Chadwick, Inc.: The Balanced Scorecard (Abridged), Harvard Business School Case (HBS Case 9-104-073).
Substantive Issues Raised
Division managers at Chadwick had complained to the Controller about the continual pressure to meet short-term financial objectives. As a producer of consumer products and pharmaceuticals, divisions at Chadwick engaged in long-term projects with uncertain payoffs. Managers did not believe that using a single target, return on capital employed, linked current actions and efforts to longer term value creation.
The corporate controller has recently learned about the Balanced Scorecard. He presented the concept to the president and chief operating officer who then issued a call to all Chadwick division managers to develop a scorecard for their divisions. The divisional controller at the Norwalk division was given the task of heading the effort to formulate scorecard measures for the division.
A discussion of the Balanced Scorecard concept can focus on three objectives. First, the discussion should address questions about why financial measures are insufficient when they are used alone. Second, the discussion should question and review the concept of the Balanced Scorecard and its perspectives. Third, students should practice exploring linkages between objectives and measures on scorecard perspectives so that they can see how performance on one perspective supports or encourages achievement on others.
[For part (a), see the “Suggestions for Classroom Use” section. Also see textbook questions 2-1, 2-2, 2-3, 2-4, 2-7, 2-8 and 2-12, and exercises 2-36, 2-39, and 2-46.]
[(b) and (c)]
Opportunities for Student Analysis
Although the case is short, it provides a remarkable amount of information about Chadwick, Inc. and the Norwalk Division. Using this information, students are able to relate objectives and measures to scorecard perspectives. They can construct a scorecard by associating objectives and measures along each perspective and then putting these together into a proposed scorecard.
Some of the things they will consider include the following.
For the customer perspective. Customer retention, market share, number of new products released, key relationships with distributors and final customers, number of new applications suggested by customers, number of new applications suggested by salespeople, customers’ profits—how much do distributors earn, customer rankings through surveys.
For the process perspective list, consider the [value-creating] cycle of the business:
Identify unmet customer needs => explore compounds => test compounds in laboratory [and] in field => gain government approval [ => launch product] => release marketing, production, and distribution [market, produce, and distribute product].
Measures for the innovation part of the process perspective could include number of products in development, number of products in laboratory testing, number of products in test in field testing, number of products under review for government approval, average time in each stage of development cycle, the yield ratio moving from stage to stage in development cycle, number of new products released, [ratio of new product sales — first two years — to total development costs, and the following measures that could also be included in the learning and growth perspective: percentage of sales from new applications, number of fundamentally new compounds relative to extensions of existing applications, gross margin on new products, and number of suggestions from distributors and from customers.]
Manufacturing efficiencies, cost, quality, and distribution are candidates for the operations management processes. [The measures might include manufacturing cycle times, order lead times, on-time delivery percentages, inventory availability, and percentage of stockouts.]
For the learning and growth perspective. Percentage of sales from new...
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