Strategy, Balanced Scorecard
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Strategy
 Strategy specifies how an organization matches its
own capabilities with the opportunities in the
marketplace to accomplish its objectives.
 A thorough understanding of the industry is critical to
implementing a successful strategy.
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Five Aspects of Industry Analysis
1.
2.
3.
4.
5.
Number and strength of competitors
Potential entrants to the market
Availability of equivalent products
Bargaining power of customers
Bargaining power of input suppliers
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Basic Business Strategies
Product differentiation—an organization’s ability to offer
products or services perceived by its customers to be superior
and unique relative to the products or services of its
competitors
1.

Leads to brand loyalty and the willingness of customers to pay
high prices
Cost leadership—an organization’s ability to achieve lower
costs relative to competitors through productivity and
efficiency improvements, elimination of waste, and tight cost
control
2.

Leads to lower selling prices
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Implementation of Strategy
 Many companies have introduced a balanced
scorecard to manage the implementation of their
strategies.
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The Balanced Scorecard
 The balanced scorecard translates an organization’s
mission and strategy into a set of performance
measures that provides the framework for
implementing its strategy.
 It is called the balanced scorecard because it balances
the use of financial and nonfinancial performance
measures to evaluate performance.
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Balanced Scorecard Perspectives
1.
2.
3.
4.
Financial
Customer
Internal business perspective
Learning and growth
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The Financial Perspective
 Evaluates the profitability of the strategy
 Uses the most objective measures in the scorecard
 The other three perspectives eventually feed back into
this dimension
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The Customer Perspective
 Identifies targeted customer and market segments and
measures the company’s success in these segments
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The Internal Business Prospective


Focuses on internal operations that create value for
customers that, in turn, furthers the financial
perspective by increasing shareholder value
Includes three subprocesses:
Innovation
2. Operations
3. Post-sales service
1.
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The Learning and Growth Perspective
 Identifies the capabilities the organization must excel
at to achieve superior internal processes that create
value for customers and shareholders
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The Balanced Scorecard Flowchart
Financial
Customer
Internal
Business
Process
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Learning
&
Growth
Balanced
Scorecard
Illustrated
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Strategy
and the
Balanced
Scorecard,
Illustrated
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Common Balanced Scorecard
Measures
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Balanced Scorecard Implementation
 Must have commitment and leadership from top
management
 Must be communicated to all employees
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Features of a Good
Balanced Scorecard
 Tells the story of a firms strategy, articulating a
sequence of cause-and-effect relationships—the
links among the various perspectives that describe
how strategy will be implemented
 Helps communicate the strategy to all members of
the organization by translating the strategy into a
coherent and linked set of understandable and
measurable operational targets
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Features of a Good
Balanced Scorecard
 Must motivate managers to take actions that
eventually result in improvements in financial
performance
 Predominately applies to for-profit entities, but has some
application to not-for-profit entities as well
 Limits the number of measures, identifying only the
most critical ones
 Highlights less-than-optimal trade-offs that
managers may make when they fail to consider
operational and financial measures together
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Balanced Scorecard Implementation Pitfalls
 Managers should not assume the cause-and-effect
linkages are precise: they are merely hypotheses.
 Managers should not seek improvements across all of
the measures all of the time.
 Managers should not use only objective measures:
subjective measures are important as well.
© 2012 Pearson Prentice Hall. All rights reserved.
Balanced Scorecard Implementation Pitfalls
 Managers must include both costs and benefits of
initiatives placed in the balanced scorecard: costs are
often overlooked.
 Managers should not ignore nonfinancial measures
when evaluating employees.
 Managers should not use too many measures.
© 2012 Pearson Prentice Hall. All rights reserved.