In this course, you will explore how to use accounting to allocate resources and incentivize manager and employee behaviors in using these resources. You will also learn how financial and non-financial accounting information facilitates strategic performance measurement and how to integrate this information to continuously improve strategy. Upon successful completion of this course, you will be able to: • Understand the role of managerial accounting information in common business decisions • Differentiate relevant and irrelevant information • Avoid common pitfalls in business decisions • Prepare a master budget and its key components • Describe the iterative and interrelated nature of budgeting • Evaluate capital investments via a variety of measures • Understand how upper management uses variance analysis • Calculate, interpret, and investigate variances • Understand decentralization and its advantages and disadvantages • Compute and interpret financial performance measures • Communicate the role of non-financial measures and strategic performance measurement systems • Identify issues associated with performance measurement and incentives • Understand the nature and role of subjective performance evaluation This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.
Strategic Performance Measurement Systems
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Managerial Accounting: Tools for Facilitating and Guiding Business Decisions
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从本节课中
Performance Measurement and Evaluation
Accountants help implement, communicate, and evolve organizational strategy via the information they provide to owners, managers, and employees. Specifically, they help plan, monitor, and control decisions via the performance measurement, evaluation, and compensation system. In this module, you will explore many aspects of this important system, including decentralization, financial and non-financial performance measurement, strategic performance measurement systems, and subjective performance evaluation.
与讲师见面
Gary Hecht, Ph.D.Associate Professor of Accountancy
Department of Accountancy, College of Business
>> Now we're going to talk about systems that firms use
to incorporate and connect nonfinancial performance
measures and financial performance measures.
Generically, these systems are referred
to as strategic performance measurement system.
So what is this really?
Well, it's a model or a framework that the firm uses
that explicitly strategy to the related performance measure.
In other words, it's a map.
The purpose of a strategic performance measurement system
is usually threefold.
First, it communicates strategy to the managers
and employees throughout the firm.
Second, it enables and evaluation of strategy.
It lets the firm know whether
or not the strategy being implemented is being effective.
And this, ultimately allows for the strategy to he evolve
over time, for the firm to improve
or change its strategy in the future.
Now there are many different types
of strategic performance measurement systems.
This comes from practitioner reading and consultants.
One very famous type is referred to as the balance score card.
There are many different types,
as well beyond the balance score card, specifically,
performance prism and the performance pyramid,
value-chain scoreboard, the customer equity model,
and the performance dashboard.
These are just a few
of the strategic performance measurement systems
that consultants
and practitioners have suggested would benefit firms.
We're going to focus on what is arguably the most popular
version of the strategic performance measurement system.
Specifically, the balance score card.
This is a very popular strategic performance measurement system.
It establishes objectives and measures and links them
to the strategy of the firm or the business unit.
Oftentimes, a firm with multiple business units will have
multiple versions of a balance score card that are specific
to each of its major divisions.
The evolution of the balance score card is actually
quite interesting.
It started off by just offering a more balanced view
of the firm.
Historically,
firms overemphasized financial performance, and it's kind
of odd to say now, but somebody needs to tell them
that they're overly focused on financial performance measures
and that non-financial per performance measures
and other aspects of their business are just as important.
Then the being score card evolved
into adopting more strategic perspectives, and from there,
the balance score card incorporated strategy maps
and more explications about linking objectives,
initiatives, and measures.
Just recently, firms are evolving
to incorporate the balance score card
into their incentive compensation system,
and some interesting research focuses and that.
Basically, the balance score card is comprised
of four perspectives.
There is the age-old tradition of focusing on something
that is more financial.
Financial-oriented goals
and accompanying measures are developed,
and the questions inside of that perspective are how should we
look to our shareholders?
What are goals in terms of financial returns?
There are also internal perspective.
On the right-hand side, the right box of this diamond,
talks about goals and measures that ask what must we excel at?
This is more of an internal perspective and has to do
with the operations and processes that allow the firm
to implement and pursue its strategy.
There's also a customer perspective,
seen on the left-hand side of this depiction.
There are goals and measures
that are adopting the customer perspective, which asks,
how should we look to our customers?
Common measures inside of this per perspective are customer
satisfaction and the percentage of customers that return.
And finally, there's more of a long-term perspective.
One that's invasion or development or learning.
The questions asked there are how can we continue improve
and create value.
Different measures correspond to each
of these individual perspectives, but ideally,
they're all linked to facilitate the compilation of non-financial
and financial performance metrics
and facilitate the development and pursuit
of the firm's strategy.
Here's an example, which I wouldn't take the time to walk
through every ultimate detail here,
but you can see along the left-hand side, SMDC,
is company in the real world
that has adopted the balance score card.
They have a mission statement that reads,
"SMKC is a values-driven integrated organization
which will be recognized for excellence in customer service,
quality patient care, financial strength,
and support of community health."
You can see the multiple perspectives right inside their
mission statement, but the balance score card extends well
beyond this.
On the left-hand side you can see the financial, customer,
internal and learning and growth or innovation perspectives,
and they have incorporated somewhat of a strategy map,
as depicted by the arrows that connect different levels
or different perspectives
and cross those dotted lines that separate them.
So this slide will be available for you to review,
as well as you can look to the original resource
for this slide, a book by Robert Kaplan and David Norton.
Now question is how well are firms using this tool?
Well, there is some research on balance score card,
actually quite a bit that is performed by academics
so see the implications and the consequences associated
with the firm adopting the balance score card.
This research, or an example of it,
has shown a few mixed results first of all, firms,
long before it was suggested, tie compensation
to the balance score card.
Eighty percent of firms that were surveyed do this
in some form or fashion.
Less than 30% of the firm's implementing the balance score
card explicitly define a causal chain.
That is, they don't necessarily connect the perspectives
with explicit arrows, like we saw in SDMC's example.
Only 21% of those with a causal chain actually test
its validity.
Most of the firms just rely
on what they feel is the right strategy
in how these things can be connected,
but very few actually do the testing.
But research suggests that when a firm does actually test the
causal linkages between non-financial performance
measures and financial performance measures,
they actually earn better financial performance.
Of the 21% that tested its validity, they had an average
of 2.95% higher return on assets and over 5% higher return
on equity than those that did not test the causal chain.
So implemented appropriately,
the balance score card can actually yield very
significant returns.
There are some challenges with the balance score card, however.
First of all, it incorporates many different measures.
Again, when we open the door to the non-financial view
of the firm and these alternatives of customer,
internal, or innovation or learning and growth,
it's difficult to deal with all of those individual measures
and it's difficult to evaluate the relative importance
of those measures.
Quantifying qualitative data is oftentimes difficult, as well.
So just to create those nonfinancial metrics
and incorporate them and find connections
between them can be very taxing.
It's very time consuming and expensive
to implement the balance score card,
and there can be some gaming of the system.
The more measures you put in front of managers and employees,
the more likely they'll try to manipulate those measures,
and of course, will are problems with the causal chain.
Firms never really know for sure about the link
between non-financial measures and financial measures Again,
oftentimes, due to a variety of factors, one,
the linkages might be nonlinear
or they may not be unidirectional.
The causal linkages between nonfinancial measures
and financial measures may actually be looped.
There also may be more noisy measures,
especially when we're talking about nonfinancial metrics,
and of course, there is the time lag, and testing causal chains
over multiple years when it takes a nonfinancial metric
to ultimate transform
into financial performance can be very difficult
and taxing, as well.
