Chapter 14

Strategic performance
measurement systems

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-1
 Outline
• The problems with using traditional financial
performance measures in isolation
• The advantages of non-financial performance
measures
• Selecting operational measures
• Limitations of non-financial performance
measures
• The balanced scorecard (BSC) Điểm cân bằng

• Does non-financial performance lead to

financial performance?
• Benchmarking
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 Problems with using traditional
financial performance measures
• Financial measures emphasise only one
perspective of performance
• Traditional financial performance measures
focus on the consequences, not the causes
• Financial performance measures provide
limited guidance for future actions
• Financial performance measures may
encourage actions that decrease both
shareholder and customer value

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Traditional financial performance
measures Phương pháp truyền thống

ROI

ROS
ROA
ROE

quá trình sản xuất

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-4
 Advantages of non-financial
measures
Non-financial measures
• May emphasise strategy
• Can be the drivers of future financial
performance có thể hướng đến việc thực hiện tài chính trong tương lai

• Are more actionable

• More timely
• More understandable and easier to relate
to, particularly at the operational level
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Selecting operational measures
• Customer satisfaction đo lường sự hài lòng của khách hàng

• Defect measures nhược điểm trong việc đo lường

• Quality chất lượng

• Stock status đo lường tình trạng hàng tồn kho

• Accident report báo cáo thiệt hại

• Multi-skilling kĩ năng của người lao động

• Machine downtime thời gian ngưng máy

• Delivery on time về mặt giao hàng có đúng thời gian không???

(cont.)
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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-6
 Selecting operational
measures (cont.)
• Productivity
– The ratio of outputs produced per unit of
input
Number of units produced
Labour productivi ty 
năng suất lao động
Number of direct labour hours

Number of units produced

Total factor productivi ty 
Cost of all inputs to production
năng suất các nhân tố của quá trình sản xuất

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-7
 Limitations of non-financial
performance measures
• Wide choice of non-financial measures
available
• Inclusion of non-financial measures can be
ad hoc and undirected
• Managers must necessarily make trade-
offs
• Some non-financial measures lack integrity
• Some measures may not easily translate
into financial outcomes
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 The balanced scorecard (BSC)
công cụ

• A tool that translates an organisation’s

mission, objectives and strategies into
performance measures for each key
strategic area of the business
• Used to implement strategy and to
monitor and manage organisational
performance
• May form part of the organisation’s
planning cycle
(cont.)
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Stages of development and use
• Articulate the mission, overall goals or
objectives and strategic priorities
• Develop specific objectives for each
perspective and formulate a strategy map
• Choose performance measures for each
perspective
• Develop targets for each performance
measure
• Cascade the BSC down the organisation
(cont.)
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 Stages of development and
use (cont.)
• Plan and undertake initiatives and activities
to implement the chosen strategies to
support the achievement of the objectives
• Generate reports to monitor and manage
actual performance against targets for units
and the organisation as a whole
• Assign units and personal BSCs to specific
managers to enhance accountability and
improve performance

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 The four perspectives quan điểm

of the BSC
• Financial perspective quan điểm tài chính

• Customer perspective

• Internal business processes quy trình kinh doanh nội bộ

• Learning and growth

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-12
 Objectives and lag and lead
indicators in a balanced scorecard
chỉ số trễ chỉ số tiên phong

doanh thu bán kết hợp nhiều sản phẩm

khả năng sinh lời của sp

thị phần cổ phiếu

mở rộng khách hàng `

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-13
 Strategy maps
• A visual representation that explains the
cause and effect relationships linking the
objectives of the perspectives of the BSC
and the objectives of the organisation
• Can be used to communicate to
managers the components of the strategy
and the processes and systems that will
help achieve it

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-14
Causal linkages within an SPMS
• Lag indicators
– Measures that help managers monitor progress
towards objectives
– Provide limited information to help managers
monitor performance directly

• Lead indicators
– Focus on factors that drive outcomes and provide
actionable information
– Relate to business processes and activities
– Improvements in these measures should, over time,
should improve lag indicators

(cont.)
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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-15
 Causal linkages within
an SPMS (cont.)
• In practice
– Not all organisations use lag and lead
indicators
– Lag indicators may be called outcome
measures or key performance indicators
(KPIs)
– Lead indicators may be called driver
measures or key performance drivers (KPDs)
(cont.)

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-16
 Causal linkages within
an SPMS (cont.)
– Some organisations identify and measure
critical success factors (CSFs)
– The number and types of perspectives in
BSCs will differ across organisations
– Some strategy maps focus on linkages
between performance measures
– Some countries combine the strategy map
and BSC
(cont.)
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Causal linkages within an SPMS (cont.)

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 How successful are
balanced scorecards?
• General characteristics
– Cause and effect assumptions
– Manage the numbers rather than observing
operations directly
– Timing between lag and lead indicators
• Design and implementation issues
– Top down design
– Linkages between measures
– Implementation
– Unrealistic expectations for improvement
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 Does non-financial performance
lead to financial performance?
• Improvements in non-financial measures
will not result in improved profits if
– Wrong strategic priorities selected
– Management fails to utilise freed-up
resources
– There is a lag between financial and non-
financial performance
– There are incentives to engage in
dysfunctional behaviour
(cont.)

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 Does non-financial performance
lead to financial performance?
(cont.)
• Difficult to establish links
– Between nonfinancial measures at
operational levels and profitability
• Alternative modelling approach
– Du Pont charts provide a framework
– Identify linkages between key performance
drivers, key performance indicators and
financial performance measures
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Du Pont chart, linking financial
and non-financial measures

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-22
 Designing measures for
continuous improvement
• Continuous improvement can be built into
performance measurement systems by:
– Selecting relevant performance measures
§ As changes are made performance measures
can be dropped or added
– Defining and redefining the measure
§ Define or re-define on-time delivery
– Making the target more challenging
§ Once achieved, increase the difficulty

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 Benchmarking
• Compares products, functions and activities in
an organisation against external businesses by
identifying areas for improvement and to
implement a continuous improvement program
– Identify the functions/activities to be
benchmarked and performance measures
– Select benchmarking partners
– Data collection and analysis
– Establish performance goals
– Implement plans
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 The benchmarking process

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 Forms of benchmarking
• Internal benchmarking
– Benchmarking between business units within the
same company
• Competitive benchmarking
– Identifying weaknesses and strengths of competitors
• Industry benchmarking
– Comparing performance against companies with
similar interest and technologies

• Best-in-class or process benchmarking

– Benchmarking against industry best practices
– Businesses may try to normalise to be comparable
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 Benchmarking against
competitors’ cost structures
• Costs can be inferred by using publicly
available information, such as sales
volume, market share, product mix
• Industry-sponsored databases
• Stockbroking firms
• Specialist benchmarking consulting firms
may provide data

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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-27
 Summary
• Traditional financial-based performance
measurement systems have many
limitations and can be enhanced by non-
financial measures
• Non-financial measures have advantages
and their own limitations
• Using the Balance Scorecard to monitor
and measure performance involving four
perspectives
(cont.)
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Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 14-28
 Summary (cont.)
• Strategy maps assist in the
communication of strategy and the
articulation of the performance
measurement system
• Continuous improvement should be part
of all good performance measurement
systems
• Benchmarking provides an external
perspective to allow the identification of
areas for improvement
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