Cornerstones of cost management 3rd edition hansen mowen chapter 13

THE BALANCED SCORECARD:
STRATEGIC-BASED CONTROL
CHAPTER 13

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CHAPTER 13 OBJECTIVES
1. Compare and contrast activity-based and
strategic-based responsibility accounting
systems
2. Discuss the basic features of the
Balanced Scorecard
3. Explain how the Balanced Scorecard links
measures to strategy
4. Describe how an organization can
achieve strategic alignment
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ACTIVITY-BASED VERSUS STRATEGICBASED RESPONSIBILITY ACCOUNTING
• Activity-based management describes the
fundamental economics that drive a firm,
thus allowing managers to have a better
understanding of the causes of cost
• Understanding the causes of costs enables
managers to more effectively improve
performance by continuously improving
processes

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service or otherwise on a password-protected website for classroom use.


ACTIVITY-BASED VERSUS STRATEGICBASED RESPONSIBILITY ACCOUNTING
• Activity-based system adds a process
perspective to the financial perspective of
the functional based responsibility
accounting system
• Strategic-based responsibility accounting
system translates the strategy of an
organization into operational objectives
and measures
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service or otherwise on a password-protected website for classroom use.


ACTIVITY-BASED VERSUS STRATEGICBASED RESPONSIBILITY ACCOUNTING
• Balanced Scorecard is a strategic based
performance management system that
typically identifies objectives and
measures for four different perspectives
•
•
•
•

Financial perspective
Customer perspective
Process perspective
Learning and growth perspective

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service or otherwise on a password-protected website for classroom use.


ACTIVITY-BASED VERSUS STRATEGICBASED RESPONSIBILITY ACCOUNTING
• Responsibility accounting model is defined
by four essential elements
• Assigning responsibility
• Establishing performance measures or
benchmarks
• Evaluating performance
• Assigning rewards

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service or otherwise on a password-protected website for classroom use.


EXHIBIT 13.1—RESPONSIBILITY
ASSIGNMENTS COMPARED

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EXHIBIT 13.2—PERFORMANCE MEASURES
COMPARED

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service or otherwise on a password-protected website for classroom use.


EXHIBIT 13.3—PERFORMANCE EVALUATION
COMPARED: ACTIVITY-BASED VERSUS STRATEGICBASED

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service or otherwise on a password-protected website for classroom use.


EXHIBIT 13.4— REWARDS COMPARED

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service or otherwise on a password-protected website for classroom use.


BASIC CONCEPTS OF THE BALANCED
SCORECARD
• The Balanced Scorecard permits an
organization to create a strategic focus by
translating an organization’s strategy into

operational objectives and performances
measures for four different perspectives
•
•
•
•

The
The
The
The

financial perspective
customer perspective
internal business process perspective
learning and growth perspective
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service or otherwise on a password-protected website for classroom use.


BASIC CONCEPTS OF THE BALANCED
SCORECARD
• Strategy is choosing the market and customer
segments the business unit intends to serve,
identifying the critical internal and business
processes that the unit must excel at to deliver
the value propositions to customers in the
targeted market segments , and selecting the

individual and organizational capabilities required
for the internal, customer, and financial
objectives

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service or otherwise on a password-protected website for classroom use.


EXHIBIT 13.5—STRATEGY TRANSLATION
PROCESS

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service or otherwise on a password-protected website for classroom use.


BASIC CONCEPTS OF THE BALANCED
SCORECARD
The Financial Perspective, Objectives, and
Measures
•The financial perspective establishes the long- and
short-term financial performance objectives
expected from the organization’s strategy
• Describes the economic consequences of actions
taken in the other three perspectives

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service or otherwise on a password-protected website for classroom use.

EXHIBIT 13.6—SUMMARY OF OBJECTIVES
AND MEASURES: FINANCIAL PERSPECTIVE

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service or otherwise on a password-protected website for classroom use.


BASIC CONCEPTS OF THE BALANCED
SCORECARD
Customer Perspective, Objectives, and
Measures
•The customer perspective defines the customer
and market segments in which the business unit
will compete and describes the way that value is
created for customers
•Core objectives and measures are those that are
common across all organizations
•Customer value: difference between realization
and sacrifice, where realization is what the
customer receives and sacrifice is what is given up
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service or otherwise on a password-protected website for classroom use.


EXHIBIT 13.7—SUMMARY OF OBJECTIVES
AND MEASURES: CUSTOMER PERSPECTIVE

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service or otherwise on a password-protected website for classroom use.


BASIC CONCEPTS OF THE BALANCED
SCORECARD
Process Perspective, Objectives, and
Measures
•Internal business process perspective describes
the internal processes needed to provide value for
customers and owners
•Process value chain is made up of three processes:
the innovation process, the operations process, and
the post sales service process

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service or otherwise on a password-protected website for classroom use.


BASIC CONCEPTS OF THE BALANCED
SCORECARD
Cycle Time and Velocity
•The time it takes a company to respond to a
customer order is referred to as responsiveness
• Cycle time and velocity are two operational
measures of responsiveness
• Cycle time is the length of time it takes to produce a

unit of output from the time materials are received
until the good is delivered to finished goods inventory
• Velocity is number of units of output that can be
produced in a given period of time

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service or otherwise on a password-protected website for classroom use.


MANUFACTURING CYCLE EFFICIENCY
Manufacturing Cycle Efficiency (MCE)
MCE = Processing time / (Processing time + Move
time + Inspection time + Waiting time + Other
non-value-added time)
•In this equation, processing time is the efficient or
ideal time it takes to convert materials into a
finished good
• The other activities and their times are viewed
as wasteful and the goal is to reduce those
times to zero
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service or otherwise on a password-protected website for classroom use.


EXHIBIT 13.8—SUMMARY OF OBJECTIVES
AND MEASURES: PROCESS PERSPECTIVE

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service or otherwise on a password-protected website for classroom use.


MANUFACTURING CYCLE EFFICIENCY
Learning and Growth Perspective
•Defines the capabilities that an organization needs
to create long-term growth and improvement
•Concerned with three major enabling factors:
employee capabilities, information systems
capabilities, and employee attitudes

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service or otherwise on a password-protected website for classroom use.


EXHIBIT 13.9— SUMMARY OF OBJECTIVES AND
MEASURES: LEARNING AND GROWTH PERSPECTIVE

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LINKING MEASURES TO STRATEGY
• Performance measures are derived from a
company’s vision, strategy, and objectives
• Performance measures should be chosen so that
they are balanced between outcome and lead

measures

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service or otherwise on a password-protected website for classroom use.


LINKING MEASURES TO STRATEGY
The Concept of a Testable Strategy with
Strategic Feedback
•Testable strategy is a set of linked objectives
aimed at an overall goal
•The testability of the strategy is achieved by
restating the strategy into a set of cause-and effect
hypotheses that are expressed by a sequence of ifthen statements

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service or otherwise on a password-protected website for classroom use.