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In addition to measuring current performance in financial terms, the Balanced Scorecard evaluates the firm's efforts for future improvement using process, customer, and learning and growth metrics.
The term "scorecard" signifies quantified performance measures and "balanced" signifies that the system is balanced between: As intangible assets constitute an ever-increasing proportion of a company's market value, there is an increase in the need for measures that better report such assets as loyal customers, proprietary processes, and highly-skilled staff.
Consider the case of a company that is not profitable but that has a very large customer base. Such a firm could be an attractive takeover target simply because the acquiring firm wants access to those customers. It is not uncommon for a company to take over a competitor with the plan to discontinue the competing product line and convert the customer base to its own products and services.
The balance sheets of such takeover targets do not reflect the value of the customers who nonetheless are worth something to the acquiring firm. Clearly, additional measures are needed for such intangibles. Scorecard Measures are Limited in Number The Balanced Scorecard is more than a collection of measures used to identify problems.
It is a system that integrates a firm's strategy with a purposely limited number of key metrics. Simply adding new metrics to the financial ones could result in hundreds of measures and would create information overload.
To avoid this problem, the Balanced Scorecard focuses on four major areas of performance and a limited number of metrics within those areas. The objectives within the four perspectives are carefully selected and are firm specific. To avoid information overload, the total number of measures should be limited to somewhere between 15 and 20, or three to four measures for each of the four perspectives.
These measures are selected as the ones deemed to be critical in achieving breakthrough competitive performance; they essentially define what is meant by "performance".
A Chain of Cause-and-Effect Relationships Before the Balanced Scorecard, some companies already used a collection of both financial and non-financial measures of critical performance indicators. However, a well-designed Balanced Scorecard is different from such a system in that the four BSC perspectives form a chain of cause-and-effect relationships.
For example, learning and growth lead to better business processes that result in higher customer loyalty and thus a higher return on capital employed ROCE. Effectively, the cause-and-effect relationships illustrate the hypothesis behind the organization's strategy. The measures reflect a chain of performance drivers that determine the effectiveness of the strategy implementation.
Objectives, Measures, Targets, and Initiatives Within each of the Balanced Scorecard financial, customer, internal process, and learning perspectives, the firm must define the following: Strategic objectives - what the strategy is to achieve in that perspective.
Measures - how progress for that particular objective will be measured. Targets - the target value sought for each measure. Initiatives - what will be done to facilitate the reaching of the target. The following sections provide examples of some objectives and measures for the four perspectives.
Financial Perspective The financial perspective addresses the question of how shareholders view the firm and which financial goals are desired from the shareholder's perspective.(EMS) to define the individual objectives, to grade performance and to give feedback.
At the end of the year, managers use a 5-point scale grading system to evaluate the employees (Table 2 in Appendix). Jul 19, · This philosophy, also referred to as management by objectives, creates personalized, measurable metrics designed to increase employee performance .
Choose the Right Synonym for objective. Adjective. material, physical, corporeal, phenomenal, sensible, objective mean of or belonging to actuality. material implies formation out of tangible matter; used in contrast with spiritual or ideal it may connote the mundane, crass, or grasping.
material values physical applies to what is perceived directly by the senses and may contrast with mental. 9 CRITICAL REASONS TO AUTOMATE PERFORMANCE MANAGEMENT 9. Improve Your Bottom Line Automating your performance management process can provide huge returns for your company, generating thousands of dollars annually through increased employee productivity, improved retention, and compensation optimization.
It was followed up by the 'BAir' to greater acclaim featuring an AMT tweeter. Now Dayton Audio has expanded on the 'Air' series with the release of a tower speaker, . with performance appraisal and characteristics of an effective appraisal system are described next, followed by a discussion of the legal aspects of performance appraisal and the appraisal interview.
This chapter concludes with a global perspective entitled “Two Cultures’ Views of Performance Appraisal.” OBJECTIVE Deﬁne performance.