The Balanced Scorecard tool in Strategy Evaluation Process

Introduced earlier in my previous posts discussion of objectives, the Balanced Scorecard is an important strategy-evaluation tool. It is a process that allows firms to evaluate strategies from four perspectives: financial performance, customer knowledge, internal business processes, and learning and growth. The Balanced Scorecard analysis requires that firms seek answers to the following questions and utilize that information, in conjunction with financial measures, to adequately and more effectively evaluate strategies being implemented.

“Unless strategy evaluation is performed seriously and systematically, and unless strategists are willing to act on the results, energy will be used up defending yesterday. No one will have the time, resources, or will to work on exploiting today, let alone to work on making tomorrow.” (Peter Drucker)

  1. How well is the firm continually improving and creating value along a measures, such as innovation, technological leadership, product quality, operational process efficiencies, and soon?
  2. How well is the firm sustaining and ever improving upon its core competencies and competitive advantages?
  3. How satisfied are the firm’s customers?
 A sample Balanced Scored card is provided below. Notice that the firm examines six key issues in evaluating its strategies: (1) Customers, (2) Mangers/Employees, (3) Operations/Processes, (4) Community/Social Responsibility, (5) Business Ethics/Natural Environment, and (6) Financial. The basic form of a Balanced Scorecard may differ for different organizations. The Balanced Scorecard approach to strategy evaluation aims to balance long-term with short-term concerns, to balance financial with non financial concerns, and to balance internal with external concerns. It can be an excellent management tool, and it is used successfully today by Chemical Bank, Exxon/Mobile Corporation, CIGNA Property and Casualty Insurance, and numerous other firms. For example, Unilever has a financial objective to grow revenues by 5 percent to 6 percent annually. The company also has a strategic objective to reduce its 1,200 food, household, and personal care products to 400 core brands within three years. The Balanced Scorecard would be constructed differently, that is , adapted, to particular firms in various industries with the underlying theme or thrust being the same, which is to evaluate the firm’s strategies based upon both key quantitative and qualitative measures.

Published Sources of Strategy-Evaluation Information.

A number of publications are helpful in evaluating a firm’s strategies. For example, Fortune annually identifies and evaluates the Fortune 1,000 the largest manufacturers and the Fortune 50 the largest retailers, transportation companies, utilities, banks, insurance companies, and diversified financial corporations in the United States. Fortune ranks the best and worst performers on various factors, such as return on investment, sales volume, and profitability. In its March issue each year, Fortune publishes its strategy-evaluation research in a article entitled “America’s Most Admired Companies.” Nine key attributes serve as evaluative criteria: quality of management; innovativeness; quality of products or services; long-term investment value; financial soundness; community and environmental responsibility; ability to attract, develop, and keep talented people; use of corporate assets; and international acumen. IN October of each year, Fortune publishes additional strategy-evaluation research in a article entitled “The World’s Most Admired Companies.”

An Example Balanced Scorecard

Area of Objectives
Measure or Target
Time Expectation
Primary Responsibility
Customers



1



2



3



4



Managers/Employees



1



2



3



4



Operations/Processes



1



2



3



4



Community/Social Responsibility



1



2



3



4



Business Ethics/Natural Environment



1



2



3



4



Financial



1



2



3



4




Another excellent evaluation so a corporation in America, “The Annual Report on American Industry,” is published annually in the January issue of Forbes. It provides a detailed and comprehensive evaluation of hundreds of U.S. companies in many different industries. Business week, Industry Week, and Dun’s Business Month also periodically publish detailed evaluations of U.S. businesses and industries. Although published sources of strategy-evaluations information focus primarily on large, publicly held businesses, the comparative ratios and related information are widely used to evaluate small businesses and privately-owned firms as well.

Most Admired Companies (2010)

Rank
Company
Total Return (2009)
1
Dell
2.4%
2
General Electric
20.7%
3
Starbucks
88.1%
4
Wal-Mart Stores
0.4%
5
Southwest Airlines
1.0%
6
FedEx
46.4%
7
Berkshire Hathaway
4.3%
8
Microsoft
9.1%
9
Johnson & Johnson
25.1%
10
Procter & Gamble
11.9%
Top 10 Average SIPSCO

23.1%,10.88%

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