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A balanced scorecard model
with incremental analysis
for the motor homes industry
based on survey results
Balanced
scorecard model
63
Charles J. Pineno
Byrd School of Business, Shenandoah University, Winchester, Virginia, USA
Abstract
Purpose – The purpose of this paper is to present a balanced scorecard model methodology to
develop an approach for decision making for the motor homes industry that is used to communicate
and evaluate achievement of the corporate mission and strategy. The index, success indicator, gives
management a “bottom line” result including non-financial as well as financial measures based on the
targeted improvement efforts as well as the actual result. The comprehensive set of measures helps to
focus their organization’s strategic objectives in the areas of financial, customer, learning, and growth.
Design/methodology/approach – The qualitative analysis and the quantitative survey of the
motor homes industry were summarized to develop generalized measures and applications as a basic
for formulating a special balanced scorecard model.
Findings – Various financial, customer, learning, and growth metrics were identified for a possible
template for an actual balanced scorecard.
Research limitations/implications – This paper focuses on a methodology for use by the
manufactured home industry that would quantify the intuitive understanding needed to project the possible
results. The advantage of using the analysis and the “success indicators” would be to give a “bottom line”
result (financial and non-financial) based on corporate efforts within the industry as presented in the
simulation. Further modeling would be necessary to investigate changes in multiple measures.
Practical implications – The strategy cannot be executed if it cannot be understand, and it cannot
be understood if it cannot be described.
Originality/value – This paper develops an approach for decision making by formulating a specific
balanced scorecard model for the motor homes industry.
Keywords Balanced scorecard, Mobile homes, United States of America
Paper type Research paper
Introduction
The balanced scorecard, originated by Kaplan and Norton, represents a technique used
in the strategic management of firms. It is the comprehensive set of measures that is
used to communicate and evaluate achievement of the corporate mission and strategy.
Balanced scorecard traditionally includes both objective and subjective measures
divided into four major areas:
(1) financial perspective;
(2) customer perspective;
(3) internal business process; and
(4) learning process and growth perspective (Kaplan and Norton, 1997).
The strategy cannot be executed if it cannot be understood, and it cannot be
understood if it cannot be described. The balanced scorecard provides executives with
Competitiveness Review: An
International Business Journal
Vol. 19 No. 1, 2009
pp. 63-80
q Emerald Group Publishing Limited
1059-5422
DOI 10.1108/10595420910929077
CR
19,1
64
a comprehensive framework that translates a vision and strategy into a coherent set of
performance measures. This incremental approach introduces small changes in one or
more parameters to estimate the effect on the profit of the business.
The economic perspective focuses on profit contribution and cost analysis.
In making rational choices, the decision maker must compare benefits and costs to try
to maximize profits or the firm’s value. The perspective in this paper is to maximize
accounting profits and not economic profits. Therefore, the opportunity cost of using a
scarce resource as an implicit cost will not be considered.
Background information
The balanced scorecard has evolved from its early use as a simple performance
measurement framework to a full strategic planning and management system that
documents the “marching orders” for an operation on a daily basis (Balanced Scorecard
Institute, 2007).
The balanced scorecard is a customer-based planning and process improvement
system aimed at focusing and driving the change process. It does this by translating
strategy into an integrated set of financial and non-financial measures that both
communicates the organizational strategy to the members and provides them with
actionable feedback on the attainment of objectives.
According to Fielden (1999), corporations across the world have begun leveraging
the power of balanced scorecards for converting vision and strategy into
measurable targets. Introduced in 1991 by Robert S. Kaplan and David P. Norton as
a management tool, balanced scorecards provide executives with the ability to develop
measures that accurately forecast the health and wealth of an organization. Providing
the ability to translate strategy into action rapidly, measurably, and knowledgeably, a
balanced scorecard aligns strategy within an organizational structure to tap into
hidden assets and knowledge. Moreover, by management connecting both internal and
external people with these strategies, continual learning and growth can be achieved.
Typically, more than one common, macro strategic theme or focus areas show up
across different businesses. For example, the themes may include build the business,
improve operational effectiveness, improve product competitiveness, etc. Any strategic
theme may contain one or more business strategies that determine what people do on a
day-to-day basis (Rohm, 2002).
According to the Balanced Scorecard Institute (2007), a sample list of users of the
balanced scorecard includes Caterpillar Inc., Chemical Bank, Du Pont, Fannie Mae,
General Electric Company, Pfizer Inc., and Sears Roebuck and Company. In the service
sector, a sample includes Boston Lyric Opera, City of Charlotte, Hilton Hotels
Corporation, Pennsylvania State University, Northwestern Mutual, and US Army
Medical Command. The balanced scorecard, when revealed to outside evaluators and
investors also accurately and succinctly communicates the health of the firm.
Bailey et al. (1999) and Suresh (2006) summarized the following benefits from the
use of balanced scorecards across the range of business users:
.
promoting the active formulation and implementation of organizational strategies;
.
making organizational strategies updated and highly visible;
.
improving communication within the organization;
.
improving alignment among divisional or individual goals and the
organization’s goals and strategies;
.
.
.
.
.
.
aligning annual or short-term operating plans with long-term strategies;
aligning performance evaluation measurement and long-term strategies;
removing confusion for employees;
aiding them to better understand priorities;
establishing sufficient ownership and accountability; and
measuring things that people can influence
Preparation of the balanced scorecard
As a company evolves overtime the need for more thorough and effective management
skills and assistance is necessary. The scope of analysis must take on additional
dimensions. This leads to a more comprehensive set of measures to be considered and
analyzed to improve decision making.
Testing causality
One of the main features of the balanced scorecard should be to present a comprehensive
set of measures covering performance of the business and its success in strategy
implementation. A strategy is a set of relationships (hypotheses) about cause and effect.
The measurement system should make the relationships among the objectives and
measures explicit so that they can be managed and validated (Kaplan and Norton, 1997).
The comprehensiveness is achieved by including measures that interact on the basis of
established cause-and-effect relationships. For example, the subjective measure of
customer satisfaction, a leading indicator, is usually correlated with the market share
growth of the business. This approach may prove to be a useful tool in evaluating the
existence of the causality relationships between different measures included in
the balanced scorecard. This represents a clear basis for aligning all activities with the
corporation objectives. An objective such as “Grow international sales” should be linked
in cause and effect chains that cross the multiple scorecard perspectives (Barberg, 2005).
The sensitivity analysis shows what effect, if any, a marginal change in one measure
would have on the other measures of the balanced scorecard.
Determining optimal targets
Furthermore, this approach may help determine optimal targets for each of the
measures included in the balanced scorecard. The approach here may be to weight all
the measures of the balanced scorecard and calculate a weighted average “success
indicator.” Then, the changes to one or a series of measures may be tested to maximize
the “success indicator.” Measures that maximize the “success indicator” should be
included as targets in the balanced scorecard. One of the versions of this “success
indicator” was developed by Liberatone and Miller (1998). The extract of their
“performance index” calculation is presented in Table I. It is suggested that the
performance index as developed by Liberatone and Miller (1998) may be used to
determine optimal targets for the balanced scorecard as shown in Table I.
The mixture of key performance indicators that includes financial and non-financial
performance measures is a system that translates the firm’s vision and strategy into a
linked set of performance measures (Suresh, 2006). Causal analysis identifies the
causes and effects of good performance by starting with the result (effect) desired and
then identify all the causes that contribute to the desired result (Rohm, 2002).
Balanced
scorecard model
65
CR
19,1
66
Table I.
Performance measure
index
Baseline
value
Current
value
Index
points
Weighting
percent
Weighted
points
10
30
100,000.00
10
66,000.00
84
96
30
90
10
1
40
80
10
30
20
95
10.5
31
101,000.00
11
70,000.00
85
97
30
90
10
0.98
39
76
10
30
21
94
105
103.33
101
110
106.06
101.19
101.04
100
100
100
98
97.5
95
100
100
105
98.95
7
7
6
6
7
6
7
3
7
7
7
3
4
7
7
3
6
Performance
index 100
7.35
7.23
6.06
6.6
7.42
6.07
7.07
3
7
7
6.86
2.93
3.8
7
7
3.15
5.94
101.48
Measure
ROE
Market share
Cash flow
Sales growth
Operating Inc.
Order fill rate
Line fill rate
Num. of customers’ part-PS
Cust. satisfaction rating
Manuf. cycle time
Unit cost
New product act vs planned intro
Empl. satisfaction rating
Order fulfillment cycle time
Prod. dev. to market cycle time
Percent of sales from new. prod.
Manufacturing yield
Source: Liberatone and Miller (1998)
Overview of the industry
Motor homes are designed as temporary living quarters for recreational camping, travel
or seasonal use. RVs may have their own motor power (as in the case of motor homes);
may be mounted (as are truck campers); or towed by another vehicle (as are travel
trailers and folding camping trailers). Not included in the RV definition are conversion
vehicles, off-road vehicles and manufactured housing for long-term residence (park
trailers and mobile homes). Therefore, RV types sold by recreation vehicle dealers
include: Motor Homes, Travel Trailers, Folding Camping Trailers, and Truck Campers.
The $15 billion RV industry has been among the less heralded casualties of the
mortgage and housing crises, but the impact has been severe. RV sales peaked in 2006 at
390,500 vehicles, according to Recreational Vehicle Industry Association, the first annual
total in past 25 years. Total RV shipments in 2006 were 1.6 percent higher than 2005. The
fifth consecutive year shipments grew. After five consecutive years of record growth, RV
shipments declined 9.5 percent in 2007 as consumers postponed discretionary purchases
due to the US economic slowdown. The shipments totaled 353,400, the fourth highest in the
past quarter century. The trade group effects sales to tumble 14 percent to about 305,000
vehicles this year, the lowest level since 2006. Higher credit standards, falling household
wealth, slower growth in real incomes, and diminished consumer confidence will
contribute to the decline (Recreation Vehicle Industry Association, 2008).
Recently, nearly eight million US households own at least one RV-a 15 percent
increase over the past four years and a stunning 58 percent rise since 1980, according
to the a University of Michigan Study. One in 12 US vehicle-owning households now
own at least one RV (RVIA web site).
By 2010, RVs will be owned by 8.5 million households indicating an 8 percent
increase, the outpacing overall US household growth of 6 percent. These finding have
been expressed by Dr Richard Curtin, Director of the University of Michigan Survey
Research Center, who conducted a newly released study. The enormous baby boomer
generation is reaching retirement age and is expected to continue dominating the RV
market. Therefore, the demand for RVs will continue to grow during the next decade
due to favorable population trends and purchasing intentions (RVIA web site).
Survey results
The motor homes industry survey results as shown in Table II with about a 10 percent
response rate for of the industry indicate that companies with sales higher than
25 million responded that the balanced scorecard does apply to their current process.
But, companies not applying the balanced scorecard to their current process have,
on average, a higher automated rate than companies that apply the balanced scorecard
(Pineno, 2004). However, some small companies applying the balanced scorecard have
more units produced weekly with an average automated rate than those small
companies with an average automated rate that do not apply the balanced scorecard.
Therefore, under the same conditions, applying the balanced scorecard will improve
the measurement process and as a result will improve productivity even though they
are satisfied with their current measurement system.
Management was split on satisfaction with growth but was generally satisfied with
their current measurement system. The respondents had no knowledge of the balanced
scorecard. The areas it can be applied included cost balances, efficiency, employee
satisfaction, cycle time and others such as customer satisfaction.
The respondents were evenly split that the balanced scorecard techniques apply to their
current process but more than half were not likely to adopt the balanced scorecard approach.
The majority of the respondents were male with an undergraduate degree, half had over
twenty years of industry experience, and more than half had over 16 years of company
experience. Only two respondents held the position of president/CEO or vice president.
However, the influences on decisions of the respondents were, on average, medium.
Ex post evaluation of the targets
The approach may be used to evaluate the effectiveness of targets when the actual
results of business performance are available. It may be the case that actual results
would show the flaws in the causality relationship established when selecting the
measures for the balanced scorecard. The changes to the actual numbers paralleled by
the same changes to the targets will indicate the difference in responses of the model
and will help to correct flaws of the balanced scorecard. This is a continuous
improvement process since it can be performed at the end of each reporting period and
adjustments can be included in the scorecard for the next period.
The following steps of the ex post evaluation are suggested:
(1) Obtain the actual results for a period under consideration and present them in
the format of a balanced scorecard.
(2) Compare both actual balanced scorecard and target balanced scorecard for the
same period to the baseline (prior period) balanced scorecard line-by-line.
(3) Compare the increments (changes) from the above analysis. Ascertain whether
differences are normal, i.e. match your causality assumptions used in constructing
the balanced scorecard, or abnormal, i.e. indicate pitfalls in causality relationships.
Balanced
scorecard model
67
CR
19,1
Motor homes ind.
1
2
68
3
4
5
6
7
8
9
10
Table II.
Survey results
No. of years in experience
Sales
a. 0-25M
b. 26-50
c. 51-75
d. 76-100
e. Over 100
No. of units produced weekly
a. 0-5
b. 6-10
c. 11-15
d. 16-20
e. Over 20
No. of employees
a. 0-50
b. 51-100
c. 101-150
d. 151-200
e. Over 200
Perce automated
a. 0-20
b. 21-40
c. 41-60
d. 61-80
e. 81-100
Satisfaction with grow
Yes
No
Satisfaction with measurement system
a. Completely satisfied
b. Satisfied
c. Neutral
d. Dissatisfied
e. Completely dissatisfied
Tracking and measuring performance
a. Daily
b. Weekly
c. Monthly
d. Yearly
e. Other
Knowledge about BSC
Yes
No
What areas BSC can be applied
a. Cost variances
b. Efficiency
c. Employee satisfaction
d. Cycle time
e. Other
33
3
1
0
0
6
7
1
1
0
4
3
1
0
1
8
9
2
0
0
1
7
5
1
7
0
3
0
7
2
5
0
0
1
10
4
5
5
3
4
(continued)
Motor homes ind.
11
Does BSC apply to current process
Yes
No
12
Would you like to adopt BSC
Yes
No
Background information
1
Gender
Male
Female
2
Education
a. High school
b. Undergraduate degree
c. Graduate degree
d. Doctorate degree
e. Other
3
Industry experience
a. 0-5
b. 6-10
c. 11-15
d. 16-20
e. Over 20
4
Company experience
a. 0-5
b. 6-10
c. 11-15
d. 16-20
e. Over 20
5
Job title
a. President/CEO
b. Vice President
c. Manager
d. Executive
e. Other
6
Influence on decision
a. Very high
b. High
c. Medium
d. Normal
e. Negligible
Balanced
scorecard model
5
5
4
6
69
9
4
0
11
1
0
0
1
1
3
1
6
1
2
3
1
5
1
1
3
0
7
3
3
1
3
2
(4) Adjust the target balanced scorecard for the next period in accordance with
findings about causality relationships from the above-incremental analysis.
A model balanced scorecard is presented in Table III, based partly on the survey
results and the author’s ideas. The information illustrates the objectives, measures, and
initiatives within the four major categories.
Table IV demonstrates the application of the measures information within the
categories. Some of the values in Table IV are from the Thor Industries Inc. 2007 Annual
Report as indicated by an asterisk. The table information is a combination of hypothetical
Table II.
Yield
Internal business process perspective
Improve manufacturing capability
Improve manufacturing quality and productivity
Service cost per call
Revenue growth
Return on investment
Market share
Fixed cost per floor
EVA
Cash flow
Sales growth based on units
Operating income
Unit cost
Percent of sales from new products
Increase dealer base
Dealer retention
Retail product satisfaction
Retail service satisfaction
Customer satisfaction rating
Customer retention
Order fill rate
Line fill rate
Number of dealer partnerships
Manufacture cycle time
Percentage of process with advanced controls
Financial perspective
Increase shareholder value
Manage operating costs
Organize R&D manufacturing teams to
implement advanced controls
Identify root causes of problems and improve
quality
Monitor types of problems
(continued)
Identify future needs of customer
Identify new target customer segments
Increase customer focus of sales organization
Monitor quality control
Update production process
Innovative marketing effort
Build strong customers relationships
Build strong customer relationships
Manage cost and unused capacity
Initiatives
70
Customer perspective
Increase market share
Increase customer satisfaction
Measures
Table III.
Model development
Objectives
CR
19,1
Service call per floor
Floor run rate
Inventory returns
Order delivery time
In time delivery
Backlog
Manufacture cycle time
Order fulfillment cycle time
Percentage of cost reduction
New product
Actual vs planned intro.
Percentage of employees trained in process and
quality management
Percentage of front-line workers empowered to
manage process
Employee satisfaction survey
Percentage of manufacturing processes with real
time feedback
Number of major improvements in process
control
Product development to market cycle time
Hours of training
Skills of employees
Cycle time
Product development
Reduce employee absenteeism
Increase production safety awareness
Learning and growth perspective
Develop process skill
Empower workforce
Align employee and organization goals
Enhance information system capabilities
Increase product innovation
Improve manufacturing process
Training
Safety
Measures
Objectives
Employee training programs
Have supervisors as coaches rather than decision
makers
Employee participation and suggestions program
to build teamwork
Improve off-line date gathering
Monitor competitors pricing and product
development
Organize R&D manufacturing teams to modify
processes
Reengineer order delivery process
Review cost data
Initiatives
Balanced
scorecard model
71
Table III.
Table IV.
Company performance
measure index
Customer perspective
Order fill rate
Line fill rate
Number of dealer
partnerships
Customer satisfaction rating
85
98
33
103.5
84
96
30
90
Financial perspective
ROI
10
11.5
Market share
30
35
Cash flow
100,000.00
103,000.00
Sales growth based on units
10
11.5
Operating income
66,000.00
72,600.00
Fixed cost per floor
10,000.00
9,500.00
EVA
80,000.00
85,000.00
Unit cost
1
0.9
Percentage of sales from new
20
20
products
Total assetsa
590,347,500.00 649,382,250.00
Long-term debta
6,456,500.00
6,133,675.00
a
Current ratio
2
2.1
Earnings per share
0.25
0.3
17
17.5
High-sales price – common
stock
Low-sales price – common
11
12
stock
12
13
Book value per sharea
Net salesa
1,425,000.00
1,500,000.00
b
Sales growth
3
3.5
Gross profit
131,268,000.00 140,000,000.00
38.5
13.74
2856308000.00
2 13.00
363295000.00
1.09
1.08
1.05
1.17
1.07
1.15
98
80
90
34
1059297000.00
0
2.55
2.42
48.32
1.10
0.95
1.05
1.20
1.03
1.01
1.02
1.10
10.3
31
105,000.00
2 10.6
73,500.00
10,200.00
84,000.00
0.95
20
Actual value
1.15
1.17
1.03
1.15
1.10
0.95
1.06
0.90
1.00
Baseline value Target value Change
2.41
0.69
20.95
0.23
8.48
1.81
20.12
20.13
0.02
22.21
0.01
0.07
20.01
0.05
0.00
350.00
179.44
0.00
127.50
968.00
284.24
103.00
103.33
105.00
2106.00
111.36
102.00
105.00
95.00
100.00
Index
points
1.09
0.95
0.94
1.13
20.06
20.06
20.08
0.03
108.89
95.24
93.75
113.33
1.15
0.06
114.50
2,004.43 2,003.37 200,442.67
2 4.33
25.50
2433.33
2.77
1.70
276.76
Financial performance index
3.50
1.79
0.00
1.28
9.68
2.84
1.03
1.03
1.05
2 1.06
1.11
1.02
1.05
0.95
1.00
Difference
Change in change
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.48
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
Percent
72
Measure
2.72
(continued)
2.38
2.34
2.83
2.86
5,011.07
2 10.83
6.92
8.75
4.49
0.00
3.19
24.20
7.11
2.58
2.58
2.63
2 2.65
2.78
2.55
2.63
2.38
2.50
Weighted
points
CR
19,1
Internal business process
Manufacturing yield
New product
Actual vs planned
introduction
Order fulfillment cycle time
Percentage of process with
advanced
Controls
Inventory returns
Order delivery time
Backlog
Percentage of cost reduction
Manufacturing cycle time
Average unit costa
Number of plantsa
Customer retention
Manufacturing cycle time
Increase dealer base
Dealer retention
Retail production
satisfaction
Retail service satisfaction
Unit salesa
Number of dealershipsa
Warranty expensea
Warranty expense as a
percentage of salesa
Measure
95
55
40
75
60
28
8
20
15
10
20,500.00
28
70
50
24
10
25
10
10
20,594.00
28
108
6,000.00
500
30,000,000.00
2
100
10
55
12
105
95
50
40
100
5,740.00
495
33,620,000.00
2.5
95
10
50
10
100
1.17
0.80
0.80
1.50
1.00
1.00
1.00
1.07
1.20
1.00
1.10
1.00
1.08
1.05
1.01
0.89
0.80
1.05
1.00
1.10
1.20
1.05
Baseline value Target value Change
30
7
20
5
10
24,528.00
28
65
55
95
60
40
104
101,637.00
500
64,310,000.00
2.25 (percent)
95
10
53
11
110
Actual value
20.04
16.66
0.00
1.02
20.79
20.05
0.00
20.04
20.10
0.05
104.00
1,770.68
101.01
191.28
0.90
100.00
100.00
106.00
110.00
110.00
Index
points
1.25
0.70
0.80
0.50
1.00
1.19
1.00
0.93
1.10
1.00
1.20
1.00
0.08
20.10
0.00
21.00
0.00
0.20
0.00
20.14
20.10
0.00
0.10
0.00
125.00
70.00
80.00
50.00
100.00
119.10
100.00
92.86
110.00
100.00
120.00
100.00
Customer performance index
1.04
17.71
1.01
1.91
0.01
1.00
1.00
1.06
1.10
1.10
Difference
Change in change
Weighted
points
2.50
2.50
2.65
2.75
2.75
2.60
44.27
2.53
4.78
0.02
2.50
3.00
2.50
2.32
2.75
3.13
1.75
2.00
1.25
2.50
2.98
2.50
(continued)
Percent
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
Balanced
scorecard model
73
Table IV.
Learning process and growth perspective
Hours of training
20
Cycle time
10
Product development
50
Percentage of front line
70
workers
Empowered to manage process
Percentage of manufacturing
5
processes
With real time feedback
No of improvement in
85
process control
Skills of employees
8
1.25
0.90
1.10
0.86
2.00
1.06
1.13
10
90
9
1.00
1.13
0.90
25
9
55
60
8
450,000.00
400,000.00
8
4,500,000.00
5,000,000.00
1.07
0.43
1.02
0.88
1.11
15
10,000,000.00
48,000,000.00
3500
10
14
23,200,000.00
46,987,000.00
3,964.00
9
Inventory turnovera
Inventory reductiona
Capital expendituresa
Order backloga
New product designs
(enhancements)a
Workforce reduction
savingsa
Efficiency savings (other
than workforce)a
Receivables turnovera
Table IV.
Baseline value Target value Change
8.5
80
7
22
9.5
45
65
0
0
0
16.9
0
13,105,000.00
589,716.00
0
Actual value
0.00
21.13
20.90
0.14
20.43
20.74
147.88
21.11
0.00
0.00
120.71
0.00
27.89
14,876.79
0.00
Index
points
0.025
0.025
0.025
0.025
0.025
0.025
0.025
Percent
1.06
0.94
1.40
1.10
0.95
0.90
0.93
106.25
0.00
94.12
0.00
20.12
20.06
140.00
110.00
95.00
90.00
92.86
20.60
20.15
0.05
20.20
0.07
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.00
21.00
0.00 0.025
Internal business performance index
0.00
0.00
0.28
148.77
0.00
1.21
Difference
Change in change
74
Measure
2.66
(continued)
0.00
2.35
3.50
2.75
2.38
2.25
2.32
0.00
0.00
0.00
3.02
0.00
0.70
371.92
0.00
Weighted
points
CR
19,1
10
5,900.00
88
30
20
0.25
15
5
5,839.00
85
30
20
0.25
15
b
11
10
1.00
1.00
1.00
1.00
1.01
1.04
2.00
1.10
Baseline value Target value Change
Notes: Thor Industries, Inc. 2005 Annual Report; (000)
a
Product development to
Market cycle time
Percentage of employees
trained in process and
quality management
Number of employeesa
Employee satisfaction
ratinga
Product development to
market cycle timea
Percent of sales from newest
producta
Employee turnovera
Average years of servicea
Measure
3.50
2.5
0.35
1.40
0.40
140.00 0.025
15
1.00
0.00
100.00 0.025
Learning process and growth perspective performance index
Actual performance index
0.90
20.10
0.03
90.00
103.33
104.48
2.25
0.025
18
1.03
144.92
94.12
2.58
31
0.44
20.09
0.025
0.025
Weighted
points
3.62
2.35
1.45
0.94
2.00
100.00
0.00
200.00
Percent
0.025
0.025
8,462.00
80
10
20.10
0.00
0.00
Index
points
2.50
0.00
5.00
1.00
Difference
Change in change
0.025
10
Actual value
Balanced
scorecard model
75
Table IV.
CR
19,1
76
and actual values including averages of information from the Thor Industries Inc. 2007
Annual Report and the Coachman Industries Inc. 2007 Annual Report.
Ohio-based Thor Industries Inc., the world’s largest manufacturer of recreational
vehicles, was among Forbes magazine’s “The Best of the Best” listings in the publication’s
“400 Best Managed Big Companies” in America. Thor’s combined five-year average
growth in sales and earnings per share were the highest in the consumer durable category.
Thor was not only recognized for its outstanding financial performance but also for
leadership, innovation and execution.
An example of the ex post evaluation process is illustrated in Table V. This table shows
target measures and actual measures for a period. Each impacted measure is contrasted
with its baseline value to find the percentage change. By reviewing the difference between
the percentage change for actual results and the percentage change for target values, one
can see that most of the measures have evolved as anticipated by the target measures.
However, there was an unexpected decrease in the unit cost, order fill rate, line fill rate,
order fulfillment, order delivery time, and cycle time. Therefore, the increase in the number
of dealer partnerships by 10 percent seems to cause some measures to decrease. If, in the
opinion of management, this result represents a genuine causality, the management may
then adjust the next period’s balanced scorecard with regards to these measures.
Application
Most experienced managers intuitively understand relationships between and among
measures. They know where to focus improvement efforts to yield desired results.
However, organizations that devote the time and effort determining the critical
non-financial drivers of their success, using tools like strategy maps, end up with
superior long-term financial results. Research on performance management systems for
157 companies found that 23 percent of the organizations had done intensive causal
modeling to identify non-financial measures that were linked to their strategy. Those
organizations substantially out performed their peers who had not done the same casual
modeling. There is a fundamental difference between merely selecting a “balanced” mix
of measures as done in this paper and identifying the true strategic learning measures
that help drive strategy execution and long-term financial success (Barberg, 2005).
This paper focuses on a methodology for use by the manufactured home industry that
would quantify the intuitive understanding needed to project the possible results. The
advantage of using the analysis and the “success indicators” would be to give a “bottom
line” result (financial and non-financial) based on corporate efforts within the industry as
presented in the simulation in Table IV. The approach to be developed is to combine the
model with quantified, actual performance measures that would be compared with
baseline values that are summarized as a performance index (Table IV). Management can
evaluate possible results based on a “what if” analysis as simulated in Table IV. The
measures of performances could be evaluated by category with a resulting performance
index. Therefore, it would indicate improvements by the various categories.
Studies have shown the relationships among customer variables. For example, Bank
One of Columbus, Ohio carefully monitors customer retention, the number of services used
by each customer, and customer satisfaction. The bank realizes that customer loyalty is
related to profitability (Morgan, 1998). Global Financial Services switched from a system
of rewards based on profitability and growth once customer satisfaction and operational
audit hurdles had been mastered to a balanced scorecard system. The balanced scorecard
Financial perspective
ROIb
Market shareb
Cash flowb
Sales growth based on unitsb
Operating incomeb
Fixed cost per floor
EVA
Unit costc
Percentage of sales from new products
Costumer perspective
Order fill ratec
Line fill ratec
Number of dealer partnershipsa
Customer satisfaction rating
Customer retention
Manufacturing cycle time
Increase dealer baseb
Dealer retention
Retail production satisfaction
Retail service satisfaction
Internal business process
Manufacturing yield
New product
Actual vs planned introduction
Order fulfillment cycle timec
Percentage of process with advanced
Measure
Target
value
85.00
98.00
34.00
103.50
100.00
10.00
55.00
12.00
105.00
108.00
95.00
55.00
40.00
75.00
60.00
84.00
96.00
30.00
90.00
95.00
10.00
50.00
10.00
100.00
100.00
95.00
50.00
40.00
70.00
50.00
10.00
11.50
30.00
35.00
100,000.00 103,000.00
10.00
11.50
66,000.00 72,600.00
10,000.00
9,500.00
80,000.00 85,000.00
1.00
0.90
20.00
20.00
Baseline
value
1.00
1.10
1.00
1.07
1.20
1.01
1.02
1.13
1.15
1.05
1.00
1.10
1.20
1.05
1.08
1.15
1.17
1.03
1.15
1.10
0.95
1.06
0.90
1.00
Change
95.00
60.00
40.00
63.00
55.00
90.00
92.00
33.00
98.00
95.00
10.00
60.00
11.00
110.00
104.00
10.40
38.00
106,000.00
11.60
74,500.00
10,200.00
84,000.00
0.95
20.00
Actual
value
1.00
1.20
1.00
0.90
1.10
1.07
0.96
1.10
1.09
1.00
1.00
1.20
1.10
1.10
1.04
1.04
1.27
1.06
1.16
1.13
1.02
1.05
0.95
1.00
Change
–
0.10
–
(0.17)
(0.10)
0.06
(0.06)
(0.03)
(0.06)
(0.05)
–
0.10
(0.10)
0.05
(0.04)
(0.11)
0.10
0.03
0.01
0.03
0.07
(0.01)
0.05
–
Difference in
change
100.00
120.00
100.00
90.00
110.00
107.14
95.83
110.00
108.89
100.00
100.00
120.00
110.00
110.00
104.00
104.00
126.67
106.00
116.00
112.88
102.00
105.00
95.00
100.00
Index
points
Weighted
points
2.60
3.17
2.65
2.90
2.82
2.55
2.63
2.38
2.50
2.68
2.40
2.75
2.72
2.50
2.50
3.00
2.75
2.75
2.60
2.50
3.00
2.50
2.25
2.75
(continued)
Percent
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
Balanced
scorecard model
77
Table V.
Incremental changes to
company performance
measure index
Table V.
28.00
8.00
20.00
15.00
25.00
9.00
55.00
60.00
10.00
90.00
9.00
11.00
10.00
24.00
10.00
25.00
10.00
20.00
10.00
50.00
70.00
5.00
85.00
8.00
10.00
5.00
Target
value
1.06
1.13
1.10
2.00
2.00
1.25
0.90
1.10
0.86
1.17
0.80
0.80
1.50
Change
0.94
1.06
1.00
2.00
1.40
1.10
0.96
0.90
0.93
1.25
0.60
0.80
0.50
Change
(0.12)
(0.06)
(0.10)
–
(0.60)
(0.15)
0.06
(0.20)
0.07
0.08
(0.20)
–
(1.00)
Difference in
change
Actual performance index
80.00
8.50
10.00
10.00
7.00
22.00
9.60
45.00
65.00
30.00
6.00
20.00
5.00
Actual
value
94.12
106.25
100.00
200.00
140.00
110.00
96.00
90.00
92.86
125.00
60.00
80.00
50.00
Index
points
0.025
0.025
0.025
0.025
100
percent
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
Percent
105.22
2.35
2.66
2.50
5.00
3.50
2.75
2.40
2.25
2.32
3.13
1.50
2.00
1.25
Weighted
points
Notes: aIncrementally changed measures, growth by 10 percent; bmeasures positively correlated to the altered measure; cmeasures negatively correlated
to the altered measure
Controls
Inventory returns
Order delivery timec
Backlog
Percentage of cost reduction
Learning process and growth perspective
Hours of training
Cycle timec
Product development
Percentage of front line workers
Empowered to manage process
Percentage of manufacturing processes
With real time feedback
No of improvement in process control
Skills of employees
Product development to market cycle time
Percentage of employees trained in process and
quality management
Baseline
value
78
Measure
CR
19,1
used subjective weightings to aggregate the various scorecard measures when
determining overall performance evaluations and bonus awards (Ittner et al., 1997).
However, in developing metrics for satisfaction, customers should be analyzed in terms of
kinds of customers and the kinds of processes. Being utilized to provide a product or
service to those customer groups (Balanced Scorecard Institute, 2007).
Create corporate synergies
Kaplan and Norton suggest that scorecards could play a greater role in creating
alignment within the overall corporate business strategy. They stress the value of the
synergies that can be created in different line business share an enterprise value
proportion. A central strategic goal agreed upon at the corporate level would need to
be included within the line business or division as part of their scorecard. Strategy
cannon be executed if it cannot be understand, and it cannot be understood if it cannot
be described. The importance of mission, vision, and values could be central to motor
homes companies to develop quality improvement programs. (Colman Robert
publication, June 1, 2006. CMA Management: Norton demonstrates how organizations
can cascade the balanced scorecard through all of their operations-and beyond.)
A consideration within the synergies development process would be to build
scorecards with their strategic external partners such as key suppliers, customers
and alliances. This could lead to consensus about the objectives for their relationship,
and create a greater sense of trust. In addition, it creates explicit measures to monitor
the effectiveness within the organization performance.
Kaplan and Norton indicate the successful execution of strategy requires the
successful alignment of four components: the strategy, the organization, the employees,
and the management systems. A clear strategy allows the management process to be
designed to create alignment. This alignment is an effective guide to take the concepts of
the balanced scorecard further into an organization’s culture. (Colman Robert
Publication, June 1, 2006. CMA Management: Norton demonstrates how organizations
can cascade the balanced scorecard through all of their operations-and beyond.)
This paper offers various metrics for a possible template for an actual scorecard to
help jump start the company’s score carding journey and long-term creation of corporate
synergies.
Conclusions and recommendations
Since the balanced scorecard includes subjective as well as objective measures, the
manager may utilize the technique to obtain a comprehensive view of operational results.
The performance index allows the weighting of the measures to determine the overall
result. The incremental approach, within the scope of the balanced scorecard, allows
management to develop realistic alternatives, test causality, determine a range of target
measures, and evaluate ex post the reasonableness of the targets for future periods. The
example presented focuses on changing just one measure, the number of dealer
partnerships. Further modeling would be necessary to investigate changes in multiple
measures. Organizations do consider their options but a weighting of objective and
subjective measures based on planned strategies and formulated analysis may enhance
productivity and profitability in the motor homes industry. An actual application by a
company in the motor home industry should demonstrate value added in a competitive
environment. Organizations can move beyond the traditional practices of focusing on
backward-looking financial results by using scorecards to focus their organization’s
Balanced
scorecard model
79
CR
19,1
80
strategic objectives in the areas of learning, growth, innovation and process. A united and
sustained performance is a challenging art of managing an organization to do better.
References
Bailey, A.R., Chow, C.W. and Haddad, K.M. (1999), “Continuous improvement in business
education: insights from the for-profit sector and business school deans”, Journal of
Education for Business, Vol. 74 No. 3, pp. 165-81.
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Group Company, Balanced Scorecard Institute, Rockville, MD.
Barberg, B. (2005), “Balanced scorecard best practices: understanding learning measures”,
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Ittner, C.D., Lancker, D.F. and Meyer, M.W. (1997), “Performance, compensation, and the
balanced scorecard”, Research paper funded by the Citicorp Behavioral Sciences Research
Council, November 1, pp. 1-3.
Kaplan, R.S. and Norton, D.P. (1997), “Why does business need a balanced scorecard”, Journal of
Cost Management, Vol. 11 No. 3, pp. 5-11.
Liberatone, M.J. and Miller, T. (1998), “A framework for integrating ABC and the balanced
scorecard into the logistics strategy development and monitoring process”, Journal of
Business Logistics, Vol. 19 No. 2, pp. 131-55.
Morgan, M.W. (1998), “Improving business performance: are you measuring up?”, Manage,
Vol. 49 No. 2, pp. 10-13.
Pineno, C.J. (2004), “Balanced scorecard applications and model building: a survey and
comparison of the manufacturing homes and motor homes industries”, Management
Accounting Quarterly, Vol. 6 No. 1, pp. 21-8.
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Further reading
Ahluwacia, G. (2001), “Factory-made housing”, Housing Economics, Vol. 49 No. 11, pp. 7-9.
Bady, S. and Roy, D. (1999), “HUD-code makers branch out”, Professional Builder, Vol. 64 No. 5, pp. 24-6.
Wirtz, R.A. (2005), “Home, sweet manufactured home”, Fedgazette, Vol. 17 No. 4, pp. 1-2.
About the author
Charles J. Pineno is a Professor of Accounting and holds the Braun Chair in Accounting at
Shenandoah University. He has published numerous articles and co-authored a cost accounting
textbook. He earned his PhD from the Pennsylvania State University in Business
Administration. His prior teaching and administrative experience at Clarion University of
Pennsylvania includes 18 years as Chairperson of the Department of Accountancy, Director of
the Internship Program, and Director of the Center for Accounting Education and research.
Charles J. Pineno can be contacted at: cpineno@su.edu
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