Balanced Scorecard

ACCA P5 Advance Performance Management

Balance Scorecard

The Black Cards IF: Focus on internal environment and past performance: Internal process and Financial Measures

The red cards IC: Focus on external environment and future changes:  Innovation and Customer perspectives

Financial Measures: RATIO

Internal Process: Organisational activities/functions/processes, Employee, Organisational culture and structure

Customer: Recognises importance of customer – demand pull system

Innovation: Introduction of new/redesigning products and processes

Knowing the system:

The pull market:

A new product is developed (Innovation) – the starter + clutch

Market study focus on price and sales (Customer) - accelerator

Start of production (Internal Process) - gear

Check financial position (Financial Measures) – speedometer + break

This is not a one off process. This cycle repeats multiple times during life cycle of a product/organisation.

Balance Scorecard recognises the need to measure each cards separately and collectively:

Innovation: An idea doesn’t become an innovation until it is widely adopted and incorporated into people’s daily lives. Does innovation has potential to exist as part of product and service? – The creativity should be in right direction.

Customer: Does customers really want the product? If yes, do they have potential to buy? What are the substitute products?

Internal Process: Are we operating efficiently and effectively? Do we have essential resources to upgrade?

Financial Measures: What is our financial position? Is the project financially viable?

Measures for each card: The KPI’s

Innovation: No of new products lunched, Revenue form new products

Customer: Re-order rate, On-time delivery

Internal Process: Variances, cycle times

Financial Measures: ROCE, Current ratio

The strategic importance: The CSF’s

Innovation: New ideas, learning, creativity

Customer: Loyalty, Customer’s satisfaction

Internal Process: Operational excellences and employees satisfaction

Financial Measures: Profitability, Liquidity

Implementing Balance Scorecard

Ø  Make strategy explicit: available to everyone, addressing the need and goals

Ø  Choose the measures: KPI

Ø  Define and redefine: Continuous process

Ø  Deal with people: Creating value for shareholder, employee and customer

However, balance scorecard does not account interest of wide stakeholders groups and only focus on narrow groups of stakeholders (i.e. shareholders, employees, customers).

ACCA Article: Performance measures to support competitive advantage