Balanced Scorecard
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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.
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Balanced Scorecard
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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)
Proc ...
Balanced ScorecardDuring this activity, you learn what a bala.docx
1. Balanced Scorecard
?
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.
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Balanced Scorecard
2. ?
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%
3. 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%
90%
Balanced Scorecard
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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
4. 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
5. 10%
95%
15%
90%
Employee turnover was higher than anticipated (15% versus
10%), while job satisfaction was lower (90% versus 95%).
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Balanced Scorecard
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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
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%
6. 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%
95%
15%
90%
Employee turnover was higher than anticipated (15% versus
10%), while job satisfaction was lower (90% versus 95%).
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
7. warehousing capacity to make enough pickles to satisfy future
demand.
Balanced Scorecard
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Worked Example
Recommendations based on identified Gaps: Customer
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
8. 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%
95%
15%
90%
Employee turnover was higher than anticipated (15% versus
10%), while job satisfaction was lower (90% versus 95%).
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.
Balanced Scorecard
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Worked Example
Recommendations based on identified Gaps: Internal Processes
Aspect of Company Performance
9. 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
10. (48% versus 50%).
People
Innovation
Growth Assets
Employee Turnover
Employee Job Satisfaction
10%
95%
15%
90%
Employee turnover was higher than anticipated (15% versus
10%), while job satisfaction was lower (90% versus 95%).
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.
Balanced Scorecard
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Worked Example
Recommendations based on identified Gaps:
People/Innovation/Growth Assets
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%
11. $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%
95%
15%
90%
12. Employee turnover was higher than anticipated (15% versus
10%), while job satisfaction was lower (90% versus 95%).
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.
Balanced Scorecard
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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
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.
13. 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%
14. 25%
60%
◄►Balanced Scorecard
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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%
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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.
· AEmployee turnover was higher than anticipated (30% versus
25%), while job satisfaction was lower (90% versus 60%).
· BEmployee turnover was lower than anticipated ( 20% versus
25%), while job satisfaction was higher (40% versus 60%).
· CEmployee turnover was higher than anticipated (25% versus
20%), while job satisfaction was higher (60% versus 90%).
· DEmployee turnover was higher than anticipated (25% versus
20%), while job satisfaction was lower (60% versus 90%).
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