978-0137024971 Chapter 2 Part 2

Chapter2: The Balanced Scorecard and Strategy Map

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This KPI scorecard has no role for information technology (strange for a

financial service organization), no linkages from its process measure

(quality certification) to a customer value proposition or to a customer

2-38 There are three main differences between a Balanced Scorecard for a

nonprofit or governmental organization (NPGO) and a for-profit

organization. First, financial success is not the primary objective of NPGOs.

Therefore, financial objectives are not the high-level outcomes to be

achieved at the top of the strategy map and Balanced Scorecard. Instead, a

long-term mission objective such as reducing poverty, improving education,

NPGOs do not have a clear strategy. To apply the Balanced Scorecard, an

NPGO’s thinking must shift from what it plans to do (activities) to what it

intends to accomplish (outcomes).

future. The Balanced Scorecard helps communicate the strategy, including

objectives, measures, and targets, to all organizational units and employees,

thus serving also as a management system. The strategy map illustrates the

causal relationships among the strategic objectives across the four Balanced

Scorecard perspectives.

PROBLEMS

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gasoline station, not in its refineries, pipelines, distribution terminals, or

trucking operations. Little that happened prior to the final point of purchase

productivity, and yield improvements signaled this important set of process

objectives.

2-41 (a) Infosys’ most important assets are customer relationships (especially

and implemented Balanced Scorecard is highly effective at helping

companies manage intangible assets consistent with the company’s strategy.

Furthermore, the Balanced Scorecard can help management effectively

communicate new strategies throughout the company.

1) Customer loyalty (% repeat business)

2) Growth in customer revenues year over year

annual billings

(c) Possible employee measures for Infosys include the following:

1) Number of new hires from top schools

2-42 Teach for America (TFA) can use its strategy map and scorecard in the

following ways:

Chapter2: The Balanced Scorecard and Strategy Map

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 Fund raising: The clear representation of TFA’s mission and strategy

 Communication: TFA can explain the strategy map to all its employees

 Link to Operations: TFA can identify which processes are most

 Governance: TFA now has a performance contract to attract Board

 Recruiting: TFA can attract new employees with a clear statement of

 Internal resource allocation: The Balanced Scorecard can help

2-43 The discussion should begin by specifying the organization’s objectives and

how the manager contributes to achieving those objectives. This provides a

framework for the ensuing discussion. Presumably the primary objective for

a fast food restaurant is profitability, which becomes the primary objective

in the Balanced Scorecard system. The response should identify reasonable

customer expectations regarding service, quality, and cost, and should

specify performance measures that reflect how the manager contributes to

Atkinson, Solutions Manual t/a Management Accounting, 6E

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2-44 The first step in this exercise is to identify what we have referred to as the

school’s owners—either the state or the trustees, depending on whether the

university is privately or publicly funded, and their primary objectives. This

The next step is to identify the primary strategy that the school has chosen

to compete for students. This defines not only the proposed relationship

For example, suppose that the school is publicly funded and has as its

mandate to educate students so they can fill jobs and provide an economic

contribution to the community. In this setting, we could specify that the

school’s primary objective is to prepare students for jobs in which they will

The performance measurement choices will reflect the mandate (strategy)

and primary objective, as well as what each stakeholder group provides to,

and expects to receive from, the university. For example, students provide

tuition fees and, through their numbers, continued state funding. In return,

publications. However, this too is a crude measure of the faculty’s

contribution to providing students with what they need at the most

Chapter2: The Balanced Scorecard and Strategy Map

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objectives.

2-45 For government and nonprofit agencies, financial systems that budget

expenses and monitor and control actual spending provide information

about whether the agency overspent its budgeted or authorized amount.

to motivate and focus employees towards achieving organizational

objectives. Ex post, the agency can measure the outcomes from its activities

to see whether it has delivered on its mission and objectives.

The customer perspective would represent objectives and measures for

either the specific beneficiaries of the agency or the donors who provide

funds for the agency. Consider a group like the Nature Conservancy or the

Sierra Club. From the perspective of donors to these organizations (the

the organization (another defining characteristic of a “customer”).

The process perspective would represent the objectives and measures for the

business processes required to meet the objectives of donors (or taxpayers)

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services, speedy and zero defect responses to donors and beneficiaries,

innovative services for recipients, and recognition of donors and volunteers.

beneficiaries, and volunteers.

2-46 The company’s approach may not produce a comprehensive Balanced

Scorecard because it will not necessarily specify cause-and-effect

relationships with measures and objectives that relate to the organization’s

performance measures.

2-47 This approach may encounter multiple common pitfalls. First, the senior

management team should be actively involved in order to articulate the

organization’s strategy, make decisions necessary for an effective strategy,

difficult. The Balanced Scorecard would likely be far less complete, useful,

and accepted than if the entire management team had participated in its

development. Third, the company may face problems common when

development of the Balanced Scorecard is treated as a systems project. In

skills to be an effective project leader for an interdisciplinary project

(though she or he might indeed have those skills). Consequently, the

Balanced Scorecard may not include a structured strategy map with cause–

and-effect linkages among strategic performance measures.

Chapter2: The Balanced Scorecard and Strategy Map

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CASES

Balanced Scorecard can also provide “intrinsic motivation.”

Employees, once they learn about the company’s strategy and how

they can contribute to that strategy, will strive to help the

organization but that have a beneficial effect on scorecard measures.

To alleviate these concerns, organizations may delay linking

compensation to Balanced Scorecard measures for six months to a

year after the scorecard’s initial implementation to gain confidence in

Another concern is how to design compensation based on multiple

objectives. Assigning weights to individual objectives allows

considerable incentive compensation to be paid when a business unit

performs well on some objectives even if the business unit performs

Atkinson, Solutions Manual t/a Management Accounting, 6E

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managers to set stretch targets rather than easily achievable targets,

knowing that if they missed a stretch target slightly, they would still

receive an award that was higher than a manager who just met a much

more easily achievable target. Because the performance factors

compensation linked to performance on Balanced Scorecard

measures.

The use of three tiers of compensation—corporate, division, and

business unit—aligns individual employees to areas where they can

the largest impact.

The issues in part (a) also arise in M&R. In addition, the pros and

cons of extrinsic motivation can be discussed. A concern with

motivation that is primarily extrinsic is that individuals may exhibit

2-49 This question serves as a basis for discussing implementations of the

Balanced Scorecard. This exercise has two objectives. The first objective is

to provide students with an understanding of what organizations expect

from a Balanced Scorecard. The second objective is to provide students with

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how the measures relate to organization strategy, and whether the Balanced

Scorecard is internally consistent and rational.

Internationalisation Strategy statement at

http://www.leeds.ac.uk/downloads/internationalisation_strategy.pdf (all

accessed on June 25, 2010).

(a) The University of Leeds’ strategy is essentially a product leadership

and education.

(b) Leeds is developing a distinctive ability to integrate world-class

research, scholarship, and education that leads to its graduates and

scholars making a major impact on global society. Leeds will

international focus.

(c) The University of Leeds already has a strong reputation and aims to be

ranked among the top 50 universities in the world by 2015. Its strategy

map lists four key themes:

 Enhance our standing as an international university

 Achieve an influential world-leading research profile

The university offers a broad range of courses, including courses in arts,

biological and physical sciences, social sciences, education, law,

engineering, business, and medicine. Leeds offers both undergraduate

and graduate studies. The university draws a relatively large population

leading performance.”

(d) As an example, Leeds’ internationalization strategy has three objectives,

Atkinson, Solutions Manual t/a Management Accounting, 6E

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shown below with relevant measures.

1. Embed internationalization into our core activities

a) % research funding from outside the UK

professorships

c) % of students experiencing some form of overseas placement

d) Quality of international student experience

e) Number of students successfully completing Leeds degrees

through transnational programmes

f) Diversity of international student population

g) Joint international publications per FTE

3. Develop and maintain high quality international strategic partnerships

a) Number of institutional international strategic partnerships

2-51 This case is an update of “City of Charlotte (A)” (Harvard Business School

MA), 1996, 183–185.

This case illustrates how a government organization can adapt the typical

Balanced Scorecard approach to implement its vision and mission. Instead

of the financial perspective that appears the top of a for-profit firm’s

The City of Charlotte’s fiscal year 2010 report (page 35) at

http://charmeck.org/city/charlotte/Budget/Documents/FY2010%20Strategic

%20Operating%20Plan.pdf lists the objectives below for its four

perspectives. Further details on objectives, measures, and targets are

Strategic

focus

Community

safety

Housing and

neighborhood

Transportation

Environment

Economic

development