Question Tag: Internal Perspective

a) Balanced Scorecard (BSC)
Traditional methods of performance measurement focus only on financial measures such as profit, ROI, etc., which are derived from historical data without any future incorporation. The Balanced Scorecard breaks away from these traditional concepts and proposes, in addition to financial measures, three non-financial performance measurement areas for organizations, namely:

• Customer perspective
• Internal business perspective
• Innovation and learning perspective.
  (2 marks)

b) Differences between Balanced Scorecard and Traditional Approach

• The Scope: BSC covers financial and non-financial performance measures, whereas the traditional approach focuses solely on financial measures.
• Decision-making: BSC leads to optimal decision-making by considering all performance measurements, unlike the traditional approach, which concentrates only on profit.
  (2 points @ 1.5 marks = 3 marks)

c) BSC at Strategic Planning Stage
BSC helps set strategic objectives in all four perspectives:

• Customer Perspective:
  The organization should ask, “To achieve our vision, how should we appear to our customers?” Objectives could include:
  • New customer acquisitions (e.g., 40% increase)
  • Customer retention (e.g., 95% retention ratio)
  • On-time delivery (e.g., 98% delivery rate)
  • Customer complaints reduction to 1%.
• Internal Perspective:
  The organization must ask, “What must we excel at to achieve our financial and customer objectives?” Objectives could include:
  • New product introduction (e.g., introduce 4 new products next year)
  • Percentage of sales from new products (e.g., 20% of sales)
  • Reduction in production losses (e.g., 2% reduction)
• Learning and Growth Perspective:
  Organizations must continue to improve and create value by investing in infrastructure, people, systems, and organizational procedures. Objectives could include:
  • Employee skill level
  • Training availability
  • Employee satisfaction (e.g., reduce turnover to 0.5%)
• Financial Perspective:
  Organizations must address how to create value for shareholders. Objectives could include:
  • Sales growth (e.g., 40%)
  • Gross profit ratio (e.g., 30%)
  • Return on Investment (e.g., 25%)
  • Unit cost reduction by 20%.
    (2 marks for 4 perspectives = 8 marks)

d) Benchmarking
Benchmarking is the continuous search for and adaptation of significantly better practices that lead to superior performance. This is done by investigating the performance and practices of other organizations, such as industry leaders or similar industries. By adopting these best practices, Ancient Ltd. can elevate its performance to industry-standard levels.
(3 marks)

e) Benchmarking and Customer Perspective
Benchmarking can improve customer perspective performance by adopting best customer-oriented practices from other organizations. For example:

• Adopting the market leader’s customer complaints handling procedures.
• Improving after-sales procedures by using best practices.
• Enhancing invoicing and product delivery systems according to industry best practices.
  By adopting such practices, Ancient Ltd. can improve performance related to customer satisfaction.
  (4 marks)