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Chapter 2

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Greg Clark

BU247 Chapter 2 – The Balanced Scorecard and Strategy Map Week 1 -Companies use performance measurement systems to perform multiple roles: -Communicate the company’s strategic objectives -Motivate employees to help the company achieve its strategic objectives, etc. -Financial reports fail to reflect the changes in value that occur when a company either enhances or destroys the value of its intangible assets -A fundamental principle underlying management accounting is that measurement must support the company’s strategy and operations -The Balanced Scorecard provides a framework that continues to measure financial outcomes but supplements these with nonfinancial measures derived from the company’s strategy The Balanced Scorecard -The Balanced Scorecard measures organizational performance across four different but linked perspectives that are derived from the organizations mission, vision, and strategy -Financial – How is success measured by our shareholders? -Customer – How do we create value for our customers? -Process – At which processes must we excel to meet our customer and shareholder expectation? -Learning & Growth – What employee capabilities, information systems, and organizational capabilities do we need to continually improve our processes and customer relationships? -The financial and customer measures represent the “what” of strategy, that is, what the company wants to accomplish with its two most important external constituents: shareholders and customers -The process perspective describes “how” the strategy will be executed; it identifies the processes that are most important to meet the expectations of shareholders and customers -Measures for learning and growth arise from asking “how”: How will employees obtain the skills and knowledge to be able to improve the quality and cycle times of the company’s production processes? -The learning and growth perspective uses a measure of employees’ capabilities to predict improvements in process quality and cycle times -The Balanced Scorecard perspectives tells the story of the business unit’s strategy Strategy -A strategy accomplishes two principal functions -First, it creates a competitive advantage by positioning the company in its external environment where its internal resources and capabilities deliver something to its customers that is better than or different from its competitors -Second, having a clear strategy provides clear guidance of where internal resources should be allocated and enables all organizational units and employees to make decisions and implement policies that are consistent with achieving and sustaining the company’s competitive essential components -Any good strategy should have two essential components: 1. A clear statement of the company’s advantage in the competitive marketplace, what it does or intends to do differently, better, or uniquely compared to competitors, and 2. The scope for the strategy, where the company intends to compete most aggressively, either for targeted customer segments, technologies employed, geographic locations served, or produce line breadth BU247 Chapter 2 – The Balanced Scorecard and
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