SESI 9 CH 13

CORNERSTONES OF COST
MANAGEMENT, 3E
HANSEN/MOWEN
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THE BALANCED SCORECARD:

STRATEGIC-BASED CONTROL
CHAPTER 13
1
CHAPTER 13 OBJECTIVES
1.  Compare and contrast activity-based and

strategic-based responsibility accounting
systems
2.  Discuss the basic features of the Balanced
Scorecard
3.  Explain how the Balanced Scorecard links
measures to strategy
4.  Describe how an organization can achieve
strategic alignment
ACTIVITY-BASED VERSUS STRATEGIC-BASED

RESPONSIBILITY ACCOUNTING
•  Activity-based management describes the

fundamental economics that drive a firm,
thus allowing managers to have a better
understanding of the causes of cost
•  Understanding the causes of costs enables
managers to more effectively improve
performance by continuously improving
processes
LO-1
2
•  Activity-based system adds a process

perspective to the financial perspective of
the functional based responsibility
accounting system
•  Strategic-based responsibility accounting
system translates the strategy of an
organization into operational objectives and
measures
LO-1

•  Balanced Scorecard is a strategic based

performance management system that
typically identifies objectives and measures
for four different perspectives
•  Financial perspective
•  Customer perspective
•  Process perspective
•  Learning and growth perspective
LO-1
3
•  Responsibility accounting model is defined

by four essential elements
•  Assigning responsibility
•  Establishing performance measures or
benchmarks
•  Evaluating performance
•  Assigning rewards
LO-1
EXHIBIT 13.1—RESPONSIBILITY
ASSIGNMENTS COMPARED
LO-1
4
EXHIBIT 13.2—PERFORMANCE
MEASURES COMPARED
LO-1
EXHIBIT 13.3—PERFORMANCE EVALUATION

COMPARED: ACTIVITY-BASED VERSUS STRATEGIC-
BASED
LO-1
5
EXHIBIT 13.4— REWARDS COMPARED
LO-1
BASIC CONCEPTS OF THE BALANCED

SCORECARD
•  The Balanced Scorecard permits an

organization to create a strategic focus by
translating an organization’s strategy into
operational objectives and performances
measures for four different perspectives
•  The financial perspective
•  The customer perspective
•  The internal business process perspective
•  The learning and growth perspective
LO-2
6
SCORECARD
•  Strategy is choosing the market and customer

segments the business unit intends to serve,
identifying the critical internal and business
processes that the unit must excel at to deliver the
value propositions to customers in the targeted
market segments , and selecting the individual and
organizational capabilities required for the internal,
customer, and financial objectives
LO-2
EXHIBIT 13.5—STRATEGY TRANSLATION

PROCESS
LO-2
7
SCORECARD
The Financial Perspective, Objectives, and Measures

• The financial perspective establishes the long- and
short-term financial performance objectives
expected from the organization’s strategy
•  Describes the economic consequences of actions
taken in the other three perspectives
LO-2
EXHIBIT 13.6—SUMMARY OF OBJECTIVES AND

MEASURES: FINANCIAL PERSPECTIVE
LO-2
8
SCORECARD
Customer Perspective, Objectives, and Measures

•  The customer perspective defines the customer and
market segments in which the business unit will
compete and describes the way that value is
created for customers
•  Core objectives and measures are those that are
common across all organizations
•  Customer value: difference between realization
and sacrifice, where realization is what the
customer receives and sacrifice is what is given up
LO-2

MEASURES: CUSTOMER PERSPECTIVE
LO-2
9
SCORECARD
Process Perspective, Objectives, and

Measures
• Internal business process perspective describes the
internal processes needed to provide value for
customers and owners
• Process value chain is made up of three processes:
the innovation process, the operations process, and
the post sales service process
LO-2

SCORECARD
Cycle Time and Velocity

• The time it takes a company to respond to a
customer order is referred to as responsiveness
•  Cycle time and velocity are two operational measures
of responsiveness
•  Cycle time is the length of time it takes to produce a unit
of output from the time materials are received until the
good is delivered to finished goods inventory
•  Velocity is number of units of output that can be
produced in a given period of time
LO-2
10
MANUFACTURING CYCLE EFFICIENCY
Manufacturing Cycle Efficiency (MCE)

MCE = Processing time / (Processing time + Move
time + Inspection time + Waiting time + Other non-
value-added time)
• In this equation, processing time is the efficient or
ideal time it takes to convert materials into a finished
good
•  The other activities and their times are viewed as
wasteful and the goal is to reduce those times to
zero
LO-2

MEASURES: PROCESS PERSPECTIVE
LO-2
11
MANUFACTURING CYCLE EFFICIENCY
Learning and Growth Perspective

• Defines the capabilities that an organization needs
to create long-term growth and improvement
• Concerned with three major enabling factors:
employee capabilities, information systems
capabilities, and employee attitudes
LO-2
EXHIBIT 13.9— SUMMARY OF OBJECTIVES AND

MEASURES: LEARNING AND GROWTH PERSPECTIVE
LO-2
12
LINKING MEASURES TO STRATEGY
•  Performance measures are derived from a

company’s vision, strategy, and objectives
•  Performance measures should be chosen so that
they are balanced between outcome and lead
measures
LO-3
LINKING MEASURES TO STRATEGY
The Concept of a Testable Strategy with Strategic

Feedback
•  Testable strategy is a set of linked objectives aimed
at an overall goal
•  The testability of the strategy is achieved by
restating the strategy into a set of cause-and effect
hypotheses that are expressed by a sequence of if-
then statements
LO-3
13
EXHIBIT 13.10—STRATEGY MAP FOR
CORNERSTONE 13.3
LO-3
STRATEGIC ALIGNMENT
•  For the Balanced Scorecard to be successful, the

entire organization must be committed to its
achievement
•  The Balanced Scorecard is designed to bring about
organizational change
•  For this change to take place, employees must be fully
informed of the strategy; they must share ownership
for the objectives, measures, targets, and initiatives;
incentives must be structured to support the strategy;
and resources must be allocated to support the
strategy
LO-4
14
EXHIBIT 13.11—TARGETS AND WEIGHTING
SCHEME ILLUSTRATED
LO-4
END OF CHAPTER 13
15

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CORNERSTONES OF COST

THE BALANCED SCORECARD:

1. Compare and contrast activity-based and

ACTIVITY-BASED VERSUS STRATEGIC-BASED

• Activity-based management describes the

• Activity-based system adds a process

ACTIVITY-BASED VERSUS STRATEGIC-BASED

• Balanced Scorecard is a strategic based

• Responsibility accounting model is defined

EXHIBIT 13.3—PERFORMANCE EVALUATION

BASIC CONCEPTS OF THE BALANCED

• The Balanced Scorecard permits an

• Strategy is choosing the market and customer

EXHIBIT 13.5—STRATEGY TRANSLATION

The Financial Perspective, Objectives, and Measures

EXHIBIT 13.6—SUMMARY OF OBJECTIVES AND

Customer Perspective, Objectives, and Measures

EXHIBIT 13.7—SUMMARY OF OBJECTIVES AND

Process Perspective, Objectives, and

BASIC CONCEPTS OF THE BALANCED

Cycle Time and Velocity

Manufacturing Cycle Efficiency (MCE)

EXHIBIT 13.8—SUMMARY OF OBJECTIVES AND

Learning and Growth Perspective

EXHIBIT 13.9— SUMMARY OF OBJECTIVES AND

• Performance measures are derived from a

LINKING MEASURES TO STRATEGY

The Concept of a Testable Strategy with Strategic

• For the Balanced Scorecard to be successful, the

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1.  Compare and contrast activity-based and

•  Activity-based management describes the

•  Activity-based system adds a process

•  Balanced Scorecard is a strategic based

•  Responsibility accounting model is defined

•  The Balanced Scorecard permits an

•  Strategy is choosing the market and customer

•  Performance measures are derived from a

•  For the Balanced Scorecard to be successful, the