MENILAI KINERJ Using Balanced Scorecard as a Holistic Measure of Performance

BAGAIMANA MENILAI PERUSAHAAN Market share. Financial performance… Sales Profitability Ratios Stock price. 10/28/09 BUS 351...Balanced Scorecard

Market share.

Financial performance…

Sales

Profitability

Ratios

Stock price.

Problems Too simple or too narrow. Biased toward financial results. Many believe emphasis is on short-term results (quarterly earnings). Difficult to see what actions firm is taking for future. Operational activities left out. 10/28/09 BUS 351...Balanced Scorecard

Too simple or too narrow.

Biased toward financial results.

Many believe emphasis is on short-term results (quarterly earnings).

Difficult to see what actions firm is taking for future.

Operational activities left out.

Balanced Scorecard – What is it? Helps “balance” the way company’s look at performance by using four perspectives or lenses: Learning and Growth Business Processes Customer Financial 10/28/09 BUS 351...Balanced Scorecard

Helps “balance” the way company’s look at performance by using four perspectives or lenses:

Learning and Growth

Business Processes

Customer

Financial

Learning and Growth This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. (Balanced Scorecard Institute) 10/28/09 BUS 351...Balanced Scorecard

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. (Balanced Scorecard Institute)

Business Processes This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). (Balanced Scorecard Institute) 10/28/09 BUS 351...Balanced Scorecard

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). (Balanced Scorecard Institute)

Customer This perceptive refers to how customers are being satisfied by products and services being provided by the firm. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. 10/28/09 BUS 351...Balanced Scorecard

This perceptive refers to how customers are being satisfied by products and services being provided by the firm. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

Financial This perceptive focuses on the traditional measures of ROI, profitability, stock price etc. 10/28/09 BUS 351...Balanced Scorecard

This perceptive focuses on the traditional measures of ROI, profitability, stock price etc.

Basic Design of Balanced Scorecard System From “A Balancing Act” by Howard Rohm in Perform magazine. Financial Internal Business Processes Learning and Growth Customers Vision and Strategy

Balanced Scorecard You can see this idea from simulation: Financial performance Marketing performance Marketing effectiveness Investment in future Wealth Asset management Manufacturing productivity 10/28/09 BUS 351...Balanced Scorecard

You can see this idea from simulation:

Financial performance

Marketing performance

Marketing effectiveness

Investment in future

Wealth

Asset management

Manufacturing productivity

Balanced Scorecard You can see this idea from simulation: Financial performance Marketing performance Marketing effectiveness Investment in future Wealth Asset management Manufacturing productivity 10/28/09 BUS 351...Balanced Scorecard Customers Learning & Growth Business Processes Financial

You can see this idea from simulation:

Financial performance

Marketing performance

Marketing effectiveness

Investment in future

Wealth

Asset management

Manufacturing productivity

Benefits Long-term planning is valued. Cumulative impact of building shareholder wealth is valued over short-term earnings. Highlights areas of weakness and strength. … It’s a more complete picture of the firm’s performance. 10/28/09 BUS 351...Balanced Scorecard

Long-term planning is valued.

Cumulative impact of building shareholder wealth is valued over short-term earnings.

Highlights areas of weakness and strength.

… It’s a more complete picture of the firm’s performance.

Criticisms Unnecessarily complex. Takes time and effort Included variables are (a) somewhat arbitrary and (b) simply what’s available. 10/28/09 BUS 351...Balanced Scorecard

Unnecessarily complex.

Takes time and effort

Included variables are (a) somewhat arbitrary and (b) simply what’s available.

Criticisms All information in BSC is reflected in stock price anyway. Assumes you buy the traditional view of firm value. Depends on good dissemination of information. But not appealing to HR, mgmt, engineers and others who feel alienated with financials. 10/28/09 BUS 351...Balanced Scorecard

All information in BSC is reflected in stock price anyway.

Assumes you buy the traditional view of firm value.

Depends on good dissemination of information.

But not appealing to HR, mgmt, engineers and others who feel alienated with financials.

Application to Crucible Financial performance: Net profit from current operations / total shares issued This is operating profit with R&D and quality improvements added back in 10/28/09 BUS 351...Balanced Scorecard

Financial performance:

Net profit from current operations / total shares issued

This is operating profit with R&D and quality improvements added back in

Application to Crucible Market performance: Average market share in targeted segments / percent of demand actually served So this accounts for stock outs and customer ill will Between 0.0 and 1.0; good score around .4 or .5. 10/28/09 BUS 351...Balanced Scorecard

Market performance:

Average market share in targeted segments / percent of demand actually served

So this accounts for stock outs and customer ill will

Between 0.0 and 1.0; good score around .4 or .5.

Application to Crucible Marketing effectiveness: Average market share in targeted segments / percent of demand actually served So this accounts for stock outs and customer ill will Between 0.0 and 1.0; good score around .4 or .5. 10/28/09 BUS 351...Balanced Scorecard

Marketing effectiveness:

Average market share in targeted segments / percent of demand actually served

So this accounts for stock outs and customer ill will

Between 0.0 and 1.0; good score around .4 or .5.

Application to Crucible Investments in future: (Current expenditures aimed at future / net revenues) * 10+1 => 1.0 and good score is > 3.0 10/28/09 BUS 351...Balanced Scorecard

Investments in future:

(Current expenditures aimed at future / net revenues) * 10+1

=> 1.0 and good score is > 3.0

Application to Crucible Creation of wealth: Net equity / total stockholder’s equity = (retained earnings + common stock) / common stock = (retained earnings + $5,000,000) / $5,000,000 < 1 means equity is paying for operational expenses > 1 means firm is adding to wealth <= 0 means bankruptcy 10/28/09 BUS 351...Balanced Scorecard

Creation of wealth:

Net equity / total stockholder’s equity

= (retained earnings + common stock) / common stock

= (retained earnings + $5,000,000) / $5,000,000

< 1 means equity is paying for operational expenses

> 1 means firm is adding to wealth

<= 0 means bankruptcy

Application to Crucible Asset management: Asset turnover * penalty for excess inventory Good score should be around 3.0 10/28/09 BUS 351...Balanced Scorecard

Asset management:

Asset turnover * penalty for excess inventory

Good score should be around 3.0

Application to Crucible Manufacturing productivity: Reliability judgment * % of operating capacity used in production Score between 0.0 and 1.0, with good score around 0.80 10/28/09 BUS 351...Balanced Scorecard

Manufacturing productivity:

Reliability judgment * % of operating capacity used in production

Score between 0.0 and 1.0, with good score around 0.80

Application to Crucible Total business performance: The individual measurements multiplied together into an index Compare quarter-to-quarter to see improvement Compare with competitors and industry average 10/28/09 BUS 351...Balanced Scorecard

Total business performance:

The individual measurements multiplied together into an index

Compare quarter-to-quarter to see improvement

Compare with competitors and industry average

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