Chapter 12
Performance Evaluation
Using the Balanced
Scorecard
Introduction
When you choose a restaurant
for a meal, are you concerned
with:
•The price of the meal?
•How long you have to wait to
be seated?
•The quality of the food that is
served?
The Balanced Scorecard
•Uses a set of financial and nonfinancial
measures that relate to the critical success
factors of the organization.
•Helps to keep management focused on
ALL of a company’s critical success
factors, not just its financial ones.
•Helps to keep short-term operating
performance in line with long-term
strategy.
The Balanced Scorecard Approach to
Performance Measurement
FINANCIAL PERSPECTIVE
How do we create value for our
stakeholders?
CUSTOMER PERSPECTIVE
How do customers view us?
Strategy
INTERNAL
BUSINESS
PERSPECTIVE
At what business
processes must we excel?
LEARNING and GROWTH
PERSPECTIVE
How do we continue to improve, learn
and grow?
The Balanced Scorecard
Financial Perspective
•Primary goal of every profit-making
enterprise is to show a profit.
•However, here financial performance is
seen in the larger context of the company’s
overall goals and objectives relating to its
customers and suppliers, internal processes,
and employees.
The Balanced Scorecard
Customer Perspective
Critical success factors include increasing the quality of
products and services, reducing delivery time, and increasing
customer satisfaction.
Measures of performance include the number of warranty
claims and returned products, customer response time and
the percentage of on-time deliveries, and customer
complaints and repeat business.
A second dimension deals with the increasing market share
and penetrating new markets. Measures of performance
include market share, market saturation, and new products
introduced into the market place.
The Balanced Scorecard
Internal Operations Perspective
Deals with objectives across the company’s entire
value chain—from research and development to postsale customer service.
Critical success factors improve quality throughout
the production process, increasing productivity, and
increasing efficiency and timeliness.
The Balanced Scorecard
Learning and Growth Perspective
Links the critical success factors in the other
perspectives and ensures an environment that
supports and allows the objectives of the other three
perspectives to be achieved.
Improving employee morale
Increasing information systems capabilities
Product innovations
A Focus on Quality
QUALITY:
Meeting or exceeding
customers' expectations
Product performs as it is intended
Product must be reliable and
durable
These features are provided at a
competitive price
A Focus on Quality
ISO 9000: A set of guidelines for quality
management focusing on design,
production, inspection, testing, installing,
and servicing of products, processes, and
services. Originally developed by the ISO
to control the quality of products sold in
Europe.
The Costs of Quality
To facilitate the comparison of the benefits of providing
high-quality products or services with the costs that result
from poor quality. Four general categories of quality costs
include:
•Prevention costs
•Appraisal costs
•Internal failure costs
•External failure costs
The Costs of Quality
Prevention Costs
Costs incurred to prevent
product failure from occurring.
Incurred early in the value
chain and includes design and
engineering, as well as training,
supervision, and the costs of
quality improvement projects.
The Costs of Quality
Appraisal (detection) Costs
Incurred in inspecting, identifying,
and isolating defective products and
services before they reach the
customer.
Includes costs of inspecting raw
materials, testing goods throughout
the manufacturing process, and final
product testing and inspection.
The Costs of Quality
Internal Failure Costs
Incurred once the product is
produced and then determined to
be defective, but before it is sold
to customers.
Includes the material, labor, and
other manufacturing costs
incurred in reworking defective
products and the costs of scrap
and spoilage.
The Costs of Quality
External Failure Costs
Incurred after a defective product is
delivered to a customer.
Includes the cost of repairs made
under warranty, replacement of
defective parts, product recalls,
liability costs arising from legal
actions against the seller, and
eventually lost sales.
Productivity Measures
Productivity is simply a measure of the
relationship between outputs and inputs.
•How many loaves of bread are baked per bag of flour?
•How many cars are produced per labor hour?
•How many calculators are produced per machine hour?
•How many customers are serviced per shift?
Efficiency and Timeliness Measures
Customer Response Time: the time it takes to deliver a
product or service after an order is placed.
Customer
Places
Order
Customer
Receives
Product
Order Ready
for Setup
Order
Receipt
Time
Order is
Set Up
Order
Waiting
Time
Product
Completed
Order
Manufacturing
Time
Total Customer Response Time
Order
Delivery
Time
Efficiency and Timeliness Measures
In a brewery, beer must sit
in storage vats for a period
of time while waiting to be
bottled or packaged for
delivery.
Is this “wait time” valueadded or non-valueadded?
End of Chapter 12
I knew I
should have
paid more
attention to
the scorecard!