STRATEGY, BALANCED SCORECARD, AND
STRATEGIC PROFITABILITY ANALYSIS
Strategy specifies how an organization matches its own capabilities with the opportunities
in the marketplace to accomplish its objectives.
The five key forces to consider in industry analysis are: (a) competitors, (b) potential
entrants into the market, (c) equivalent products, (d) bargaining power of customers, and (e)
bargaining power of input suppliers.
Two generic strategies are (1) product differentiation, an organization’s ability to offer
products or services perceived by its customers to be superior and unique relative to the products
or services of its competitors and (2) cost leadership, an organization’s ability to achieve lower
costs relative to competitors through productivity and efficiency improvements, elimination of
waste, and tight cost control.
A customer preference map describes how different competitors perform across various
product attributes desired by customers, such as price, quality, customer service and product
Reengineering is the fundamental rethinking and redesign of business processes to
achieve improvements in critical measures of performance such as cost, quality, service, speed,
and customer satisfaction.
The four key perspectives in the balanced scorecard are: (1) Financial perspective—this
perspective evaluates the profitability of the strategy and the creation of shareholder value, (2)
Customer perspective—this perspective identifies the targeted customer and market segments
and measures the company’s success in these segments, (3) Internal business process perspective
—this perspective focuses on internal operations that further both the customer perspective by
creating value for customers and the financial perspective by increasing shareholder value, and
(4) Learning and growth perspective—this perspective identifies the capabilities the organization
must excel at to achieve superior internal processes that create value for customers and
A strategy map
is a diagram that describes how an organization creates value by
connecting strategic objectives in explicit cause-and-effect relationships with each other in the
financial, customer, internal business process, and learning and growth perspectives.
A good balanced scorecard design has several features:
It tells the story of a company’s strategy by articulating a sequence of cause-and-effect
It helps to communicate the strategy to all members of the organization by translating the
strategy into a coherent and linked set of understandable and measurable operational
It places strong emphasis on financial objectives and measures in for-profit companies.
Nonfinancial measures are regarded as part of a program to achieve future financial
It limits the number of measures to only those that are critical to the implementation of