Question & Answer

Mission statement, strategy, balanced scorecard implementation

Squeezers Juice and Tea Company manufactures organic juices and chai teas that are sold at whole foods stores. Several of its products have been featured in movies because the company’s products are popular with celebrities. The owners and employees value organic products and innovative combinations of juices and teas with outstanding taste. Several employees have found sources of unusual ingredients from organic farmers around the world. The ingredients are more expensive than those used by other juice manufacturers. Although Squeezers cannot set unrealistically high prices, it focuses on high quality. Demand for the company’s products is stable, even though it sets the highest prices for juices in its market.

Recently, the costs of several unusual ingredients increased because of weather conditions. The owner is concerned that increasing prices any more could reduce demand. She has taken a business workshop and learned about the balanced scorecard. She wants to incorporate a balanced scorecard at Squeezers.

Required

(a)     Draft a potential mission statement for Squeezers. Explain how you decided what should be included in the statement and how it should be worded.

(b)     Explain the company’s business strategy and core competencies.

(c)     Identify several performance objectives for each of the four perspectives.

(d)     Select two performance objectives for each of the four perspectives, and identify a potential performance measure for each. Explain your choices.

(e)     Describe possible methods to collect the data needed for each of the performance measures in part (d). For example, what existing information might be available? What new record-keeping might be required? Would the company need to develop surveys?

            Strategy; balanced scorecard measures and process

Refer to the information in problem 19.25. Dyggur Equipment wants to offer weekend servicing of heavy equipment. None of its competitors offer this service, and management believes this service will bring in new business and help retain current customers.

Required

(a)     List several advantages and disadvantages of this strategy.

(b)     List one financial and two non-financial performance measures that could be used to monitor the success of this plan.

(c)     Suppose the managers decide to launch this new service. At the end of the first year of operating weekend service, performance is evaluated by gathering and analysing measures such as those identified in part (b). How can this information be used to improve performance for the next period?

(d)     Given that Dyggur management are now exploring new strategies, outline how senior management could use the balanced scorecard interactively.

            Balanced scorecard, financial and non-financial measures

Dyggur Equipment manufactures and sells heavy equipment used in construction and mining. Customers are contractors who want reliable equipment at a low cost. The entity’s strategy is to provide reliable products at a price lower than its competitors. Management wants to emphasise quick delivery and quick turnaround when equipment needs repair or service so that contractors are not without their equipment often or for long. Dyggur is considering the following performance measures for use in its balanced scorecard.

Required

(a)  Categorise each of the following potential balanced scorecard measures as             follows:

F    Financial

C   Customer

I     Internal business process

L   Learning and growth

(a)   Manufacturing cycle time per product

(b)   Market share

(c)   Average ratings on customer satisfaction surveys

(d)   Average cost per unit

(e)   Economic value added

(f)   Percentage of receivables collected

(g)   Dollar value of warranty work

(h)   Time between order and delivery

(i)    Time it takes to repair returned equipment

(j)    Number of focus groups for new products

(k)   Number of new uses for current products

(l)    Number of times new technology is applied to current products

(m)  Number of product change suggestions from sales

(n)   Number of engineering change orders to improve manufacturing cycle

(o)   Revenue growth

(p)   Employee training hours

(q)   Number of quality improvement suggestions from employees

(r)   Number of new customers

(s)   Number of repeat customers

(t)    Employee turnover rate

(u)   Defect rates for manufacturing production

(v)   Percentage of error free-rates in:

(i)   purchasing

(ii)  billing

(iii) customer record keeping

 (b) Explain how Dyggur would use the scorecard solely as a diagnostic tool.

            Balanced scorecard measures

Curry House owns a number of stores that sell fast food. As part of its compensation packages, Curry House provides employees with bonuses based on customer satisfaction surveys. Recent analysis of the data shows a positive correlation between survey ratings and sales; that is, as customer satisfaction increases, sales increase. However, at a certain point in this trend, sales plateau even though the ratings continue to increase. In addition, increasing customer satisfaction causes costs to also increase because more time is spent with each customer and more employees are on hand to help with food preparation and cashiering to reduce the time that customers wait for their food to be prepared. Other factors that appear to affect customer satisfaction are the general cleanliness of the store and the attitudes of the cashiers as they provide customer service. A factor that strongly affects sales at each store is its health rating from the local council. These ratings are published in the local daily newspaper. When a store has a low rating, sales at that outlet drop off until publication of an improved rating occurs. The owner wants to add one or more financial performance measures to the bonus package so that employees will earn more money when customer satisfaction increases at the same time that financial performance is also increasing.

Required                        

(a)     Describe advantages and disadvantages of using a combination of performance measures reflecting the customer and financial perspectives.

(b)     Management would like to add other customer-related measures and is considering replacing survey satisfaction with some other measure. List one potential measure and list at least one advantage and one disadvantage for it.

(c)     List one additional performance measure that could be included in the compensation package. Explain what it is and what it would contribute.

(d)     Explain how the scorecard measures (particularly the customer perspective) are being used in part as a boundary system.

                Balanced scorecard; strategy map and implementation

Terence Smythe, a veterinariant, decided to join a small group of vets so that he no longer has to be on call every night. Practice members share the responsibility of emergencies with other members of the group. In the past, Terrence differentiated his practice by specialising in the treatment of large farm. None of the other vets specialise in large farm animals, but all of them treat some farm animals. Terrences’s son just finished an accounting degree and recommended that the vets group consider implementing a balanced scorecard as they develop the policies and practices for the new group.

Required

(a)     Explain what each of the four perspectives of the balanced scorecard mean in the context of a vets group.

(b)     Recommend several methods the group could use to assess a performance objective of patient satisfaction.

(c)     Recommend two measures for each of the four perspectives for the vets group. Explain your recommendations.

(d)     Construct a strategy map to reflect the links between the measures selected. Briefly discuss the links.

            Future direction of accounting information

Think about the type of work you will perform in your future career.

Required

(a)     Give examples of the types of financial and non-financial information you will probably use in your work.

(b)     List several methods you could use to produce information that will help predict future operations for your employer or for clients.

(c)     What types of continuous learning do you foresee in your career?

(d)     Explain why you may need to use creative or innovative ideas in your career.

            Balanced scorecard perspectives: internal business process, innovation             and growth

The Galaxy Hotel Group owns and operates a number of mid-level boutique hotels mostly in regional Australia. Galaxy is structured around regions with a regional general manager usually given the responsibility of working closely with the managers of the hotels within their region. Commonly, a regional general manager is responsible for around 6 to 8 hotels. Within Australia, Galaxy has six regional general managers who report to the CEO, Angelo Vellma. Galaxy’s strategy has focused on meeting the needs of business and holiday travellers seeking 3 to 3.5 star accommodation for relatively short stays that are affordable but comfortable. One thing Galaxy enforces is its objective of having the same high-level service at each hotel.

The CFO of Galaxy, Caitlin Zhang, has raised the idea of introducing a balanced scorecard. At this stage it has only been discussed at board level, but most of the board members are in favour of its implementation. As Zhang points out, ‘it will focus the attention of employees on our key priorities as well as provide the opportunity to reinforce our strategy throughout the company’.

Zhang’s first draft balanced scorecard developed for use at the individual hotel level is provided below. To date, Zhang has constructed the first draft alone, without consulting others.

Another board member, Patrick Ryan, wonders about using the balanced scorecard

a little differently. ‘Perhaps we could use the scorecard to facilitate discussion with our regional managers and individual hotel managers. Not all are the same and they obviously face different challenges. The scorecard could be used by senior management to meet with regional managers and discuss the performance of hotels in the region, and perhaps re-work part of the scorecard and set different priorities as the regions work to meet local challenges.’

Required

(a)          Angelo Vellma is a little concerned about the draft scorecard. He had recently attended a seminar on balanced scorecards and is worried about the lack of measures relating to what he thinks are important issues at the individual hotel level. He is particularly concerned at the lack of an internal business process perspective and a learning and growth perspective in the scorecard. Identify two measures relevant at the individual hotel level at Galaxy for the internal business process perspective and the learning and growth perspective. Provide a brief justification for each measure.

(b)          Comment on the implementation process of the balanced scorecard at Galaxy to date.

Balanced scorecard at individual level; strategy map; boundary systems

Required

(a) Reflect on the management accounting case and the balanced scorecards used by Qantas and Virgin Australia as part of their incentive plans. How might they use a strategy map in the process of developing their scorecards?

(b) With reference to the management accounting case, explain how the airlines might be able to use the balanced scorecard as a form of boundary system.

                Balanced scorecard perspectives, performance objectives, and measures

Perspectives, performance objectives and potential performance measures for the balanced scorecard at Holiday Resorts are as follows:

Perspectives

(i)         Financial

(ii)        Customer

(iii)       Internal business

(iv)       Learning and growth

Performance objectives

A.      Reduce housekeeping costs

B.      Improve the quality of and results from advertising campaigns

C.      Decrease vacancy rate during the off-season

D.      Increase number of return customers

E.      Increase overall profits

F.      Increase the use of Internet-based reservations

G.     Retain high-quality employees

H.      Increase the number of activities available to customers

I.       Improve the quality of stay for holiday makers

J.       Provide employee training in quality customer service

K.     Reduce error rate in reservations

Potential performance measures

1.       Operating margin

2.       Customer complaint rate

3.       Survey customers at check-in about how they first heard about the resorts

4.       Housekeeping cost per room

5.       Number of employee hours spent in training

6.       Error rate in reservation process

7.       Percentage of reservations made using the website

8.       Customer surveys about satisfaction and quality

9.       Employee turnover rates

10.     Number of activities per resort that are available to customers

11.     Percentage and number of return customers

12.     Number of hours of employee training offered

13.     Vacancy rates

14.     Customer focus groups inquiring about quality and potential success of advertising

15.     Number of suggestions that improve quality of service

Required

(a)     For each perspective (i–iv), identify at least one appropriate performance objective (A–K).

(b)     For each performance objective (A–K), identify at least one appropriate performance measure (1–15).

(c)     Explain the links between the measures.

                Strategic plans; balanced scorecard measures for not-for-profit entity

You have been invited by a classmate to help found a new not-for-profit organisation named Students Care. The organisation’s purpose is to provide scholarship money for children in Africa who have become orphans because of the AIDS epidemic. The organisation will operate only on campus, and the target donors are students. Suppose a wealthy businesswoman has offered to coordinate distribution of the scholarship funds to needy students, but wants to see a business plan for the organisation that describes the organisational vision and lists the core competencies, strategies, and operating plans.

Required

(a)     Explain what each item on businesswoman’s list means. For each item, provide a possible example for Students Care.

(b)     Consider the perspective of internal business processes. Your classmate wants to measure the number of hours per week that volunteers spend collecting donations, but you believe it should be dollars collected per volunteer hour spent in collection, measured on a weekly basis. Give one advantage and one disadvantage for each measure.

(c)     You have had difficulty determining a measure of learning and growth, but a campus association recently organised a series of short workshops on improving student fundraising activities, as well as other aspects of governing student entities. Discuss the advantages and disadvantages of using the number of Students Care volunteers attending workshops as a measure for this perspective.

(d)     Outline how the use of a strategy map might have been useful in the balanced scorecard process.

                Balanced scorecard measures for four perspectives

Part of the process for developing a balanced scorecard is to identify one or more measures for each perspective.

Required

Categorise each of the following potential balanced scorecard measures according to the following perspectives:

F     Financial

C    Customer

I      Internal business process

L     Learning and growth

(a)       Percentage of customer orders delivered on time

(b)       Ratio of research and development cost to number of new products developed

(c)        Economic value added (EVA)

(d)       Number of hours of employee training

(e)        Direct labour price variance

(f)        Market share

(g)       Percentage of customer orders delivered without error

(h)       Days in accounts receivables

(i)        Throughput time

(j)        Direct materials efficiency variance

(k)       Asset turnover

(l)        Employee retention rate

(m)      Percentage of bad debts collected

(n)       Customer satisfaction ratings

(o)       Number of degrees and certificates held per employee or department

(p)       Percentage of purchase orders that are error free

            Learning and growth perspective

Markman Ltd, a large pharmaceutical company, is concerned about the ability of its research and development department to develop profitable new prescription drugs. Once a drug has been developed and patented, it takes 9 to 12 years to meet all of the regulatory requirements. The company can then market the drug for about 11.5 years, on average, before the patent expires. Then competitors produce generic drugs. Employees currently participate in profit-sharing plans, but the company wants to give additional bonuses to improve performance. Markman decided to implement a balanced scorecard approach.

Required

(a)     Explain why monitoring and rewarding non-financial performance might be particularly important for Markman.

(b)     List one objective for Markman’s learning and growth perspective.

(c)     List two performance measures for the objective you picked in part (B).

            Balanced scorecard measures for customer perspective

Leyland College is in the process of developing a balanced scorecard. The administrators decided that their customers are parents and future employers of their students. They believe the students are their products.

Required

Discuss whether each of the following potential measures would be useful for the customer perspective in the balanced scorecard.

(a)     Parent ratings of satisfaction with the high school curriculum

(b)     Graduation rate

(c)     Percentage of students employed during the summer after graduation

(d)     Employer satisfaction ratings for Flowing Wells High School graduates

(e)     Monthly earnings of graduates

(f)      Number of graduates attending classes beyond high school

(g)     Cost per student per year

(h)     Number of classes per student per semester

(i)      Average number of college credit hours completed per teacher

Financial and non-financial measures

Managers increasingly use a mixture of financial and non-financial measures for organisational performance.

Required

In the following list of performance measures, identify those that are financial (F) and those that are non-financial (N).

(a)     Customer satisfaction ratings

(b)     Market share

(c)     Operating margin

(d)     Return on sales

(e)     Annual average purchase amount per customer

(f)      Defect rate

(g)     Normal spoilage

(h)     Labour efficiency variance

(i)      Number of new products developed annually

(j)      Revenues from new products introduced this year

            Balanced scorecard measures for financial perspective

Following is financial information for last period about Curry House, a regional company with a number of fast-food stores:

Required

Describe and calculate several measures that could be used for the financial perspective.

            Explain why demand might increase for relevant and useful information in the future. What professional skills will help you meet that need?

 (a)       Pick two public companies, go to their websites and identify their      major strategies.

          (b) Pick one of the companies from part (a) and go to the website of a      competitor in the same industry. (For example, if you chose Coles, you            might go to the website of Woolworths.) Now compare the strategies of      both companies and list any similarities and differences.

          Suppose that a travel agency decided it would no longer compensate employees with sales commissions, but instead pay a salary with a bonus for high customer satisfaction ratings. What problems would you foresee from the agency’s financial perspective?

         Allied Trucking moves produce from farms to markets. Its managers       decided to implement a balanced scorecard around the entity’s vision          statement: 'We aim to be the industry leader in cost-effective and timely      delivery of produce’. Provide two potential performance measures for each of the four perspectives for the balanced scorecard for Allied      Trucking.

  What potential problems could arise if the balanced scorecard was developed without a strategy map being available? (LO2)

How might a balanced scorecard be used?

            (LO4)

          Describe the implementation process for the balanced scorecard.

          (LO4)

          Identify the four generic perspectives for a balanced scorecard and         explain how they are related.

Outline the purpose of strategy maps. 

         What is strategic decision making? What role does it play in the balanced scorecard?