Accounting professor Kay Stice offers an overview of the balanced scorecard. In this video tutorial he structures the Balanced Scorecard as four main key performance indicators (KPIs): financial, customers, internal processes, and employee learning or growth.
- The balanced scorecard is a framework for organizing a company's key performance indicators, the KPIs. Now one way to structure the balanced scorecard is to organize the KPIs into four areas: Financial, customers, internal processes, and learning or growth, or employees. Now, please realize that the idea of the balanced scorecard is what's important here. These four categories are not official. They're not mandated. They're not required. This is just one way to structure an organization's KPIs. The balanced scorecard idea is that a company should organize its KPIs into logical categories.
For illustration purposes, we'll use the traditional four categories of financial, customers, internal processes, and learning growth, or employees. Now financial measures are the ones on which accounting has traditionally been focused. Return on equity, bottom-line net income, debt ratio, and so forth. We've got entire courses on financial statement analysis, financial ratios, and financially-focused performance measures. So accountants have got this financial area covered. The power of the balanced scorecard is to remind everyone in the organization that financial measures are not the only measures that should be tracked, talked about, and used in performance evaluation.
The customer area includes measures, or numbers, that reflect the health of a company's relationship with its customers. Now here we're not talking about general thinking about the customers. Instead we are talking about numbers. Such as customer satisfaction ratings. Now, customer satisfaction ratings have not traditionally been considered to be part of accounting. But the power of the balanced scorecard is to remind a company that in addition to reflecting a company's financial performance, numbers can also nicely reflect the health of other aspects of the business.
The internal processes measures are summary numbers reflecting how well the actual business is functioning. An internal processes measure for an eyeglasses store, for example, would be the daily number of eyeglasses returned to the technicians because the glasses are broken, don't fit the prescription, or are not what the customer ordered. The learning and growth measures might be better labeled employee measures. An example is a measure of employee satisfaction. A number reflecting how satisfied employees are with the work environment, their pay, their coworkers, their bosses, and so forth.
In most businesses if the employees are satisfied and enthusiastic, everything works better. Now let's stop and see the impact of the balanced scorecard. This balanced scorecard idea has now got accountants thinking about measuring employee satisfaction. Now of course in the end, all of this focus on customer measures and internal processes measures and employee measures will aid the company in improving its financial performance.
In this course, accounting professors Jim and Kay Stice explain what KPIs your business should consider in a balanced scorecard, from financial goals to employee and customer satisfaction. They describe how to craft a clear mission statement that complements your KPIs, and how to tie performance to incentives. Plus, get a look at KPIs in action, as Jim and Kay break down a case study examining a trucking company's balanced scorecard.
- The importance of KPIs and measuring performance
- Financial goals and measure
- Customer needs and satisfaction
- Employee growth
- Creating an effective mission statement
- Linking measurements and rewards
- Examining a KPI case study