STRATEGIC MANAGEMENT ACCOUNTING blogpost---200words

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Topic 5: Developing and using a Balanced Scorecard

ACCT5931 Strategic Management Accounting

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Introduction to Strategic Management Accounting

Analysing the Internal Environment

Conclusion to Strategic Management Accounting

Analysing the External Environment

Developing Strategy

Measuring Performance and Organisational & Project Value

Topic 1

Topic 12

Topic 4

Topic 6

Topic 2

Performance Measurement & Management

Being a Responsible Corporate Citizen and

Managing Strategic Risks

Topic 9 Managing Sustainably

and Creating Shared Value

Topic 8Stakeholder & Resource Management

Topic 3

Topic 10

Strategy Analysis & Formulation

Managing Customer and Supplier Value

& Relationships

Topic 7

Developing and Using a Balanced Scorecard

Topic 5

Introduction to ACCT5931: Course content overview

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n Required readings: – Reading 5.1 – Eldenburg, L.G., Brooks, A., Oliver, J., Vesty, G., and Wolcott, S.

2010. Management Accounting 2e, Wiley, pp. 694-720 [Course Readings Kit] – Reading 5.2 – Langfield-Smith, K., Thorne, H., and Hilton, R. 2015. Management

Accounting 7e: Information for Creating and Managing Value, McGraw-Hill, pp. 621- 626, 629-630 [Course Readings Kit].

– Reading 5.3 – Kaplan, R.S., Matsumura, E. M., Young, S.M., and Atkinson, A. 2011. Management Accounting 6e: Information for Decision-Making and Strategy Execution, Pearson Education, pp. 19-36 [Course Readings Kit].

– Reading 5.4: Grant, R., Butler, B., Orr, S., and Murray, P.A. 2014. Contemporary Strategic Management: An Australasian Perspective (2nd Edition), Milton, QLD: John Wiley & Sons, Chapter 12: Strategy Evaluation, pp. 409-410. [Course textbook]

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Topic 5: Required readings and case study

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Topic 5: Desired learning outcomes

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n In Topic 5 we aim to be able to: – Appreciate the role of the balanced scorecard (BSC)

framework and four questions underlying its design – Explain and develop a strategy map – Explain and develop a balanced scorecard (BSC) – Understand the limitations of the BSC framework

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Topic 5: The balanced scorecard (BSC) framework

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n The balanced scorecard (BSC) framework: – is the most widely used strategic performance

measurement system globally, with approx. 38% of organisations worldwide using a BSC and more planning to do so (Rigby & Bilodeau 2013);

– was developed by Robert S. Kaplan (Emeritus Professor, HBS) and David P. Norton (Consulting Partner) in 1992, and has been refined subsequently through five co-authored books and numerous articles;

– translates an organisation’s strategies into performance measures.

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Topic 5: Four questions underlying the BSC framework

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n The BSC framework is designed to answer four questions: BSC Perspective Example Measure

Financial % improvement in profit

Customer Customer satisfaction index

Internal Business Process

% on-time departures

Learning and Growth

% employees attending customer service training

1. “How do we look to our shareholders?”

2. “How do our customers see us?”

3. “What business processes must we excel at ?”

4. “Can we continue to improve and create value?”

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Topic 5: Strategy map

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n The BSC framework begins with a strategy map, which: – visually represents the strategic themes and strategic

objectives of organisation, as well as the cause-and- effect relationships linking the strategic objectives from one perspective to the next;

– communicates the strategic objectives of the organisation to its employees; and

– is used to identify performance measures for evaluating the delivery of those strategic objectives.

Clear and simple Links between all strategic objectives

(bottom to top)

Unique to the organisation (passes

‘airline seat’ test)

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Topic 5: Example strategy map

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Financial

Customer

Internal Business Process

Learning & Growth

Increase profitGrow revenue Reduce costs

Attract and retain more customers

Improve on- time service

Reduce prices

Achieve faster ground

turnaround

Invest in crew scheduling systems

Increase training for ramp agents

Operate aircraft more

efficiently

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Topic 5: The balanced scorecard (BSC)

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n The balanced scorecard (BSC): – translates the strategic objectives developed in the

strategy map into performance measures, targets and initiatives to deliver those strategic objectives.

– has a one-to-one relationship between strategic objective and performance measure…and should contain no more than 16-25 performance measures.

– achieves balance with a combination of: ØLeading and lagging measures (see next slide); ØFinancial and non-financial measures; and ØShort-term and long-term measures.

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Topic 5: The relationship between strategic objectives and lag/lead performance measures

Source: Langfield-Smith et al. (2015) 10

Lag measures help managers monitor progress towards strategic objectives

Lead measures focus on factors that drive outcomes and provide actionable information

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Topic 5: Example BSC framework (Strategy map + BSC)

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STRATEGY MAP BALANCED SCORECARD

Objectives Measure Target Initiative

Financial • Increase profit • Grow revenue • Reduce costs

• % change in profit

• % change in operating cost

• 30% p.a. • -5% p.a.

Customer • Attract and retain more customers

• Improve on-time service

• Reduce prices

• FAA On-Time Arrival Rating

• #1 • Quality management program

Internal Business Process

• Achieve faster ground turnaround

• Operate aircraft more efficiently

• Time On Ground

• On-Time Departure

• 30 mins

• 90%

• Optimise Cycle time

Learning & Growth

• Increase training for ramp agents

• Invest in crew scheduling systems

• Strategic Job Readiness

• Yr 1 – 0% • Yr 3 – 90% • Yr 5 – 100%

• Ground crew training

Increase profit

Grow revenue

Reduce costs

Attract and retain

more customers

Improve on-time service

Achieve faster

ground turnaround

Invest in crew scheduling

systems

Increase training for

ramp agents

Operate aircraft more

efficiently

What is missing from this BSC?

Reduce prices

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Topic 5: Challenges when developing and using a BSC

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n Selecting appropriate performance measures to reflect the strategic objectives – For each strategic objective there are multiple potential measures;

but having a large number of measures dilutes the overall impact of the BSC

n Choosing an effective combination of leading and lagging performance measures – Requires a highly developed information system, and significant

employee time/effort to design and implement

n Evaluating the linkages between strategic objectives – There may be delays between measures in the lower BSC

perspectives delivering improvements in measures in the upper BSC perspectives….or the linkage may be incorrect

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Topic 5: Seminar exercises 1 & 2

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Developing and using a BSC…. (provided in class)

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Topic 5: Team Case Project and Wrap-up

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Team Case Project: After today’s topic, your team is ready to complete

Question 6. Please use this time to plan your team’s response to this question.

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