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05 Balanced_Scorecards - 05 BalancedScorecard...

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Performance Measurement Performance Measurement -- Balanced Scorecard -- Balanced Scorecard Accountancy 301 Spring 2011 Flora Zhou 05
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Today Today ’s agenda ’s agenda • Performance measures – Financial performance measures – Non-financial performance measures • Basics of BSC • A critical view of BSC
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Financial performance measures  Financial performance measures  • Financial performance measures are traditional  measures based on financial statements • Examples of financial performance measures? • Core financial measures
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Financial performance measures  Financial performance measures  • Financial measures reflect outcomes of past  actions and do not necessarily predict future  outcome well – Financial measures are  lag indicators – Exclusively relying on financial measures can make  managers to focus on short-term profitability and  sacrifice long-term growth, e.g., • Companies can save on R&D, process  improvement, information technology and employee  training to improve  current  financial performance  at the expense of  future  growth
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Non-financial performance  Non-financial performance  measures  measures  • Non-financial performance measures are measures  not based on financial statements • Non-financial measures are  lead indicators   of  future financial performance – High customer satisfaction leads to customer loyalty  and future sales • Examples of non-financial measures?
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Non-financial performance  Non-financial performance  measures  measures  • Advantages to non-financial performance  measures – Non-financial measures can be used to communicate  objectives and long-term strategy. – Non-financial measures can be better indicators of  future financial performance.  (e.g. interim research  results or customer indices may offer better  information for future cash flows.) – Non-financial measures provide indirect, quantitative  indicators of intangible assets. – Many non-financial measures are less susceptible to  external noise than financial measures. Use of non- financial measures may improve managers’  performance by providing more accurate evaluation of  their actions.
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Importance of intangible assets Importance of intangible assets The Source of Value Has Shifted From Tangible to Intangible Assets Intangible  Assets Tangible  Assets 38% 62% 85% 38% 15% 62% 1982 1992 1 2000 2 percentage of market value related to… 1. Brookings Institute 2. Baruch Lev analysis of S&P500 companies
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The original rationale for BSC The original rationale for BSC • Original rationale for the balanced scorecard was as  performance measurement  system • Stems from the often correct belief that financial  measures of performance are not, by themselves, 
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