Question

the story continues even today in many companies where managers focus on their short-term gains while neglecting the long-term welfare of the company, its stockholders, and its employees. Once in every few days we hear stories of how certain top managers' opportunistic or greedy behavior only helps fill their own pockets while costing the companies a ton of money. One way around the dysfunctional behavior of managers that results from the over-reliance on the use of ROI (as described above) and other financial measures of performance is the use of a balanced corporate scorecard (BSC). [This is included in Chapter 12 of your textbook; however we ran out of time last week]

The BSC focuses on non-financial performance measures in addition to financial performance measures like profit margin, EPS, ROI, etc.

What are the four dimensions of the BSC and what kind of performance measures are used under each dimension?

Answer 1

The Balanced Scorecard (BSC) is a set of financial and non-financial measures used by organisations to convey the organisational goals, align daily goals with the formulated strategy, and monitor the progress towards the set strategic targets and to prioritize the activities needed for achieving the goals.

Four Dimensions of the Balanced Scorecard

• Financial Dimension

It includes the financial performance of an organisation. This dimension evaluates the profitability and revenue goals as well as the cost and budget targets. Financial health of any organisation is one of the most critical factor in its success.

Performance Measures used are revenue growth, sales growth, overhead, operations, cash flow, bond ratings, debt leverage and other financial tools.

• Customer Dimension

This dimension includes the performance of an organisation with the targeted customers or in the selected market segments or any other key stakeholder that organisation is supposed to serve.

Performance Measures used are customer satisfaction, market share, brand success, service levels, net promoter scores, number of new customers, etc.

• Internal Process Dimension

This dimension includes viewing the performance of an organisation in terms of its efficiency and effectiveness. It focuses on internal operations and processes necessary to deliver the customer satisfaction.

Performance Measures used are quality optimisation, process innovation or optimisation, after sale services, capacity utilisation, on-time delivery of products, etc.

• Learning and growth dimension

This dimension focuses on learning, getting regular insights and improving its processes. It includes managing and aligning the human capital, advancing information capital and developing the organisational Capital.

Performance Measures used are Employee satisfaction, Employee Retention ratio of an organisation, Employee participation, and training hours per employee, quality of information system, Real time feedback, and quality management, etc.