. (See case 3-70 for more

–28–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
information on Nordstrom.) Possible measures for Nordstrom include the
following:
(1) Financial: Return on investment, change in yearly profit per store, profit
margins on merchandise, inventory turnover.
(2) Customer: Market share in target segments, percent of customers who
return for more purchases, percent of customers’ ―wardrobes‖ supplied
by Nordstrom, average number of items sold per customer visit, number
of referrals from delighted customers, customer lifetime profitability,
percent of sales from loyal customers.
(3) Process: Length of time elapsed between the time a customer’s desired
item arrives in a store and the customer is contacted, percent of customers
whose preferences are entered into Nordstrom’s database, employees’
sales per hour (salesperson’s knowledge of customer’s preferences should
facilitate quick sales), stockout rate, sales dollars per square foot,
checkout speed.
(4) Learning and growth: Employee satisfaction measured by a survey, key
employee retention, percent of salespersons with more than two years of
Nordstrom experience, percent of salespersons using the Nordstrom
customer relationship management (CRM) system, culture survey on
customer focus, survey on employee alignment to Nordstrom’s values and
mission.

2-33 (a) Increase employees' process improvement skills 

Decrease process defects  Decrease cost of serving customers

Decrease process defects  Increase customer satisfaction  Increase

revenues

Increase revenues and decrease cost of serving customers 

Increase profit

(b) Reduce turnover of key design personnel 

Decrease product development time from idea to market 
Increase number of products that are first on the market 
Increase number of new customers 
Increase revenues  Increase profit

(c) Increase employees’ customer relationships skill levels 

Increase customer satisfaction with employees' assistance 
Increase number of products cross-sold to customers 

–29–
Atkinson, Solutions Manual t/a Management Accounting, 6E

Increase revenues

2-34 The statement is incorrect. In the process perspective of the Balanced

Scorecard, there are four groupings. The fourth grouping, regulatory and
social processes, includes measures on environmental performance and
employee health and safety. Examples of key measures found in this grouping
include (1) number of environmental incidents, (2) energy and resource
consumption, (3) number of OSHA recordable cases per 100 employees, and
(4) lost workdays per 100 employees or per 200,000 hours worked. Also, if
environmental and social issues are especially important to a company, some
actually introduce a fifth perspective, located near the process perspective in
the strategy map, to highlight objectives and measures of the company’s
performance for the environment and in the communities in which it operates.

2-35 It is indeed possible for an organization to focus on 20 to 30 different

measures in the Balanced Scorecard. The key is that the measures are not
independent of each other. If the measures were independent of each other,
they would be too difficult for an organization and its employees to absorb.
However, a properly constructed Balanced Scorecard provides the
instrumentation for a single strategy. Companies can then formulate and
communicate this strategy with an integrated system of 20 to 30 measures
that identify the cause-and-effect relationship among the critical variables.

2-36 This statement is incorrect. The individual is assuming that identifying key
performance indicators and classifying them into the four scorecard
perspectives constitutes a Balanced Scorecard. While these key performance
indicators are worthy of attention, they do not reflect a company’s strategy.
Cause-and-effect relationships must be specified so the measures correspond
to objectives that relate to the organization’s strategy. As stated in the
chapter, a good test is whether one can understand the strategy by looking
only at the strategy map and scorecard. Note also that the list of key
performance indicators does not explicitly include indicators for processes.

2-37 Although this scorecard is more balanced than its previous one, which used
only a single financial measure, it is easy to identify the major gaps in the
measurement set. The 4P scorecard has no customer measures and only a
single measure each in the process and learning and growth perspectives. This
KPI scorecard has no role for information technology (strange for a financial
service organization), no linkages from its process measure (quality
certification) to a customer value proposition or to a customer outcome, no
linkage from the learning and growth measure (diverse workforce) to
–30–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
improving its process metric (as achieving quality certification), no linkage
from a customer measure to a financial outcome and no linkage from a
process measure to a financial outcome.

2-38 There are three main differences between a Balanced Scorecard for a
nonprofit or governmental organization (NPGO) and a for-profit organization.
First, financial success is not the primary objective of NPGOs. Therefore,
financial objectives are not the high-level outcomes to be achieved at the top
of the strategy map and Balanced Scorecard. Instead, a long-term mission
objective such as reducing poverty, improving education, or increasing health
is identified as the high-level primary objective. Second, the customer
framework is different due to different classes of customers. In the case of
NPGOs, there are donors and taxpayers who pay for the service, and there
are citizens and beneficiaries who receive the service. This dual-customer
perspective must be considered when developing the strategy map and the
Balanced Scorecard. Finally, many NPGOs do not have a clear strategy. To
apply the Balanced Scorecard, an NPGO’s thinking must shift from what it
plans to do (activities) to what it intends to accomplish (outcomes).

2-39 The Balanced Scorecard is both a performance measurement system and a

management system. The Balanced Scorecard was originally developed to
improve performance measurement by incorporating nonfinancial drivers of
performance, in addition to the usual financial performance measures. Once
the basic system was in place, managers realized that measurement not only
has consequences for reporting on the past, but also creates focus for the
future. The Balanced Scorecard helps communicate the strategy, including
objectives, measures, and targets, to all organizational units and employees,
thus serving also as a management system. The strategy map illustrates the
causal relationships among the strategic objectives across the four Balanced
Scorecard perspectives.

PROBLEMS

2-40 Since Pioneer produced mostly commodity products (gasoline, heating oil, jet
fuel), it could not recover in higher prices, any higher costs or inefficiencies
incurred in its basic manufacturing and distribution operations. The
differentiation, for Pioneer’s new strategy, occurred at the gasoline station,
not in its refineries, pipelines, distribution terminals, or trucking operations.
Little that happened prior to the final point of purchase created a
differentiated product from the consumer’s perspective. If the basic
operations of refining and distribution did not create a differentiated product
–31–
Atkinson, Solutions Manual t/a Management Accounting, 6E

or service, then any higher costs incurred in these processes could not be
recovered in the final selling price. Therefore, Pioneer’s basic operating
processes had to achieve operational excellence. Having several measures in
the process perspective for cost reduction, fixed asset productivity, and yield
improvements signaled this important set of process objectives.

2-41 (a) Infosys’ most important assets are customer relationships (especially with
its new strategy), innovation, and employee recruitment and capabilities.
These are intangible assets that are not measured well by financial statements
alone. Infosys has evolved a continuing series of new strategies (body shop,
outsourcer, IT service provider, and transformational partner). It needed a
system to clearly define each new strategy to align employees and to monitor
ongoing performance. An appropriately designed and implemented Balanced
Scorecard is highly effective at helping companies manage intangible assets
consistent with the company’s strategy. Furthermore, the Balanced Scorecard
can help management effectively communicate new strategies throughout the
company.

(b) Possible customer measures for Infosys include the following:

1) Customer loyalty (% repeat business)
2) Growth in customer revenues year over year
3) Number of customers with more than $25 (or $50) million in annual
billings
4) % of key customers’ IT spending
5) Market share among competitive IT service providers (Accenture,
IBM, Wipro, etc.)

(c) Possible employee measures for Infosys include the following:

1) Number of new hires from top schools
2) Acceptance rate of job offers
3) Employee satisfaction (and retention)
4) Measures of employee capabilities and skills in new technologies

2-42 Teach for America (TFA) can use its strategy map and scorecard in the
following ways:
 Fund raising: The clear representation of TFA's mission and strategy
should help it solicit funds from foundations or other donors who want to
invest in the TFA strategy and mission.
 Communication: TFA can explain the strategy map to all its employees
and corps members so that everyone understands the overall objectives of
TFA and how they can contribute to achieving these objectives.
–32–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
 Link to Operations: TFA can identify which processes are most important
for achieving its strategy, and focus more attention to improving those
strategic processes.
 Governance: TFA now has a performance contract to attract Board
members, have the Board approve the strategy, and hold the management
team accountable for executing the strategy.
 Recruiting: TFA can attract new employees with a clear statement of what
it is trying to accomplish, where the new employee ―fits‖ within the
mission and strategy, and how the employee could contribute to the
success of the strategy.
 Internal resource allocation: The Balanced Scorecard can help
management ensure that TFA’s resources (people and money) and
initiatives are aligned, in a balanced way, across the organization’s
multiple objectives.

2-43 The discussion should begin by specifying the organization’s objectives and
how the manager contributes to achieving those objectives. This provides a
framework for the ensuing discussion. Presumably the primary objective for a
fast food restaurant is profitability, which becomes the primary objective in
the Balanced Scorecard system. The response should identify reasonable
customer expectations regarding service, quality, and cost, and should specify
performance measures that reflect how the manager contributes to each of
these. The response should identify how employees affect performance on the
primary objective and how the manager’s activities affect employees’
performance. For example, while the manager may have no control over
wages or general employment conditions, through general management
practices the manager contributes to the general level of employee
satisfaction. The manager is likely to have little interaction with suppliers
since in most fast food operations the head office handles these relationships.
Similarly, while the corporate office handles most important community
initiatives, the local manager can contribute by participating in community
activities—for example, by sponsoring various youth activities. Therefore, the
Balanced Scorecard should include operational, customer, employee, and
community measures thought to influence profitability. Such measures might
include costs, waste, and customer wait time.

2-44 The first step in this exercise is to identify what we have referred to as the
school’s owners—either the state or the trustees, depending on whether the
university is privately or publicly funded, and their primary objectives. This is
an important step because it defines the basis for evaluating the school’s other
choices. The next step is to identify the school’s other stakeholders.
–33–
Atkinson, Solutions Manual t/a Management Accounting, 6E

Presumably, this would include customers (students), employees (faculty and

staff), suppliers (part-time instructors and other outsiders), and the
community.

The next step is to identify the primary strategy that the school has chosen to
compete for students. This defines not only the proposed relationship with
students, but also the relationships with other stakeholders, particularly
employees, that the school needs to pursue. The last step is to build a
Balanced Scorecard that reflects the school’s strategic choices and the
relationships that it has negotiated with its other relevant stakeholders.

For example, suppose that the school is publicly funded and has as its
mandate to educate students so they can fill jobs and provide an economic
contribution to the community. In this setting, we could specify that the
school’s primary objective is to prepare students for jobs in which they will
make an economic contribution within the constraints of the school’s budget.
Therefore, cost and effectiveness issues will be important parts of the
Balanced Scorecard. However, the Balanced Scorecard should reflect the
other stakeholders, particularly faculty who are responsible for designing and
delivering the educational programs, staff who provide the infrastructure
within which the education process takes place, and the community that funds
the university and, ultimately, decides its fate.

The performance measurement choices will reflect the mandate (strategy) and
primary objective, as well as what each stakeholder group provides to, and
expects to receive from, the university. For example, students provide tuition
fees and, through their numbers, continued state funding. In return, students
expect to receive an education that allows them to pursue their chosen
careers. Measuring what students receive in this setting may be difficult. For
example, measuring success by the average starting salary of students is both
a crude and short-run measure. However, perhaps it is the best available.
Measuring faculty contribution to achieving the primary objective could be
approximated by teaching evaluations and research publications. However,
this too is a crude measure of the faculty’s contribution to providing students
with what they need at the most reasonable cost. This particular setting
provides a good basis for discussion because it deals with a situation that
most students will understand, but which raises important and difficult issues
about choosing objectives, both primary and secondary, and how to measure
performance on those objectives.

–34–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
2-45 For government and nonprofit agencies, financial systems that budget
expenses and monitor and control actual spending provide information about
whether the agency overspent its budgeted or authorized amount. However,
the financial systems do not provide useful information about whether the
agency has achieved its mission because for such agencies, success is not
measured in financial terms. Success should be measured in outcomes
achieved. This requires the agency to have a clear definition of its mission
and its targeted customer base. With such a mission and a specified targeted
set of constituencies, it can then formulate objectives and measures to
motivate and focus employees towards achieving organizational objectives.
Ex post, the agency can measure the outcomes from its activities to see
whether it has delivered on its mission and objectives.

A Balanced Scorecard for a government or nonprofit agency can still have a

financial perspective. This would allow for measurement of operating
expenses as a targeted percentage of total funds raised or disbursed. For
nonprofits, the financial perspective could also include measurement of funds
raised relative to targets, and increases in contributions per donor.

The customer perspective would represent objectives and measures for either
the specific beneficiaries of the agency or the donors who provide funds for
the agency. Consider a group like the Nature Conservancy or the Sierra Club.
From the perspective of donors to these organizations (the customers),
objectives could relate to acres preserved and species protected. For United
Way organizations, objectives could relate to improvements in the local
community served by agencies supported by United Way. So one would need
to think about objectives and measures for both the providers of funds to the
organization (taxpayers or donors—which is one defining characteristic of
―customers‖) and the recipients of the services provided by the organization
(another defining characteristic of a ―customer‖).

The process perspective would represent the objectives and measures for the
business processes required to meet the objectives of donors (or taxpayers)
and beneficiaries. Such objectives could include high quality delivery of
services, speedy and zero defect responses to donors and beneficiaries,
innovative services for recipients, and recognition of donors and volunteers.

The learning and growth perspective typically, as with private sector

companies, would include objectives and measures relating to improving the

–35–
Atkinson, Solutions Manual t/a Management Accounting, 6E

skills and motivation of employees, delegating greater decision-making to

employees, and improving access to information about donors, beneficiaries,
and volunteers.

2-46 The company’s approach may not produce a comprehensive Balanced

Scorecard because it will not necessarily specify cause-and-effect
relationships with measures and objectives that relate to the organization’s
strategy. Moreover, the existing measures may not span the four Balanced
Scorecard perspectives or represent the company’s strategy. The company’s
view of the Balanced Scorecard seems limited to using the existing
performance measures.

2-47 This approach may encounter multiple common pitfalls. First, the senior
management team should be actively involved in order to articulate the
organization’s strategy, make decisions necessary for an effective strategy,
and develop their emotional commitment to the strategy and implementation
of the ensuing Balanced Scorecard. Otherwise, the head of the information
technology group may not fully understand the company’s strategy, mission,
and objectives. Second, the head of the information technology group may
attempt to build the scorecard alone rather than with the entire management
team, making implementation and acceptance of the Balanced Scorecard
difficult. The Balanced Scorecard would likely be far less complete, useful,
and accepted than if the entire management team had participated in its
development. Third, the company may face problems common when
development of the Balanced Scorecard is treated as a systems project. In
addition to the potential problems already mentioned, the information
technology group may focus on the data-gathering aspects of the performance
measurement system and developing an executive information system so that
executives can access any data they want, rather than focusing on the key
data for monitoring and implementing the strategy. Finally, the IT executive
may not have the interpersonal and organizational skills to be an effective
project leader for an interdisciplinary project (though she or he might indeed
have those skills). Consequently, the Balanced Scorecard may not include a
structured strategy map with cause-and-effect linkages among strategic
performance measures.

CASES

2-48 (a) The principal advantage of linking compensation to a Balanced

Scorecard is the alignment of incentives with the organizational goals
represented in the Balanced Scorecard. Monetary rewards often
–36–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
provide very strong motivation to focus on the scorecard measures.
This is an example of ―extrinsic motivation‖ in which people work
towards outcomes for which they are explicitly rewarded. The
Balanced Scorecard can also provide ―intrinsic motivation.‖
Employees, once they learn about the company’s strategy and how
they can contribute to that strategy, will strive to help the organization
achieve its strategic objectives because they want to take pride in
working for a successful organization.

One concern in linking compensation to a Balanced Scorecard is

whether the measures are sensible. Another is to ensure that reliable
data collection processes exist for each measure used in the
compensation function, and that the measures are not easily
manipulated. Top management must try to anticipate whether managers
might choose actions that are undesirable for the organization but that
have a beneficial effect on scorecard measures. To alleviate these
concerns, organizations may delay linking compensation to Balanced
Scorecard measures for six months to a year after the scorecard’s
initial implementation to gain confidence in the measures and data
collection processes. The organizations must be cautious, during the
initial trial period, that the existing or temporary compensation scheme
does not encourage a focus on only a narrow set of measures, such as
short-term financial performance.

Another concern is how to design compensation based on multiple

objectives. Assigning weights to individual objectives allows
considerable incentive compensation to be paid when a business unit
performs well on some objectives even if the business unit performs
quite poorly on other objectives. Companies can instead award
incentive compensation only if a specified minimum threshold is met on
all, or a subset, of crucial objectives. Typically, a minimum financial
hurdle is specified, such as 5% return on sales or 6% return on capital,
before any bonus will be paid. This ensures that bonuses are not paid
when the company is experiencing financial difficulties.

(b) M&R had a very detailed plan developed around the four Balanced
Scorecard perspectives, with numerous metrics across the perspectives.
Assigning percentage weights that determined how much the achieved
balanced scorecard measures would contribute to the bonus pool
suggests that the system was very balanced. Assigning degrees of
difficulty to achieving targets provided incentives for managers to set
–37–
Atkinson, Solutions Manual t/a Management Accounting, 6E

stretch targets rather than easily achievable targets, knowing that if

they missed a stretch target slightly, they would still receive an award
that was higher than a manager who just met a much more easily
achievable target. Because the performance factors underwent review
by peers, upper management, and the employees subject to
performance evaluation based on the performance factors, everyone
concerned could have confidence that the performance factors were
reasonable and comparable across different units. Note that all salaried
employees in M&R’s Natural Business Units had compensation linked
to performance on Balanced Scorecard measures.

The use of three tiers of compensation—corporate, division, and

business unit—aligns individual employees to areas where they can
have the most impact (their department or business unit), as well as the
broader organization (division and corporation). Employees will be
motivated to contribute to performance outside the particular
department or business unit where they work, yet still benefit from
achievements by their own unit, where their efforts will likely have the
largest impact.

The issues in part (a) also arise in M&R. In addition, the pros and cons
of extrinsic motivation can be discussed. A concern with motivation
that is primarily extrinsic is that individuals may exhibit less creativity
and innovation in decision-making and problem solving than they
would if they were also intrinsically motivated.

2-49 This question serves as a basis for discussing implementations of the

Balanced Scorecard. This exercise has two objectives. The first objective is
to provide students with an understanding of what organizations expect from
a Balanced Scorecard. The second objective is to provide students with an
illustration of the practical issues in choosing measurable primary and
secondary objectives. The question asks the student to explore all facets of
the implementation, including what measures are used, why they are used,
how the measures relate to organization strategy, and whether the Balanced
Scorecard is internally consistent and rational.

2-50 The following descriptions are drawn from the University of Leeds’ web site
(http://www.leeds.ac.uk), including its strategy map at
http://www.leeds.ac.uk/downloads/Strategy_map_aw.pdf and its
Internationalisation Strategy statement at
http://www.leeds.ac.uk/downloads/internationalisation_strategy.pdf (all
–38–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
accessed on June 25, 2010).

(a) The University of Leeds’ strategy is essentially a product leadership

strategy that focuses on integrating world-class research, scholarship, and
education.

(b) Leeds is developing a distinctive ability to integrate world-class research,

scholarship, and education that leads to its graduates and scholars making
a major impact on global society. Leeds will accomplish this by partnering
with its stakeholders, who include high-quality faculty, students, and
alumni, as well as business, public, and third-sector partners. One of the
unique aspects of Leeds’ strategy is its international focus.

(c) The University of Leeds already has a strong reputation and aims to be
ranked among the top 50 universities in the world by 2015. Its strategy
map lists four key themes:
 Enhance our standing as an international university
 Achieve an influential world-leading research profile
 Inspire our students to develop their full potential
 Increase our impact on a local to global scale

The university offers a broad range of courses, including courses in arts,

biological and physical sciences, social sciences, education, law,
engineering, business, and medicine. Leeds offers both undergraduate and
graduate studies. The university draws a relatively large population of
international students. In relation to achieving its world-leading research
profile, Leeds has an intention to ―Deliver international excellence in all
our areas of research, with defined peaks of world-leading performance.‖

(d) As an example, Leeds’ internationalization strategy has three objectives,

shown below with relevant measures.
1. Embed internationalization into our core activities
a) % research funding from outside the UK
b) % of overseas staff and % of staff with overseas visiting
professorships
c) % of students experiencing some form of overseas placement
d) Quality of international student experience
e) Number of students successfully completing Leeds degrees through
transnational programmes

–39–
Atkinson, Solutions Manual t/a Management Accounting, 6E

f) Diversity of international student population

g) Joint international publications per FTE
2. Create sustainable recruitment of high quality international students
a) Number of fulltime fee paying international students
b) International student market share by cohort

3. Develop and maintain high quality international strategic partnerships

a) Number of institutional international strategic partnerships

2-51 This case is an update of ―City of Charlotte (A)‖ (Harvard Business School
Case #9-199-036), which contains details on the early history of the City of
Charlotte’s Balanced Scorecard, as well as the scorecard measures. Details
also appear in Kaplan, R. S. and D. P. Norton, The Balanced Scorecard:
Translating Strategy into Action (Harvard Business School Press: Boston,
MA), 1996, 183-185.

This case illustrates how a government organization can adapt the typical
Balanced Scorecard approach to implement its vision and mission. Instead of
the financial perspective that appears the top of a for-profit firm's Balanced
Scorecard, the City of Charlotte uses five focus areas, modified somewhat
from the initial areas, at the top of its Balanced Scorecard. The City of
Charlotte then uses four perspectives in the following order: customer
(citizens), financial, process, and learning and growth.

The City of Charlotte's fiscal year 2010 report (page 35) at

http://charmeck.org/city/charlotte/Budget/Documents/FY2010%20Strategic%
0Operating%20Plan.pdf lists the objectives below for its four perspectives.
Further details on objectives, measures, and targets are provided on
subsequent pages of the fiscal year 2010 report.

Strategic Community Housing and Transportation Environment Economic

focus safety neighborhood development
areas development

City of Charlotte Balanced Scorecard

Perspective
Reduce crime Strengthen Provide safe, Safeguard Promote
neighbor- convenient the economic
Customer
hoods transportation environment opportunity
choices

–40–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
Increase
perception of
safety

Expand tax Deliver Invest in Maintain

Financial base and competitive infrastructure AAA rating
revenues services

Develop Enhance Optimize

Process collaborative customer business
solutions service processes

Learning Promote Recruit and Achieve

and learning and retain positive
growth growth skilled, employee
diverse climate
workforce

The customer objectives support the five focus areas: community safety,
housing and neighborhood development, transportation, environment, and
economic development. As in the initial Balanced Scorecard, the financial
objectives should enable the city to fund needed projects through taxes and
credit availability. The process objectives help the city achieve its customer
objectives cost-effectively, and the learning and growth objectives support the
process, financial, and customer objectives.

2-52 Wells Fargo describes itself as follows in its company overview at

https://www.wellsfargo.com/downloads/pdf/about/wellsfargotoday.pdf (June
19, 2010):
Wells Fargo & Company is a diversified financial services company
providing banking, insurance, investments, mortgage,
and consumer and commercial finance through more than 10,000 stores
and 12,000 ATMs and the Internet (wellsfargo.com and
wachovia.com) across North America and internationally.

Further, the website elaborates on Wells Fargo’s vision as follows:

We want to satisfy all our customers’ financial needs, help them
succeed financially, be the premier provider of financial services in
every one of our markets, and be known as one of America’s great
companies.

–41–
Atkinson, Solutions Manual t/a Management Accounting, 6E

The firm reported assets of $1.2 trillion as of March 31, 2010.

In the 1990’s, Wells Fargo already had a reputation for innovation and cost
management (―Wells Fargo Online Financial Services (A),‖ Harvard Business
School Case #9-198-146, p. 2). The following table provides examples of
measures, targets, and initiatives (actions) described in Wells Fargo’s 2002
Annual Report (pages 18-20, strategic initiatives), 2006 annual report (page
127), and web page—for example,
(https://www.wellsfargo.com/com/commercial_banking/index), focusing on
the process perspective and learning and growth perspective Additional
measures and initiatives are also provided.

Measures Targets Initiatives

(1) Investments, Percentage of Increase profit Add more private

brokerage, trust and Wells Fargo’s of these bankers, license more
insurance (satisfy profit. segments as a bankers to sell mutual
customers’ financial group to 25% funds.
needs) of Wells
Fargo’s profit.
(2) Going for ―gr-eight‖! Number of Increase Offer packages of
(cross-sell) products per average to 8. products that save
customer customers time and
money. For example, the
Homebuyers’ Package
offers new mortgage
customers a package of
banking products that
can save customers up to
$340 per year.
(3) Commercial bank of Number of active Have more Foster customer-focused
choice online middle- lead culture and attitudes;
market/large relationships provide training to
corporate than any other relationship managers in
customers; competitor in specific target industries
number of active every market (e.g., service, beverage,
online small we serve. agribusiness, technology,
business healthcare, government,
customers; and environmental).
Retention rate 100%
for high-value
–42–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
customers
(4) Doing it right for the Proportion of Cut proportion Foster customer-focused
customer (be advocates customers lost in half (to 1 in culture and attitudes.
for customers) per year 10).
(5) Banking with a Percent of 100% cross- Initiative to migrate
mortgage mortgage and selling between mortgage and home-
home-equity banking equity customers to
customers in customers and become Wells Fargo
Wells Fargo’s mortgage/ banking customers.
banking states home-equity
who bank with customers
Wells Fargo, and
vice versa
(6) Wells Fargo cards in Percent of bank 100% for each Cross-selling initiative to
every Wells Fargo wallet customers who type of card existing banking
have a credit customers without Wells
card or debit Fargo credit card.
card with Wells
Fargo
(7) When, where, and Ranking of #1 ranking Integrate delivery
how (match when, online services; channels to match when,
where, and how number of active where, and how
customers want to be online customers customers want to be
served) in various served. Some machines
categories and web services have
Spanish or Chinese
language options.
(8) Information-based Percentage of Offer right Deploy customer
marketing (analyze and customers product at the relationship management
meet customer’s needs) receiving right time to and data mining
personalized save customer application packages.
marketing time and
messages money.
(9) Be our customers’ Internet
payments processor payments
business revenue
and transaction
volume

–43–
Atkinson, Solutions Manual t/a Management Accounting, 6E

(10) People as a Percentage of Develop, reward, and

competitive advantage key jobs staffed recognize ―team
with people with members‖; build an
requisite skills, inclusive workplace.
knowledge, and
training

Development of a partial Balanced Scorecard for one of Wells Fargo’s

segments appears in ―Wells Fargo Online Financial Services (A),‖ Harvard
Business School Case #9-198-146.

2-53 Chadwick, Inc.: The Balanced Scorecard (Abridged)1, Harvard Business

School Case (HBS Case 9-104-073).

Substantive Issues Raised

Division managers at Chadwick had complained to the Controller about the

continual pressure to meet short-term financial objectives. As a producer of
consumer products and pharmaceuticals, divisions at Chadwick engaged in
long-term projects with uncertain payoffs. Managers did not believe that
using a single target, return on capital employed, linked current actions and
efforts to longer term value creation.

The corporate controller has recently learned about the Balanced Scorecard.
He presented the concept to the president and chief operating officer who
then issued a call to all Chadwick division managers to develop a scorecard
for their divisions. The divisional controller at the Norwalk division was
given the task of heading the effort to formulate scorecard measures for the
division.

Pedagogical Objectives

A discussion of the Balanced Scorecard concept can focus on three

objectives. First, the discussion should address questions about why financial

1
Copyright © 1997 by the President and Fellows of Harvard College. Harvard Business School
teaching note 5-198-029. This teaching note was prepared by W. J. Bruns, Jr. as an aid to
instructors in the classroom use of ―Chadwick, Inc.: The Balanced Scorecard (Abridged),‖
Harvard Business School Case 9-104-073. Reprinted by permission of Harvard Business School.
Additional notes appear in square brackets.
–44–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
measures are insufficient when they are used alone. Second, the discussion
should question and review the concept of the Balanced Scorecard and its
perspectives. Third, students should practice exploring linkages between
objectives and measures on scorecard perspectives so that they can see how
performance on one perspective supports or encourages achievement on
others.

[For part (a), see the ―Suggestions for Classroom Use‖ section. Also see
textbook questions 2-1, 2-2, 2-3, 2-4, 2-7, 2-8 and 2-12, and exercises 2-36,
2-39, and 2-46.]

[(b) and (c)]

Opportunities for Student Analysis

Although the case is short, it provides a remarkable amount of information

about Chadwick, Inc. and the Norwalk Division. Using this information,
students are able to relate objectives and measures to scorecard perspectives.
They can construct a scorecard by associating objectives and measures along
each perspective and then putting these together into a proposed scorecard.

Some of the things they will consider include the following.

For the customer perspective. Customer retention, market share, number of

new products released, key relationships with distributors and final
customers, number of new applications suggested by customers, number of
new applications suggested by salespeople, customers’ profits—how much
do distributors earn, customer rankings through surveys.

For the process perspective list, consider the [value-creating] cycle of the
business:

Identify unmet customer needs => explore compounds => test

compounds in laboratory [and] in field => gain government approval [
=> launch product] => release marketing, production, and
distribution [market, produce, and distribute product].

Measures for the innovation part of the process perspective could include
number of products in development, number of products in laboratory testing,
number of products in test in field testing, number of products under review
–45–
Atkinson, Solutions Manual t/a Management Accounting, 6E

for government approval, average time in each stage of development cycle,

the yield ratio moving from stage to stage in development cycle, number of
new products released, [ratio of new product sales — first two years — to
total development costs, and the following measures that could also be
included in the learning and growth perspective: percentage of sales from new
applications, number of fundamentally new compounds relative to extensions
of existing applications, gross margin on new products, and number of
suggestions from distributors and from customers.]

Manufacturing efficiencies, cost, quality, and distribution are candidates for

the operations management processes. [The measures might include
manufacturing cycle times, order lead times, on-time delivery percentages,
inventory availability, and percentage of stockouts.]

For the learning and growth perspective. Percentage of sales from new
applications, number of new applications compared to extensions of existing
applications, gross margin on new products, number of suggestions from
distributors, and number of suggestions from customers. [Possible employee-
related measures include employee climate or attitude survey (relative to
feelings of empowerment and decision-making autonomy), number of
employees with requisite technical skills (including, perhaps, new bio-
technology skills), number of employees with requisite commercial skills, and
retention percentage of key employees.]

For the financial perspective. Dollars and percent of spending on research and
development, dollars and percent of spending on marketing, waste, and scrap,
and return on capital employed (ROCE)

Students will put these objectives and their proposed measures together in
different combinations. It is the difference between student proposals that
generates a useful and productive class discussion. [The instructor can also
ask the students to develop the cause-and-effect linkages between the
measures in the different perspectives.]

Suggestions for Classroom Use

A productive way to begin the class discussion is to focus for a few minutes
on why financial measures are not sufficient to direct managers’ attention to
what needs to be done. In some ways the power of financial measures is
derived from the fact that managers can approach achievement by putting
–46–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
different combinations of inputs and outputs together. This assumes that
managers know the relationships between the change in inputs and the
outputs that will occur. A typical failing often cited for financial measures is
that they encourage a short-term orientation and actions that may not be in the
best interest of customers or long-term performance. [For example, investing
in product research and development, or in developing new customer
relationships, or in re-skilling employees, is risky since the desired outcomes
do not necessarily follow from spending on the inputs. Consequently,
managers may choose to increase their measured short-term financial
performance by reducing spending on new product development and on
enhancing customer relationships, or by not investing in employee
development.]

By adding nonfinancial measures, the Balanced Scorecard provides leading

indicators of long-term financial wealth creation and directs attention to
specific areas consistent with improvement in long-term corporate
performance. Properly selected, those measures teach managers what is
expected of them and what is important for achievement of corporate goals.
In constructing a balanced scorecard, the key is not to include all of the
perspectives and measures that are possible, but, rather, just the right number
to focus activities on what must be done by individuals in the organization for
the organization as a whole to succeed.

Students should share their views on general impressions of a balanced

scorecard. Why is each perspective important and separate from the others?
They should also consider the nature of linkages between perspectives of the
scorecard. During this discussion, it is useful to have the scorecard
framework [a current version appears in Exhibit 2-6 in the textbook] in front
of the class on a [PowerPoint slide], transparency, or chalkboard.

[The discussion can proceed in at least two ways. You can go perspective by
perspective, encouraging students to generate measures for each perspective.
This will undoubtedly lead to far more than five measures per perspective.
After this brainstorming has been completed, indicate that while all the
measures might have merit for the company, it needs to focus on the critical
few. Go through a voting process in which students are allowed to vote for, at
most, three measures per perspective. You can take the votes on the measures
quickly. Or you can list all the measures on flip charts (one per perspective)
and give each student three green dots per perspective. They can then walk

–47–
Atkinson, Solutions Manual t/a Management Accounting, 6E

up to each chart and vote by placing their green dots next to their desired
measures. You will usually see that a consensus exists for the most important
3 or 4 measures.]

[Alternatively, it] is useful to get two or three different student scorecards in

front of the class. The differences are the subject of classroom discussion. In
practice, companies experience differences not unlike those that will emerge
during this discussion, and it is typical for the development of the scorecard
to take some time. Robert Kaplan has estimated that the time to develop the
first balanced scorecard in most organizations is somewhere between 4 and 6
months, and imbedding the balanced scorecard as a central part of
management systems occurs over the next 18 to 24 months that follow. 2

Once the nature of a balanced scorecard has been discussed, the discussion
should turn to whether Greenfield and Wagner at the Norwalk Division of
Chadwick, Inc. are off to a good start in developing a scorecard. Greenfield
has quickly sketched out a business strategy. It provides some direction in
building a balanced scorecard and is responsive to the needs of Norwalk. In
constructing a scorecard, managers at Norwalk and students in the classroom
exercise have to decide whether the focus of their measures should be on
activities or on outcomes. Eventually, they will have to consider whether the
measures are those that will generate commitment. [Finally, discussion can
turn to how a Balanced Scorecard for Chadwick might differ from ones
developed in its divisions, such as Norwalk, and what resolution should occur
given potential conflicts between divisional scorecards and the corporate
scorecard.]

This is not a class in which agreement needs to be total. It is sufficient

students see that the balanced scorecard is a comprehensive approach to
objective setting and performance measurement. It succeeds where managers
are committed to it and are willing to devote the time and effort necessary to
create an effective scorecard and to implement the measures that are required.
Without that commitment, organizations are likely to revert to simpler

2
See evolution of the BSC management system for National Insurance described in R. S.
Kaplan and D. P. Norton, ―Using the Balanced Scorecard as a Strategic Management System,‖
Harvard Business Review (January-February 1996), pp. 75-85, (HBR Reprint # 96107), or in
Chapter 12 (pp. 272-292), ―Implementing a Balanced Scorecard Management Program,‖ in
Kaplan and Norton, The Balanced Scorecard: Translating Strategy into Action (Boston: HBS
Press, 1996).
–48–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬
performance measurement systems and occasional attention to problem areas
which develop on perspectives not included in the simple system.

2-54 Domestic Auto Parts, Harvard Business School Case (HBS Case 9-105-078).

The case discussion can proceed perspective by perspective, working from

the Financial through the Customer, Process, and Learning and Growth
objectives. After developing a strategy map of objectives, encourage students
to generate measures for each objective. If students generate a large number
of measures per perspective, students can vote to determine which the critical
few are. An example of a completed Balanced Scorecard and strategy map
follow.

–49–
 Atkinson, Solutions Manual t/a Management Accounting, 6E

Domestic Auto Parts—Balanced Scorecard

Perspective Objectives Measures

Financial Increase Return on Capital Employed ROCE (12%)
Reduce Unit Costs % Productivity Improvement
Gross Margin
Increase Asset Utilization Sales/Assets
% Capacity Utilization (90%)
Grow Revenue/Increase Market Share % Revenue Growth (12%/yr.)
Market Share (#1 or #2)
Customer Deliver On-Time, On-Spec OTD %
Customer Defects/Returns
Achieve Image of Trusted Supplier Customer Retention
Customer Ranking
Enhance Customer Relationships Key Customer Account Share
Become Innovative Supplier ($/%) Sales New Products
($/%) Sales New Technology Products
Process Improve Maintenance Effectiveness $ Hours Unscheduled Downtime
# Breakdowns/Incidents
Improve Manufacturing Efficiency PPM Defect Rates
Cycle Time
Changeover Time
Cost/Unit
Upgrade Equipment % Gross Assets < 3 years old
Improve Supplier Relationships % Certified Suppliers
Supplier OTD
Supplier PPM Defect Rate
Supplier Cost Reduction
Understand Customer Needs # Hours with Key Customers
# Plans Jointly Developed with
Customers
# Customers Profiled
Build Distribution Network # New Distributors
Units Sold Through Distributors
Excel at Product Development NPV of Product Pipeline
Customer Rating of Pipeline
Time-To-Market
Learning & Enhance Workforce Capabilities Strategic Job Coverage
Growth # Cross-Trained Employees
Leverage Information Technology Customer Databases
CRM Availability
Process Improvement (JIT) Tools
Build a Culture for Change Employee Survey
# Best Practices Shared

–50–
[email protected] @Aliasrei ‫تلكرام‬ ‫عالء هحسن شحن‬

Strategy Map: Domestic Auto Parts

Increase
ROCE
Financial Increase
Grow Revenues/
Reduce Unit Increase Market Share
Asset
Costs
Utilization

Operational Excellence Customer Intimacy Innovation

Achieve Image of Become
Customer Trusted Supplier Innovative
Deliver On-Time,
Supplier
On-Spec
Enhance Customer
Relationships

Improve Mfg. Build Distribution

Efficiency Network
Internal
Improve Understand
Process Customer
Improve Supplier Reltps Excel at
Needs Product
Maintenance
Effectiveness Upgrade Development
Equipment

Enhance
Leverage Build a
Workforce
Learning Capabilities I/T Culture for
& Growth Change

–51–