Chapter 13
The Balanced
Scorecard
and
Business Value of
Information
Technology
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Learning Objectives
• LO#1 Describe the balanced scorecard framework
• LO#2 Explain the purpose of strategy maps
• LO#3 Describe different types of IT and why IT
initiatives can be difficult to evaluate
• LO#4 Define the balanced scorecard management
process
• LO#5 Describe how an AIS system contributes to a
balanced scorecard management process
13-2
LO# 1
The Balanced Scorecard
• A strategic planning and management system
• Used extensively in business and industry,
government, and nonprofit organizations
worldwide
• Aligns business activities to the vision and
strategy of the organization,
• Improves internal and external communications
• Monitors organization performance against
strategic goals
13-3
LO# 1
Four Perspectives
Financial
Perspective
Lower
Costs
Business Process
Perspective
Grow
Revenue
Enhance
Customer
Value
Customer
Perspective
Improve
Processes
Learning &
Growth
Perspective
13-4
LO# 1
Learning & Growth Perspective
• Describes the firm’s objectives for improvements in
tangible and intangible infrastructure
• Human Capital – investment in people
– Ensuring the right people with the right skills are available
• Information Capital – investment in information
– Ensuring required access to information and the ability to
communicate
• Organization Capital – investment in creating a unique
corporate identity and culture
– Ensuring that employees know and are aligned with the
organization’s strategic objectives
13-5
LO# 1
Process Perspective
1. Operations management processes, such as supply,
production, distribution, and risk management.
2. Customer management processes, such as those
involved with the selection, acquisition, and retention
of customers, and growth of the firm’s market.
3. Innovation processes, such as identifying opportunities,
research and development, product design and
development, and product launch.
4. Regulatory and social processes, such as financial
reporting, accounting, and those that manage
environmental, safety and health, employment, and
community issues.
13-6
LO# 1
Customer Perspective
• The value proposition differentiates from the
competition
– Product attributes
•
•
•
•
Price
Quality
Availability
Function
– Service attributes
– Brand image
• Creates customer satisfaction, retention, and new
customer acquisition
13-7
LO# 1
Financial Perspective
• Confirms the success of the firm’s investments
and its ability to deliver value to customers
• Overall objective is shareholder value (for-profit
companies)
• Other objectives usually related to:
– Long-term growth
– Productivity
13-8
LO# 1
Why a Balanced Scorecard
Leading
Indicators
Internal
Perspectives
Lagging
Indicators
External
Perspectives
13-9
LO# 2
Strategy Maps
• A one-page representation of the firm’s strategic
priorities
• Shows the cause-and-effect linkages among
strategic priorities
• Allows organizations to assess and prioritize gaps
between current and desired performance levels
13-10
LO# 2
13-11
Roles of AIS/IT in Balanced Scorecard
Framework
LO# 3
• Balanced scorecard recognizes the difference between
– Investments in tangible information technology, and
– The capabilities created by that technology
• Information Capital in the Learning & Growth Perspective
is an intangible asset that reflects the readiness of the
organization’s technology to support business processes
• Information Capital includes:
– Computing hardware, such as individual computers
– Infrastructure, such as communications networks
– Applications, such as accounting and decision support
software
– Employees’ abilities to use the technology effectively
13-12
LO# 3
Nature of Information Technology Investments
• Function IT
– Performs a single function, such as enhancing
worker productivity for standalone tasks
• Network IT
– Allows people to communicate with one another
• Enterprise IT
– Restructures interactions within the organization
as well as with external partners
• Examples?
13-13
LO# 3
Summary of 3 IT Investment Categories
IT
Category
Description
Function Assists execution
IT
with discrete tasks
Network Facilitates
IT
interactions
Enterpris Specifies the nature
e IT
of business processes
and requires
interactions
Characteristics
Does not require complements but
impact can increase with the users
skill
Does not require complements but
impact increases with users’ skill
and extent of teamwork
Requires complements and impact
often depends on users’ skills,
teamwork, changes to the way
work is performed, and changes in
the way decisions are made
13-14
LO# 5
The Balanced Scorecard Management Process
•
The steps necessary to plan, implement, and monitor performance:
1. Formulate. The company examines its competitive environment and identifies
2.
3.
4.
5.
ways in which it can best compete consistent with its mission, vision, and
values.
Translate. The company establishes specific objectives, measures, targets and
initiatives, and develops capital, initiative, and other long-term budgets to
guide resource allocation and action according to its strategy.
Link to operations. The company prepares operating budgets, prioritizes
business process improvements, and key performance indicators. At this point
it establishes necessary IT systems to support strategic business processes as
well as management reporting and review capabilities.
Monitor. The company monitors performance to ensure processes are
meeting objectives and provides feedback to operating managers to
continuous improvement.
Adapt. The company evaluates the effectiveness of its strategy, conducts
profitability analytics, tests the cause-and-effect assumptions of the strategy,
and identifies potential alternatives.
13-15
LO# 4
13-16
Role of AIS/IT in Balanced Scorecard
Management Process
LO# 5
• IT has an important role in implementing and
managing the balanced scorecard management
process
• Provides information to support strategy
formulation
• Provides processing to develop and distribute
budgets for strategy execution
• Collects data and converts to information to
assess performance against strategic objectives
and allow ongoing management
13-17