Chapter 12 Required Homework

ESG Balanced Scorecard

ACBU 2223
Spring 2023

Instructions for Students

Students should work in teams of up to 3 members (It is recommended that teams are
formed based on IP groups). Students should not discuss the case with anyone except their
teammates. The answers to all questions must be typed and submitted to the link available on
the Blackboard website by the end of the due date. A team is to upload only one copy of the
solution with each member’s name listed alphabetically. The homework is graded for
completeness instead of correctness.

Posting this case on Chegg.com or similar websites will be considered as a violation of

academic integrity.
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ESG Balanced Scorecard

Development of Performance Measures
Company Name: Precision Motorworks
Company Background: Precision Motorworks is a mid-sized American automobile manufacturer
headquartered in Detroit, Michigan. The company sells automobiles and commercial vehicles mostly in the
United States but has a growing market share of small sized sedans in the European market. Currently their
most popular model is their smaller Sports Utility Vehicle as well as their commercial vehicles. They most
recently released their hybrid SUV which has done very well this past fiscal year.
Background of the Industry
 The global electric vehicle (EV) market is forecast to grow substantially in the coming decade.
Automakers are rapidly accelerating their electrification goals as regulatory targets and consumer
demand continue to amplify the timeline for increased deployment.
 The Biden administration has announced a target that by 2030, half of the vehicles sold in the US will be
battery electric, fuel-cell electric or plug-in hybrid. (Collectively referred to as EV going forward)
 Starting in 2030, California will require all light-duty autonomous vehicles operating in the state to emit
zero emissions.
 Conventional automakers are making the shift to electric vehicles in order to manage
risk, address climate change, and meet the shift in the consumer mindset amid mounting
legislation across the globe
 Automotive CEOs for years warned that making electric vehicles would devastate profits due to the
massive cost of developing electric drivetrains and retooling factories. They built EVs that were limited
in range and expensive to manufacture. Now they are singing a different tune, even forecasting that
battery powered cars will be as profitable as combustion engine models around mid-decade.
https://www.bloomberg.com/news/articles/2021-04-01/auto-ceos-see-ev-profit-potential-after-years-of-
discouragement
https://europe.autonews.com/automakers/automakers-finally-see-ev-profit-potential
https://electrek.co/2021/11/29/nissan-unveils-ambition-2030-electric-car-plan-are-they-finally-coming-
back-to-evs/
 Global sales of electric vehicles increased by 160% in the first half of 2021 from a year earlier to 2.6 M
units. China remained the world’s top EV market with 1.1 million vehicles sold in the first half,
accounting for 12% of sales. In the U.S., where EVs have been less popular, only 250,000 units were
sold, accounting for 3% of sales.
https://www.forbes.com/sites/russellflannery/2021/08/29/global-ev-sales-rose-160-in-first-half-
overcoming-component-shortages-and-covid--canalys/?sh=87782e9694b2
 Countries like India, Norway and China are looking to ban traditional combustion engines. This could
provide a competitive advantage for an auto manufacturer looking to expand their EV portfolio.
 Auto makers are looking to vertically integrate as the shift to EVs demands significant battery supplies and raw
materials.
 There are significant hurdles to widespread adoption of electric vehicles. Congress is considering legislation what
would address these hurdles. Some of these challenges include:

o Battery Charging times (determining which type of charger to install is going to be a balance of
cost of installation with the needs and convenience of drivers).
Copyright 2023 by Gabelli School of Business, Fordham University
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o Battery Charger Compatibility. Currently three different varieties of DC fast chargers are used
by different auto manufacturers. The lack of vehicle compatibility differs from universal vehicle
access to gas stations and could be an obstacle to widespread electric car adoption.
o Availability of charging infrastructure (private homes vs apartment buildings vs availability on
the road for long range trips—also referred to as “range anxiety”).
o Charging stations financing and ownership. Questions about who pays for the construction of
the charging stations. Currently most public charging stations tend to be unprofitable dur to high
upfront costs. EV sales would need to be much more widespread before they would turn a profit.
o Cost of materials. The cost of the lithium-ion battery was one reason why the EVs were priced
so high. However, battery costs are going down and battery capacities are going up. This is all
good news for the EV customer since this should allow automakers to offer more affordable
electric cars however the issue of battery lifespan, battery replacement costs and how to
maximize battery life are still concerns.
o Grid capacity. More electric cars will require much greater electric grid capacity. Utilities and
power generators will have to invest billions of dollars creating additional capacity while also
facing the challenge of replacing fossil fuels with renewable energy sources.
o Change in skill set and the labor market. Jobs in the automobile industry will revolve less
around assembly and servicing and more around engineering and technology functions that
support and advance energy efficiency. Further down the value chain, the distribution model of
EVs will also change because of lower maintenance needs, growth in digital channels, and new
customer segments. These changes in the labor market mean workers will need to build new skill
sets to meet the industry’s evolving needs, and automotive companies will need to develop
channels to capture and retain new talent.
https://www.truecar.com/blog/how-long-do-electric-car-batteries-last/
https://www.reuters.com/article/us-usa-weather-grids-autos-insight/ev-rollout-will-require-huge-investments-in-
strained-u-s-power-grids-idUSKBN2AX18Y
https://www.eesi.org/articles/view/on-the-move-unpacking-the-challenges-and-opportunities-of-electric-
vehicles
https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/making-electric-vehicles-
profitable

Challenge: Precision Motorworks has defined objectives to align with their new strategy of entering the
electric vehicle market. Below is the initial strategy map that the team has prepared. The next step in the
process is to review the objectives and identify the Performance Measures in order to lay out a plan on how the
company can take concrete actions to attain their desired outcome and to measure their success along the way.
The use of the balanced scorecard allows the company to take a stakeholder perspective as compared to a
stockholder perspective.
Stockholders are the owners of the company stock and often are most concerned with the profitability of the
company and thus focus primarily on financial results.
Stakeholders are people who are affected by the decisions made by a company, such as investors, creditors,
managers, regulators, employees, customers, suppliers, and even lay people who are concerned about whether
or not the company is a good world citizen. This is why social responsibility factors are sometimes included in
balanced scorecards.

Copyright 2023 by Gabelli School of Business, Fordham University

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Overview of the ESG Balanced Scorecard

Precision Motorworks
How much of our profitability is generated from sustainable business
Financial practices?

Do we have positive social and environmental impacts by serving all of our

Customer stakeholders?

Are our production efficiency measures linked to social and environmental

Internal Business Process factors?

Does our human resource management help promote sustainable values and
Learning and Growth culture?

REQUIRED:
1. (30 points) Here are three specific strategic objectives that Precision Motorworks could try to achieve
so that the company can successfully enter the electric vehicle market.
(1) A focus on customer intimacy: to provide individualized luxury electric cars featuring ultimate
driving experience and superb customer support.
(2) A focus on operational excellence: to build the most affordable and reliable electric vehicles on the
market.
(3) A focus on product leadership: to continuously improve powertrain technology and engage in the
mass production of the highest energy efficient electric vehicles.
Please choose one of the objectives as the strategy Precision Motorworks should focus on. Please explain
why the company should implement the strategy that you have chosen. Your explanation should be
between 50 and 100 words.

Copyright 2023 by Gabelli School of Business, Fordham University

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2. (40 points) For the objective of your choice, identify TEN most appropriate performance measures
from the list below that Precision Motorworks could use to evaluate their progress (at least TWO
performance measures per perspective). You can design your own performance measures if necessary.
Filling the blanks of the following chart:

ESG Balanced Scorecard

Strategic Objective: (The one you picked in Part 1)

Financial
Performance Performance Performance Performance
measure 1 measure 2 measure 3 measure 4

Customer
Performance Performance Performance Performance
measure 1 measure 2 measure 3 measure 4

Internal Business Process

Performance Performance Performance Performance
measure 1 measure 2 measure 3 measure 4

Learning & Growth

Performance Performance Performance Performance
measure 1 measure 2 measure 3 measure 4

Please note that you don’t have to fill out all 16 blanks as you only need 10 measures (2-4
performance measures for each perspective).
Performance measures:
Number of repeat customers by product line — Increase Customer
Time to resolve customer issue to their satisfaction — Decrease Customer
Contribution margin (change in contribution margin — Increase Financial
Improvement of delivery time to customer — Increase Customer
Number of customers who choose other manufacturers products — Decrease Customer
Percent of revenue growth from the sale of EV models from quarter to quarter — Increase Financial
Reduction of the time to respond back to customers — Increase Customer
Copyright 2023 by Gabelli School of Business, Fordham University
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Number of new products and innovative options in vehicles — Increase Internal Business Process
Turnover rate — Decrease Learning and Growth
Increase in employee training on EV related production matters — Increase Internal Business Process
Number of customer referrals by product line — Increase Customer
Number of customer service calls — Decrease Customer
Sales mix revenue — Increase Financial
Number of recalls of vehicles by product line — Decrease Internal Business Process
Number of Management training course certificates awarded —
Production cost (DM, DL, OH) per vehicle — Decrease Financial
Number of incomplete or canceled orders — Decrease Internal Business Process
Revenue per type of customer (individual, corporation) — Increase Financial
Gross margin (change in gross margin) — Increase Financial
Units of waste per area of production — Decrease Internal Business Process
Build strong relationships with suppliers that are equally beneficial (battery manufacturers, chip
manufacturers) — Increase Internal Business Process
Number of strategic investments in key suppliers — Increase Internal Business Process
Number of improved products consistent with overall image — Increase Internal Business Process
Employee retraining cycle time — Decrease Learning and Growth
Number of Management training course certificate available — Increase Learning and Growth
Break-even time realized by product — Decrease Internal Business Process
Measurement of customer satisfaction in the new EV product lines — Increase Customer
Increase in employee skills related to environmental issues — Increase Learning and Growth
Market share in target markets — Increase Financial
Time between production and delivery to customer — Decrease Internal Business Process
Miles per kilowatt hour — Increase Internal Business Process
Maximum charging rate — Increase Internal Business Process
Longest range per charge — Increase Internal Business Process
Horsepower — Increase Internal Business Process
0 to 60 MPH acceleration — Increase Internal Business Process
Battery cost — Decrease Internal Business Process
Battery life — Increase Internal Business Process

Copyright 2023 by Gabelli School of Business, Fordham University

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3. (30 points) For each of the performance measures that you included in question 2, report enough if-
then hypotheses statements so that every performance measure is included in at least one if-then
hypothesis statement. The if-then hypothesis statements involve links from (1) your Learnings & Growth
measures to your Internal Business Process measures, (2) your Internal Business Process measures to
your Customer measures, and (3) your Customer measures to your Financial measures. Therefore, if you
use exactly 10 performance measures, you will need a minimum of 5 if-then hypothesis statements so that
each measure is included once. If you use a performance measure more than once in if-then hypothesis
statements, then you would need more than 5 if-then hypothesis statements.

An illustration:

Company:
Tesla

ESG Strategic target:

To accelerate the world’s transition to sustainable energy.

Financial performance measures:

(1) Sales of electric vehicles
(2) Profitability of electric vehicles

Customer performance measures:

(1) Electric vehicle market share
(2) Customer satisfaction with electric vehicle performance
(3) Customer satisfaction with electric vehicle affordability

Internal business process performance measures:

(1) The electric vehicle’s energy efficiency measured by miles per kilowatt hour
(2) The cost-performance ratio of battery packs
(3) The energy efficiency of electric vehicle factories

Learning and growth performance measures:

(1) The percentages of employees who have educational or professional background in science, technology,
engineering, and mathematics
(2) The percentages of employees who have educational or professional background in corporate social or
environmental responsibility

If-then hypothesis statements:

From learnings & growth measures to internal business process measures:
If we increase the percentages of employees who have educational or professional background in
science, technology, engineering, and mathematics, then it will enable us to boost the electric vehicle’s energy
efficiency measured by miles per kilowatt hour.

Copyright 2023 by Gabelli School of Business, Fordham University

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If we increase the percentages of employees who have educational or professional background in

science, technology, engineering, and mathematics, then it will enable us increase the cost-performance ratio of
battery packs.

If we increase the percentages of employees who have educational or professional background in corporate
social or environmental responsibility, then it will motivate them to increase the energy efficiency of electric
vehicle factories.

From internal business process measures to customer measures:

If we increase the electric vehicle’s energy efficiency measured by miles/kWh, then it will boost the market
share of our electric vehicles.
If we increase the electric vehicle’s energy efficiency measured by miles/kWh, then it will improve customer
satisfaction with electric vehicle performance.

If we increase the cost-performance ratio of battery packs, then it will improve customer satisfaction with
electric vehicle affordability.

From customer measures to financial measures:

If we increase electric vehicle market share, then it will increase sales of electric vehicles.

If we improve customer satisfaction with electric vehicle performance, then it will increase sales of electric
vehicles.

If we improve customer satisfaction with electric vehicle affordability, then it will increase the profitability of
electric vehicles.

From internal business process measures to financial measures:

If we increase the energy efficiency of electric vehicle factories, then it will reduce the manufacturing costs and
thus increase the profitability of electric vehicles.

Please note that there could be more valid hypotheses among the performance measure, you just need to
make sure that all your performance measures are mentioned.

Copyright 2023 by Gabelli School of Business, Fordham University