Balanced Scorecard - Revision history

Paulreed: /* Comparison between the Balance Scorecard and other Financial Measure and their impact on Strategy Formulation */

2019-10-24T13:39:15Z

Comparison between the Balance Scorecard and other Financial Measure and their impact on Strategy Formulation

← Older revision		Revision as of 08:39, 24 October 2019
Line 114:		Line 114:
	* Managers can then chose between or choose a combination of choices using Net Present Value, Internal Rate of Return Residual Income, Contribution etc.		* Managers can then chose between or choose a combination of choices using Net Present Value, Internal Rate of Return Residual Income, Contribution etc.

	These traditional financial measures are valuable where the decision:		These traditional financial measures are valuable where the decision:

	* Is “tame” (De Wit and Meyer ) and easily converted into a financial calculation.		* Is “tame” (De Wit and Meyer ) and easily converted into a financial calculation.

Paulreed at 15:41, 28 December 2012

2012-12-28T15:41:05Z

← Older revision		Revision as of 10:41, 28 December 2012
Line 162:		Line 162:

	===Lack of Non-executive oversight===		===Lack of Non-executive oversight===
	One of the key facets of good corporate governance is to have non-executive directors approve and monitor corporate strategy and in some cases even help develop the strategy. For the BSC to be effective would have required the non-executive directors to judge comprehensive and clear performance targets and measure them effectively. However, the non-executive board was rendered ineffective because they were not given access to information or were not given the time to properly evaluate what they were being asked to approve. “They were not fully briefed and given only 15 minutes to review the dubious transactions underlying the surge in earnings” (Tonge) Tonge. <ref>The Enron Story. Business Ethics A European Review No1 Jan 2003.</ref>		One of the key facets of good corporate governance is to have non-executive directors approve and monitor corporate strategy and in some cases even help develop the strategy. For the BSC to be effective would have required the non-executive directors to judge comprehensive and clear performance targets and measure them effectively. However, the non-executive board was rendered ineffective because they were not given access to information or were not given the time to properly evaluate what they were being asked to approve. “They were not fully briefed and given only 15 minutes to review the dubious transactions underlying the surge in earnings” (Tonge) Tonge. <ref> The Enron Story. Business Ethics A European Review No1 Jan 2003.</ref>

	===A Culture that Subverted the Aims of Effective Corporate Governance===		===A Culture that Subverted the Aims of Effective Corporate Governance===
	As well as the collusion of the Auditors and lack of Non-executive oversight there was a general dismantling of the good corporate governance that would have enabled the development and analysis of performance measurements. It found ways of getting around the US GAAP accounting rules, it used political lobbying to force the SEC to back off imposing conflict of interest rules, it set aside its Code of Ethics and removed directors who questioned its policies <ref>Deakin Learning From Enron. Corporate Governance an International Review Vol 12 No2 April 2004.<ref/> It seems impossible given that culture that the Balanced Scorecard would have been anything but yet another smokescreen to hide its fraudulent activity.		As well as the collusion of the Auditors and lack of Non-executive oversight there was a general dismantling of the good corporate governance that would have enabled the development and analysis of performance measurements. It found ways of getting around the US GAAP accounting rules, it used political lobbying to force the SEC to back off imposing conflict of interest rules, it set aside its Code of Ethics and removed directors who questioned its policies <ref>Deakin Learning From Enron. Corporate Governance an International Review Vol 12 No2 April 2004.</ref> It seems impossible given that culture that the Balanced Scorecard would have been anything but yet another smokescreen to hide its fraudulent activity.

	The Balanced Scorecard approach can only succeed therefore if the correct corporate governance structure is in place and a culture exists in which targets and objectives can be created that reflect the strategy and ethos of the organization. The Enron and other corporate collapses can only be avoided through a combination of internal and external controls exerted by a variety of stakeholders backed up by legal sanction for non-compliance in addition to tools such as the Balanced Scorecard.		The Balanced Scorecard approach can only succeed therefore if the correct corporate governance structure is in place and a culture exists in which targets and objectives can be created that reflect the strategy and ethos of the organization. The Enron and other corporate collapses can only be avoided through a combination of internal and external controls exerted by a variety of stakeholders backed up by legal sanction for non-compliance in addition to tools such as the Balanced Scorecard.

Paulreed at 15:36, 28 December 2012

2012-12-28T15:36:03Z

← Older revision		Revision as of 10:36, 28 December 2012
Line 153:		Line 153:

	===Off balance sheet accounting===		===Off balance sheet accounting===
	The financial ‘vehicles’ that the CFO used such as Special Purpose Entities removed $1.27bn of assets off the balance sheet. These vehicles were deliberately complex in nature to thwart external oversight. The SPE’s rarely included any tangible assets and made financial and other measurements difficult to create and measure. The ownership of the SPE’s was vague and it was not always possible to distinguish what assets or liabilities Enron owned. Assets were frequently moved between the SPE’s in further attempts at obfuscation. By the end of the 1990’s Enron had set up several thousand accounting companies (Deakin ). It would have been difficult to generate a comprehensive set of Balanced Scorecard targets and measures to track these policies and companies. In addition, being off balance sheet would have also limited the availability of data and it would have been difficult to determine the integrity of the data even had it been available.		The financial ‘vehicles’ that the CFO used such as Special Purpose Entities removed $1.27bn of assets off the balance sheet. These vehicles were deliberately complex in nature to thwart external oversight. The SPE’s rarely included any tangible assets and made financial and other measurements difficult to create and measure. The ownership of the SPE’s was vague and it was not always possible to distinguish what assets or liabilities Enron owned. Assets were frequently moved between the SPE’s in further attempts at obfuscation. By the end of the 1990’s Enron had set up several thousand accounting companies (Deakin) <ref>Deakin Learning From Enron. Corporate Governance an International Review Vol 12 No2 April 2004 </ref>. It would have been difficult to generate a comprehensive set of Balanced Scorecard targets and measures to track these policies and companies. In addition, being off balance sheet would have also limited the availability of data and it would have been difficult to determine the integrity of the data even had it been available.

	===The hollowing out of the company===		===The hollowing out of the company===
Line 162:		Line 162:

	===Lack of Non-executive oversight===		===Lack of Non-executive oversight===
	One of the key facets of good corporate governance is to have non-executive directors approve and monitor corporate strategy and in some cases even help develop the strategy. For the BSC to be effective would have required the non-executive directors to judge comprehensive and clear performance targets and measure them effectively. However, the non-executive board was rendered ineffective because they were not given access to information or were not given the time to properly evaluate what they were being asked to approve. “They were not fully briefed and given only 15 minutes to review the dubious transactions underlying the surge in earnings” (Tonge ).		One of the key facets of good corporate governance is to have non-executive directors approve and monitor corporate strategy and in some cases even help develop the strategy. For the BSC to be effective would have required the non-executive directors to judge comprehensive and clear performance targets and measure them effectively. However, the non-executive board was rendered ineffective because they were not given access to information or were not given the time to properly evaluate what they were being asked to approve. “They were not fully briefed and given only 15 minutes to review the dubious transactions underlying the surge in earnings” (Tonge) Tonge. <ref>The Enron Story. Business Ethics A European Review No1 Jan 2003.</ref>

	===A Culture that Subverted the Aims of Effective Corporate Governance===		===A Culture that Subverted the Aims of Effective Corporate Governance===
	As well as the collusion of the Auditors and lack of Non-executive oversight there was a general dismantling of the good corporate governance that would have enabled the development and analysis of performance measurements. It found ways of getting around the US GAAP accounting rules, it used political lobbying to force the SEC to back off imposing conflict of interest rules, it set aside its Code of Ethics and removed directors who questioned its policies . It seems impossible given that culture that the Balanced Scorecard would have been anything but yet another smokescreen to hide its fraudulent activity.		As well as the collusion of the Auditors and lack of Non-executive oversight there was a general dismantling of the good corporate governance that would have enabled the development and analysis of performance measurements. It found ways of getting around the US GAAP accounting rules, it used political lobbying to force the SEC to back off imposing conflict of interest rules, it set aside its Code of Ethics and removed directors who questioned its policies <ref>Deakin Learning From Enron. Corporate Governance an International Review Vol 12 No2 April 2004.<ref/> It seems impossible given that culture that the Balanced Scorecard would have been anything but yet another smokescreen to hide its fraudulent activity.

	The Balanced Scorecard approach can only succeed therefore if the correct corporate governance structure is in place and a culture exists in which targets and objectives can be created that reflect the strategy and ethos of the organization. The Enron and other corporate collapses can only be avoided through a combination of internal and external controls exerted by a variety of stakeholders backed up by legal sanction for non-compliance in addition to tools such as the Balanced Scorecard.		The Balanced Scorecard approach can only succeed therefore if the correct corporate governance structure is in place and a culture exists in which targets and objectives can be created that reflect the strategy and ethos of the organization. The Enron and other corporate collapses can only be avoided through a combination of internal and external controls exerted by a variety of stakeholders backed up by legal sanction for non-compliance in addition to tools such as the Balanced Scorecard.

Paulreed at 15:33, 28 December 2012

2012-12-28T15:33:09Z

← Older revision		Revision as of 10:33, 28 December 2012
Line 169:		Line 169:
	The Balanced Scorecard approach can only succeed therefore if the correct corporate governance structure is in place and a culture exists in which targets and objectives can be created that reflect the strategy and ethos of the organization. The Enron and other corporate collapses can only be avoided through a combination of internal and external controls exerted by a variety of stakeholders backed up by legal sanction for non-compliance in addition to tools such as the Balanced Scorecard.		The Balanced Scorecard approach can only succeed therefore if the correct corporate governance structure is in place and a culture exists in which targets and objectives can be created that reflect the strategy and ethos of the organization. The Enron and other corporate collapses can only be avoided through a combination of internal and external controls exerted by a variety of stakeholders backed up by legal sanction for non-compliance in addition to tools such as the Balanced Scorecard.

			<references/>

	==See Also==		==See Also==

Paulreed: /* Using the Balance Sheet to Address Corporate Social Responsibility */

2012-12-28T15:32:35Z

Using the Balance Sheet to Address Corporate Social Responsibility

← Older revision		Revision as of 10:32, 28 December 2012
Line 147:		Line 147:

	Using the Balanced Scorecard to evaluate the performance of human capital		Using the Balanced Scorecard to evaluate the performance of human capital
	When a company has heavy capital intensive investments, financial measures are much more relevant. Physical assets can be valued, counted and depreciated. Their output and value vis-à-vis their costs is relatively straightforward to estimate. However the nature of business and operations has changed over the last twenty-years. The emphasis has shifted away from exploiting physical assets such as land and machinery to exploiting social capital. Easton and Araujo 1994) see the rise of inter-organizational networks and a shift away from transactions as the primary unit of analysis to relationships. Therefore the focus has moved in favour of developing core competences and creating and facilitating knowledge to add-value to the organization. The BSC can be used to communicate the importance of core competences and inter-organizational relationships to improve future performance and the organization can create measures and targets that encourage and build the organization’s bank of intellectual capital.		When a company has heavy capital intensive investments, financial measures are much more relevant. Physical assets can be valued, counted and depreciated. Their output and value vis-à-vis their costs is relatively straightforward to estimate. However the nature of business and operations has changed over the last twenty-years. The emphasis has shifted away from exploiting physical assets such as land and machinery to exploiting social capital. Easton and Araujo (1994)<ref>Easton Araujo Market Exchange Social Structures and Time European Journal of Marketing 28 ,3 p72-84</ref> see the rise of inter-organizational networks and a shift away from transactions as the primary unit of analysis to relationships. Therefore the focus has moved in favour of developing core competences and creating and facilitating knowledge to add-value to the organization. The BSC can be used to communicate the importance of core competences and inter-organizational relationships to improve future performance and the organization can create measures and targets that encourage and build the organization’s bank of intellectual capital.

	==Enron and the use of the Balanced Scorecard==		==Enron and the use of the Balanced Scorecard==

Paulreed: /* Communicating Strategy between all the stakeholders */

2012-12-28T15:28:00Z

Communicating Strategy between all the stakeholders

← Older revision		Revision as of 10:28, 28 December 2012
Line 135:		Line 135:

	For example a simplified Ryan air and BA Balanced Scorecard could look the diagram below:		For example a simplified Ryan air and BA Balanced Scorecard could look the diagram below:


			[[File:ryanairba.jpg\|Ryan Air / BA Scorecard]]


	===Enhances motivation, feedback and teamwork===		===Enhances motivation, feedback and teamwork===

Paulreed at 15:21, 28 December 2012

2012-12-28T15:21:39Z

← Older revision		Revision as of 10:21, 28 December 2012
Line 95:		Line 95:
	* It links corporate strategy to management processes and can help manage risk.		* It links corporate strategy to management processes and can help manage risk.

	==Broad-based Management tool==		===Broad-based Management tool===
	Firstly it is broader-focused management tool that measures not just financial perspectives but customer, learning and growth and internal perspectives. The Balanced Scorecard helps the company develop critical success factors and judges success not only in financial terms but in the ways it builds customer relationships, organizational learning, personnel development and the improvements in the internal processes of the organization. A purely financial measurement might just measure for instance, the volume and margin on the sales of the products and service. The Balanced Scorecard would balance that measurement with the an analysis of on-time delivery (Customer Perspective) and the core competence resulting from the increasing experiencing of delivering the product or service (Learning Perspective) and the reduction in the total manufacturing lead-time through improved processes (Process perspective). The output of the measurements has implications for the decision-making process. The quality of decision-making is determined by management’s ability to address the correct problem; be in possession of the pertinent information and the ability to measure the quality of the decision and its implementation. If this cause and effect relationship does indeed exist, the BSC can help the Executive team evaluate the trade-off between low cost and optimized but potentially less flexible supply-chain or the merits of a flexible and effective supply-chain that values customer service higher than achieving the lowest cost. Used in the correct way it can generate a set of balanced and linked targets and objectives that are complementary and not mutually exclusive.		Firstly it is broader-focused management tool that measures not just financial perspectives but customer, learning and growth and internal perspectives. The Balanced Scorecard helps the company develop critical success factors and judges success not only in financial terms but in the ways it builds customer relationships, organizational learning, personnel development and the improvements in the internal processes of the organization. A purely financial measurement might just measure for instance, the volume and margin on the sales of the products and service. The Balanced Scorecard would balance that measurement with the an analysis of on-time delivery (Customer Perspective) and the core competence resulting from the increasing experiencing of delivering the product or service (Learning Perspective) and the reduction in the total manufacturing lead-time through improved processes (Process perspective). The output of the measurements has implications for the decision-making process. The quality of decision-making is determined by management’s ability to address the correct problem; be in possession of the pertinent information and the ability to measure the quality of the decision and its implementation. If this cause and effect relationship does indeed exist, the BSC can help the Executive team evaluate the trade-off between low cost and optimized but potentially less flexible supply-chain or the merits of a flexible and effective supply-chain that values customer service higher than achieving the lowest cost. Used in the correct way it can generate a set of balanced and linked targets and objectives that are complementary and not mutually exclusive.

Line 157:		Line 157:
	The financial ‘vehicles’ that the CFO used such as Special Purpose Entities removed $1.27bn of assets off the balance sheet. These vehicles were deliberately complex in nature to thwart external oversight. The SPE’s rarely included any tangible assets and made financial and other measurements difficult to create and measure. The ownership of the SPE’s was vague and it was not always possible to distinguish what assets or liabilities Enron owned. Assets were frequently moved between the SPE’s in further attempts at obfuscation. By the end of the 1990’s Enron had set up several thousand accounting companies (Deakin ). It would have been difficult to generate a comprehensive set of Balanced Scorecard targets and measures to track these policies and companies. In addition, being off balance sheet would have also limited the availability of data and it would have been difficult to determine the integrity of the data even had it been available.		The financial ‘vehicles’ that the CFO used such as Special Purpose Entities removed $1.27bn of assets off the balance sheet. These vehicles were deliberately complex in nature to thwart external oversight. The SPE’s rarely included any tangible assets and made financial and other measurements difficult to create and measure. The ownership of the SPE’s was vague and it was not always possible to distinguish what assets or liabilities Enron owned. Assets were frequently moved between the SPE’s in further attempts at obfuscation. By the end of the 1990’s Enron had set up several thousand accounting companies (Deakin ). It would have been difficult to generate a comprehensive set of Balanced Scorecard targets and measures to track these policies and companies. In addition, being off balance sheet would have also limited the availability of data and it would have been difficult to determine the integrity of the data even had it been available.

	==The hollowing out of the company===		===The hollowing out of the company===
	Enron slowly moved away from the ownership and generation of energy to an energy trading company. The Natural Gas Trading model that Jeff Skilling developed was built around an “asset light” strategy which meant that the key to market domination was the ownership and manipulation of information. Consequently, Enron derived 50% of its revenue from gas options on Enron online. As Enron increasingly became a virtual trading company the number of scorecard measures is reduced to financial and other hard to measure targets thereby limiting its effectiveness.		Enron slowly moved away from the ownership and generation of energy to an energy trading company. The Natural Gas Trading model that Jeff Skilling developed was built around an “asset light” strategy which meant that the key to market domination was the ownership and manipulation of information. Consequently, Enron derived 50% of its revenue from gas options on Enron online. As Enron increasingly became a virtual trading company the number of scorecard measures is reduced to financial and other hard to measure targets thereby limiting its effectiveness.

Paulreed at 15:20, 28 December 2012

2012-12-28T15:20:27Z

Show changes

Paulreed at 15:17, 1 December 2012

2012-12-01T15:17:52Z

← Older revision		Revision as of 10:17, 1 December 2012
Line 6:		Line 6:

	==Why did Kaplan and Norton develop the scorecard?==		==Why did Kaplan and Norton develop the scorecard?==
	They were concerned about the deficiencies in exusting ~~perfoamnce~~ measurements. Explicitly on the focus on historical financial measures. Giving the ~~Dupony~~ Pyramid as an example looking, it gave little indication of future performance and promoted short-termism. Consequently, they felt there was a need to balance largely backward looking financial measures with other organizational measures in a coherent framework that would reflect cost and not cost measures as well as external and internal measures		They were concerned about the deficiencies in exusting performance measurements. Explicitly on the focus on historical financial measures. Giving the [[Dupont Pyramid]] as an example looking, it gave little indication of future performance and promoted short-termism. Consequently, they felt there was a need to balance largely backward looking financial measures with other organizational measures in a coherent framework that would reflect cost and not cost measures as well as external and internal measures


Line 23:		Line 23:

	==Why use it?==		==Why use it?==
	* Enhances the Feedback mechanism - Double Loop thinking		* Enhances the Feedback mechanism - [[Double Loop]] thinking
	* It's an [[Integrated set of performance measures]] not an ad-hoc set of measures		* It's an Integrated set of performance measures not an ad-hoc set of measures
	* The major [[Strategic objectives]] are translated into measures		* The major [[Strategic objectives are translated into measures
	* It shows a [[Cause and effect relationship]] linking strategy formulations to financial outcomes		* It shows a Cause and effect relationship linking strategy formulations to financial outcomes
	* It distinguishes between two types of measures LAGGING financial indicators and LEADING measures of future performance such as Customer Service		* It distinguishes between two types of measures LAGGING financial indicators and LEADING measures of future performance such as Customer Service

Line 44:		Line 44:
	==Implementation issues==		==Implementation issues==
	*CEO/CFO need to be involved - Strategy		*CEO/CFO need to be involved - Strategy
	*Targets should stretch the ~~org~~		*Targets should stretch the organization
	*Difficulty in selecting and measuring the targets or weighting their importance - You get ~~whay~~ you measure.		*Difficulty in selecting and measuring the targets or weighting their importance - "You get what you measure".
	*Creativity and Openess - Is it going to be understood and accepted by the organization		*Creativity and Openess - Is it going to be understood and accepted by the organization

Line 55:		Line 55:

	*Financial perspective - measures reflecting financial performance, for example number of debtors, cash flow or return on investment. The financial performance of an organization is fundamental to its success. Even non-profit organizations must make the books balance. Financial figures suffer from two major drawbacks:		*Financial perspective - measures reflecting financial performance, for example number of debtors, cash flow or return on investment. The financial performance of an organization is fundamental to its success. Even non-profit organizations must make the books balance. Financial figures suffer from two major drawbacks:
	They are historical. Whilst they tell us what has happened to the organization they may not tell us what is currently happening, or be a good indicator of future performance.
			*They are historical. Whilst they tell us what has happened to the organization they may not tell us what is currently happening, or be a good indicator of future performance.
	It is common for the current market value of an organization to exceed the market value of its assets. Tobin's-q measures the ratio of the value of a company's assets to its market value. The excess value can be thought of as intangible assets. These figures are not measured by normal financial reporting.		It is common for the current market value of an organization to exceed the market value of its assets. Tobin's-q measures the ratio of the value of a company's assets to its market value. The excess value can be thought of as intangible assets. These figures are not measured by normal financial reporting.

Line 63:		Line 64:

	*Learning and growth perspective - measures describing the companies learning curve, for example number of employee suggestions or total hours spent on staff training.		*Learning and growth perspective - measures describing the companies learning curve, for example number of employee suggestions or total hours spent on staff training.
	The specific measures within each of the perspectives will be chosen to reflect the drivers of the particular business. The method can facilitate the separation of strategic ~~policymaking~~ from the implementation, so that organizational goals can be broken into task oriented objectives which can be managed by front-line staff. It can also help detect correlation between activities. For example, we might find that the internal business objective of implementing a new telephone system can help the customer objective of reducing response time to telephone calls, leading to increased sales from repeat business.		The specific measures within each of the perspectives will be chosen to reflect the drivers of the particular business. The method can facilitate the separation of strategic policy making from the implementation, so that organizational goals can be broken into task oriented objectives which can be managed by front-line staff. It can also help detect correlation between activities. For example, we might find that the internal business objective of implementing a new telephone system can help the customer objective of reducing response time to telephone calls, leading to increased sales from repeat business.

	In many senses, the objectives chosen are leading indicators of future performance. Effort we make today is reflected in the future profits of the company. In this way, current expenditure can be viewed as investment in the future of the company.		In many senses, the objectives chosen are leading indicators of future performance. Effort we make today is reflected in the future profits of the company. In this way, current expenditure can be viewed as investment in the future of the company.

Paulreed at 15:13, 1 December 2012

2012-12-01T15:13:27Z

← Older revision		Revision as of 10:13, 1 December 2012
Line 1:		Line 1:
	~~''Balanced scorecard'' definition from Wikipedia, the free encyclopedia.~~

	In 1992, Robert S. Kaplan and David Norton introduced the balanced scorecard (BSC), a method for measuring a company's activities in terms of its vision and strategies. It gives managers a comprehensive view of the performance of a business as a combination of Financial and non-financial indicator.		In 1992, Robert S. Kaplan and David Norton introduced the balanced scorecard (BSC), a method for measuring a company's activities in terms of its vision and strategies. It gives managers a comprehensive view of the performance of a business as a combination of Financial and non-financial indicator.