During this activity, you learn what a balanced scorecard is, the information it provides, and how to best utilize this information. After viewing an example, you will have an opportunity to practice identifying gaps. For your graded assignment, you will identify gaps and make appropriate recommendations.
What is a balanced scorecard?
At its core, the balanced scorecard is a tool an organization can use to measure its performance. Unlike other tools that may focus just on financial measures, for example, the balanced scorecard takes many segments of the organization into account. This creates a more holistic view of the organization's performance without focusing too heavily on any one set of controls. The balanced scorecard generally looks at four aspects of company performance: financial, customer, internal processes, and people/innovation/growth assets. When using a balanced scorecard, a manager will set goals in each of these four areas and measure the organization's process against these goals.
Worked Example
Now that you know what a balanced scorecard is, study the following example to learn how you can use it to identify gaps and develop recommendations to address those gaps.
The balanced scorecard shown is for Palmer Pickles, a medium-sized, family owned organization located in Nashville, TN that creates, packages, and sells gourmet, artisanal pickles. The Palmer family controls the management of the company and makes all major decisions for the organization. The organization buys cucumbers from local farms and pays a freight company to ship them to the Palmer Pickles manufacturing, packaging, and warehouse facility. Once the pickles arrive at the facility, they are brined in large wooden barrels for a certain length of time in different spices and solutions. Once the brining is complete, the pickles are moved to glass bottles which are sealed, labeled, packaged, and shipped out to customers, who are made up of specialty grocery stores and independent restaurants. The company also sells its pickles at several farmers' markets local to its area. The workforce at the facility is around 100 employees, and many of them have been with the company since it started in 1994. Currently, the Palmer family is thinking of expansion, since they recently signed a contract with a national grocery retailer to carry their products.
Aspect of Company Performance Factors to be Considered Organizational Goal (per quarter) Actual Performance (most recent quarter)
Financial Quarterly Profit Results
Inventory Turnover (rate of product manufactured in that quarter sold within 1-2 months) $20,000
90% $25,000
110%
Customer Customer Satisfaction Rate
Customer Recommendation Rate (rate of new business generated by recommendations from existing customers) 95%
40% 80%
45%
Internal Processes Duplicate Activities Across Functions (percent of the activities completed that are duplicated in another function)
Process Automation (percent of the processes em ...
During this activity, you learn what a balanced scorecard is, th.docx
1. During this activity, you learn what a balanced scorecard is, the
information it provides, and how to best utilize this
information. After viewing an example, you will have an
opportunity to practice identifying gaps. For your graded
assignment, you will identify gaps and make appropriate
recommendations.
What is a balanced scorecard?
At its core, the balanced scorecard is a tool an organization can
use to measure its performance. Unlike other tools that may
focus just on financial measures, for example, the balanced
scorecard takes many segments of the organization into account.
This creates a more holistic view of the organization's
performance without focusing too heavily on any one set of
controls. The balanced scorecard generally looks at four aspects
of company performance: financial, customer, internal
processes, and people/innovation/growth assets. When using a
balanced scorecard, a manager will set goals in each of these
four areas and measure the organization's process against these
goals.
Worked Example
Now that you know what a balanced scorecard is, study the
following example to learn how you can use it to identify gaps
and develop recommendations to address those gaps.
The balanced scorecard shown is for Palmer Pickles, a medium-
sized, family owned organization located in Nashville, TN that
creates, packages, and sells gourmet, artisanal pickles. The
Palmer family controls the management of the company and
makes all major decisions for the organization. The organization
buys cucumbers from local farms and pays a freight company to
ship them to the Palmer Pickles manufacturing, packaging, and
2. warehouse facility. Once the pickles arrive at the facility, they
are brined in large wooden barrels for a certain length of time in
different spices and solutions. Once the brining is complete, the
pickles are moved to glass bottles which are sealed, labeled,
packaged, and shipped out to customers, who are made up of
specialty grocery stores and independent restaurants. The
company also sells its pickles at several farmers' markets local
to its area. The workforce at the facility is around 100
employees, and many of them have been with the company since
it started in 1994. Currently, the Palmer family is thinking of
expansion, since they recently signed a contract with a national
grocery retailer to carry their products.
Aspect of Company Performance Factors to be Considered
Organizational Goal (per quarter) Actual Performance
(most recent quarter)
Financial Quarterly Profit Results
Inventory Turnover (rate of product manufactured in that
quarter sold within 1-2 months) $20,000
90% $25,000
110%
Customer Customer Satisfaction Rate
Customer Recommendation Rate (rate of new business
generated by recommendations from existing customers)
95%
40% 80%
45%
Internal Processes Duplicate Activities Across Functions
(percent of the activities completed that are duplicated in
another function)
Process Automation (percent of the processes employed in
production activities that are automated) 5%
50% 10%
48%
People/Innovation/Growth Assets Employee Turnover
Employee Job Satisfaction 10%
95% 15%
3. 90%
Worked Example
Gaps Between Organizational Goals and Actual Organizational
Performance
Aspect of Company Performance Factors to be Considered
Organizational Goal (per quarter) Actual Performance
(most recent quarter) GAPS
Financial Quarterly Profit Results
Inventory Turnover (rate of product manufactured in that
quarter sold within 1-2 months) $20,000
90% $25,000
110% Quarterly profits were higher than anticipated
($25,000 versus $20,000), as was inventory turnover rate (110%
versus 90%).
Customer Customer Satisfaction Rate
Customer Recommendation Rate (rate of new business
generated by recommendations from existing customers)
95%
40% 80%
45% Customer satisfaction was lower than expected (80%
versus 95%), while customer recommendation rates were higher
(45% versus 40%).
Internal Processes Duplicate Activities Across Functions
(percent of the activities completed that are duplicated in
another function)
Process Automation (percent of the processes employed in
production activities that are automated) 5%
50% 10%
48% Duplicate activities across functions were higher than the
goal (10% versus 5), while process automation was just a bit
lower (48% versus 50%).
People
Innovation
Growth Assets Employee Turnover
Employee Job Satisfaction 10%
4. 95% 15%
90% Employee turnover was higher than anticipated (15%
versus 10%), while job satisfaction was lower (90% versus
95%).
Worked Example
Recommendations based on identified Gaps: Financial
Recommendations based on identified Gaps: Financial
Profits were higher than anticipated, as was inventory turnover.
This was tied to the findings that inventory from the current
quarter was all sold, and due to the surge in popularity for the
company's products, inventory left over from last quarter was
sold to customers as well. Given the recent contract, the
company will probably need to expand its production and
warehousing capacity to make enough pickles to satisfy future
demand.
Worked Example
Recommendations based on identified Gaps: Customer
Recommendations based on identified Gaps: Customer
Actual customer satisfaction was much lower than the goal, and
this may be due to Palmer Pickles being oversold on products,
so all customer orders could not be accommodated. However,
recommendation rates were higher than expected, so the product
still seems to be viewed as high quality and worthy of
recommendation. Palmer Pickles will need to make sure that
once production scales up, quality is not lost. Since the
company currently outsources its freight function and
distribution needs will grow as a result of the grocery contract,
the profitability of acquiring its own freight and distribution
division should also be assessed.
Worked Example
Recommendations based on identified Gaps: Internal Processes
5. Recommendations based on identified Gaps: Internal Processes
Based upon the internal process findings, it seems the company
is not as efficient as it could be in its manufacturing. Since
most of the duplication seems to exist in the process of brining
and then bottling, a suggestion has been made to study this
process again, to see if the pickles could be brined within the
smaller glass bottles as opposed to barrels without losing
quality.
Worked Example
Recommendations based on identified Gaps:
People/Innovation/Growth Assets
Recommendations based on identified Gaps:
People/Innovation/Growth Assets
Since employee turnover was higher than expected and job
satisfaction was lower, it seems as though employees are
dissatisfied with some factors within the company, and this
needs to be studied. Since these measures are tied to so many
different contingencies within the company, a focus group to
study these measures further has been recommended.
Practice
Now that you have seen how to use a balanced scorecard to
identify gaps and develop recommendations, complete the
following practice exercise. Given a new scenario, balanced
scorecard, and some gaps and recommendations, determine the
missing gap and recommendation.
The balanced scorecard shown below is for the art department
of Sherman Ceramics, a large corporation that manufactures
collectible ceramic figurines based on comic book, television,
and film characters. The company has an automated assembly
line to manufacture the figurines, but most of the work done in
the art department is by hand, since the figurines are produced
6. in small runs and are considered to be exclusive collectibles.
The employees of the art department hand paint the features and
apparel on the figurines, as well as any accessories that
accompany the figurine. The corresponding price point for these
items is high, and they are generally sold in independent comic
book stores and through online sites, although certain national
toy store chains carry the figurines as well. The art department
currently has a staff of 40 employees and 5 managers; the
managers all served as line staff in the assembly department
prior to their promotions. Art department employees are
generally high skilled in their field, but they tend to not have
degrees in higher education.
Aspect of Company Performance Factors to be Considered
Organizational Goal
(per quarter) Actual Performance
(most recent quarter)
Financial Return on Investment
Return on Capital Employed 90%
95% 80%
90%
Customer Customer Satisfaction Rate
Customer Retention Rate 95%
90% 98%
95%
Internal Processes Duplicate Activities Across Functions
(percent of the activities completed that are duplicated in
another function)
Process Bottlenecks (percent of the process that becomes
bottlenecked in an average run cycle) 30%
40% 40%
60%
People
Innovation
Growth Assets Employee Turnover
Employee Job Satisfaction 20%
90% 25%
7. 60%
Practice
Aspect of Company Performance Factors to be Considered
Organizational Goal
(per quarter) Actual Performance
(most recent quarter) Gaps
People
Innovation
Growth Assets Employee Turnover
Employee Job Satisfaction 20%
90% 25%
60% ?
Please select the answer that most accurately identifies the gaps
for the art department of Sherman Ceramics in the area of
People/Innovation/Growth Assets.
Employee turnover was higher than anticipated (30% versus
25%), while job satisfaction was lower (90% versus 60%).
Employee turnover was lower than anticipated ( 20% versus
25%), while job satisfaction was higher (40% versus 60%).
Employee turnover was higher than anticipated (25% versus
20%), while job satisfaction was higher (60% versus 90%).
Employee turnover was higher than anticipated (25% versus
20%), while job satisfaction was lower (60% versus 90%).
The correct answer is D. Because employee turnover was 25%
as opposed to 20% (the figure the company predicted), the
actual employee turnover was less positive than expected for the
Art Department. This means that more employees left or were
terminated from the Art Department than expected during the
quarter. Furthermore, because employee satisfaction was 60% as
opposed to 90% (the figure the company predicted), the actual
employee satisfaction was less positive than expected for the
Art Department. This means that fewer employees are satisfied
8. with their jobs in the Art Department than the company
realized. The fact that this figure is quite different from
expected is a cause for concern.
Worked Example
Recommendations based on identified Gaps: Financial
Aspect of Company Performance Factors to be Considered
Organizational Goal
(per quarter) Actual Performance
(most recent quarter) Gaps
Financial Return on Investment
Return on Capital Employed 90%
95% 80%
90% Both return on investment and return on capital employed
were lower than anticipated (80% versus 90% and 90% versus
95%).
Customer Customer Satisfaction Rate
Customer Retention Rate 95%
90% 98%
95% Both customer satisfaction and customer retention rates
were higher than expected (98% versus 95% and 95% versus
90%).
Internal Processes Duplicate Activities Across Functions
(percent of the activities completed that are duplicated in
another function)
Process Bottlenecks (percent of the process that becomes
bottlenecked in an average run cycle) 30%
40% 40%
60% Both duplicate activities across functions and process
bottlenecks were higher than the goal (40% versus 30% and
60% versus 40%).
People
Innovation
Growth Assets Employee Turnover
Employee Job Satisfaction 20%
90% 25%
9. 60% Employee turnover was higher than anticipated (25%
versus 20%), while job satisfaction was lower (60% versus
90%).
Recommendations based on identified Gaps: Financial
Since the actual performance on the financial measures was
lower than expected, the art department may need to figure out
a way to cut investment-related expenses (in research into new
paint colors, for example); alternatively, the company may want
to consider a study as to whether the prices paid by customers
of the collectibles truly covers the costs of producing the
figurines.
Worked Example
Recommendations based on identified Gaps: Customer
Recommendations based on identified Gaps: Customer
Since both customer measures were higher than expected, the
art department is to be congratulated for its success in
maintaining the quality customers have come to expect from the
company's figurines. This lends support to the idea of raising
prices on the collectibles; if customers are happier than
expected and continue to purchase products, a small increase in
price may keep these measures above or equal to the goals,
while helping decrease performance gaps in the financial
measures.
Practice
Aspect of Company Performance Factors to be Considered
Organizational Goal
(per quarter) Actual Performance
(most recent quarter) Gaps
Internal Processes Duplicate Activities Across Functions
(percent of the activities completed that are duplicated in
another function)
Process Bottlenecks (percent of the process that becomes
bottlenecked in an average run cycle) 30%
10. 40% 40%
60% Both duplicate activities across functions and process
bottlenecks were higher than the goal (40% versus 30% and
60% versus 40%).
Now you give it a try. Please select the answer or answers that
identify recommendations Sherman Ceramics should make to
narrow its performance gaps in the area of Internal Processes:
Hire additional line employees for the art department to help
with the bottleneck issue.
Offer additional training to art department employees, to allow
them to increase efficiency in their processes.
Double the orders processed by the manufacturing department
and then sent to the art department for painting.
Automate part of the painting process.
The correct answers are A and B. Since at least one part of the
process is bottlenecking more than expected (and thus, holding
up the line more than it should), hiring additional employees to
help with this part of the process should reduce this figure.
Also, the problem with the bottlenecking issue may be that
employees are less efficient than they could be. Thus, additional
training could help the existing employees become more
efficient, which should help with this problem.
Practice
Aspect of Company Performance Factors to be Considered
Organizational Goal
(per quarter) Actual Performance
(most recent quarter) Gaps
People
Innovation
Growth Assets Employee Turnover
Employee Job Satisfaction 20%
90% 25%
11. 60% Employee turnover was higher than anticipated (25%
versus 20%), while job satisfaction was lower (60% versus
90%).
Please select the answer or answers that identify
recommendations Sherman Ceramics should make to narrow its
performance gaps in the area of People/Innovation/Growth
Assets:
Fire any employees who are shown to have a poor attitude about
the company.
Offer additional training to art department employees, to allow
them to increase efficiency in their processes.
Try to recruit future managers from the art department, so art
department line employees feel as though management
understands their concerns.
Send the current managers through on the job training with
current line employees in the art department, to allow managers
to better understand the process.
The correct answers are B, C, and D. Employees in the Art
Department may be leaving their jobs due to feelings of being
overwhelmed. If additional training is offered, this can show
employees that the company values them and is giving them
extra tools to perform at their best.
Because the existing managers did not come from the Art
Department, line employees in the Art Department may start to
see their work as a dead end. Trying to promote from within the
art department will give line employees in this part of the
company the hope that if they succeed, they will also be
recognized.
Additionally, because the existing managers did not come from
the Art Department, line employees in the Art Department may
12. not see the managers as well versed in the jobs of the employees
they are managing. Sending everyone through training together
can make sure everyone is on the same page, and it can help
build team rapport and camaraderie.
Assignment
In this assignment, use the scenario and balanced scorecard to
fill in the gaps. Then, develop recommendations based on these
gaps for each section of the balanced scorecard.
The balanced scorecard shown below is for Spinner Pet Sitters,
a small pet sitting service run by Shelly, a student at the local
state university to make extra income. While the service is
small, Shelly has four other pet sitters who work for her; these
sitters can be considered Shelly's contract employees, as she
employs their services as needed on a part-time basis. Spinner
Pet Sitters pet sitting services include coming to the customer's
house between one and three times a day, walking the animals,
feeding the pets, playing with them, cleaning up any waste, and
bringing in the home's mail and newspaper.
After viewing the scenario and balanced scorecard, input the
Gaps in the chart below by clicking on the box. Click next when
you have filled in all of the Gaps.
Aspect of Company Performance Factors to be Considered
Organizational Goal Actual Performance Gaps
Financial Quarterly Profit Results
Return on Capital Employed $5,000
$4,000 $6,000
$1,500 INPUT GAPS
Customer Customer Satisfaction Rate
Customer Recommendation Rate (rate of new business
generated by recommendations from existing customers)
95%
80% 95%
100% INPUT GAPS
13. Internal Processes Duplicate Activities Across Functions
(percent of the activities completed that are duplicated in
another function)
Process Bottlenecks (percent of the process that becomes
bottlenecked in an average run cycle) 25%
15% 20%
15% INPUT GAPS
People
Innovation
Growth Assets Employee Turnover
Employee Job Satisfaction 25%
90% 0%
50% INPUT GAPS
Assignment
Aspect of Company Performance Factors to be Considered
Organizational Goal Actual Performance Gaps
Financial Quarterly Profit Results
Return on Capital Employed $5,000
$4,000 $6,000
$1,500
Customer Customer Satisfaction Rate
Customer Recommendation Rate (rate of new business
generated by recommendations from existing customers)
95%
80% 95%
100%
Internal Processes Duplicate Activities Across Functions
(percent of the activities completed that are duplicated in
another function)
Process Bottlenecks (percent of the process that becomes
bottlenecked in an average run cycle) 25%
15% 20%
15%
People
Innovation
Growth Assets Employee Turnover
14. Employee Job Satisfaction 25%
90% 0%
50%
Use the tabs and text fields below to provide recommendations
based on the above balanced scorecard.
INPUT RECOMMENDATIONS INPUT RECOMMENDATIONS
INPUT RECOMMENDATIONS INPUT RECOMMENDATIONS
Financial: Customer: Internal Process:
People/Innovation/Growth Assets:
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