11th Edition

Chapter 10

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 The Balanced Scorecard

Management translates its strategy into

performance measures that employees
understand and accept.

Financial Customers

Performance
measures
Internal Learning
business and growth
processes
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 The Balanced Scorecard: From Exh.
10-11

Strategy to Performance Measures

Performance Measures
Financial What are our
Has our financial
financial goals?
performance improved?

Customer What customers do Vision

we want to serve and
Do customers recognize that how are we going to and
we are delivering more value? win and retain them? Strategy

Internal Business Processes What internal busi-

Have we improved key business ness processes are
processes so that we can deliver critical to providing
more value to customers? value to customers?

Learning and Growth

Are we maintaining our ability
to change and improve?
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 The Balanced Scorecard:
Non-financial Measures

The balanced scorecard relies on non-financial measures

in addition to financial measures for two reasons:

 Financial measures are lag indicators that summarize

the results of past actions. Non-financial measures are
leading indicators of future financial performance.

 Top managers are ordinarily responsible for financial

performance measures – not lower level managers.
Non-financial measures are more likely to be
understood and controlled by lower level managers.
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The Balanced Scorecard for Individuals

The entire organization Each individual should

should have an overall have a personal
balanced scorecard. balanced scorecard.

A personal scorecard should contain measures that can be

influenced by the individual being evaluated and that
support the measures in the overall balanced scorecard.
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 The Balanced Scorecard

A balanced scorecard should have measures

that are linked together on a cause-and-effect basis.

If we improve Another desired

Then
one performance performance measure
measure . . . will improve.

The balanced scorecard lays out concrete

actions to attain desired outcomes.
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 The Balanced Scorecard
and Compensation

Incentive compensation
should be linked to
balanced scorecard
performance measures.

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 The Balanced Scorecard Exh.
10-13

Jaguar Example
Profit
Financial
Contribution per car

Number of cars sold

Customer
Customer satisfaction
with options

Internal
Business Number of Time to
options available install option
Processes

Learning Employee skills in

and Growth installing options
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 The Balanced Scorecard
Jaguar Example
Profit

Contribution per car

Number of cars sold

Customer satisfaction Results

with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases

Increase Employee skills in

Skills installing options
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 The Balanced Scorecard
Jaguar Example
Profit

Contribution per car

Results
Cars sold
Number of cars sold Increase

Customer satisfaction
with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option

Employee skills in
installing options
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 The Balanced Scorecard
Jaguar Example
Results
Profit

Contribution per car Contribution

Increases

Number of cars sold

Customer satisfaction
with options

Number of Time to
options available install option Time
Decreases
Strategies
Increase Employee skills in
Skills installing options
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 The Balanced Scorecard
Jaguar Example
Results
Profit Profits
Increase
If number
Contribution per car Contribution
of cars sold Increases
and contribution
per car increase, Number of cars sold
profits
increase. Customer satisfaction
with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases

Increase Employee skills in

Skills installing options
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 Delivery Performance Measures

Order Production Goods

Received Started Shipped

Process Time + Inspection Time

Wait Time + Move Time + Queue Time

Throughput Time

Delivery Cycle Time

Process time is the only value-added time.

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 Delivery Performance Measures

Order Production Goods

Received Started Shipped

Process Time + Inspection Time

Wait Time + Move Time + Queue Time

Throughput Time

Delivery Cycle Time

Manufacturing
Value-added time
Cycle =
Efficiency Manufacturing cycle time
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 Quick Check 

A TQM team at Narton Corp has recorded the

following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the throughput time?
a. 10.4 days
b. 0.2 days
c. 4.1 days
d. 13.4 days
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 Quick Check 

A TQM team at Narton Corp has recorded the

following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the throughput time?
a. 10.4 days
b. 0.2 days
Throughput time = Process + Inspection + Move + Queue
c. 4.1 days = 0.2 days + 0.4 days + 0.5 days + 9.3 days
= 10.4 days
d. 13.4 days
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Quick Check 

A TQM team at Narton Corp has recorded the

following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the MCE?
a. 50.0%
b. 1.9%
c. 52.0%
d. 5.1%
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Quick Check 

A TQM team at Narton Corp has recorded the

following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the MCE?
a. 50.0%
MCE = Value-added time ÷ Throughput time
b. 1.9% = Process time ÷ Throughput time
c. 52.0% = 0.2 days ÷ 10.4 days
d. 5.1% = 1.9%
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Quick Check 

A TQM team at Narton Corp has recorded the

following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the delivery cycle time?
a. 0.5 days
b. 0.7 days
c. 13.4 days
d. 10.4 days
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 Delivery cycleQuick Check
time = Wait 
time + Throughput time
= 3.0 days + 10.4 days
= 13.4 days
A TQM team at Narton Corp has recorded the
following average times for production:
Wait 3.0 days Move 0.5 days
Inspection 0.4 days Queue 9.3 days
Process 0.2 days
What is the delivery cycle time?
a. 0.5 days
b. 0.7 days
c. 13.4 days
d. 10.4 days
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 End of Chapter 10

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.