Key performance indicators, or KPIs, as organized in the balanced scorecard, bring a company's mission statement to life. In this video tutorial, accounting professor Kay Stice explain how KPIs play into a mission statement through the example of an optometrist's office that is facing a lot of competition.
- [Voiceover] In this module, we'll discuss the connection between mission statements and key performance indicators. In brief, the key performance indicators or KPI's as organized in the balanced scorecard are what bring the mission statement to life. To aid in this discussion we will use a hypothetical example of an optometrist office. Now for those of you with perfect eyes, an optometrist is a person who diagnoses, prescribes, sells and fits eyeglasses and contact lenses. So imagine that you are an optometrist with your own practice.
For the past 20 years you've focused almost exclusively on profitability of your practice as your sole performance measure. In fact, you've been quite profitable. However during the past two years a number of new low cost commercial optometrist offices including outlets based in supermarkets have opened in your practice area. In addition some of your customers have discovered, as has my son, that the absolute lowest cost way to buy eye glasses and contact lenses is online. As a result your profitability has decreased to the point where you are barely breaking even.
This profitability problem has caused you to dismiss your two part time employees. The remaining staff are feeling their jobs threatened and are not as patient and helpful with customers as they used to be. Your long time customers are also not as satisfied as they were in the past. They feel rushed because you're trying to see more customers to increase profits and they feel that the office staff are placing more emphasis on financial matters such as quick payment. You've also noticed a substantial decrease in new customers. Well, because of concern for your practice, you have asked a business consultant what you should do.
She has told you that your single minded focus on cost reduction is no different than that of your new commercial competitors. She has convinced you that these competitors will be more successful than you in competing for customers based on price because they have lower cost structures than you do. She has suggested that you consider formulating a mission statement for your practice and then creating some key performance indicators within a balanced scorecard framework. Accordingly you have formulated the following mission statement, "Provide lifetime, high quality eyecare to individuals and families, with an emphasis on courteous, flexible service and respectful disclosure and consultation in terms of options and costs." You've also decided to focus on a set of KPI's based on a balanced scorecard.
Those KPI's include the following two measures, "Percentage of customers who must wait more than 15 minutes after appointment time before seeing the optometrist and average gross revenue per customer visit (including both the fee for the visit and the billing price for the eyeglasses or contacts ordered." So here's a summary, you've been in business for 20 years. You're getting hammered by new low cost competition. Your existing customers are dissatisfied. You're attracting few new customers. Your staff feel threatened and are worried about their jobs.
Your profits are down. You and a consultant have created a mission statement and you have developed some key performance indicators or KPI's. What we will do now is to discuss the mission statements and mission statements in general and then determine whether your new KPI's are consistent with your new mission statement.
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