Question

Harvard University is USA’s number one university in the 2020 Times Higher Education Impact Ranking. The university presently measures its performance by comparing its actual costs against its budgeted costs for the year. Given the university’s international status, it is currently facing stiff competition from both public and privately-owned universities in USA. At one of its executive meetings, a member in the finance department has suggested that Harvard needs to consider additional performance measures such as those indicated by the Balanced Scorecard.

Required:

1. Briefly elaborate on your understanding of the Balanced Scorecard and how the management of Harvard university can utilize this approach to performance measurement

2. Discuss two (2) non-financial indicators (from different perspectives of the balanced scorecard) that Harvard University could use for its performance evaluation.

Answer 1

In this information age era, both manufacturing and service organization needs new capabilities for competitive success. Merely investing in and managing physical, tangible assets is not enough but an organization must be able to mobilize and exploit its intangible or invisible assets which in turn becomes a decisive factor.

One of the most effective non-financial performance measurement tools is Balanced Scorecard. The balanced scorecard is a method which displays organization’s performance into four dimensions namely financial, customer, internal and innovation. The four dimensions acknowledge the interest of shareholders, customers and employees taking into account of both long-term and short-term goals. Kaplan and Norton classified performance measures into four business ‘perspectives’:

(i) The financial perspective

(ii) The customer perspective

(iii) The internal business perspective

(iv) The learning and growth perspective

The management of Harvard University can utilize this approach to performance measurement as the ultimate result of using the Balanced Scorecard approach should be an improved long term financial performance. Since the scorecard gives equal importance to the relevant non –financial measures, it should discourage the short termism that leads to cuts in spending on new product development, human resource development etc. which are ultimately detrimental for the future prospects of the university.

Two non-financial indicators (from different perspectives of the balanced scorecard) that Harvard University could use for its performance evaluation:

1. The Financial Perspective:

· Percentage of Revenue from different sources

· Research Income per FTE

· Staff cost as % of total cost

· Dollars allocated as per FTE enrollment

1. The Customer Perspective

· Excellent services and facilities

· Build system that help to self-improve

· University’s contribution to the creation of knowledge

· Satisfaction level of students and their parents

· Academic Staff/Students ratio

1. The Internal Business Perspective

· Retention and graduation rates

· Higher Education Research Institute student survey data

· Graduate student placement

1. The Learning and Growth Perspective:

· Number of academic FTE

· Completion rate per degree (Bachelor, PhD)

· Student retention rate, % (measured from course to course)

· Percent of foreigners among faculty members

· Percent of foreign students

· Research student number