Strategy, Balanced Scorecard, and Strategic Profitability AnalysisStrategy, Balanced Scorecard, and
Learning Objective 1
13 - *
What is Strategy?
its own capabilities with the opportunities in the
marketplace to accomplish its overall objectives.
13 - *
What is Strategy?
Competitors
Equivalent products
13 - *
Basic Strategies
Implementation of Strategy
implementing strategy.
The Balanced Scorecard
performance from four perspectives:
Learning Objective 2
Identify what comprises
Reengineering
of business processes delivery to achieve
improvements in critical measures of
performance such as cost, quality, service,
speed, and customer satisfaction.
Reengineering Example
13 - *
Reengineering Example
production begins in the manufacturing department.
Sometimes items are held in inventory until
a truck is available for shipment.
13 - *
Reengineering Example
number of items requested by the customer,
a special shipment must be scheduled.
Dallas discovered that the many transfers
across departments slowed down the
process and created delays.
order delivery process.
Reengineering Example
for each customer.
customers specifying quantities and prices.
The customer relationship manager will work
with the customer and manufacturing to specify
delivery schedules one month in advance.
13 - *
Reengineering Example
electronically to manufacturing.
the manufacturing plant to customer sites.
Each shipment will automatically trigger an
invoice to be sent electronically to the customer.
13 - *
Learning Objective 3
Perspectives of Performance
Financial Perspective
Financial Perspective
Customer Perspective
Customer Perspective
Internal Business
Process Perspective
Internal Business
Process Perspective
Learning and Growth Perspective
Learning and Growth Perspective
Aligning the Balanced
Scorecard to Strategy
perspective measures?
Operating income
Revenue growth
Return on investment
Aligning the Balanced
Scorecard to Strategy
perspective measures?
Market share
Customer satisfaction
13 - *
Aligning the Balanced
Scorecard to Strategy
perspective measures?
Innovation Process:
Manufacturing capabilities
New product development time
Number of new patents
Aligning the Balanced
Scorecard to Strategy
Percentage of on-time delivery
Aligning the Balanced
Scorecard to Strategy
defective products
using the product
Aligning the Balanced
Scorecard to Strategy
perspective measures?
Employee satisfaction scores
Employee turnover rates
Information system availability
13 - *
Pitfalls When Implementing
a Balanced Scorecard
implementing a balanced scorecard?
linkages to be precise.
all measures all the time.
3. Don’t use only objective measures
on the scorecard.
Pitfalls When Implementing
a Balanced Scorecard
4. Don’t fail to consider both costs and benefits
of initiatives such as spending on information
technology and research and development.
5. Don’t ignore nonfinancial measures when
evaluating managers and employees.
13 - *
Learning Objective 4
Evaluating the Success
of a Strategy
Year 2003 Year 2004
Evaluating the Success
of a Strategy
income of $818,680 be evaluated?
Growth
Growth Component
and sold 1,000,000 units at $26 per unit.
During the year 2004, Dallas produced
and sold 1,100,000 units at $24 per unit.
What is the revenue effect of growth?
13 - *
Growth Component
(Actual units of output sold in 2004
Actual units of output sold in 2003)
Output price in 2003
it increases operating income.
Growth Component
Actual units of input or capacity that would
have been used in 2003 to produce year 2004
output assuming the same input-output
relationship that existed in 2003
Actual units or capacity to produce 2003 output
Input prices in 2003
Growth Component
proportional increase in direct materials.
Assume that 3,000,000 square centimeters of
materials were used to produce the 1,000,000
units in 2003 at a cost of $1.35
per square centimeter.
Growth Component
selling and customer service costs and research
and development costs were $16,000,000
and remained stable during 2004.
What is the cost effect of the growth component?
3,000,000 × 110% = 3,300,000 centimeters
13 - *
Operating Income and Growth
as a result of growth?
Revenue effect of growth component $2,600,000 F
Cost effect of growth component 405,000 U
Increase in operating income
13 - *
Price-Recovery Component
= (Output price in 2004 – Output price in 2003)
× Actual units of output sold in 2004
What is the revenue effect of the
price-recovery component?
13 - *
Price-Recovery Component
(Input prices in 2004 – Input prices in 2003)
Actual units of inputs or capacity that would
have been used to produce year 2004 output
assuming the same input-output relationship
that existed in 2003
costs were $1.31 per square centimeter.
=
×
Price-Recovery Component
price-recovery component?
What is the total effect on operating
income of the price-recovery component?
13 - *
Operating Income and
Cost effect
Decrease in operating income
13 - *
Productivity Component
Productivity component
produce year 2004 output
Input prices in 2004
that would have been used to produce
year 2004 output assuming the same
input-output relationship that existed in 2003
–
Productivity Component
13 - *
Productivity Component
(2,772,000 – 3,300,000) × $1.31 = $691,680 F
There is a $691,680 increase in operating
income due to the productivity component.
13 - *
Change in Operating Income
Increase in operating income
Learning Objective 5
Distinguish between engineered
and discretionary costs.
Engineered Costs
cause-and-effect relationship between output
They can be variable or fixed in the short run.
13 - *
Discretionary Costs
decisions regarding the maximum
amount to be incurred.
relationship between output and resources used.
13 - *
Relationships Between
Type of process
Level of uncertainty
Relationships Between
detailed, physically observable, and repetitive.
Discretionary costs are associated with processes
that are sometimes called black boxes, because
they are less precise and not well understood.
13 - *
Learning Objective 6
Identify unused capacity
13 - *
Managing Unused Capacity
Attempt to eliminate the unused capacity
Attempt to use the unused capacity to grow revenue
13 - *
End of Chapter 13