Chapter 20 - Strategy, Balanced Scorecards, and Incentive Systems
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Transcript Chapter 20 - Strategy, Balanced Scorecards, and Incentive Systems
Strategy,
Balanced Scorecards
and Incentive Systems
Chapter 20
Balanced scorecard
Performance guidance and evaluation
system
Depicts the causal factors of success
Balance between
Financial and non-financial measures
Leading and lagging indicators
Long-term success and short-term results
Balanced scorecard
Four perspectives
Financial
Customer
Internal processes
Innovation and learning
Inter-related
Understanding the relationships leads to
improved operations and financial position
Balanced scorecard
development
Decide where you want to go
Strategy
Determine how to get there
Critical success factors
Activities
Determine how to measure your progress
Measurements
Targets
Balanced scorecard
development
Strategy
Critical
success
factors
Activities
Measures
Targets
Strategy map
Flowchart depicting the relationships between
the four perspectives
Balanced scorecard
development
Critical success factors
What must you do well to succeed?
What will cause you to fail if you do not do it
well?
Ex. On-time delivery for Fedex
Activities
More specific
Must be performed to achieve CSFs
Balanced scorecard
development
Measures
Leading
Provide guidance
Lagging
Provide feedback
All measures are lagging, not all are leading
Targets
Challenging, yet attainable
Incentive systems
$ Motivate desired actions and performance
$ Assumes
$ Desired performance can be identified
$ Performance can be measured
$ Compensation can be based on performance
$ Form of compensation is motivational
$ Financial
$ Non-financial
Incentive systems
$ Not as easy as it sounds
$ What is the “right thing” to do?
$ Efficiency vs. effectiveness
$ The results of the “right thing” may not be
apparent for years
$ The “right thing” may conflict with personal
interests
Incentive systems
$ How much of the “right thing” is enough?
$ Challenging but not impossible targets
$ Individual must have control over items that
trigger the rewards
$ Measurements must be observable, verifiable
and appropriatte
$ Not subject to manipulation
$ Deepwater Horizons
$ Cost-benefit must be considered
Incentive systems
$ Absolute or relative performance?
$ Compared to target or to peers?
$ Absolute may be possible for some, impossible for
others
$ Relative may reward inadequate performance
$ Objective or subjective measures?
$ Objective may not consider the whole picture
$ Subjective may lead to confusion, resentment
Incentive systems
$ Current rewards?
$ Immediate gratification
$ Ignores future performance in favor of current
results
$ Deferred rewards?
$ Less motivational
$ Focuses on long-term performance
$ May motivate managers to stay
Incentive systems
$ Form of compensation?
$ All salary
$ May increase or reduce risk-taking
$ Stock
$ Aligns performance with best interest of investors
$ May result in stock price manipulation
$ Bonuses (financial or non-financial)
$ May “cap” performance once target is reached
Incentive systems
$ Ethical considerations
$ Which stakeholders to consider
$ May motivate enrichment of stockholders,
management, at the expense of employees,
community, environment, etc.
$ Poorly designed incentive system may lead to
dysfunctional behavior
$ Manipulation for personal gain
$ Short-term results overshadow long-term
sustainability