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As part of performance management it is generally agreed that a system should include financial performance
indicators and non-financial ones. The balanced scorecard is an attempt to incorporate both.
Within each of these perspectives a business should seek to identify a series of goals (CSFs) and measures (KPIs).
These should be in line with the overall strategic objectives and vision of the organisation.
Illustration - Examples of goals and measures
A balanced scorecard for an electronics company could include the following goals and measures:
Management reporting systems and procedures need to be set up to track and report the measures regularly. This
involves all the issues relating to the processing of data and the reporting of information discussed earlier in this text.
The precise requirements of reporting associated with the use of the balanced scorecard will make demands on both
the management accounting and IT systems in an organisation. Fully satisfying those demands has a cost and
sometimes compromises may have to be made in order to contain that cost.
All sorts of practical problems may be encountered in reporting on an indicator. For example, when reporting on
revenue:
Operating the management accounting system associated with the balanced scorecard requires that the things being
reported should be defined and periodically refined.
Percentage of orders delivered on time: a target was set for the five-year period to increase the percentage
of on-time deliveries from 85% to at least 99.8%.
Outgoing defect levels: the target was to reduce the number of defects in product items delivered to
customers, from 500 per month to fewer than 10 per month.
Order lead time: a target was set to reduce the time between receiving a customer order to delivery from 10
weeks to less than three weeks.
Internal perspective
Manufacturing cycle time: to reduce this from 15 weeks to 4 to 5 weeks over the five-year planning period.
Defective items in production: to reduce defects in production from 5,000 per month to fewer than 10 per
month.
Having products rated 'number one' by at least 50% of customers, based on their attitudes to whether the
company was making the right products, performance, price, reliability, quality, delivery, lead time, customer
support, responsiveness, willingness to co-operate and willingness to form partnerships.
The new product sales ratio: this was the percentage of total sales achieved by products introduced to the
market within the previous six quarters.
Financial targets were set for revenue, revenue growth, profit and return on assets, but the idea was that the financial
targets would flow from achieving the other targets stated above.
Analog Devices sought to adopt financial and non-financial performance measures within a single system, in which
the various targets were consistent with each other and were in no way incompatible.
Strategy mapping
Strategy mapping was developed by Kaplan and Norton as an extension to the balanced scorecard and to make
implementations of the scorecard more successful.
At the head of the strategy map is the overriding objective of the organisation which describes how it creates
value. This is then connected to the organisation's other objectives, categorised in terms of the four
perspectives of the balanced scorecard, showing the cause-and-effect relationships between them.
The strategy map helps organisations to clarify, describe and communicate the strategy and objectives, both
within the organisation and to external stakeholders by presenting the key relationships between the overall
objective and the supporting strategy and objectives in one diagram.
Organisations have often found it difficult to translate the corporate vision into behaviour and actions which
achieve the key corporate objectives.
In practice, many employees do not understand the organisation's strategy, and systems such as
performance management and budgeting are not linked to the strategy.