Class 2 MBA 625

Class 2 MBA 625

Balanced Score Card and Transworld Auto Parts (A) Balanced scorecard Class Structure for today Quick lecture Break Case questions Transworld Auto Parts (B)

Balanced scorecard and strategy maps Transworld Auto Parts Case analysis The triumvirate of financial reporting P&L Statements: reports over a specified

timeframe how much money you have earned (revenue), how much you have spent (expenses) and the difference between the two (profit/loss) Cash flow statements: whether the business has enough cash at a certain date to pay its current liabilities (the bills it needs to pay now or very shortly)

Balance sheet: overall status of your finances at a certain date; totals all your assets and subtracts your liabilities to compute your overall net worth. Why isnt this enough to guide organizations? What is a Balanced Score

Card A set of measures that gives top managers a fast but comprehensive view of the business. Includes financial measures that tell the results of actions already taken. Complements the financial measures with operational measures on customer satisfaction,

internal processes, and the organizations innovation and improvement activities It should be able to tell the story of the business units strategy. Focus the BSC answersof to four

basic interrelated It provides questions: How do customers see us? (customer perspective) What must we excel at? (internal business perspective)

Can we continue to improve and create value? (innovation and learning perspective) How do we look to shareholders? (financial perspective) How should measures be developed? BSC links goals with performance measures

Advantages of the BSC Forces managers to focus on the handful of measures that are most critical. Forces senior managers to consider all the important operational measures together, to see whether improvement in one area may have been achieved at the expense of another.

Forces managers to translate general mission statements on customer service into specific measures that reflect time, quality, performance, service and cost. Constraints of BSC BSC has its greatest impact when used to drive a change process. The relationship between process and output could become strained if one is emphasized

The BSC should be the core of the management system and not the management system Strategy Map The strategy map is a visual framework for integrating a firms objectives. Provides the cause-and-effect relationship that link intangible capabilities with process,

financial and customer outputs. In some ways it is an answer for where we want to go; combined with the BSC which taps into how we will get there the combination provides organizations a tool for strategy execution. Strategy Map Mostly organized on the following four

parameters: Learning growth and innovation Process improvement Customer satisfaction and loyalty Revenue growth and cost management A simple template for a strategy map Building the strategy map Detailed enough yet clear

Strategy maps show cause-and-effect links between specific improvements and desired outcomes Cascading goals and objectives. Difficult part of process: state objective, measurement, target, specific action & initiative

http://www.thepalladiumgroup.com/ KnowledgeObjectRepository/Sample%20Strategy %20Maps.pdf How do BSC and strategy map relate? BSC , org. designs, org.types Is the BSC suitable for the major types of

organizational structures that we are familiar with? Are there certain types of organizations that BSC would work better for? Disadvantages/critique of the BSC Critique of Balanced scorecard

Few empirical studies linking the use of Balanced Scorecards to better decision making or improved financial performance of companies A common use of Balanced Scorecard is to link to individual incentives but not designed for

this purpose nor is particularly suited to it! The balanced scorecard is not a template that can be applied to businesses in general or even industrywide. More Critiques of the BSC It is most suitable for firms which have a long lead time between management action and

financial benefit. It will be less suitable for firms with a shortterm focus. Many companies use metrics that are not applicable to their own situation The scorecard does not translate easily to the investment community. A scorecard makes sense primarily for business units and divisions

with a well-defined strategy. Other Metrics and Fit KPI- Key Performance Indicators: these are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They will differ depending on the organization. Benchmarking: it is the process of comparing one's business

processes and performance metrics to industry bests or best practices from other industries. Service-profit chain: establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity.

Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers. Central idea behind

performance metrics The importance of measuring the right stuff Understanding the core objectives of the organization/B.U. Understanding the strategic orientation and what needs to be done to get there.

The right metrics would differ by organizational size, strategy, stage of development and industry. Break! Back in 15. Transworld Autoparts What are the respective business strategies of

Transworld Auto Parts economy and luxury divisions? What must each division do well to execute its strategy? Which division performed better? Kwon(Economy) or Eckhardt (Luxury)? Which division manager developed a better strategy map and balanced scorecard? Transworld Auto Parts B

Evaluate Eckhards performance using the strategy map and BSC in the B case (Class)

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