Scoreboard frameworks

New management accounting

MA developed in shadow of FA for decades

By early 1980s MA was largely moribund

Perceived as lacking much relevance

The opportunity to rejuvenate now existed

A new commercial environment

•          the rise of the customer

•          the search for competitive advantage

New foci, new techniques, new numbers

Recognition financial numbers inadequate

Cost and value calculus irrelevant

Still need to ‘count’ but not account?

Exclusivity now became challenged

Interdisciplinary collaborations necessary

And suddenly it got interesting again

Balanced scorecard

Developed by Kaplan and Norton 1991

Two short HBR articles in 1992 and 1993

Kaplan previously advocated ABC/M

BS clearly not another new technique

A new framework for internal reporting

Vehicle for reporting NMA information

With possible promise for external reporting

Offers comprehensive view of performance

•          holistic

•          many ways of seeing

Incorporates a combination of

•          financial measures

•          non-financial measures

•          operational indicators

‘Balance’ concept sometimes misunderstood

Multi-perspective approach to reporting

•          the numbers are not meant to ‘balance’!

Still almost exclusively quantitative

No obvious place for narrative information

More rather than less numbers

•          the charge of information overload

A new perspective on control

Financial measures promote control

Traditional top down, management control

By contrast balanced scorecard emphasises

•          strategy

•          vision

“Measures designed to pull people toward

the [organisation’s] overall vision

A more strategic approach to accounting

Perspectives

BS constituted by four generic perspectives

•          financial

•          customer

•          internal business performance

•          innovation and learning

No one perspective is to be privileged

Further/alternative perspectives possible

Goals and measures

Each perspective to incorporate these

Goals and measures must be aligned

Linking strategy and action

Goals = critical success factors

Measures = key performance indicators

An element of process is implicit

The key questions

Each perspective has a relevant question:

•          how do our customers see us?

•          what must we excel at?

•          can we continue to improve/add value?

•          how do we look to shareholders?

The iconic diagrammatic representation

•          four spaces to be populated with metrics

Continuing development

Balanced scorecard concept soon evolved

Principally in a series of

•          ‘popular’ monographs

•          Harvard Business Review articles

Continued engagement with strategy

Less emphasis on measurement aspects

Pushes the boundaries of MA function

Take 2.1

Initial reformulation occurs in 1996

Becomes grander and more sophisticated

Strong links with the strategy theme

The ‘cornerstone’ of strategic management

Balanced scorecard links

•          long term strategy

•          short term action

Take 2.2

Several interesting refinements evident

•          learning and growth perspective

•          modified descriptors

•          targets and initiatives incorporated

•          vision and strategy at core

Embrace BS and become strategy focused!

Take 2 3

Balanced scorecard now defined as

A systematic performance measurement

system that translates an organization’s

strategy into clear objectives, measures,

targets and initiatives organized by four

perspectives’.

New iconic representations provided

Take 2 4

Enrols a largely traditional view of strategy

•          translating the vision

•          communication and linking

•          business planning

•          feedback and learning

BS provides necessary enabling mechanism

Identifies a major role for MA profession

Cause and effect relationship

Only mentioned briefly in passing in 1996

Soon to assume a core significance

A causal chain linking the perspectives

Tells story about a business unit’s strategy

•          a logical relationship asserted

•          a sequence of if-then statements

Definitely no longer 4 spaces to populate

Causal chain runs from bottom to top

•          employee skills (L&G)

•          process quality/cycle time (IBP)

•          on-time delivery/customer loyalty (C)

•          return on capital employed (F)

Emphasis on a bottom up logic

•          on the creation and delivery of value

Lead and lag indicators

A further dimension of the BS concept

Distinguish between two types of indicators

Lead – prospective – customer, IBP, L&G

Lag – historical - financial

Need to incorporate both in scorecard

An alternative to traditional budgeting

‘Beyond budgeting’ resonances

Strategy maps

A third iteration sees SM concept emerge

Much fuller exploration of cause and effect

•          how to create and deliver value

•          (customer) value proposition

•          if successful, shareholder value created

Emphasis on the role of intangibles

And the necessity for effective alignment

Incorporate refined strategy thinking

Identify importance of measurement

•          as part of a couple

•          “balanced scorecard strategy map”

Not yet fully embedded in the literature

Overly complex for many managers?

And for too many management accountants

Intellectual capital

A new focus emerging in early/mid 1990s

The growing importance of ‘intangibles’

•          escalating market/book value ratios

•          challenge to working of capital market

•          need to take into account

Financial valuations inherently difficult

The necessity to look to the NMA

An initial focus was to identify different types

Agreement on a simple typology

•          human capital

•          relational capital (customer capital)

•          structural capital (organisational capital)

But not intellectual property – quite distinct

Further types identified – cultural capital

Measure and report IC growth

A number of IC scoreboards developed

•          Skandia Navigator

•          Intangible Assets Monitor

•          Cockpit Communicator

•          Value Chain Scoreboard

All strongly resemble balanced scorecard