Creating a Balanced Scorecard - (e Chapter 2)

Sound strategy helps to create a position of sustainable competitive advantage in the market place – which should result in superior performance.

1. What are the 3 aspects of performance which are important to consider – from a strategic point of view.
ð Note: Strategy should be assessed by a balance of both customary financial and emerging nonfinancial measures.
ð Economic Profit: the residual income above and beyond normal profit that accrues to owners, deriving from eh prowess of management in planning, supervision and control.
ð Residual income associated with economic profit occurs when a company’s return on equity (ROE) is greater than its cost of equity capital.
ð Normal Profit: may be viewed as the minimum return earned by a company that is necessary y to attract and secure the owners inputs.

2. ROE [Profitability, asset productivity & financial leverage].
3. Why is revenue growth such an important financial indicator for CEOs & Strategists?
4.
ð Revenue growth often occurs at the expense of growth in profitability, since the factors that generally drive up sales (marketing, advertising, investment in product development and sales forces), often add expenses which diminish the bottom line.
ð Common Stock Returns: take into account both the dividends paid by a company to its shareholders as well as increases in prices of shares
ð Market Capitalization: defined as the market value of outstanding shares of stock – also depends on stock price and characterizes the total value of the company.
ð Quantitative & Qualitative Performance – is the key outcome of interest for those studying strategy and managing strategy.
What are the 3 key dimensions of performance which we can use to develop balanced scorecards?
1. Summary measures that reflect the impact of integrated efforts across the entire company
2. Measures that can be compare to competitors
3. Measures that account for longer periods of time.
The current school of thought indicates that companies would be best served by focusing not just on the returns to shareholders but also by paying attention to the needs and requirements of important stakeholders as well. This approach can help create profitable new growth opportunities and strengthen existing franchises.