Chapter 12, Problem 12.1Q

To determine

Introduction: A balanced scorecard is a report card used to assess a firm's overall performance as well as individual value-adding activities. A balanced scorecard provides a comprehensive analysis of both financial and non-financial factors. This aids in gaining a complete understanding of the organization's progress and how far it has progressed toward its overall objectives.

To discuss: The four categories of measure in a balanced scorecard.

Answer to Problem 12.1Q

A balanced scorecard has four perspectives which are as follows:

• Financial perspective: The financial perspective aims at increasing revenue, increasing profitability, decreasing operating costs, and decreasing the liability of the company.
• Customer perspective: The customer perspective evaluates the organization from the perspective of those individuals who purchase the products or services of the organization.
• Internal process perspective: The internal process perspective evaluates the internal working cycles of the company which leads to its success or progress.
• Learning and growth perspective: The learning and growth perspective evaluates the organization based on employee development and employee retention.

Explanation of Solution

The four perspectives of the balanced scorecard are as follows:

• Financial perspectives: Under financial perspectives, financial performance measures are taken into consideration. Financial performance measures such as return on assets, credit rating, net income, share prices, cash flow, and others are used for analyzing and comparing companies. In deciding whether to invest money in the company, investors depend heavily on financial performance measures.
• Customer perspective: It measures the level of customer satisfaction, customer loyalty, customer retention, and the market share held by the organization through cost, time, quality, and services. This perspective analyzes the organization to rivals regarding price, quality, product innovation, customer service, and other dimensions.
• Internal process perspective: This comprises measures such as cost and quality related to business processes such as process bottlenecks, process automation, and the number of activities per person. To ensure that the company is operating effectively and efficiently, all basic aspects of the value chain such as product development, production, delivery, and after-sale service are evaluated.
• Learning and growth perspective: The learning and growth perspective focuses on the capabilities of individuals. The manager of the company would be liable for developing the employee's capabilities. This would incorporate the assessment of employee satisfaction, employee skills, training programs, and information dissemination.