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LIMERICK INSTITUTE OF TECHNOLOGY SCHOOL OF BUSINESS & HUMANITIES
ASSIGNMENT COVER SHEET
Student Name: Emmanuel Emeonye Student Number: k00122890 Course Name: Accounting & Finance Study Mode: Full-Time: AC CS: Lecturer Name: Michael Sheehan Subject Title: AF3 Management Accounting and Operations Research Assignment Title: Balanced Scorecard Project Number of Pages: Disk Included: Yes: No: Additional Information: Due Date: 31st January 2011 Date Submitted: Plagiarism Disclaimer:
I understand that plagiarism is a serious offence and I have read and understood the college policy on plagiarism. I also understand that I may receive a mark of zero if I have not identified and properly attributed sources that have been used, referred to or have in any way influenced the preparation of this assignment. Furthermore, I understand that I may receive a mark of zero if I have knowingly allowed others to plagiarise my work in any way. I hereby declare that this assignment is my work based on my personal study and /or research and that I have acknowledged all material and sources used in its preparation. I also declare that this assignment has not been previously submitted for assessment.
Signed: Date:
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Table of Content
Page 1 Plagiarism Disclaimer
Page 2 Table of Contents
Page 3 & 4 Introduction to Balanced Scorecard
Page 5 Brief History of the organisation
Page 6 & 7 Financial Perspective
Page 8&9 Customer Perspective
Page 9 & 10 Internal Business Process Perspective
Page 11 Learning and Growth Perspective
Page 12 Conclusion
Page 13 Bibliography
Page 14 Appendix
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Introduction to Balanced scorecard
The balanced scorecard is a strategic planning and management system that is used extensively
in business and industry, government, and non-profit organizations worldwide to align business
activities to the vision and strategy of the organization, improve internal and external
communications, and monitor organization performance against strategic goals.
www.balancedscorecard.org
According to the researchers “one of the original legitimizing aspects of the BSC as a
management control model is that it should enable organizations to become more oriented
towards long-term Revenue, rather than short-term costs, in their management control
routines.”(Johanson, Skoog, Backlund, Almqvist, 2006, pp.849-850) however, According to
(Chavan, 2009, pp.398-399) “Use of the balanced scorecard should improve managerial
decision making by aligning performance measures with the goals and strategies of the firm and
the firm’s business units. I do agree with both researchers, but would disagree on the quote “that
organization should more oriented towards long-term revenue as to short- term cost” on the basis
that for long-term revenue to be achieved, short-term cost and revenue should be met.
Balanced scorecard was originated by Drs. Robert Kaplan (Harvard Business School) and David
Norton as a performance measurement framework that added strategic non-financial
performance measures to traditional financial metrics to give managers and executives a more
'balanced' view of organizational performance. While the phrase balanced scorecard was coined
in the early 1990s, the origins go way back, for example to General Electric performance metrics
in the fifties and the French tableau de bord in the early 20th
century. Also in Analog Devices a
scorecard was introduced in 1988(www.schneiderman.com). It has matured from its early use as
a simple performance measurement tool to a full strategic planning and management system. The
“new” balanced scorecard gives the workers direction as how to work every day congruent to the
strategic plan. It provides a framework that not only provides performance measurements, but
helps planners identify what should be done and measured. It enables executives to really carry
out the strategies. Drs. Kaplan and Norton (1992, 1996), recognizing some of the shortcomings
of the traditional financial approach came with the balanced scorecard. The BSC provides a
guideline on how to balance out the pure financial perspective. The BSC is a management
system (Not just metrics) that enables organizations and managers to clearly cascade down their
vision and strategy and clarify the actions required to all. It gives the managers feedback on how
well the business processes are running and how and if the results and processes could improve.
It transforms the strategic planning from a scribble on a piece of paper to the dashboard of the
cockpit of the business showing the metrics that are required for the growth and survival.
However according to Voelpel, Leibold and Eckhoff (2006) „tyranny „ of the BSC as a
measurement “straightjacket” is starting to put at risk survival of companies, hinders innovation
and therefor adversely affecting customer value rejuvenation, share value and societal benefits.
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They propose a more systemic alternative. The companies‟ fate is determined by the health of
other firms that are in its business ecosystem. We have to consider whether the BSC in its current
form has any value at all.
www.bing.com
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Introduction of the organisation
Anglo American is one of the world‟s largest mining companies and their head office has been in
London since 1999 when Luxembourg-headquartered Minorco merged with Anglo American
Corporation of South Africa to form Anglo American plc. They have a portfolio of high-quality
mining assets and natural resources includes platinum group metals and diamonds, with
significant interests in copper, iron ore, metallurgical coal, nickel and thermal coal, as well as a
divestment portfolio of other mining and industrial businesses. Anglo American has operations
in Africa, Europe, South and North America, Australia and Asia. www.angloamerican.com Anglo
American started its operations in Johannesburg; South African in 1917.their thermal coal, iron
ore and platinum businesses have operations in South Africa, with a corporate office in
Johannesburg and have projects or operations in Namibia, Botswana and
Zimbabwe.www.angloamerican.com
Recently, Anglo American has been criticized by some shareholders and stakeholders for selling
off some of its assets in Africa, South America, Australia and Europe by the group's chief
executive Cynthia Carroll, as a part of her strategy to ditch businesses that do not contribute to
growth. www.dailymail.co.uk. I would disagree with the notion of selling off parts of the
business empire as it would create unemployment and thereby lead to high street crime and
drugs. In the case of South Africa where there is high street crime and it contradicts their aim to
make real and lasting contribution to the communities in which they operate.
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Financial Perspective
The financial perspective is the viewpoint of the shareholder. Usually goals are set around cash
flow (for survival), profitability (for success) and sales/market share (for growth). The balanced
scorecard does not supplant such measures, but rather complements them with others, which tend
to be longer term in their focus. www.irishtimes.com
According to the researcher, “In the for-profit domain the objectives in this perspective
represent the end in mind of our strategic story, typically culminating in objectives such as
increase shareholder value, revenue growth and lower cost.” (Niven, 2008) however, According
to the researcher)” A balanced view of the various Non-financial, as well as financial perspective
is necessary. However, it has become evident that the word “balanced” does not mean that the
four perspectives are equally important.” (Johanson et al., 2006, pp.844-845) I am of the opinion
that the four perspectives should work together equally and dependently towards the overall
corporate strategy. For instance, Anglo American declared force majeure on its coal mines in
Queensland, Australia due to recent torrential rains. From a customer perspective, the customers
might not be satisfied as their goods or services will not be delivered on time. The customers
might consider looking elsewhere for prompt services which will reduce revenue and profit,
thereby affecting the financial perspective.
Measures for financial perspectives
Net Profit percentage
The net profit percentage for Anglo American in 2008 was 23% as compares to their competitor
Bhpbilliton which was 27%. In 2009 the net profit percentage for Anglo American was 14% and
for Bhpbilliton was 13%. Anglo American‟s net profit dropped from 23% down to 14%
indicating that something is seriously wrong in the business. However their reduction is in
profitability, not as dramatic as their competitor. In comparison to their competitor they have
done better. (Appendix 2)
Return on Capital Employed
In 2008 the R.O.C.E for Anglo American was 25% and 41% for BhpBilliton. In 2009 the
R.O.C.E for Anglo American was 9% and 18% for BhpBilliton. The R.O.C.E for Anglo
American dropped dramatically from 25% to 8%. In comparison with their competitors who
dropped from 41% to 18%. Both companies have a huge drop in their R.O.C.E which is not good
to the business (Appendix 1)
Current ratio
In 2008 the current ratio for Anglo American was 0.70:1 as compared to BhpBilliton to
1.32:1.The current ratio for Anglo American in 2009 was 1.54:1and BhpBilliton 1.89:1.In 2009,
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Anglo American were within the normal required limit 1:32:1 which is a big improvement from
being below the required limit in 2008 by 0.70:1.however their competitors seems to be doing
very well as they were within the required limit both in 2008 and 2009(Appendix 3)
Acid Test Ratio
In 2008 the acid test ratio for Anglo American was 0.50:1 and BhpBilliton a leading competitor
1.30:1. Also, in 2009 the acid test for Anglo American was 1.06:1 and BhpBilliton, 1.88:1.Anglo
American improved in 2009 as they were within the required limit 1.06:1, as compares to 2008
when they were below the required limit by 0.50:1.their leading competitor is within the required
limit both in 2008 and 2009 which is a good result.(Appendix 4)
Earning per share
In 2008, earnings per share for Anglo American was $4.34 and BhpBilliton $275.3. In 2009
earnings per share for Anglo American was $2.02 and BhpBilliton $105.6. In 2009 both
companies dropped in their earnings per share which is no surprise as revenue has reduced. In
comparison to their competitor, Anglo American is behind (Bibliography)
Performance
In 2009 as compares to 2008, Anglo American‟s profit from platinum and diamonds dropped to
99%, industrial minerals fell to 83%, while coal fell to 2%. As a result of the performance which
lead to the sharp declines in commodity prices against the prior year and anticipated reductions
in volumes, partially offset by exchange rate benefits compared to 2008, they did not declare an
interim or recommend a final dividend in 2009 and 2010 for the first time since the Second
World War. It could make the prospective investors not to invest in the company as they have
not paid dividend to shareholders in 2 years. The shareholders will be disappointed with the
underperforming share price and non payment of dividend, especially the shareholders who rely
on the dividend as their only source of income. www.dailymail.co.uk
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Customer perspective
The customer perspective is designed solely to measure how well the company is meeting the
demands of the customer and its market segment. By measuring customer satisfaction, loyalty,
retention, acquisition, and profitability, a company can excel in their market segment and plan
for the future. (Kaplan and Norton, 1996)
“The customer perspective describes the ways in which differentiated, sustainable value is to be
created for targeted customer segments, how customer demand for this value is to be satisfied,
and why the customer will be willing to pay for it” (Gurd and Gao, 2008, pp. 12-13) in addition,
According to Kaplan and Norton (2005, pp. 41-42) “the customer perspective defines the drivers
of revenue growth. It includes generic customer outcomes, such as satisfaction, acquisition,
retention, and growth, as well as the differentiating value proposition the organization intends to
offer to generate sales and Loyalty from targeted customers.”
Measures for customer perspective
Customer satisfaction and customer retention
Customers satisfied with the business product and service of the company tends to pay on time
and build business relationship as it is profitable for them. Customers not satisfied with the
product or service of the company will not care about the continuing relationship with the firm
tend to pay late. Anglo American‟s debtor‟s days went from 42days in 2008 to 62 days in
2009(See appendix 5 for calculations) indicating that the customers did not make their payment
within the required 30-60 days which shows that the customers might be in financial difficulty or
have issues with the price and services rendered. According to the Daily mail
(www.dailymail.co.uk), in South Africa where they supply power generation and thermal coal to
industrial sectors, the country's electricity system is in crisis. Prices have shot up and there have
been increasing numbers of blackouts which may have caused the reduction in turnover of
thermal coal from US$M 3,051 in 2008 to US$M 2,490 in 2009(of which the turnover in South
Africa in 2008 US$M 2210 and in 2009 US$M 1748). However, BhpBilliton only dropped from
US$M 6,560 in 2008 to US$M 6,524 in 2009. Both companies in other to increase their turnover
might conside reducing their cost of production for example purchase of cheaper and good
quality raw materials, which will enable them to reduce their selling price and also to supply
quality goods and services. Therefore, when customers are happy and satisfied it culminates to
customer satisfaction and retention
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Image
Anglo was awarded the platinum band in the Corporate Responsibility Index in 2009 for its
corporate and social responsibility activities (www.angloamerican.com). This puts the company
in a better position for potential customers that favour suppliers with a commitment to ethics and
sustainable development.
Internal Business Process Perspective
This perspective refers to internal business processes, and aims at satisfying shareholders and
customers by excelling at some business processes. Metrics based on this perspective allow the
managers to know how well their business is running, and whether its products/services conform
to customer requirements. (Bigliardi and Bottani, 2010, pp.252-253)
“To satisfy customers, you may have to identify entirely new internal processes rather than
focusing your efforts on the incremental improvement of existing activities.” (Niven, 2005)
Further more, “the balanced scorecard should not only consider operations processes, but also
innovation processes. By incorporating innovation process measures, the BSC provides
managers with a set of tools that can add value in both the short and long term.” (Bose and
Thomas, 2007, pp. 661-662)
Measures for internal business process perspective
Safety
In 2009 Anglo American‟s fatal-injury frequency rate showed a 33% improvement from 0.015
in 2008 to 0.010 in 2009. Also, lost-time injury frequency rate reduced to 27%, showing a year-
on-year improvement from 1.04 in 2008 to 0.76 in 2009 which conforms to their slogan that any
loss-of-life is unacceptable after loosing 20 of their employees in 2009. As a part of fall of
ground management, Anglo Platinum introduced in-stope bolting and in-stope netting as a means
of preventing injury from falls of ground at all operations and also, Smart Cap was introduced
across Anglo American Metallurgical Coal mine sites. The Smart cap does not prevent fatigue –
but when a danger level is reached, the Cap transmits via Bluetooth to an in-cab monitor that
alerts the driver and suggests a rest stop. However, Bhpbilliton also lost 7 employees due to work
related incidents in 2009. They have made in incremental improvement in total recordable injury
(which comprises of fatalities and lost time cases) to 5.6 per million hours worked. In
comparison to their competitor they a high death rate. However, the introduction of SMART Cap
and fall of ground management would be an important tool towards reducing the number of
death rate, work related incidents and fatal injuries. Which as stated by (Niven, 2005) and (Bose
and Thomas, 2007) that innovation is a major tool to improve internal business perspective, a
quote that I do agree with as it adds value to both short and long term strategy of a business.
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Health
Their goal is that no employee is harmed by working at their operations, and that the health of
those who work for them is improved. It is a good internal control perspective as when
employees are free from occupational disease it mitigates absenteeism, customer targets are met
through consistent production, thereby achieving revenue and profit. Also, the failure to maintain
the required high levels of safety management could result in fines and penalties, liability to
employees and third parties for injury, impairment of the Group‟s reputation, temporary or
permanent closure of mines by the government in authority, industrial inability to recruit and
retain skilled employees. Noise-induced hearing loss rose from 62 in 2008 to 367 in 2009 and
also the new cases of Hand-Arm Vibration Syndrome, occupational lung diseases and
tuberculosis reported. The incidence rate of occupational disease per 200,000 hours worked has
risen from 0.126 in 2008 to 0.483 in 2009. Bhpbilliton are progressing with their health
performance as they had 215 new cases of occupational disease reported in 2009, 51 fewer cases
compared with 2008.
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Learning and Growth perspective
The Learning & Growth Perspective focuses on the intangible assets of an organization, mainly
on the internal skills and capabilities of the employees that are required to support the value-
creating internal processes www.theclci.com
“This perspective includes employee training and corporate cultural attitudes related to both
individual and corporate self-improvement”. (Bigliardi and Bottani, 2010, pp.252-253) however,
“Objectives in the learning and growth perspective are the drivers for achieving excellent
outcomes in the first three scorecard perspectives”. (Kaplan and Norton, 2002)
Measures for learning and growth perspective
Skills development
In 2009, Anglo American invested $84.1 million (2% of total employee costs) in direct training
activities, and supported more than 4,500 supernumeraries, bursars, apprentices and graduate
trainees. Nearly 5,700 employees, contractors and community members in South Africa have
enrolled in adult basic education, training and a further 2,600 employees were provided with
'portable' skills training, which involves developing employees' non-mining skills so that they are
employable outside of the industry after mine closure. www.angloamerican.com it is a good
measure for learning and growth as the employees will be highly motivated, committed and
diligent towards their work as their employer provided the necessary mining skills development
so that they are employable after working in Anglo American. Their competitor is also
responsible for providing employees with the right opportunities to enhance their skills and take
on more challenging roles and greater responsibilities.
Equality and diversity
Promoting diversity within their workforce remains a vital pillar to the human resources
principles of Anglo American. Management ranks within South Africa with respect to women
grew from 45% in 2008 to 46% in 2009. Recently, the number of women working in mines at
Anglo Platinum has increased from near zero in 2004 to 2,700. Metallurgical Coal‟s initiatives in
Australian operations have focused on attracting and retaining more female employees across all
levels of the organisation, particularly in male-dominated disciplines. 50% of their 2010
scholarship programme intake was female and plans are in place to increase the number of
women in „non-traditional roles‟ through the apprentice, graduate and scholarship programmes.
www.angloamerican.com according their competitor, Employment decisions based on attributes
other than a person‟s qualification to perform a job for instance race, sexual, orientation gender,
disability, are prohibited. www.bhpbilliton.com
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Conclusion
The notion of the Balanced Scorecard is simple but extremely powerful if implemented well.
Anglo American had a huge drop from 2008 to 2009 in their net profit percentage, Return on
Capital Employed and Earnings per share. They improved in their current and acid test ratio in
2009. In 2009, debtor‟s days increased. In 2009, they had a high mortality rate and occupational
disease increased. To achieve their “aim to be the leading global mining company - through
world class assets in the most attractive commodities, operational excellence and a resolute
commitment to safe and sustainable mining”. www.angloamerican.com Customer acquisition
through expansion of marketing strategy and achieving a set target of $2 billion in annual cost
savings and efficiency initiatives must be prioritized. This will be aimed at achieving
profitability, cash flow and organizational growth. However, effectiveness of internal control
and risk management is needed to for monitoring performance, Skills development, health,
safety, customer satisfaction and customer retention. Overall, Anglo American‟s performance is
good, not as good as their competitor (Bhpbilliton).
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Calculation Appendix
1. Workings for return on capital employed
Is calculated as follows: Total profit from operations and associates*100/
Capital employed (total issued share capital+ reserve+ non-current liabilities)
Anglo American
2008
8972*100/ (21,756+14,778) = 25%
2009
4436*100/ (21303+28069) = 9%
BhpBilliton
2008
24,145*100/ (39,043+20,487) = 41%
2009
12,160*100/ (40,711+26,209) = 18%
2. Net profit margin/percentage
Is calculated as follows: Profit for the year * 100/Sales
Anglo American
2008
6,120*100/26311 = 23%
2009
2,912*100/20,858 = 14%
BhpBilliton
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2008
15962*100/59,473 = 27%
2009
6338*100/50,211 = 13%
3. Current ratio
Is calculated as follows: Current Assets/Current Liability
Anglo American
2008
9,305/ 13,124 = 0.71:1
2009
10,411/6,745 = 1.54:1
BhpBilliton
2008
21,680/ 16,478 =1.32:1
2009
22,486/11,850 = 1.89:1
4. Acid test ratio (quick ratio)
Is calculated as follows: (Current Assets – Closing Inventory)/Current Liabilities
Anglo American
2008
(9,305 – 2702) /13,124 = 0.50:1
2009
(10,411 – 3212)/ 6,745 = 1.06:1
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BhpBilliton
2008
(21,680 – 232)/ 16,478 = 1.30:1
2009
(22,486 – 200)/11,850 = 1.88:1
5. Receivables days’ ratio
Is calculated as follows: receivables*365/credit sales
Anglo American
2008
(94+2,929)*365/26,311 = 42 days
2009
(206+3,348)*365/20,858 = 62 days
BhpBilliton
2008
(9,801+720)*365/59,473 = 65 days
2009
(5,153+762)*365/50,211= 43 days
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