Term
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Definition
Strategy, Balanced Scorecard and Strategic Profitability Analysis |
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Term
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Definition
nStrategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives nA thorough understanding of the industry is critical to implementing a successful strategy |
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Term
| Five Aspects of Industry Analysis |
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Definition
1.1.Number and strength of competitors 2.2.Potential entrants to the market 3.3.Availability of equivalent products 4.4.Bargaining power of customers 5.5.Bargaining power of input suppliers |
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Term
| Basic Business Strategies |
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Definition
1.Product Differentiation – an organization’s ability to offer products or services perceived by its customers to be superior and unique relative to the products or services of its competitors nLeads to brand loyalty and the willingness of customers to pay high prices 1.Cost Leadership – an organization’s ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control nLeads to lower selling prices |
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Term
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Definition
nThe balanced scorecard translates an organization’s mission and strategy into a set of performance measures that provides the framework for implementing its strategy nIt is called the balanced scorecard because it balances the use of financial and nonfinancial performance measures to evaluate performance |
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Term
| Balanced Scorecard Perspectives |
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Definition
1.Financial 2.2.Customer 3.3.Internal Business Perspective 4.4.Learning and Growth |
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Term
| The Financial Perspective |
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Definition
Evaluates the profitability of the strategy n Uses the most objective measures in the scorecard n The other three perspectives eventually feed back into this dimension |
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Term
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Definition
| Identifies targeted customer and market segments and measures the company’s success in these segments |
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Term
| The Internal Business Prospective |
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Definition
nFocuses on internal operations that create value for customers that, in turn, furthers the financial perspective by increasing shareholder value nIncludes three subprocesses: 1.1.Innovation 2.2.Operations 3.3.Post-sales service |
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Term
| The Learning and Growth Perspective |
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Definition
nIdentifies the capabilities the organization must excel at to achieve superior internal processes that create value for customers and shareholders |
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Term
Balanced Scorecard Implementation |
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Definition
nMust have commitment and leadership from top management nMust be communicated to all employees |
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Term
| Features of a Good
Balanced Scorecard |
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Definition
nTells the story of a firm’s strategy, articulating a sequence of cause-and-effect relationships: the links among the various perspectives that describe how strategy will be implemented nHelps communicate the strategy to all members of the organization by translating the strategy into a coherent and linked set of understandable and measurable operational targets |
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Term
| Features of a Good
Balanced Scorecard |
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Definition
nMust motivate managers to take actions that eventually result in improvements in financial performance nPredominately applies to for-profit entities, but has some application to not-for-profit entities as well nLimits the number of measures, identifying only the most critical ones nHighlights less-than-optimal tradeoffs that managers may make when they fail to consider operational and financial measures together |
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Term
Balanced Scorecard Implementation Pitfalls |
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Definition
nManagers should not assume the cause-and-effect linkages are precise: they are merely hypotheses nManagers should not seek improvements across all of the measures all of the time nManagers should not use only objective measures: subjective measures are important as well |
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| Balanced Scorecard Implementation Pitfalls |
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Definition
nManagers must include both costs and benefits of initiatives placed in the balanced scorecard: costs are often overlooked nManagers should not ignore nonfinancial measures when evaluating employees nManagers should not use too many measures |
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Term
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Definition
nStrategic Analysis of Operating Income – three parts: 1.Growth Component – measures the change in operating income attributable solely to the change in the quantity of output sold between the current and prior periods 2.Price-Recovery Component – measures the change in operating income attributable solely to changes in prices of inputs and outputs between the current and prior periods nStrategic Analysis of Operating Income 3.Productivity Component – measures the change in costs attributable to a change in the quantity of inputs between the current and prior periods |
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Term
| The Management of Capacity |
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Definition
Managers can reduce capacity-based fixed costs by measuring and managing unused capacity n Unused Capacity is the amount of productive capacity available over and above the productive capacity employed to meet consumer demand in the current period |
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Term
| Analysis of Unused Capacity |
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Definition
Two Important Features: 1.Engineered Costs result from a cause-and-effect relationship between the cost driver and the resources used to produce that output 2. Discretionary Costs have two parts: 1. They arise from periodic (annual) decisions regarding the maximum amount to be incurred 2. They have no measurable cause-and-effect relationship between output and resources used |
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Term
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Definition
nDownsizing (Rightsizing) is an integrated approach of configuring processes, products, and people to match costs to the activities that need to be performed to operate effectively and efficiently in the present and future |
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