The balanced scorecard

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theories of balance score card invented by kaplan. this will give some basis to the measurement performance of a company.

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The balanced scorecard

  1. 1. The Balanced Scorecard A.A. Samitha Jayaweera
  2. 2. At the end of the session, you would be able to; • Identify key aspects in Balanced Scorecard • Identify key measures in key perspectives • Apply Balanced Scorecard in to your own organization
  3. 3. Emergence of the concept • Prior to the 1980s – management accounting control systems tended to focus mainly on financial measures of performance • During 1980s – a greater emphasis was given to incorporate non-financial performance measures into management reporting systems • As a result the Balanced Scorecard was emerged. It devised by Kaplan and Norton in 1992
  4. 4. Key perspectives • It creates a strategic focus by translating an organization’s vision and strategy into operational objectives and performance measures for four perspectives: – Financial perspective – Customer perspective – Internal business perspective – Learning and growth perspective
  5. 5. Discussion “The balanced scorecard is a strategic management technique for communicating and evaluating the achievement of the mission and strategy of the organization” ………………………………………………………………………… ……………………………………………………………………… ……………………………………………………………………… ……………………………………………………………………… ……………………………………………………………………… ……………………………………………………………………… ……………………………………………………………………..
  6. 6. The Financial Perspective (how do we look to shareholders?) • It specifies the financial performance objectives anticipated from pursing the organization’s strategy and also the economic consequences of the outcomes expected from achieving the objectives specified in other three perspectives. • The objectives and measures for other perspectives should be selected to ensure the financial outcomes will be achieved.
  7. 7. Financial perspective objectives and measures Objectives Revenue Growth: Increase the number of new products Develop new customers and market Change to a more profitable product mix Measures Percentage of revenues from new products Percentage of revenues from new customers Sales growth percentage for targeted segments Cost reduction: Reduce product/service cost per unit Percentage reduction in cost per unit Reduce selling/general administration Percentage to total revenues of cost selling and administration costs
  8. 8. The Customer Perspective (How do customers see us?) • The customer perspective should identify the customer and market segments in which the business will compete. • This underpins the revenue element for the financial perspective objectives.
  9. 9. The Customer Perspective (How do customers see us?) (contd.) • Kaplan and Norton stated that there is also a need to focus on customer value propositions. • It identify common product/service attributes (see the table in the next slide)
  10. 10. Customer Perspective objectives and measures Objectives Measures Core: Increase market share Increase customer retention Increase customer acquisition Increase customer satisfaction Increase customer profitability Percentage market share Percentage growth in business from existing customers Total sales to new customers Customer value propositions: Decrease price relative to competitors Improve delivery time Improve product quality Price relative to competitors Percentage returns from customers Percentage on-time delivery
  11. 11. The Internal Business Perspective (what must we excel at?) • This perspective requires managers to identify the critical internal processes for which the organization must excel in implementing its strategy. • Kaplan and Norton stated that there are three key processes in a value chain: – the innovation process – the operations process – the post-sales process
  12. 12. Internal Business Perspective objectives and measures Objectives Innovation: Increase the number of new products Operations: Increase process quality Measures Percentage sales from new products Decease process time Total quality cost as a percentage of sales Manufacturing cycle efficiency Post sales services: Increase service efficiency Output/Input
  13. 13. Learning and Growth perspective (can we continue to improve and create value?) • To ensure that an organization will continue to have loyal and satisfied customers in the future and continue to use of its resources, the organization and its employees must keep learning and developing. • This perspective stresses the importance of organization investing in their infrastructure.
  14. 14. Learning and Growth Perspective objectives and measures Objectives Measures Increase employee capabilities Employee satisfaction survey rating Staff retention ratio Sales revenue per employee Increase motivation, empowerment and alignment Number of suggested improvements per employee Number of suggestions implemented per employee Percentage of employees who achieve personal goals
  15. 15. Review Questions 1. Describe three competitive strategies that a firm can adopt to achieve sustainable competitive advantage and explain how they influence management accounting practices. 2. Explain how the balanced scorecard links strategy formulation to financial outcomes.
  16. 16. Thank You!

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