Question

Jessica is a recent graduate of Brenau University’s business school entrepreneurship program. The business plan that she created before she graduated was for a business developing websites for individuals and commercial businesses. Friends and family provided funding for the start-up, and she has been in business for the last two and a half years.

Jessica had learned about the balanced scorecard in her accounting classes and has been applying some of the techniques. Her vision for this business is to provide clients with high quality websites that receive a relatively high numbers of hits. Recently, word-of mouth advertising had led to more requests for websites with creative animated graphics. As part of her balanced scorecard, she tracked the following measures over the last two years for her individual clients:

                                                                                              20x1                20x2

Average revenue per individual client                              $2,000             $1,500

Average time from start to finish (business days)           10 days            13 days

Average site ranking on top two search engines                     15                    21

Total revenue                                                                   $80,000           $78,000

Total labor cost                                                                $20,000           $22,000

Utilities cost (electricity and phone)                                 $2,100             $2,400

Number of individual clients                                                    40                    52

Employee turnover                                                                     1                      0

a.   Classify each performance measure according to one of the four balanced scorecard perspectives. Explain your reasoning.

b.   Analyze the change in each performance measure from 20X1 to 20X2. Give one possible reason for the change.

Answer 1

The four perspectives of the Balanced Scorecard are :
1. The Financial Perspective : It focuses on the measures of financial performance of the organization.
2. The Customer Perspective : It focuses on customer satisfaction, company's market share, pricing goals, providing high quality & excellent customer service.
3. The Internal Process Perspective : It includes improving & innovating the current products & services, business processes & operations to create value for the customers.
4. The Learning & Growth Perspective : It includes human capital, information capital and organizational capital that is necessary for a company to achieve its objectives.

Classification & analysis of each performance measure :

Average revenue per individual client comes under the Financial Perpective since it is a measure of the firm's financial performance. The average revenue per client has decreased because the total revenue has decreased and the number of clients has increased from 2011 to 2012.
Average time from start to finish (business days) comes under the Internal Process Perspective since it is time taken to develop the website. The average time taken to develop the website has increased from 2011 to 2012 probably because the workload (Number of clients) has increased and the clients are demanding websites with creative animated graphics which takes time.
Average site ranking on top two search engines comes under the Customer Perspective since the ranking is based on the number of times the customers used the site. It tells us about the needs & demand of the customers. The ranking has gone down from 15 to 21. One possible reason for it may be the increase in competitors over the last two years.
Total Revenue comes under the Financial Perspective as it helps us track the company's financial success. It has decreased from 2011 to 2012 even though the number of clients has increased possibly because Jessica has reduced the price she charges for the website.
Total Labour Cost comes under the Internal Process Perspective since it includes the salary paid to the staff for developing the websites. It has increased from 2011 to 2012. The number of labourers might have increased to handle the increased demand (Number of clients). Hence the total labour cost has increased.
Utilities cost (electricity and phone) comes under the Internal Process Perspective. Utility cost is a part of the indirect costs of the organization. It has increased from 2011 to 2012. One possible reason is word of mouth advertising to expand the business.
Number of individual clients comes under the Customer Perspective. The increase/decrease in the number of clients helps us to measure the degree to which customer needs are being met. It has increased from 2011 to 2012 because of the promotions & advertising undertaken.
Employee turnover comes under the Learning & Growth Perspective. The employees are the organization's human capital. It has reduced from 2011 to 2012. One possible reason for no employee turnover in 2012 is the business is expanding and there is scope for advancement. The salary paid to the employees might also have increased.