978-0137024971 Chapter 2 Part 1

Chapter2: The Balanced Scorecard and Strategy Map

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Chapter 2

The Balanced

Scorecard and

Strategy Map

QUESTIONS

2-1 Financial performance measures, such as operating income and return on

investment, indicate whether the company’s strategy and its implementation

profitability. Key nonfinancial measures are leading indicators of financial

performance, in the sense that improvements in these indicators should lead

financial performance.

2-2 A Balanced Scorecard is a systematic approach to performance

measures used across the organization, based on the organization’s strategy.

2-3 The four measurement perspectives in the Balanced Scorecard are (1)

2-4 Increasingly, in order to succeed, organizations are relying on competitive

advantage created from their intangible assets, such as loyal customers,

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destroying their capabilities—with customers, processes, employees, and

systems—and how the company is managing intangible assets to create

for the organization.

2-5 The two essential components of a good strategy are (1) a clear statement of

aggressively, such as targeted customer segments, technologies employed,

geographic locations served ,or product line breadth.

2-6 First, it creates a competitive advantage by positioning the company in its

resources should be allocated and enables all organizational units and

marketplace.

2-7 A strategy map identifies linkages among essential elements for the

organization’s strategy. That is, a strategy map provides a comprehensive

delivery and customer loyalty (customer perspective), ultimately leading to

a higher return on investment (financial perspective). This example shows

perspectives.

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2-8 Once the company’s vision, mission, and strategy have been established, the

senior management team selects performance measurements to provide the

linkages among them. The process of building a Balanced Scorecard should

start with word statements, called objectives that describe what the company

objective will be determined. A measure should be specific in order to

provide clear focus for the objective. An example of a measure for the

2-9 The two basic approaches to improving a company’s financial performance

are (1) productivity improvements and (2) revenue growth.

2-10 Companies can generate additional revenues by (1) deepening relationships

by expanding into new markets.

2-11 Productivity improvements can be achieved in two ways: (1) reducing costs

2-12 Virtually all organizations try to improve in terms of customer satisfaction,

customer retention, customer profitability, and market share, but

targeting for growth and profitability, in order to achieve the organization’s

financial objectives. Then the measures (customer satisfaction, customer

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2-13 A value proposition defines the company’s strategy by specifying the

unique mix of product performance, price, quality, availability, ease of

Airlines, Dell Computers, and Wal-Mart. The objectives of this value

proposition emphasize attractive prices (relative to competitors), excellent

customers quickly.

2-14 The product-leadership value proposition is followed by companies such as

Tektronix (which designs and produces measurement and monitoring

consumption, design or other performance characteristics that exceed the

performance of competing products and that are valued by important

product innovation and leadership value proposition.

2-15 The customer–solutions value proposition is followed by companies such as

Home Depot (http://www.homedepot.com), whose salespersons can teach

Certain objectives that are stressed include completeness of the solution,

exceptional service both before and after the sale, and the quality of the

relationship between the company and its customers.

2-16 The Balanced Scorecard is helpful in identifying critical processes because

it forces the company to determine the means by which it will produce and

these critical processes.

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2-17 An organization will want to include measures that monitor customers’

perspectives on processes, even if workers often have little control over the

since an individual employee or department may control only one

component of a process. Employees can influence on-time departure but

processes, the plane’s departure may be delayed. Thus, the Balanced

Scorecard may include a common metric for several different employee

processes.

2-18 The four categories of processes that are useful in developing the process

perspective measures are (1) Operations management processes, (2)

Customer management processes, (3) Innovation processes, and (4)

Regulatory and social processes.

2-19 Operations management processes are the basic, day-to-day processes that

operating processes, (3) improve asset utilization and (4) deliver goods and

services responsively to customers.

2-20 Customer management processes expand and deepen relationships with

customers, and (3) Generate growth with customers.

2-21 Innovation processes develop new products, processes, and services, often

growth, which lead to enhanced operating margins.

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2-22 Managing innovation involves two important subprocesses. They are (1)

in research and development processes.

2-23 Regulatory and social processes promote meeting or exceeding standards

Environment, (2) Health and safety, (3) Employment practices, and (4)

Community investment.

2-24 In developing their Balanced Scorecard, managers identify which of the

must excel at operations management processes. Companies following a

customer-solutions strategy will emphasize their customer management

processes

2-25 Typically, the financial benefits from improving processes occur within

different time frames. Cost savings from improvements in operational

revenue and margin improvements (24 to 48 months). The benefits from

regulatory and social processes also typically take longer to capture as

2-26 The three components of the learning and growth perspective are human

2-27 The following are desirable characteristics for a Balanced Scorecard

measure:

objective.

 Available: The measure already exists in our data base or can be

obtained without excessive cost.

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the measure.

 Actionable: The measure can be influenced by the actions and

initiatives the organization undertakes.

without excessive delay.

2-28 Because financial success is not their primary objective, nonprofit and

government organizations (NPGOs) cannot use the standard architecture of

diseases, or eliminating discrimination, at the top of their scorecard and

strategy map. A nonprofit or public sector agency’s mission represents the

existence and ongoing support.

2-29 Building and embedding a new measurement and management system into

an organization is complicated and susceptible to at least the following four

additional pitfall is for one senior manager to try to build the scorecard

alone.

EXERCISES

2-30 Wal-Mart is a company that uses the low–total-cost value proposition. The

objectives of this value proposition emphasize attractive prices (relative to

measures for Wal-Mart include the following:

(1) Financial: Return on investment, profit, change in yearly profit, cost of

purchasing items, inventory turnover.

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for continuous replenishment, checkout speed.

(4) Learning and growth: Employee satisfaction measured by a survey,

employee retention, percent of suppliers linked electronically to point of

improvement.

2-31 Mercedes uses the product-leadership value proposition, which emphasizes

particular features and functionalities of the products that leading-edge

important to be first–to-market when using the product innovation and

leadership value proposition. Possible measures for Mercedes include the

following:

per vehicle sold, benchmarked against competitors.

(2) Customer: Market share and customer satisfaction in targeted segments

(such as high discretionary income customers), customer retention, peer

Power and Consumer Reports.

(3) Process: Time spent with focus groups to learn about knowledgeable

customer preferences, product development lead time, peer review of

or features introduced each year.

(4) Learning and growth: Employee satisfaction measured by a survey, key

employee retention, employee skill coverage (such as scientists and

engineers with leading-edge knowledge of powertrain, suspension,

for culture of creativity and innovation.

2-32 Nordstrom, an upscale retailer uses the customer-solutions value

proposition, which focuses on making customers feel that the company

understands them and is capable of providing them with customized

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Nordstrom include the following:

(1) Financial: Return on investment, change in yearly profit per store, profit

margins on merchandise, inventory turnover.

(2) Customer: Market share in target segments, percent of customers who

return for more purchases, percent of customers’ “wardrobes” supplied

percent of sales from loyal customers.

(3) Process: Length of time elapsed between the time a customer’s desired

item arrives in a store and the customer is contacted, percent of

customers whose preferences are entered into Nordstrom’s database,

(4) Learning and growth: Employee satisfaction measured by a survey, key

employee retention, percent of salespersons with more than two years of

2-33 (a) Increase employees’ process improvement skills 

Decrease process defects  Decrease cost of serving customers

Decrease process defects  Increase customer satisfaction  Increase

revenues

Increase profit

(b) Reduce turnover of key design personnel 

Increase number of new customers 

Increase revenues  Increase profit

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(c) Increase employees’ customer relationships skill levels 

Increase customer satisfaction with employees’ assistance 

Increase number of products cross-sold to customers 

Increase revenues

2-34 The statement is incorrect. In the process perspective of the Balanced

Scorecard, there are four groupings. The fourth grouping, regulatory and

employees, and (4) lost workdays per 100 employees or per 200,000 hours

worked. Also, if environmental and social issues are especially important to

communities in which it operates.

2-35 It is indeed possible for an organization to focus on 20 to 30 different

However, a properly constructed Balanced Scorecard provides the

2-36 This statement is incorrect. The individual is assuming that identifying key

performance indicators and classifying them into the four scorecard

in the chapter, a good test is whether one can understand the strategy by

looking only at the strategy map and scorecard. Note also that the list of key

2-37 Although this scorecard is more balanced than its previous one, which used