Description

Using the Balanced Scorecard Framework, written by Mark L. Frigo, Ph.D., CPA, CMA, explains the Balanced Scorecard framework.  

Since its introduction in the early 1990s, the Balanced Scorecard framework has become a standard strategy execution and performance measurement system for many for-profit companies as well as for non-profit organizations and public sector entities.  

Scholars, including the author of this Portfolio, Dr. Mark L. Frigo, have continued to refine this framework with cutting-edge managerial and accounting concepts. 

This Portfolio can be useful to any executive or manager of a company considering developing a Balanced Scorecard or refining an existing Balanced Scorecard. It explains the benefits of the Scorecard framework, as well as the required corporate philosophy necessary to successfully develop and implement a Scorecard within an organization.

This Portfolio further explains in detail the elements of a Balanced Scorecard, including the development of Strategy Maps and appropriate performance measurements. The Balanced Scorecard enables a company to develop strategic objectives around four key operational areas: financial, customer, internal process, and learning and growth. If an organization designs its Balanced Scorecard correctly, its successful execution of strategic objectives in the later three areas will enable the organization to achieve its strategic objectives in the financial perspective.  

In other words, the Balanced Scorecard framework helps an organization to stop focusing almost exclusively on financial objectives (such as earnings per share growth and higher gross margins) and start focusing on the other aspects of the business that drive the financial objectives. 

Also explained in this Portfolio are Strategy Maps. These maps are a crucial element of the Balanced Scorecard framework in that they show how the strategic objectives in one area (or perspective) can drive the strategic objectives in another area, which in turn can drive strategic objectives in another area, etc. In other words, Strategy Maps show the cause-and-effect relationships among the strategic objectives in the four perspectives of the Balanced Scorecard. 

For each strategic objective within a Balanced Scorecard, an organization should develop at least one performance measure to help determine whether the organization has met that objective. This Portfolio gives detailed explanations on how an organization can develop performance measurements in each of the four perspectives of the Balanced Scorecard framework. 

Lastly, although the Balanced Scorecard is an internal management tool, this Portfolio explains how a Balanced Scorecard can provide benefits to an organization in the realm of external reporting. Analysts and other financial statement users often want to obtain more information from a company than the company's financial statements contain because the financial statements, for the most part, present historical information.

Using the Balanced Scorecard Framework allows you to benefit from:

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
• Invaluable practice documents including tables, charts and lists.
• Guidance from world-class experts.
• Real-world and in-depth analysis that lets you explore various options.
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios. 

This Portfolio is included in the Accounting Policy & Practice Series, a comprehensive series of titles which explain, explicate, and offer commentary on a wide range of accounting and financial management topics, including revenue recognition, income taxes, leasing, business combinations, debt instruments, risk management, internal controls and more. 

Table of Contents

Detailed Analysis

I. Introduction

A. The Balanced Scorecard Defined

B. The Balanced Scorecard

1. The Balanced Scorecard Hierarchy

2. The Four Perspectives of the Balanced Scorecard

C. Strategy Maps

1. Purpose

2. Leading and Lagging Performance Measures

3. Linking Balanced Scorecards, Strategy Maps and Strategy

D. Balanced Scorecard Terminology

E. Characteristics of the Balanced Scorecard

1. Five Principles of the Strategy-Focused Organization

a. Mobilize Change Through Executive Leadership

b. Translate the Strategy Into Operational Terms

c. Align the Organization to the Strategy

d. Motivate to Make Strategy Everyone's Job

e. Govern to Make Strategy a Continual Process

2. Desirable Characteristics of the Balanced Scorecard

3. Caveats When Implementing a Balanced Scorecard

F. The History and Continuing Evolution of the Balanced Scorecard Framework

G. Organizations Using the Balanced Scorecard

H. Antecedents of the Balanced Scorecard

I. Benefits of the Balanced Scorecard

1. Example: Benefits Accruing to a Manufacturer

J. Assessing the Need for a Balanced Scorecard

II. The Balanced Scorecard

Introductory Material

A. Balanced Scorecard Architecture

B. Logical Connection in the Balanced Scorecard

C. Types of Scorecards

D. The Building Blocks of Balanced Scorecards

E. How Many Performance Measures in a Balanced Scorecard?

F. A Representative Balanced Scorecard

G. Performance Measures and Value Creation

H. Non-Financial Measures and the Balanced Scorecard

I. Departmental Scorecards

1. Strategic Objectives and Performance Measures at the Departmental Level

2. Strategy Maps at the Departmental Level

3. Example: Cost Control at the Departmental Level

J. Balanced Scorecards for the Board and Governance

1. The Integrated Governance Scorecard

2. Enterprise Risk Management and the Balanced Scorecard

K. How to Develop and Use a Balanced Scorecard

1. Describing the Business Strategy

2. Executing the Business Strategy

3. Measure and Monitor Performance

L. Five Guidelines for Developing Balanced Scorecards

1. Remember, Strategy and Performance Measures Are Inseparable

2. Always Begin With Strategy

3. Align Strategy and Performance Measures With the Right Goal

4. Metrics Should Change as Strategy Changes

5. Use Performance Measures That Help Synchronize Strategic Activities

III. Strategy Maps

Introductory Material

A. Logical Connection in Strategy Maps

B. Linking the Strategic Plan to Execution

C. Example

D. Strategy and Strategy Maps

E. Guidelines for Creating a Balanced Scorecard and Strategy Maps

1. Focus on Executing the Strategy

2. Get People Involved

3. "Less-Is-More"

4. Link Performance Measures to Key Success Factors

5. Treat the Balanced Scorecard Implementation as a Strategic Initiative

6. Keep Searching for Leading Indicators:

7. Keep Searching for Cause-and-Effect Linkages

8. Link Key Performance Measures to Compensation

9. Use the Scorecard as an Everyday Management Tool

10. Continuously Improve the Scorecard

F. Strategy Map Templates

IV. The Financial Perspective

Introductory Material

A. Strategic Objectives in the Financial Perspective

B. Example of the Financial Perspective of a Balanced Scorecard

C. Financial Performance Measures in the Balanced Scorecard

D. Value-Based Management and Financial Performance Measures

1. Return on Investment (ROI)

2. Residual Income

3. Economic Value Added

4. Free Cash Flow

5. Cash Flow ROI

6. Residual Income Profile

E. Traditional Financial Statement Analysis

1. Guidelines for Designing Financial Metrics Using Financial Analysis Tools

2. Metrics Must Fit Intended Uses

F. Choosing Among Different Financial Performance Measures

G. Assessment of Financial Metrics in a Balanced Scorecard

V. The Customer Perspective

Introductory Material

A. The Customer Management Processes

1. Customer Selection

2. Customer Acquisition

3. Customer Retention

4. Customer Growth

B. The Customer Perspective of the Balanced Scorecard

C. Customer Performance Measures in the Balanced Scorecard

1. Market Share

2. Customer Profitability

3. Customer Satisfaction

D. Performance Measures That Drive the Goal Tenets of Strategy

E. Understanding Customer Performance Measure

F. Assessment of Customer Metrics in a Balanced Scorecard

VI. Internal Business Process Perspective

Introductory Material

A. Strategy and Internal Process Measures

B. Internal Business Process Value Chain

C. Performance Measures in the Balanced Scorecard

D. Cost, Quality and Time Performance Measures

1. Quality Performance Measures

2. Time Performance Measures

3. Cost Performance Measures

E. Benchmarking and Performance Measures

F. Quality Control Principles and Performance Measures

G. Quality Award Programs and Performance Measures

1. Malcolm Baldrige National Quality Award

2. Deming Prize

3. European Quality Award

4. ISO Quality Standards

H. Quality Tools and Performance Measures

1. Total Quality Control (TQC)

2. Continuous Improvement (CI)

3. Kaizen

4. PDCA (Plan-Do-Check-Act)

5. Cause-and-Effect Diagrams

6. Pareto Chart

7. Lean Manufacturing Philosophy

8. Control Charts

9. Robust Design

10. Poka-Yoke (Mistake-Proofing)

11. Theory of Constraints (TOC)

12. Reengineering (Business Process Reengineering)

I. Cost of Quality and Performance Measures

1. Prevention Cost

2. Appraisal Cost

3. Internal Failure

4. External Failure

J. Assessment of Internal Process Performance Measures in a Balanced Scorecard

VII. The Learning and Growth Perspective

Introductory Material

A. Three Areas in the Learning and Growth Perspective

B. The Office of Strategy Management

1. Scorecard Management

2. Organization Alignment

3. Strategy Communication

4. Strategy Reviews

5. Initiative Management

6. Strategy Development and Update

7. Planning and Budgeting

8. Employee Alignment

9. Knowledge Management

C. Intangible Assets and the Learning and Growth Perspective

D. Learning and Growth Performance Measures

E. Human Capital - Traditional Employee Performance Measures

1. Measuring Employee Satisfaction

2. Measuring Employee Retention

3. Measuring Employee Productivity

4. Making the Connection Between Employee Metrics and Customer Performance

F. Organizational Capital: Alignment and Teamwork

1. Alignment

a. Alignment With Strategy

b. Alignment of Personal Goals

c. Knowledge Sharing and Teamwork

2. Organizational Capital and Culture

3. Organizational Capital and Leadership

G. Leading and Lagging Performance Measures in the Learning and Growth Perspective

H. Employee Satisfaction

I. Learning and Growth to Support Innovation

J. Learning and Growth: A Community Bank Example

K. Assessment of Learning and Growth Metrics in a Balanced Scorecard

VIII. Balanced Scorecards in the Non-Profit and Public Sector

Introductory Material

A. Similarities Between Non-Profit/Public Sector Scorecards and For-Profit Scorecards

1. Logic of the Scorecard

2. Terminology of the Scorecard

B. Non-Profit Organizations

1. Adapting the Balanced Scorecard Architecture for Non-Profit Organizations

2. Performance Measures Focused on the Mission

3. Customer and Constituent Needs and the Scorecard

4. Capabilities and Leveraging Assets of Non-Profit Organizations

5. Forces of Change and the Balanced Scorecard

6. Examples of Balanced Scorecards on the Non-Profit Sector

a. Boston Lyric Opera Example

b. National Council of State Boards of Nursing

C. Public Sector Organizations

D. The Healthcare Sector

IX. The Balanced Scorecard and External Reporting

Introductory Material

A. Through the Eyes of Management

B. Disclosure of Non-Financial Measures

C. An Economic Case for Integrating the Balanced Scorecard and External Reporting

D. A Link With Sustainability Reporting

E. Some Practical Questions to Consider When Determining Scope of External Disclosures

1. What to Disclose and What Not to Disclose?

2. Will Some Companies Benefit More Than Other Companies?

3. Are Non-Financial Metrics Reliable if They Are Not Audited?

F. External Reporting of Balanced Scorecard Information: The Preliminary Stage

G. Conclusion

Working Papers

TABLE OF WORKSHEETS

Worksheet 1 Glossary

Worksheet 2 Assessment Approach for Developing a Balanced Scorecard Framework

Worksheet 3 Case Study of a Manufacturing Company

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