Question

Company Zeta manufactures action figures. The marketing and creative team prepares a concept of each new set of action figures to be manufactured. A small and cohesive team of designers create the prototypes of the action figures based on the concept prepared by the marketing and creative team. The prototypes of the action figures are then assessed by the marketing and creative team. If the marketing and creative team approves the prototype the design team has to prepare the setup for the production line. The production line is labour intensive and centralized in a warehouse located in an industrial suburb in Victoria. Before marketing and sales begin, samples of the action figures are subject to strenuous quality testing following the international safety standards for action figures. Once the new set of action figures is deemed safe the marketing and sales of the product begins. Currently, Company Zeta uses its sales figures as the only measure of customer satisfaction.

Now Company Zeta is considering implementing a Balanced Scorecard (BSC), focussing on the performance of each set of action figures.

Required:

If Company Zeta implements a BSC, recommend a measure for each one of the four perspectives of the BSC and justify why you have selected such measures

Answer 1

A balanced scorecard is a strategic management performance metric used to identify and improve various internal business functions and their resulting external outcomes. Balanced scorecards are used to measure and provide feedback to organizations. Data collection is crucial to providing quantitative results as managers and executives gather and interpret the information and use it to make better decisions for the organization.

1. A balanced scorecard is a performance metric used to identify, improve, and control a business's various functions and resulting outcomes.

2. It was first introduced in 1992 by David Norton and Robert Kaplan, who took previous metric performance measures and adapted them to include nonfinancial information.

3. The balanced scorecard involves measuring four main aspects of a business: learning and growth, business processes, customers, and finance.

                          The balanced scorecard model reinforces good behavior in an organization by isolating four separate areas that need to be analyzed. These four areas, also called legs, involve learning and growth, business processes, customers, and finance.

Characteristics of balanced scored card

1. Learning and growth are analyzed through the investigation of training and knowledge resources. This first leg handles how well information is captured and how effectively employees use the information to convert it to a competitive advantage over the industry.

2. Business processes are evaluated by investigating how well products are manufactured. Operational management is analyzed to track any gaps, delays, bottlenecks, shortages, or waste.

3. Customer perspectives are collected to gauge customer satisfaction with quality, price, and availability of products or services. Customers provide feedback about their satisfaction with current products.

4. Financial data, such as sales, expenditures, and income are used to understand financial performance. These financial metrics may include dollar amounts, financial ratios, budget variances, or income targets.

The Four Perspectives In A Balanced Scorecard

The Balanced Scorecard is a set of performance targets and results relating to four dimensions of performance—financial, customer, internal process and innovation. It recognises that organisa­tions are responsible to different stakeholder groups, such as employees, suppliers, customers, com­munity and shareholders.

1. Financial Perspective:

The balanced scorecard uses financial performance measures, such as net income and return on investment, because all for-profit organizations use them. Financial performance measures provide a common language for analyzing and comparing companies. People who provide funds to companies, such as financial institutions and shareholders, rely heavily on financial performance measures in deciding whether to lend or invest funds. Properly designed financial measures can provide an ag­gregate view of an organization’s success.

                           From a financial standpoint, the purpose of a business is to create wealth for its owners. Output measures or historical financial measures help an organization keep score of how well it is doing at creating wealth. These data are always past-focused because they are based on events that have already occurred: our net profit for the year versus last year, our sales revenue this year versus last year, and our average stock price this month versus last month. These are all measures of corporate performance that are based on history. Any financial information that goes into a report to sharehold­ers or other stakeholders would typically fall into the category of historical data.

2. Customer Perspective:

In the customer perspective of the Balanced Scorecard, managers identify the customer and market segments in which the business unit will compete and the measures of the business unit’s performance in these targeted segments. This perspective typically includes several core or generic measures of the successful outcomes from a well-formulated and implemented strategy.

                                           The core out­come measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market share in targeted segments. But the customer perspective should also include specific measures of the value propositions that the company will deliver to customers in targeted market segments.

3. Internal-Business-Process Perspective:

In the internal-business-process perspective, managers identify the critical internal processes in which the organization must excel.

These processes enable the business organizations to:

i. Deliver the value propositions that will attract and retain customers in targeted market segments, and

ii. Satisfy shareholder expectations of excellent financial returns.

The key to excellence in any organization is control of its processes to produce reliable and consistent products and services. Performing the right processes in the right manner leads to consis­tent levels of product and service quality. The difficulty lies in finding the right process variables to measure and setting the standards appropriate to performance levels of each of the process measures. Process and operational measures are leading-edge measures that are more short-term-focused.

4. The Learning and Growth Perspective:

For incentive purposes, the learning and growth perspective focuses on the capabilities of people. Managers would be responsible for developing employee capabilities. Key measures for evaluating managers’ performance would be employee satisfaction, employee retention, and em­ployee productivity.

(a) Employee Satisfaction:

Employee satisfaction recognizes the importance of employee morale for improving productivity, quality, customer satisfaction and responsiveness to situations. Managers can measure employee satisfaction by sending surveys, interviewing employees, or observing employees at work.

(b) Employee Retention:

Firms committed to retaining employees recognize that employees develop organization-specific intellectual capital and provide a valuable non-financial asset to the company. Furthermore, firms incur costs when they must find and hire good talent to replace people who leave. Firms measure employee retention as the inverse of employee turnover—the percent of people who leave each year.

(c) Employee Productivity:

Employee productivity recognizes the importance of output per employee. Employees create physical output (i.e., miles driven, pages produced, or lawns mowed), or financial output (i.e., revenue per employee or profits per employee). The number of loans processed per loan officer per month would provide a simple measure of productivity for loan officers at a bank.