Question

Performance Measurement 

Please name and explain the different perspectives of the balanced scorecard. For each perspective give for a logistics company an example of a goal and its appropriate measurement. Please select the goals based on possible cause-and-effect relationships and explain the relationship. Make up your own example!

Answer 1

A balanced scorecard is a tool to future success. It translates an organization’s mission and strategy into a comprehensive set of critical success factors that provides the framework for a strategic measurement and management system. The scorecard summarizes the CSFs across four balanced perspectives which are also its four components:

1. Financial measures

2. Customer satisfaction measures

3. Internal business process measures

4. Innovation and learning measures

A balanced scorecard is called “balanced” because it’s felt that the four components stated above adequately represent the firm’s strategic roadmap, include success factors from all the aspects of the business and represent short as well as long term success indicators.

Example of a logistics company:

Let's look at a port logistics company.

ABC port services Ltd. owns and operate a port on the west coast of Australia. The company has invested heavily into developing the waterfronts and using it for the next 15 years. The entire project has been capital intensive. Operations have started two years back. Mother vessels carrying bulk cargo such as iron ore, coal, coke, limestone etc. are berthed on the port, materials are unloaded using automatic cranes and transported to the yards using conveyors. Materials are stored in the yard and lifted from there by the customers as per their usage. Port makes revenue by charging a per metric ton unloading rate and per metric ton per month storage charges.

Last year, the Board of Directors of the company has laid down the strategic objective of adding an economic value of $ 500 millions in the next 2 years. Economic value added = Net Operating income after taxes – weighted average cost of capital (12%) x capital employed.

Sonia Jackson, the CEO of the company has looked into the strategic goal. She knows that this can be achieved only by improving revenues and cutting the costs. As there are many ports where a customer can go to, the key to succeed is to retain customers. Sonia is now looking at the balanced scorecard that was designed last year by McKinsey & Co. and the actual performance reported this year. Use this to analyze a balanced scorecard and evaluate the performance.