AYB321 – STRATEGIC MANAGEMENT ACCOUNTING
Lecture 7: The Balanced Scorecard
Financial measures on their own are insufficient to guide companies to success.
o They are measures of past strategies – don’t look at future performance
Key factors of future financial success:
o Customer relationships,
o Process improvement and innovation and
o Employee capabilities and motivation
Where financial performance is linked to employees and feedback
Should be systematically measured
Should be included in strategic planning
Financial measures: direct and aggregate.
o Important and useful
o Direct measure of performance
But relying too heavily on financial performance measures can encourage a focus on short-term gains at the
expense of long-term value-creation.
o Fundamental value = NPV of all future cash flows
lost market leads to poor
share and a customer
need to service and
further reduce lack of new
share and funds enhanced
available for customer service
further and flow new
profitability Too much of a focus on long-term value creation can cause short-term liquidity and profitability issues
The traditional financial accounting model, on its own, does not achieve a balance between short- and long-
o What we want for a good – price, service and new products
o Can’t just focus on cos
Shifted from industrial age to information age competition.
o Customers demand more
Traditional balance sheets do not put a reliable value on:
o Process capabilities
o Employee skills & motivation
o Customer loyalty.
Even if we could – AASB does not allow it
BSC attempts to address these issues by using a balanced set of performance measures that
o Link long-term strategy with its short-term actions
o Communicates the long-term strategy to all levels of the firm
Result = 1 page BS with strategic and desired goals to achieve strategy can be easily
Specifically, the BSC:
o Introduces non-financial indicators
o Shows the links among the indicators; and
o Shows the link between the indicators and the firm’s strategy.
Further, the BSC puts it all together on one page
And provides ‘instrumentation for a single strategy’
o Disvisionalised firm – overall strategy e.g. umbrella BSC
o Need BSC for each division per goal – need to support overall strategy
What is the Balanced Scorecard?
BSC translates mission and strategy into objectives and measures, organised into four perspectives:
o Internal business process
o Learning and growth.
o One of the focus areas on the BSC. o K & N BSC in