Week 1 Lectures - PPT Part 2

Faculty of Management
Bournemouth University Business School

Department of Accounting, Finance & Economics
Week 1 Lectures:
Strategic Management Accounting:
Balanced Scorecard
Dr Akanga
www.bournemouth.ac.uk
Learning Outcomes
Explain what strategic management is

and how it can be used to help a firm
create a competitive advantage.
Explain what Balance Scorecard is and
how it relates to organisations
RELEVANCE LOST
In 1978, Johnson and Kaplan wrote the seminal text

‘Relevance Lost: The Rise and Fall of Management
Accounting’. Their opening words are:
‘Today’s management accounting information, driven by

the procedures and cycles of the organisation’s financial
reporting cycle, is too late, too aggregated and too
distorted to be relevant for managers’ planning and control
decisions.’
This publication started a far-reaching debate about the

purposes of and methods used in management
performance measurement systems (budget preparation,
monitoring and manager performance measurement)
Strategic Management
Accounting
• CIMA (2005) defines SMA as:
“A form of management accounting in
which emphasis is placed on information
which relates to factors external to the
firm, as well as non-financial information
and internally generated information”.
Strategic Management
Accounting
• Prior to the 1980s management accounting control systems
tended to focus mainly on financial measures of
performance:
 Are dependent on the choice of measurement method;
 Focus on the past;
 Include only monetary items
 Motivate managers to focus on cost reduction.
 Focus excessively on the short-term.
 Ignore necessary variables e.g. product quality, delivery,
reliability, after-sales service, customer satisfaction, etc.
The Balanced Scorecard (BSC)
• In 1992, Kaplan and Norton introduced the Balanced

Scorecard (BSC) as a solution to how an organisation
can translate its strategy into tangible objectives and
linked with performance measures.
• Balanced Scorecard is:
An effective measurement system which enables
managers of an organisation to determine if the
activities occurring within a facility are, in fact,
supporting the achievement of objectives, and whether
these objectives move the organisation closer to the
stated vision.
• Balanced Scorecard model proposed by Kaplan and

Norton in 1992
• It was a device to improve corporate performance by
aligning it with corporate strategy
• Four perspectives (or aspects) of business
 Financial (how do we look to shareholders?)
 Customer (How do customers see us?)
 Internal Processes (What must we excel at?)
 Learning& Growth (Can we continue to improve
and create value?)
• The BSC provides a system for measuring and

managing ALL aspects of a company’s performance:
It includes financial measures that tell the

results of actions already taken;
It complements the Financial measures with
operational measures on:
Customer Satisfaction,
Internal Processes, and
The firm’s Innovation and improvement
activities.
Financial Perspective
• The ultimate objective is maximizing the profit by:

 Increase the No. of new products
 Reduce product/service cost per unit
 Improve asset utilisation
• Financial performance measures indicate how success in
achieving the strategy will be measured and tackled.
 Percentage of revenue from new products
 Percentage reduction in cost per unit
 Return on capital employed
• Targets spell out the level of performance that is needed.
• Initiatives indicate key action programmes required to
achieve objectives.
Customer Perspective
• Managers identify the customer and market segments in

which the business unit will compete:
 Increase customer retention
 Improve product/service quality
 Improve delivery time
• It includes several measures of the successful outcomes
from a well-formulated and implemented strategy:
 % of growth in business from existing customers
 % returns from customers
 % on-time deliveries.
achieve objectives.
Internal Business Perspective
• Critical processes required to achieve customer and

financial objectives: Innovation process; Operation process ;
and Post-sales Process.
• Example of objectives & measures
 Increase the number of new products
% of sales from new products
 Increase process efficiency
Output/input ratio
 Decrease service time
Cycle time in resolving customer problems
achieve objectives.
Learning & Growth Perspective
• The importance of organisations investing in their: human,

systems and procedures to enable the accomplishment of the
other three perspectives’ objectives.
 Increase employee capabilities
 Employee satisfaction survey ratings
 Increase information systems capabilities
 On-line access to customer and product information
 Increase motivation, empowerment and alignment
 % of suggested improvements per employee
• Initiatives indicate key action programmes required to achieve
objectives.
Aligning the BSC to Strategy
• Different strategies call for different

BSC options.
• What are some of the financial
perspective measures?
– Operating profit
– Revenue growth
– Cost reduction in some areas
– Return on investment
• What are some of the customer

– Market share
– Customer satisfaction
– Customer retention percentage
– Time taken to fulfil customers’ requests
• What are some of the internal business

– Innovation Process

Manufacturing capabilities

Number of new products or services

New product development time

Number of new patents
– Operations Process

Yield

Defect rates

Time taken to deliver product to
customers

Percentage of on-time delivery

Set-up time

Manufacturing downtime
– Post-sales service

Time taken to replace or repair defective
products

Hours of customer training for using the
product
• What are some of the learning and growth

– Employee education and skill level
– Employee satisfaction scores
– Employee turnover rates
– Information system availability
– Percentage of processes with advanced
controls
Features of a Good BSC
1 It tells the story of a company’s strategy by articulating

a sequence of cause-and-effect relationships.
2 It assists in communicating the strategy to all
members of the organisation by translating the
strategy into a coherent and linked set of measurable
operational targets.
3 In for-profit companies, the BSC places strong
emphasis on financial objectives and measures.
4 The BSC limits the number of measures used by
identifying only the most critical ones.
Features of a Good BSC
It is future-oriented
 Retains financial measures of past performance
 Also introduces the drivers of future financial
performance
6. It is perhaps particularly useful if an organisation is
undergoing significant change or if management
wants to shift the strategic focus.
7. It is a costly process, but with these demands for
change on an organisation, its benefits may outweigh
the costs.
Limitations of the BSC
• It is not the final story: performance measurement

should lead to performance management
 e.g., measuring customer satisfaction does not tell
anyone how to improve.
• When multiple measures are used, there is a danger

that some measures are really not value drivers
 i.e. there is no link between the measure and
financial success - some customers are not willing
to pay for improved quality, and improved quality is
costly.
Limitations of the BSC
• Choices of measures get confounded with

measurement difficulties,
 e.g. Few would argue that customer satisfaction
leads to repeat sales, and hence, shareholder
value. But can customer satisfaction be measured
accurately?
• It does not solve the problem of setting good goals.
 How can the goals be made equally and optimally
challenging across the organisation and over time?
• When multiple measures are used, managers face the
problem of how to weight them.
a nk
T h
u!
yo
Reading List
• Drury, C. (2015), Management & Cost

Accounting, 9th Edition, Chapter 22

Week 1 Lectures - PPT Part 2

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Faculty of Management

Bournemouth University Business School

Explain what strategic management is

In 1978, Johnson and Kaplan wrote the seminal text

‘Today’s management accounting information, driven by

This publication started a far-reaching debate about the

• In 1992, Kaplan and Norton introduced the Balanced

• Balanced Scorecard model proposed by Kaplan and

• The BSC provides a system for measuring and

It includes financial measures that tell the

• The ultimate objective is maximizing the profit by:

• Managers identify the customer and market segments in

• Critical processes required to achieve customer and

• The importance of organisations investing in their: human,

• Different strategies call for different

• What are some of the customer

• What are some of the internal business

• What are some of the learning and growth

1 It tells the story of a company’s strategy by articulating

• It is not the final story: performance measurement

• When multiple measures are used, there is a danger

• Choices of measures get confounded with

• Drury, C. (2015), Management & Cost

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