Copyright © 2003 Pearson Education Canada Inc. Slide Chapter 13 Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Copyright © 2003 Pearson Education Canada Inc. Slide Strategic Profitability Analysis Strategy describes how an organization matches its own capabilities with opportunities in the marketplace in order to achieve its objectives Industry analysis focuses on: competitors potential entrants into the market equivalent products bargaining power of customers bargaining power of suppliers Pages

Copyright © 2003 Pearson Education Canada Inc. Slide Strategic Profitability Analysis (Continued) Product differentiation refers to the organization’s ability to make its products or services unique Cost leadership occurs when the organization is able to reduce costs, relative to competitors, through productivity and efficiency improvements Pages

Copyright © 2003 Pearson Education Canada Inc. Slide Balanced Scorecard The Balanced Scorecard translates an organization’s mission and strategy into a comprehensive set of measures Measurements provide feedback on how well the organization is implementing its strategy reduced emphasis on short-term financial goals Four Elements of the Balanced Scorecard 1.Financial measures 2.Customer measures 3.Internal business process measures 4.Learning and growth Pages

Copyright © 2003 Pearson Education Canada Inc. Slide Example of Balanced Scorecard TargetActual ObjectiveMeasuresPerformancePerformance Financial Gain in income$5,000,000$5,520,000 PerspectiveRevenue growth6%6.48% CustomerNew customers56 PerspectiveCustomer satisfaction90%87% Internal ProcessYield78%79% PerspectiveOn-time delivery92%90% Learning &Employees trained90%92% GrowthEmployee satisfaction80%88% Perspective# of improvements55 Page 496

Copyright © 2003 Pearson Education Canada Inc. Slide Features of a Good Balanced Scorecard Tells the story of the company’s strategy by articulating a sequence of cause-effect relationships Helps communicate the strategy to all members of the organization by translating the strategy into a coherent and linked set of understandable targets In profit-seeking companies, places strong emphasis on financial measures and objectives Limits the number of measures used by identifying only the most critical ones Highlights suboptimal tradeoffs that managers may make when they tail to consider operational and financial measures together Pages

Copyright © 2003 Pearson Education Canada Inc. Slide Pitfalls Implementing a Balanced Scorecard Don’t assume the cause-and-effect linkages to be precise Don’t seek improvements across all measures all the time Don’t use only objective measures on the scorecard Don’t fail to consider both costs and benefits of initiatives Don’t ignore non-financial measures when evaluating managers and employees Page 499

Copyright © 2003 Pearson Education Canada Inc. Slide Engineered and Discretionary Costs Engineered costs result specifically from a clear cause-effect relationship between output and resources used materials Discretionary costs costs which arise from a periodic appropriation decision lack a clear cause-effect relationship between output and resources used advertising, executive training, R&D, public relations Page 508

Copyright © 2003 Pearson Education Canada Inc. Slide EngineeredDiscretionaryCosts Process orDetailed and Knowledge of the Activityphysicallyprocess is sketchy observableor unavailable RepetitiveNon-repetitive Level ofModerateLarge Uncertaintyor small Downsizing (or rightsizing) is process of matching resources with current and future needs Difficult for discretionary costs as ideal amount is unknown Downsizing and Capacity Management Pages

Copyright © 2003 Pearson Education Canada Inc. Slide Productivity measures the relationship between actual inputs used and actual outputs achieved Partial Productivity = Quantity of output produced / Quantity of input used = 1,150,000 units / 2,900,000 cm 2 of direct material = 0.40 units per cm 2 of direct materials Total Factor Productivity = Quantity of output produced / Quantity of all inputs used = 1,150,000 units / $23,500,000 = units of output per dollar of input Productivity Measurements Pages