AGENDA
• How to link measures in different levels of organizational
hierarchy
• How to link BSC into existing management system
• Do BSC pay off?
• Validating measurement systems
• Problems of strategic performance measurement
systems
Accounting for Management
Control / Teemu Malmi 2015
LINKING SCORECARDS
• Scorecards between levels may be linked directly or logically
• Direct linking means that measures at top level scorecard are
summed up from the lower level scorecards
• Logical linking means that lower level identifies which
measures at above level scorecard they can have an
influence on
• Those measures serve as strategic objectives for the lower
level
• Following cause-end effect reasoning the rest of the
measures are identified
Accounting for Management
Control / Teemu Malmi 2015
ONE POSSIBILITY FOR LOGICAL LINKING
Corporate
return on
assets
market
share
profit
growth
VP
manufacturing
inventory
turnover
output per
equipment $
output per
sq feet
Plant
manager
cycle time
finished
goods
vendor
lead time
Department
manager
equipment
down time
defect rate
schedule
changes
Process
driver
QC
absenteeism
changeover
time
maintenance
cross
training
Source: Beischel & Smith, Lin king the Shop Floor with the Top Floor,
Management Accounting (IMA), October 1991
Accounting for Management
Control / Teemu Malmi 2015
LINKING SCORECARDS
• Recall that BSC was originally a construct for SBU level
• If derived using logical linking, there is no need to stick
with certain perspectives at all levels. This may save a
lot of effort and money in measurement
• Measures close to action tend to be more often nonfinancial
• Note: Linking returns to a question of how
accountability, authority, and autonomy are delegated
within the organization
Accounting for Management
Control / Teemu Malmi 2015
CASE TELECOM COMPANY
Corporate
SPMS
Business Area
&/or Business Unit
Individual
SPMS
Strategic
Focus Areas
Strategic
Action
Planning
Individual level SPMS
Accounting for Management Control / Teemu Malmi 2015
Organisational
values
AGENDA
• How to link measures in different levels of organizational
hierarchy
• How to link BSC into existing management system
• Do BSC pay off?
• Validating measurement systems
• Problems of strategic performance measurement
systems
Accounting for Management
Control / Teemu Malmi 2015
How to link BSC into existing
management system
• If you were to design and implement a BSC for a
company / organization you work for, what would be the
key issues to consider in making sure BSC would also
become and survive as part of the management
system?
Accounting for Management
Control / Teemu Malmi 2015
Clarifying Vision
and Strategy
-gaining consensus
Linking Measures
to Strategy and
Communicating
Strategy
Balanced
Scorecard
Strategic
Feedback and
Learning
Setting Targets
- incl. milestones
Source: Kaplan & Norton, 1996
Accounting for Management
Control / Teemu Malmi 2015
AGENDA
• How to link measures in different levels of organizational
hierarchy
• How to link BSC into existing management system
• Do BSC pay off?
• Validating measurement systems
• Problems of strategic performance measurement
systems
Accounting for Management
Control / Teemu Malmi 2015
VALIDATING MEASUREMENT SYSTEMS
• How would you be able to assess whether the
measurement system (BSC) is well constructed?
• Think of measurement system as a whole, not individual
measures
Accounting for Management
Control / Teemu Malmi 2015
AGENDA
• How to link measures in different levels of organizational
hierarchy
• How to link BSC into existing management system
• Do BSC pay off?
• Validating measurement systems
• Problems of strategic performance measurement
systems
Accounting for Management
Control / Teemu Malmi 2015
POSSIBLE CONCERNS
• How to identify strategy? Is the selected strategy
appropriate?
• Complexity of cause-and-effect relationships
• Measures are often averages
• What to measure and how to make sure data is accurate
• How balanced a measurement system should be?
• Linking strategic measurement systems to existing
management system
• Strategy maps and measures remains as a tool for top
management only
• Building a measurement system can be totally delegated
• The best is the worst enemy of good
Accounting for Management
Control / Teemu Malmi 2015
SUMMARY
Accounting for Management
Control / Teemu Malmi 2015
TRANSLATING STRATEGY INTO ACTION
• Clarifying strategy and gaining consensus
• Linking strategy and measures (leading indicators!)
• Targets for measures and accountability
• Communicating strategy
• measures and strategy map will communicate what is
important
Accounting for Management
Control / Teemu Malmi 2015
DESIGNING MANAGEMENT (CONTROL) SYSTEMS
TO TRANSLATE STRATEGY INTO ACTION
• Management systems consist of many different
components – management by objectives only part of
the picture
• Requires measurement of both outcomes (lagging
indicators) and means to outcomes, i.e. strategies
(leading indicators)
• Strategy needs to be translated to measures in all levels
of an organization – linking crucial
• Right set of measures is not enough – targets should be
set, people should be held accountable for achieving the
targets
Accounting for Management
Control / Teemu Malmi 2015