non-financial performance

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Chapter 14 Questions
Review Questions
14.4
Provide four examples of non-financial performance measures that could be used to measure
the performance of a bank. LO 14.3
14.12 Distinguish between lag and lead indicators. Provide two examples of each to illustrate your
answer. LO 14.7
14.15 Explain why the effective management of non-financial performance may not always flow
through to improved financial performance. LO 14.10
Exercises
E14.23 Non-financial performance measures LO 14.3
For each of the following businesses, select two performance measures that could be used to support the
competitive strategy of superior product or service quality. Make sure that your measures are specific to
each type of business.
1. accounting firm
2. company that manufactures electric garden equipment
3. firm that designs advertising campaigns for sporting events
4. company that sells children’s toys
5. taxi company
E14.28 Balanced scorecard; strategy map: manufacturer LO 14.5, 14.7, 14.8
Mobile Bling Ltd manufactures accessories for mobile phones, which is a fast growing and very
competitive market. Mobile Bling does not produce or sell mobile phones so has to rely on developing
close relationships with mobile phone manufacturers to ensure that it can design and launch the right
accessories in time for the launch of new models of phones.
Mobile Bling’s management team is considering designing a balanced scorecard to better manage its
competing priorities, using Kaplan and Norton’s four perspectives. The following company objectives
have already been formulated and will now need to be reworked to suit the design of a BSC.



Achieve a 10 per cent increase in sales revenue and a 20 per cent market share.
Achieve a return on investment of 15 per cent.
Design innovative accessories to suit the latest models of mobile phones and launch these on the
market as soon as new phones are released.
Have flexible manufacturing processes and employee skills to produce the right products.

Required:
1. Rework or modify each of the above objectives to suit the four perspectives of the BSC: financial,
customer, internal business process, and learning and growth. You will need to break apart an
objective to make sure it addresses a specific perspective of the BSC.
2. Draw a simple strategy map in the style of Exhibit 14.5.
3. For each perspective suggest one lag and one lead indicator.
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Problems
P14.34 Performance measures for operational control: manufacturer LO 14.3
Medical Systems Corporation manufactures diagnostic testing equipment used in hospitals. The
company practises JIT production management and has a state-of-the-art manufacturing system.
The following non-financial data were collected every two weeks in the Elizabeth plant during
the first quarter of the current year:
Fortnightly measurement period
1
2
3
4
5
6
Cycle time (days)
1.7
1.4
1.4
1.3
1.3
1.2
Number of defective finished products
4
4
3
4
3
3
Customer complaints
7
8
7
6
8
9
Unresolved complaints
2
1




Products returned
4
4
3
3
2
1
Warranty claims
3
3
3

2

In-process products rejected
6
6
8
10
11
8
Average number of units produced per day per employee
451
446
453
457
457
462
Percentage of on-time deliveries
94%
95%
95%
97%
100%
100%
Percentage of orders filled
100%
100%
100%
98%
100%
100%
Inventory value/sales revenue
2%
2%
2%
1.5%
2%

Machine downtime (minutes)
88
88
132
88
77
83
Bottleneck machine downtime* (minutes)
28
22
17

66
11
Overtime (minutes) per employee
22


11
22
11
Average setup time (minutes)
132
132
127
123
119
111
* The concept of bottlenecks is explained in Chapter 16.
Required:
1. For each non-financial performance measure, indicate which of the following areas of
manufacturing performance is involved:
(a) production processing
(b) product quality
(c) customer satisfaction
(d) in-process quality control
(e) productivity
(f) delivery performance
(g) raw material and scrap
(h) inventory
(i) machine maintenance.
(Some measures may relate to more than one area.)
2. Write a memo to management commenting on the performance data collected for the
Elizabeth plant. Be sure to note any trends or other important results you see in the data.
Evaluate the Elizabeth plant in each of the areas listed in requirement 1.
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P14.36 Balanced scorecard; strategy map: service firm LO 14.5, 14.6, 14.7, 14.8
Clean Living Ltd is a travel company that specialises in green tours—package tours to
environmentally sensitive destinations. These types of tours are growing in popularity and, while
Clean Living has little problem attracting customers, it has noticed that a number of competitors
have just commenced operations. Even some of the regular tour companies are starting to offer
green tours.
Saffron Phelong, the managing director, has asked the financial controller, Clarence Brown, to
design and implement a new performance measurement system that may help protect the
business against competitors. Phelong has spent many years working for large multinationals and
appreciates the value of strategic planning and a good performance measurement system.
Recently she attended a seminar on balanced scorecards.
To provide the foundation for a new performance measurement system, the managers of the
company participated in a strategic planning retreat. They drafted a set of objectives to support
the four perspectives of a balanced scorecard.
Perspectives
Objectives
Financial
Improve cash flow
Improve profit
Customer
Increase market share
Increase customer satisfaction
Internal business process
Increase office cost effectiveness
Develop innovative tours
Learning and growth
Increase environmental knowledge of employees
Required:
1. Based on the objectives provided, draw a strategy map for Clean Living.
2. For each of the four perspectives, provide lead and lag indicators that would support the
objectives. Make sure that your measures relate specifically to Clean Living.

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