Robert S. Kaplan

Linking the Balanced Scorecard to Strategy

The Balanced Scorecard was developed to measure both current operating performance and the drivers of future performance. Many managers believe they are using a Balanced Scorecard when they supplement traditional financial measures with generic, non-financial measures about customers, processes, and employees. But the best Balanced Scorecards are more than ad hoc collections of financial and non-financial measures. The objectives and measures on a Balanced Scorecard should be derived from the business units strategy. A scorecard should contain outcome measures and the performance drivers of those outcomes, linked together in causeand-effect relationships.

Measuring manufacturing performance: a new challenge for managerial accounting research

Problems with the performance of U.S. manufacturing firms have become obvious in recent years. Japanese and Western European manufacturers are able to produce higher quality goods with fewer workers and lower inventory levels than comparable U.S. firms. The ability of foreign firms to become more efficient producers has gone largely unnoticed in the education and research programs of many U.S. business schools. A much greater commitment to understanding the factors critical to the success of manufacturing firms is needed. While an understanding of the determinants for successful manufacturing performance will require contributions from many disciplines, accounting can play a critical role in this effort. Accounting researchers can attempt to develop non-financial measures of manufacturing performance, such as productivity, quality, and inventory costs. Measures of product leadership, manufacturing flexibility, and delivery performance could be developed for firms bringing new products to the marketplace. Expanded performance measures are also necessary for capital budgeting procedures and to monitor production using the new technology of flexible manufacturing systems. A particular challenge is to de-emphasize the current focus of senior managers on simple, aggregate, short-term financial measures and to develop indicators that are more consistent with long-term competitiveness and profitability.

The evolution of management accounting

This paper surveys the development of cost accounting and managerial control practices and assesses their relevance to the changing nature of industrial competition in the 1980s. The paper starts with a review of cost accounting developments from 1850 through 1915, including the demands imposed by the origin of the railroad and steel enterprises and the subsequent activity from the scientific management movement. The DuPont Corporation (1903) and the reorganization of General Motors (1920) provided the opportunity for major innovations in the management control of decentralized operations, including the ROI criterion for evaluation of performance and formal budgeting and incentive plans. More recent developments have included discounted cash flow analysis and the application of management science and multiperson decision theory models. The cost accounting and management control procedures developed more than 60 years ago for the mass production of standard products with high direct labor content may no longer be appropriate for the planning and control decisions of contemporary organizations. Also, problems with using profits as the prime criterion for motivating and evaluating short-term performance are becoming apparent. This paper advocates a return to field-based research to discover the innovative practices being introduced by organizations successfully adapting to the new organization and technology of manufacturing.

The role for empirical research in management accounting

Abstract The dominant research methods in management accounting are a priori reasoning, deductive analysis from well-specified models, and controlled laboratory experiments. None of these methods puts researchers in the field attempting to understand how accounting information is developed or used in actual organizations. As a consequence, the vast majority of management accounting research papers are neither informed by data nor tested on data. A review of the literature on the process of scientific inquiry reveals that observation and description must be the starting points for scientific research. Observations are the building blocks for subsequent scientific activities, such as classification, measurement and theory building. Observations are also necessary for testing the generalizability and limits of any theory. Cost accounting and management control procedures function in complex organizational settings. Any empirical research method would need to capture this complexity. Field research methods, including case studies, field studies and field experiments or process tracing studies, provide an opportunity to study management accounting systems in their organizational context. Initially, case studies can provide the basis for a taxonomy of cost accounting and management control practices. Subsequently, field studies and process-tracing studies can lead to a more informed basis for modeling, theory-building, and hypothesis-formation activities, activities that today occur in the absence of data and observations. Finally, these empirical studies can be used to test the validity and limits of our theories. In a theory testing mode, empirical studies can not only test predictions on the existence of certain practices but also to confirm “how” and “why” these practices, or have not, been implemented. Therefore, empirical research methods provide a rich, but virtually untapped, research method for the study of management accounting phenomena.

Natural selection of life history attributes: An analytical approach

Abstract The life history attributes which maximize fitness can be established analytically through Fishers equation for reproductive value. Maximizing the reproductive value at age zero is equivalent to maximizing the ultimate rate of increase. As an example of the usefulness of this equality it is shown that when survivorship is uniformly reduced, the corresponding optimal maternal frequency is unaltered, even though the ultimate rate of increase is lowered by a known amount. A general life history model is proposed which links these demographic determinants of rate of increase with the energy utilization alternatives (as among maintenance, growth, and reproduction) characterizing an individual organisms development. Since the energy partitioning alternatives at any age may depend on previous allocations, an organism state variable is introduced to describe the domain over which the maximization of reproductive value may take place. Further, if the reproductive value is to be a maximum at age zero, it must be maximized at every age. An optimal life history, then, is characterized by the energy allocations which maximize sequential reproductive values. Further examples of the utility of the model focus on growth vs reproduction decisions under biomass specific life history attributes. It is shown that if births per unit energy is a linear or convex function, then an organism will not simultaneously grow and reproduce. Determinant growth, biomass at first reproduction, and explicit calculation of the maximum ultimate rate of increase are also illustrated.

The Strategy Map: Guide to Aligning Intangible Assets

Advice to senior management on how to use the balanced scorecard measurement system and the strategy map, a visual representation of the components of an organization’s strategy to leverage a corporation’s intangible assets. These include human capital; databases and information systems; responsive, high‐quality processes; customer relationships and brands; innovation capabilities; and culture. The author’s hypothesis: because an organization’s intangible assets may easily represent more than 75 percent of its value, then its strategy formulation and execution need to explicitly address their mobilization and alignment. The balanced scorecard tool and strategy map offer a framework to measure intangible assets and to describe strategies as a series of cause‐and‐effect linkages among objectives. They provide a language that executive teams can use to discuss the direction and priorities of their enterprises. This article also presents a case study of Crown Castle International, Inc.

The balanced scorecard

Los autores Robert S. Kaplan y David P. Norton, proponen a los directivos empresariales de cualquier tipo de organización, la utilización de esta teoría de vanguardia, ya comprobada a nivel mundial, que denominan “The Balanced Scorecard” para lograr que la organización en cuestión pueda motivar a su personal y alcanzar los objetivos de la misión empresarial, no siendo solamente un sistema de medición que canaliza aspectos sinergéticos, habilidades gerenciales y conocimiento puntual dirigido a alcanzar las metas fijadas a largo plazo.

Applying the Balanced Scorecard in Healthcare Provider Organizations

EXECUTIVE SUMMARY Several innovative healthcare executives have recently introduced a new business strategy implementation tool: the Balanced Scorecard. The scorecards measurement and management system provides the following potential benefits to healthcare organizations: It aligns the organization around a more market‐oriented, customer‐focused strategy It facilitates, monitors, and assesses the implementation of the strategy It provides a communication and collaboration mechanism It assigns accountability for performance at all levels of the organization It provides continual feedback on the strategy and promotes adjustments to marketplace and regulatory changes We surveyed executives in nine provider organizations that were implementing the Balanced Scorecard. We asked about the following issues relating to its implementation and effect: The role of the Balanced Scorecard in relation to a well‐defined vision, mission, and strategy The motivation for adopting the Balanced Scorecard The difference between the Balanced Scorecard and other measurement systems The process followed to develop and implement the Balanced Scorecard The challenges and barriers during the development and implementation process The benefits gained by the organization from adoption and use The executives reported that the Balanced Scorecard strategy implementation and performance management tool could be successfully applied in the healthcare sector, enabling organizations to improve their competitive market positioning, financial results, and customer satisfaction. This article concludes with guidelines for other healthcare provider organizations to capture the benefits of the Balanced Scorecard performance management system.

Accounting Lag: The Obsolescence of Cost Accounting Systems

Contemporary changes in the organization and technology of manufacturing operations have caused the traditional, direct-labor focused, cost accounting system to be a less useful summary of a companys manufacturing operations. A select set of manufacturing firms, leaders in both high-technology growth industries and highly efficient innovative producers in mature industries, were visited in order to learn what changes were being made in their accounting, measurement, and control systems to support the current emphasis on new product and manufacturing technologies. While each firm was making significant changes in its manufacturing processes, comparable changes were not occurring in its accounting and control systems—except, perhaps, on a preliminary and experimental basis. This article concludes with some conjectures as to why the pace of innovation in management accounting systems is lagging behind the rate of change in the organization and technology of manufacturing operations.

How the balanced scorecard complements the McKinsey 7‐S model

– This article shows how the McKinsey 7‐S model and the balanced scorecard (BSC) model complement each other., – The developer of the widely used BSC model analyzes and compares the features and functions of the two models., – One can view the BSC as the contemporary manifestation of the 7‐S model, helping to explain its popularity as a practical and effective tool for aligning all the organizational variables and processes that lead to successful strategy execution., – There is no data on the financial impact of the BSC mdel on the companies that have adopted it., – The author suggests that the BSC is not only fully consistent with the 7‐S framework, but can also enhance it in use., – This the first article to compare the characteristics and functionality of the McKinsey 7‐S model and the BSC model.