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The Balanced Scorecard: A common-sense approach to performance evaluation

The Balanced Scorecard: A common-sense approach to performance evaluation. Traditional Accounting Performance Measures. Most effective when there is a clear relationship between inputs and outputs Less effective when task uncertainty and environmental uncertainty are high

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The Balanced Scorecard: A common-sense approach to performance evaluation

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  1. The Balanced Scorecard:A common-sense approach to performance evaluation

  2. Traditional Accounting Performance Measures • Most effective when there is a clear relationship between inputs and outputs • Less effective when task uncertainty and environmental uncertainty are high • Cost Centers a low uncertainty • Profit/Investment Centers a high uncertainty

  3. Accounting Performance Measures • Fail to include all relevant dimensions of managerial performance • The measures are therefore viewed as unfair, often resulting in dysfunctional behavior • Anxiety and Job-Related Tension (JRT) • Social Withdrawal

  4. Other limitations of traditional accounting performance measures • Too historical and backward looking • Lack predictive ability • Reward short-term or incorrect behavior • Give inadequate consideration to difficult to quantify “intangible” assets such as intellectual capital

  5. The Balanced Scorecard • Introduced by Robert Kaplan and David Norton in 1992 • Involves both short-term and long-term performance measures • Encompasses more of the relevant dimensions of managerial performance • 1996 survey by Towers & Perrin consulting firm a 70% of respondents already basing compensation on the Balanced Scorecard or some variation of it

  6. BSC Measurement Perspectives • Short-term measures • Financial • Long-term measures • Customer • Internal business processes • Learning and growth

  7. BSC Measurement Perspectives • Short-term measures • Financial • Revenue growth and mix • Cost reduction/productivity improvement • Asset utilization/investment strategy

  8. BSC Measurement Perspectives • Short-term measures • Financial • Long-term measures • Customer • Market share • Customer retention • Customer acquisition • Customer satisfaction • Customer profitability

  9. BSC Measurement Perspectives • Short-term measures • Financial • Long-term measures • Customer • Internal business processes • Innovation • Operations • Postsale service

  10. BSC Measurement Perspectives • Short-term measures • Financial • Long-term measures • Customer • Internal business processes • Learning and growth • Employee satisfaction and retention • Employee productivity • Employee training • Technical capabilities

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