The Balance Scorecard (BSC)

Prior to the 1980s management accounting control systems tended to focus mainly on
financial measures of performance. The inclusion of only those items that could be expressed
in monetary terms motivated managers to focus excessively on cost reduction and ignore
other important variables which were necessary to compete in the global competitive
environment that emerged during the 1980s. Product quality, delivery, reliability, after-sales
service and customer satisfaction became key competitive variables, but none of these were
measured by the traditional management accounting performance measurement system.

The need to link financial and non-financial measures of performance and identify key
performance measures led to the emergence of the balanced scorecard – a set of measures that
gives top management a fast but comprehensive view of the organizational unit (i.e. a
division/strategic business unit). The balanced scorecard was devised by Kaplan and Norton
(1992) and refined in later publications (Kaplan and Norton, 1993, 1996a, 1996b).

1. What is a balanced scorecard, and what are its typical key elements?
The balanced scorecard is a business model that helps to assess a firm’s competitive
position and ensures that the firm is progressing toward long-term survival. Although
balanced scorecards differ from one firm to the next, most have a combination of
financial measures, customer-satisfaction measures, internal operating measures, and
measures of innovation and learning.
2. What are the key functional areas for an airline company?
Functional areas for the airline include marketing, finance, operations (e.g.,
maintenance, reservations, customer service, and scheduling), human resources,
purchasing, accounting, planning, and information systems/technology. Each of these
areas could be represented on the committee.
3. Identify a number of measures to evaluate the key elements that you specified in
requirement (2).
Financial measures:
Net income Operating expenses per seat mile
Earnings per share Cost per meal served
Passenger revenue per seat mile Revenue growth
Customer-satisfaction measures:
Load factors Number of bags lost
Number of passenger complaints Market share
Average wait time when calling Response time for resolving
reservations center customer problems
Internal operating measures:
Percentage of on-time arrivals Number of cities/new cities served
Percentage of on-time departures Number of aircraft in fleet
Average trip length (in miles) Average age of aircraft in fleet
Percentage of tickets sold through Aircraft turnaround time between
travel agents, reservation flights
agents, and the Internet
Innovation/learning measures:
Enhancements to product line Employee turnover
(new class of service) Employee satisfaction scores
New unique features of frequent-flier Employee training programs
club