KENNETH C HOLMES

APPLIED MANAGEMENT ACCOUNTING

PROFESSOR: JASON CADE

FEBRUARY 3, 2015

PHASE 4: DISCUSSION BOARD

Balanced Scorecard:

The Balanced Scorecard is a strategic planning and management system based on the mission and strategy of an organization, and includes financial and nonfinancial performance measures from four perspectives including: learning and growth perspective, business process perspective, customer perspective, and financial perspective, and develops parameters, collects data and performs analyses in regards to each perspective. It is used extensively by public (government and nonprofit) and private industry globally to align business activities to their vision and strategy, to improve internal and external communications, to accomplish the setting and measurement of performance against strategic goals, and is flexible to adjust with changing conditions in the organization and industry they operate.

A brief history:

The Balanced Scorecard started in the early 1900’s with the work of French process engineers who created the Tableau do Bord – a dashboard of performance measures, and General Electric’s work on performance measurement reporting in the 1950’s. In the early 1990’s, Drs. Robert Kaplan and David Norton transformed the Balanced Scorecard into a performance measurement framework enhanced with financial and nonfinancial measures to provide management with an improved perspective of their organizations performance. The BSC has since grown into a full strategic planning and management system with many advantages including: it is the nerve center of an organization; it transforms a strategic plan into an absolute guide for daily business activities; it provides a definitive on what to do to translate the financial vision into action; it provides feedback about the internal processes and external outcomes to continually improve strategic performance and results; and enables executives and management to actually execute their strategies .

It is no surprise that today over 50% of major companies in the US, Europe and Asia are using the balanced scorecard approach and growing, with its use also growing in South America, the Middle East and Africa. As a result of its global success, Bain & co listed the balanced scorecard fifth on its top ten most widely used management tools around the world, and the Harvard Business Review selected BSC as one of the most influential business ideas of the past 75 years.

Balanced Scorecard’s four perspectives:

Learning and growth perspective:

Involves individual and corporate self-improvement through employee and corporate cultural attitude training.

The process understands employees are the main resource of knowledge and the organizations success, and encourages them to continually learn and grow with technological changes.

The process encourages training funds and time be directed toward employees and include: mentoring, tutoring, guidance through ease in communication, technological tools necessary for employees to perform to the level expected, and encouraging employee advancement and product innovation.

The process provides employees have input and a clear understanding of each financial and nonfinancial measurement, and feedback.

Business process perspective:

Involves helping management determine internal performance through the monitoring of profit margin, cost variances, manufacturing cycle times, setup times, percentage of good production to total production, quantity of products sold and shipped, inventory turnover customer order fill percentages, production goals, quality control and expenses.

Helps management determine whether their product and service base conform to their customer needs and the company mission.

The system is flexible to change with the changing conditions of the organization and the industry in which it operates.

These processes must be designed by people who know the processes intimately, and not by outside consultants.

Customer perspective:

The process focuses on the customer and accounts for customer saftisfaction, customer complaints, warrant claims, length of process time and ontime customer deliveries, customer loyalty and sales increases. If customers are not satisfied with the product or the service, they will find another servicer or supplier who will meet their needs.

It is leading indicator for success in business, and companies with poor customer performance will lose market share, and in the process weaken their financial outlook.

Financial perspective:

Financial reporting data must be timely and accurate, include traditional ratios and analysis, and include risk assessment and cost-benefit data to avoid imbalances in management decisions and priorities.

Financial measurements include: ROI, EPS, PE, inventory turnover, department expenses, manufacturing inefficiencies, meeting sales quotas, and comparing expected performance against company’s costs, revenue, profits, and capital.

Strategy mapping:

Strategy mapping is a communication tool providing a visual representation of a firm’s business strategy and strategic priorities.

Shows a logical step-by-step connection between strategic objectives in the form of a cause-and-effect chain.

It improves performance in every step of the chain by addressing issues at every level, creating a chain reaction at every level, ultimately producing the desired results and achieving the strategic objective.

Key benefits:

Organizations that use BSC typically outperform those who do not us a strategic management system.

The BSC provides better strategic planning through improved communication and strategy mapping by applying the process of cause and effect to achieve strategic goals.

The BSC provides for full stake holder understanding of the company vision and goals which improves internal and external strategy communication and execution.

The BSC provides better management information and improved management reporting to guide decision making, and meet more detailed needs and requirement.

The BSC provides better strategic and organizational alignment with strategic priorities.

Should EEC use Balanced Scorecard?

Absolutely, it is an essential tool that would help EEC managers and executives follow through with strategic planning and actually implement the plans they want, in the process guiding EEC in the correct direction. The Balanced Scorecard would help get the right information to the right people, and transforms simple data into information and knowledge that would improve performance.

EEC would improve their strategic planning through the use of strategy mapping and cause and effect application to achieve their goals and mission, would improve their communication and execution of goals through improved stakeholder understanding, would gain improved management information for better decision making, would gain improved management reporting for better assessment ability, and would gain improved strategic and organizational alignment with strategic priorities.

REFERENCES

Marr, B. (2015). What is a Balanced Scorecard? Retrieved from www.ap-institute.com/Balanced%20Scorecard.html

N.A. (2010). Performance Measurement System. Retrieved from www.ctuonline.edu/phase 4 individual project/MUSE

N.A. (2010). Performance Measurement System & Analysis. Retrieved from www.ctuonline.edu/phase four individual project/MUSE

Perry, G. S. (2015, January 9). What is the Balances Scorecard? Retrieved from www.balancedscorecard.org/Resources/About-the-Banaced-Scorecard