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Balanced Scorecard and Performance Measures

A) Explain the concept of the Balanced Scorecard and discuss its use in a strategic management accounting system.

(b) Describe three specific performance measures which could be used in a Balanced Scorecard system in an industry of your choice.

Other directives:

a) Answers could include: rationale for the Balanced scorecard, perspectives used, focus on key measures of performance, linking financial and non-financial aspects, long-term and short-term aspects.

(b) Answers will vary according to choice of industry, but must be related to the industry and be clearly described.

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Please see response attached for best formating, which is also presented below. I hope this helps and take care.

RESPONSE:

a) Explain the concept of the Balanced Scorecard and discuss its use in a strategic management accounting system. Answers could include: rationale for the balanced scorecard, perspectives used, focus on key measures of performance, linking financial and non-financial aspects, long-term and short-term aspects.

What is the Balanced Scorecard? A new approach to strategic management was developed in the early 1990's by Dr. Robert Kaplan (Harvard Business School) and Dr. David Norton. They named this system the 'balanced scorecard'. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Key Measures of Performance:

The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

· The Learning and Growth Perspective (i.e. This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Government agencies often find themselves unable to hire new technical workers, and at the same time there is a decline in training of existing employees. This is a leading indicator of 'brain drain' that must be reversed. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization. Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems." One of these, the Intranet, will be examined in detail later in this document).

· The Business Process Perspective (i.e., This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its ...

Solution Summary

This solution explains the concept of the Balanced Scorecard and discusses its use in a strategic management accounting system. Three specific performance measures are described, which could be used in a Balanced Scorecard system in an industry of your choice. This solution includes a rationale for the Balanced scorecard, perspectives used, and key measures of performance. Examples are provided for several industries.

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