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    TL5

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    nguyenminhthanh1207
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    WARREN / JONES / TAYLER ® F Finan - Acco’ Scanned with CamScanner The Balanced Scorecard § . s and Corporate Social J . age Responsibility Principles Chapter 15 Introduction to Managerial Accounting Developing Information COST SYSTEMS ‘COST ALLOCATIONS Chapter 16 ct Order Costing ‘Chapter 19 Support Departments Chapter 17 Process Costing Chapter 19 Joint Costs pratt PORES Decision Making PRE eosin Ee maa Chapter 28 The Balanced Scorecard Chapter 28 Corporate Social Responsibility I Scanned with CamScanner Intermuuntain Healthcare ‘ost large companies are complex organizations that must Ncsnaseossty adapt to changing business environments. Leaders in these organizations must constantly update their goals, develop ways to accomplish those goals, measure performance to see how successful their efforts have been, and make adjustments as needed. Many organizations, even some for-profit companies, also strive to make the world a better place as they work toward improving their own bottom line. How can managers simplify the complex nature of their strategic endeavors so that they can suc cessfully navigate the business environments in which they work? Intermountain Healthcare is the eleventh largest nonprofit healthcare system in the United States. The healthcare industry makes up almost 20% of the US. gross domestic product (GDP). Almost every aspect ofthe healthcare industry is immensely complex. from the legal regulations surrounding billing for services to the ever-changing best practices in healthcare delivery. Further, healthcare touches the lives of everyone—and every individual is different. You might argue that every single end “product” of the healthcare industry—the patient—is unique. Because Intermoun: tain isa large healthcare system, it touches almost every aspect of this complex industry. It has an insurance entity (SelectHealth), it employs physicians (Intermountain Medical Group), it distributes Link to Intermountain Healthcare .............. medical technology to its wholly owned hospitals, and it even plans to begin manufacturing generic drugs (Project Rx). Further, Intermountain’s overall mission Is not about profits, it is about “helping people live the healthiest lives possible How can such 2 complex organization in such a complex industry focus on the {goals that matter most for the company to succeed? How can it measure performance in a way that relates to the strategy of the company? Traditional measures like profits and market share are important, but if Intermountain truly wants to help people live healthy lives, how else should it be measuring performance? Intermountain is one of the many companies that uses the balanced scorecard, a common managerial accounting tool dis- ‘cussed in this chapter, to measure performance and reach its goals. This chapter also discusses how many companies take responsibil ity for the impact their operations have on society and actively try to improve social well-being within and outside of the firm. Finally, the chapter considers how management accounting tools can help in these socially responsible endeavors. Pages 1403, 1405, 1406, 1413, 1419 Scanned with CamScanner 1402 Chapter 28 The Baiancod Seoracard and Corporat Social Responsibiity Chats Covered The Balanced Scorecard and Corporate Social Responsi Performance Measurement | The Balanced Scorecard (BSC) | Using the Balanced Corporate Social Systems 1 Performance Perspectives | Scorecard (BSC) Responsibility (CSR) 1 Performance Measurement (0.2) 1 Strategy Maps (Obj. 3) 1» CSR Balanced Scorecard Systems (Obj 1) 1 Strategic Objectives (Obj.2) | = Measute Maps (Obj. 3) (0.4) « Strategic Performance Measure-| » Performance Metrics (Obj. 2) | » Strategic Learning (Obj.3) __| » Encouraging CSR (Obj.4) ‘ment Systems (Obj 1) strategic Initiatives (Obj. 2) | w Scorecard Cascading (Obj. 3) 1 Performance Targets (Obj.2) | » Cognitive Biases (Obj. 3) Learning Objectives Obj. 1. Describe the concept ofa performance measurement Obj. 3. Describe and illustrate the balanced scorecard, including — the use and impact of strategy maps, measure maps, stra- Obj. 2. Describe and illustrate the basic elements ofa balanced tegiclearning scorecard cascading, and cognitive biases, sere. Obj. 4 Describe corporate social responsibility (CSR), including ‘methods of measuring and encouraging social respons bility using the balanced scorecard. Analysis for Decision Making Obj. 5 Use capital investment analysis to evaluate CSR projects. Seer s Performance Measurement Systems Desorbe the concept b of aperformance mea _tanagerial accounting primarily focuses on measuring and reporting information for inters.al deci- ‘Suremant system. sion making. For example, managerial accounting information is used for evaluating periormance and strategic decision making, Performance measurement systems are used by management to assess how well eniployees or units within a company meet the company's goals and objectives, A performance measucement system does this by using metrics (or measures) of current conditions or performance... metrie or measure is a representation of something a person or company cares about. For example, your resting heart rate is a metric of your health. Your resting heart rate is not a perfect measure of health, but itis one of many metrics available to health professionals, Metrics like operating income and cash flows are often used by companies to measure their financial condition and performance. Accounting metrics, however, are not of interest in and of them selves. Instead, they simplify the complexities of business for decision-making purposes. For example pearance of pra rae ms Dhy Tt Matters Iathecnpunyt beams spe ngs cores bea Evolution of Performance ‘ment to have direct contact with the various parts ofthe organization, leasurement Systems ‘The dashboard collected and summarized key performance metrics, cite nets cine ic tables ee sao. France inthe 1950s Some French manufacturing ms ued Th Mya en ewe 58 Ee what wes nn the tobe eon or dasha tomontor (Siete Scanned with CamScanner Chapter 28 The Balanced Scorecard ond Corporate Seca! Reseensivity 1403 material price variances (Chapter 23) are often used as metrics for measuring 4 purchasing depart- ‘ments performance. Likewise, return on investment and residual income (Chapter 24) are often wed as metrics for measuring the performance of decentelized units (segments) within a company. Strategic performance measurement systems define and link strategic objectives to the per- formance metrics of a company! Seventy-five percent of large companies worldwide, including ExxonMobil Corporation (KOM), Hewlett-Packard, Inc. (HPQ), and Citigroup Inc. (C). use strategic performance measurement systems.? One such strategic performance measurement system is the balanced scorecard, which we discuss next. Intermountain Healthcare was founded in 1975 when The Church of Jesus Christ of Latter-day Saints donated 15 hospitals to the nonprofit organization. Intermountain uses performance measurement systems extensively. The Balanced Scorecard ‘The balanced scorecard (BSC) is the best-known strategic performance measurement system. ‘The balanced scorecard emphasizes a balanced view of performance, thus its name, from multiple pperspectives—not just financial. For example, nonfinancial performance metrics such as customer satisfaction and employee training are included within the balanced scorecard. Such metrics are often leading indicators of future financial performance. For example, if customer satisfaction for a movie theatre declines, sales for future months may also decline. In Contrast, actual sales is nor mally considered a lagging indicator. ‘The balanced scorecard is made up of the following elements Performance perspectives Strategic objectives Performance metrics ‘Strategic initiatives, . Performance targets Strategy maps Measure maps ‘The term balanced scorecard may be used as 2 generic term for a strategic performance mea surement system. That is, some companies call their strategic performance measurement, systems balanced scorecards even if they don't include all of the elements of a traditional balanced scorecart Intermountain Healthcare calls its version ofthe balanced scorecard a huddle board, emphasizing — Link fo the importance of employee teams gathering to dscussthe scorecard, ae Frealtheare Performance Perspectives [balanced scorecard has the following four performance perspectives showin in Exhibit: f= Financial Internal processes Learning and growth Customer *ourascaston{ocueton companies emporio butte concepsdicanedcanbe applied tanya 1 Biragoy and Bladen Monogerment Ts ond Wend 20 A acts Gade Ban Crary, 2007 fp!wwisbncom Pu ‘rideuanagenen tol-ane tends 205 pa, — =H enone a 09 SSR ts ie Mile. 201. ons elt hire ics Sool Cate Na 3103.06 Bont Heed Scanned with CamScanner 1404 Chapter 28 tho Balanced Scorocard and Corporate Socal Responsibility Exhibit 1 Balance among Perspectives in the Balanced Scorecard ya \e7 ‘The objectives of the performance perspectives are as follows: ‘= Focus management on looking beyond typical financial measures of performance, such as sale and profits, and thus, encourage a more balanced view of performance. ‘= Organize the scorecard into types of performance. Performance in the financial perspective focuses on traditional accounting measures, revenues, profits, return on investment, and cash flows. Perforrpance in the customer perspective focuses on satisfying customers. Performance in this perspective often includes the ability to obtain and retain customers. Performance in the internal processes perspective focuses on operatioral efficiencies. As examples, performance in this perspective may include the time it takes to m ture a product, the waste generated in the manufacturing process, or the number of defective snes produced. Performance in the learning and growth perspective involves research and development ‘efforts. Performance in this perspective also includes employee training, retention, and satistetion, hy It Inatters ‘Turning Around Charles Schwab tustomer service is a key component to any balanced score- Cisse ity ct onpoet sts jindustries, Since 2003, Bain & Company, a consulting firm, has helped companies improve customer service by focusing fon a customer loyalty metric called the Net Promoter Score. This, metric, when used as part of balanced scorecard, evaluates cus- tomer service by assessing how likely a customer is to recommend the company to others. Charles Schwab Corporation (SCHW) is afull-ser- vice financial advisory firm that was founded in 1973. In 2004, the ‘company was struggling, Although Schwab had been built on deliv ‘ering exceptional customer service, the company los its way. When ‘customers were surveyed, they gave Schwab a ~35% Net Promoter ‘Score, indicating that more customers wanted to see the company fll than would be willing to promote the company to others. In tesponse, Schwab hited Bain to helpimproveits customer expe- rience and customer loyalty. Bain helped Schwab develop and imple- iment a Cent Promoter System that focused on embedding the Client Promoter Score deep within the company’s values and core strategy. ‘As Schurab CEO Walt Bettinger describes, "if you serve clients in the ‘way that you would like tobe served, they are going to want to do more business with you" The results were significant. By 2008, the ‘company’s stock price had more than doubled, and in 2010, Schwab received a Net Promoter Score of 46%, the highestin its sector. Sources: “Sab Eans Highest Customer Leyay Ranking Among okerage & investment Farms in Sxmetis Net Promote 200 lnduty Report: Buse Ite March 25,201; Sein he Wot Tough te Cet fe btn & Company (onunetromsterytem comdcouvatlreniclchate sce Scanned with CamScanner Chapter 28 The Balanced Scorecard ard Corporate Social Resporsiity — 1405, ‘Some companies include additional performance perspectives to those shown in Exhibit 1. For example, ExxonMobil Corporation's (KOM) scorecard includes a safety perspective that reflects management's objective that no one is injured in the production and delivery ofits products. Instead of the traditional four performance perspectives, Intermountain Healthcare has seven — Link fo “dimensions of care including safety, quality, patient experience, acces, stewardship, caregiver engage- aus Lrterncuntain Healtheare Strategic Objectives Each of the four performance perspectives in Exhibit 1 should be linked to one or more strategic objectives. A strategic objective defines the purpose of an action taken within a company. A stra tegic objective is not the same as the overall mission statement or strategy of the company. Instead, each strategic objective i= 2 subcomponent ofthe averal eniy’s mission statement or sratexy To illustrate, assume that Cordier Toys, Inc.. an online toy retailer, uses a balanced scorecard and has developed stratezic objectives for each of the four performance perspectives as shown in Exhibit 2. The strategic objectives in the learning and growth perspective are to train employees and reduce employee tracer. The strategic objectives in the internal processes perspective are to improve delivery times and reduce shipping errors. The strategic objective in the customer per: spective is to delight the customer. Finally, the strategic objective in the financial perspective is to increase profits. These sirsiegic objectives provide guidance to Cordier’s management as to the Actions that should be taken related to the four performance perspectives. Exhibit 2 Cordier Toys’ Strategic Objectives Performance Metrics Although strategic objectives are useful for guiding management's actions, they do not measure Whether the company is achieving its objectives. Rather, performance metrics are used t0 assess performance in achieving the strategic objectives. At least one metric is used for each strategic objective. ‘To illustrate, Cordier Toys, Inc., has developed the performance metrics shown in Exhibit 3. For the strategic objective to train employees, management measures (tracks) the median train- ing hours for employees. For the strategic objective to reduce employee turnover, management ‘measures (tracks) the average tenure of employees. For the strategic objective to improve delivery times, management measures (tracks) the hours from the time an order is placed to the time itis delivered. For the strategic objective to reduce shipping errors, management measures (tracks) the ‘umber of erroneous shipments. For the strategic objective to delight the customer, management ‘measures (tracks) the percentage of customers who shop again and the online customer satisfac: tion rating. For the strategic objective to increase profits, management measures (tracks) market share and operating profit. Cordier Toys uses these performance metrics for assessing its success in achieving its strategic objectives. Scanned with CamScanner 1406 Chapter 28 “The Balanced Scorecard and Corporate Socal Responsibility Exhibit 3 Cordier Toys’ Performance Metrics Link fe The executive leadership team of Intermountain Healthcare regularly reviews the most important “Latermmountain — P&tormance metrics, which it refers tas key performance indicators {KPIs ofthe organization Healthcare Strategic Initiatives Although strategic objectives and performance metrics are useful elements of the balanced score- card, they do not specify the actions necessary to achieve the objectives. Strategic initiatives are action plans that management implements to achieve the strategic objectives ‘To ilustrate, Cordier Toys, Ine. plans to use two strategic inkiatives to achieve the strategic objectives of improving delivery times and training employees. To reduce delivery times, manage- tnent plane to automate ts picking and packaging process. To motivate employees to participate in training programs, management plans to provide pay increases to employees who achieve taining goals. Echibit 4 shows how these two strategic initiatives are directed at achieving the strategie Cbjectives of tran employees and improve delivery times. 5 Exhibit 4 Cordier Toys’ Strategic Initiatives Strategic Objectives Scanned with CamScanner Chapter 28 Tho Balanced Scorecard and Corporate Social Responsbilty Performance Targets Performance targets are levels of rates of improvement that management wants to achieve for performance metrics. Performance targets provide goals for employees and are often linked to incentive compensation, such as employee quarterly bonuses. To illustrate, Cordier Toys, Inc., developed the following performance targets to serve as. employee goals: ‘= Achieve 100 hours of median training time per employee. 1 Maintain an average employce tenure ofa least 2.2 years. = Reduce the delivery time from the moment a product is ordered to the time it is delivered to (60 hours or less. = Reduce erroneous shipments to 2 per week, Increase the percentage of customers who return to the website to make additional purchases 10 45% or higher. f= Increase the online customer satisfaction rating to 9.4 (out of 10) or hi Increase market share to 1.31% or higher. ‘= Increase operating profits to $57 million or higher. These performance targets have been added to Cordier Toys’ balanced scorecard as shown in Exhibit 5. 1407 Exhibit 8 Cordier Toy’ Performance Tegets —s ta ST TT Usi ing the Balanced Sanreenrd ‘The elements of the balanced scorecard discussed thus far provide an overview of what the com pany plans to do (strategic objectives), how management assesses company perforinance (perfor- ‘mance metrics), actions the company plans to take (strategic initiatives), and performance goals (performance targets). These balanced scorecard elements are linked together to form a cohesive strategy for the company using strategy maps. Strategy Maps A strategy map shows the expected cause-and-effect relationships among strategic objectives. doing so, a strategy map shows how each strategie objective contributes to the overall mission or strategy of the company. Sometimes a strategy map is referred to as a value chain. ‘Objective 3 Describe and illustrate the balanced score- card, including the use ‘and impact of strategy maps, measure maps, Scanned with CamScanner 1408 Chapter 28 The Balanced Scorecard andl Corporate Social Responsibility ‘To illustrate, dotted blue arrows have be in Exhibit 6, These arrows c and ulti \dded to Cordier Toys’ balanced scorecard shown tat links the strategic objectives to each other Pens employee turnover are improving delivery times ted Cordier Toys’ strategy map shows that training employees and reduc expected to improve delivery times and reduce shipping errors. In turn, ‘and reducing shipping errors are expected to increase customer delight, which in turn is ex to increase profits. Finally, reducing shipping errors will also increase profits by reducing the costs associated with processing returns. ee ers Solution: __ Apossible version of the strategy map with an explanation of the links between strategic objectives follows: Cameron Tools nc. has developed a balanced scorecard with si objectives under the four standard perfor ‘mance perspectives. In the learning and growth perspective, the company has strategic objectives to) pro- ‘mote employees from within the company and (2) recruit quality recent graduates. tn the internal processes Perspective, the company has strategic objectives to (1) increase innovation and (2) improve communication between departments Inthe customer perspective, the company has a strategic objective to provide higher- ‘quality products that last longer. Finally, in the financial perspective, the company has the strategic objective to increase profits Given these strategic objectives, draw a strategy map that shows how these objectives influ tence each other and ukimately lead to the company’s objective of increasing profits. anaes Scanned with CamScanner Chapter 28 Tho Balanced Scorecard and Corporate Social Responsibilty 1409 Promoting employees from within can be expected to increase the ability to recruit quality recent graduates, ‘because these new hires can look forward to job growth within the company. Promoting employees from q ‘within can also be expected to increase innovation and improve communication between departments, because employees will be more willing to innovate f they know it may lead to# promotion, and employees ‘who have spent along time at the company will better understand proper communication between depart- ments. Recruiting quality recent graduates can be expected to increase innovation, because quality new hires _are likely to bring a fresh perspective and new ideas tothe company. Both increased innovation and improved interdepartment communications can be expected tolead to more efficient production of higher-quality, more

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