For Operational Control (evaluating performance and taking corrective action) most companies traditionally relied upon Financial measures of performance ( Return-On-Investment, Net Income, Total Revenues, etc. ( particularly at the strategic company-wide level.
The problem with financial measures of performance is that they are:
lag indicators of performance
• are not operational – that is, they do not readily tell the nature of corrective action needed
This provides the motivation for operational control frameworks with an expanded set of performance measures:
The Balanced Scorecard is one such framework: it consists of an integrated set of four performance dimensions with a causal flow between them as shown in the chart below.
The objectives and measures for each dimension must be derived from the company’s strategy and support the company’s strategy throughout the organization.
So what is Strategy? Strategy is how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives.
Two basic strategies: product differentiation or cost leadership (firm’s may follow some combinations of these)
• Product differentiation is an organization’s ability to offer products or services perceived by its customers to be superior and unique.
• Cost leadership is an organization’s ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste and tight cost control.
In doing strategic analysis, it is sometimes useful to examine the industry in terms of Porter’s five forces (however, some industry characteristics critical to formulating strategy might not be apparent from this framework). [pic]
SOME EXAMPLES OF BALANCED SCORECARD MEASURES – limited only by creativity
(In any particular application, the choice of measures should...