Balanced Scorecard
During this activity, you learn what a balanced scorecard is, the information it provides, and how to best utilize this information. After viewing an example, you will have an opportunity to practice identifying gaps. For your graded assignment, you will identify gaps and make appropriate recommendations.
What is a balanced scorecard?
At its core, the balanced scorecard is a tool an organization can use to measure its performance. Unlike other tools that may focus just on financial measures, for example, the balanced scorecard takes many segments of the organization into account. This creates a more holistic view of the organization’s performance without focusing too heavily on any one set of controls. The balanced scorecard generally looks at four aspects of company performance: financial, customer, internal processes, and people/innovation/growth assets. When using a balanced scorecard, a manager will set goals in each of these four areas and measure the organization’s process against these goals.
Worked Example
Now that you know what a balanced scorecard is, study the following example to learn how you can use it to identify gaps and develop recommendations to address those gaps.
The balanced scorecard shown is for Palmer Pickles, a medium-sized, family owned organization located in Nashville, TN that creates, packages, and sells gourmet, artisanal pickles. The Palmer family controls the management of the company and makes all major decisions for the organization. The organization buys cucumbers from local farms and pays a freight company to ship them to the Palmer Pickles manufacturing, packaging, and warehouse facility. Once the pickles arrive at the facility, they are brined in large wooden barrels for a certain length of time in different spices and solutions. Once the brining is complete, the pickles are moved to glass bottles which are sealed, labeled, packaged, and shipped out to customers, who are made up of specialty grocery stores and independent restaurants. The company also sells its pickles at several farmers’ markets local to its area. The workforce at the facility is around 100 employees, and many of them have been with the company since it started in 1994. Currently, the Palmer family is thinking of expansion, since they recently signed a contract with a national grocery retailer to carry their products.
Aspect of Company Performance Factors to be Considered Organizational Goal (per quarter) Actual Performance (most recent quarter)
Financial Quarterly Profit Results
Inventory Turnover (rate of product manufactured in that quarter sold within 1-2 months) $20,000
90% $25,000
110%
Customer Customer Satisfaction Rate
Customer Recommendation Rate (rate of new business generated by recommendations from existing customers) 95%
40% 80%
45%
Internal Processes Duplicate Activities Across Functions (percent of the activities completed that are duplicated in another function)
Process Automation (percent of the processes employed in production activities that are automated) 5%
50% 10%
48%
People/Innovation/Growth Assets Employee Turnover
Employee Job Satisfaction 10%
95% 15%
90%
Gaps Between Organizational Goals and Actual Organizational Performance
Aspect of Company Performance Factors to be Considered Organizational Goal (per quarter) Actual Performance (most recent quarter) GAPS
Financial Quarterly Profit Results
Inventory Turnover (rate of product manufactured in that quarter sold within 1-2 months) $20,000
90% $25,000
110% Quarterly profits were higher than anticipated ($25,000 versus $20,000), as was inventory turnover rate (110% versus 90%).
Recommendations based on identified Gaps: Financial
Profits were higher than anticipated, as was inventory turnover. This was tied to the findings that inventory from the current quarter was all sold, and due to the surge in popularity for the company’s products, inventory left over from last quarter was sold to customers as well. Given the recent contract, the company will probably need to expand its production and warehousing capacity to make enough pickles to satisfy future demand
Aspect of Company Performance Factors to be Considered Organizational Goal (per quarter) Actual Performance (most recent quarter) GAPS
Customer Customer Satisfaction Rate
Customer Recommendation Rate (rate of new business generated by recommendations from existing customers) 95%
40% 80%
45% Customer satisfaction was lower than expected (80% versus 95%), while customer recommendation rates were higher (45% versus 40%).
Recommendations based on identified Gaps: Customer
Actual customer satisfaction was much lower than the goal, and this may be due to Palmer Pickles being oversold on products, so all customer orders could not be accommodated. However, recommendation rates were higher than expected, so the product still seems to be viewed as high quality and worthy of recommendation. Palmer Pickles will need to make sure that once production scales up, quality is not lost. Since the company currently outsources its freight function and distribution needs will grow as a result of the grocery contract, the profitability of acquiring its own freight and distribution division should also be assessed.
Aspect of Company Performance Factors to be Considered Organizational Goal (per quarter) Actual Performance (most recent quarter) GAPS
Internal Processes Duplicate Activities Across Functions (percent of the activities completed that are duplicated in another function)
Process Automation (percent of the processes employed in production activities that are automated) 5%
50% 10%
48% Duplicate activities across functions were higher than the goal (10% versus 5), while process automation was just a bit lower (48% versus 50%).
Recommendations based on identified Gaps: Internal Processes
Based upon the internal process findings, it seems the company is not as efficient as it could be in its manufacturing. Since most of the duplication seems to exist in the process of brining and then bottling, a suggestion has been made to study this process again, to see if the pickles could be brined within the smaller glass bottles as opposed to barrels without losing quality.
People
Innovation
Growth Assets Employee Turnover
Employee Job Satisfaction 10%
95% 15%
90% Employee turnover was higher than anticipated (15% versus 10%), while job satisfaction was lower (90% versus 95%).
Recommendations based on identified Gaps: People/Innovation/Growth Assets
Since employee turnover was higher than expected and job satisfaction was lower, it seems as though employees are dissatisfied with some factors within the company, and this needs to be studied. Since these measures are tied to so many different contingencies within the company, a focus group to study these measures further has been recommended.
