Question 1

In essence, a balanced scorecard lays out a theory of how the company can take concrete actions to attain its desired outcomes. The strategy should seem plausible, but it should be regarded as only a theory.

Accepted Answer

The statement accurately describes the purpose of a balanced scorecard - to provide a theory of how a company can achieve its goals through actionable steps - and notes that while the strategy should be plausible, it is still just a theory and may need to be revised or adjusted over time.

Question 2

If the balanced scorecard is correctly constructed, the performance measures should be independent of each other so that bad performance on one measure will not result in bad performance on another performance measure.

Accepted Answer

The balanced scorecard is designed to take a strategic approach to performance measurement, and as such, the performance measures should be interrelated and mutually reinforcing. This means that poor performance on one measure could potentially impact other measures as well, as they are all interconnected in achieving the overall strategic objectives.

Question 3

The performance measure which answers the question "Are we maintaining our ability to change and improve?" is:

Accepted Answer

The learning and growth perspective focuses on the organization's ability to acquire and utilize knowledge, improve systems and processes, and develop its employees. By monitoring and improving this perspective, the organization can ensure that it is maintaining its ability to change and improve in the long run. Therefore, the best choice is D.

Question 4

The balanced scorecard can only have four categories of performance measures.

Accepted Answer

The balanced scorecard is not limited to only four categories of performance measures. It can have multiple categories based on the organization's objectives and strategies. However, it is recommended to limit the number of categories to maintain focus and simplicity.

Question 5

Financial measures such as return on investment (ROI) and residual income as well as operating measures may be included in a balanced scorecard.

Accepted Answer

Financial measures such as ROI and residual income are typically included in a balanced scorecard, along with other measures of customer satisfaction, internal processes, and learning and growth.

Question 6

An increase in appraisal costs in a quality improvement program would usually have the following initial effects on internal and external failure costs:

Accepted Answer

The answer of An increase in appraisal costs in a...

Question 7

Incentive compensation for employees, such as bonuses, should be tied to balanced scorecard performance measures regardless of how long the scorecard has been in place.

Accepted Answer

The effectiveness of tying incentive compensation to balanced scorecard measures depends on the maturity and stability of the scorecard system. If the system has not been in place long enough to be reliable and understood by employees, linking compensation directly to it may be premature and potentially counterproductive.

Question 8

The performance measures on a balanced scorecard tend to fall into four groups: financial measures, customer measures, internal business process measures, and learning and growth measures.

Accepted Answer

This is correct. The four groups of performance measures on a balanced scorecard are financial measures, customer measures, internal business process measures, and learning and growth measures.

Question 9

A balanced scorecard contains both customer and internal business process performance measures because improvements in internal business process should result in improvements in customer satisfaction.

Accepted Answer

The balanced scorecard framework recognizes that a company's internal processes impact its ability to deliver value to customers. By focusing on improving internal processes, a company can ultimately improve customer satisfaction and loyalty. Therefore, both customer and internal business process performance measures are necessary for a comprehensive view of the company's overall performance.

Question 10

An increase in appraisal costs will usually result in an increase in:

Accepted Answer

An increase in appraisal costs, which are costs associated with inspecting and testing to ensure that products or services meet quality standards, typically leads to a decrease in internal failure costs. This is because more rigorous inspection and testing can identify defects before products reach the customer, reducing the costs associated with rework, scrap, and other failures. However, the question incorrectly suggests an increase in internal failure costs, which is not the usual outcome of increased appraisal costs. The correct understanding is that increased appraisal costs are generally aimed at reducing both internal and external failure costs by catching defects earlier in the process.

Question 11

Net profit margin percentage is an example of which performance measure category?

Accepted Answer

Net profit margin percentage is a financial performance measure, as it evaluates the profitability of a company by calculating the percentage of net profit earned in comparison to its revenue. It helps determine the company's financial health and performance.

Question 12

Incentive compensation for employees, such as bonuses, should be tied to balanced scorecard performance measures only if managers are confident that the performance measures are easily manipulated by those being evaluated.

Accepted Answer

Incentive compensation for employees, such as bonuses, should be tied to balanced scorecard performance measures regardless of whether or not managers are confident that the measures are easily manipulated. The measures themselves should be designed to accurately reflect performance and aligned with organizational goals, and steps should be taken to minimize the potential for manipulation or gaming of the system.

Question 13

Employee turnover percentage is an example of which performance measure category?

Accepted Answer

Employee turnover percentage falls under the learning and growth category, as it is often used to measure organizational improvement, workforce development, and the effectiveness of leadership and management in fostering a positive work environment and opportunities for professional growth.

Question 14

Inspection of products would be classified as a(n):

Accepted Answer

Inspection of products falls under the category of appraisal cost, which is the cost incurred to ensure that products meet quality standards before they are delivered to the customers.

Question 15

Financial measures tend to be lag indicators that report on the results of past actions.

Accepted Answer

Financial measures such as revenue, profit, and return on investment are typically calculated based on past financial data and therefore cannot provide immediate feedback on the success or failure of current business strategies. They are considered lag indicators because they report on what has already happened, rather than what is currently happening in the business.

Question 16

Financial measures such as return on investment (ROI) are generally better than nonfinancial measures of key success drivers such as customer satisfaction as leading indicators of future financial performance.

Accepted Answer

Nonfinancial measures like customer satisfaction can be leading indicators of future financial performance, predicting long-term success, loyalty, and repeat business, which eventually translate into financial outcomes. Financial measures like ROI, while important, often reflect past performance rather than predicting future success.

Question 17

Customer value propositions typically fall into three broad categories, which include all of the following except:

Accepted Answer

The three broad categories of customer value propositions are product leadership, operational excellence, and customer intimacy. Market share is not a category of customer value proposition; rather, it is a measure of a company's market position.

Question 18

Delivery cycle time is an example of which performance measure category?

Accepted Answer

Delivery cycle time falls under the category of internal business processes, as it measures the efficiency and effectiveness of the process involved in delivering the product or service to the customer.

Question 19

Market share percentage is an example of which performance measure category?

Accepted Answer

Market share percentage is an example of a customer performance measure, as it reflects the company's ability to attract and retain customers relative to its competitors.

Question 20

If improvement in a performance measure on a balanced scorecard should lead to improvement in another performance measure, but does not, then employees must work harder.

Accepted Answer

If improvement in a performance measure on a balanced scorecard should lead to improvement in another performance measure, but does not, it may indicate a flaw in the strategy or the metrics being used. Simply working harder may not necessarily address the underlying issue. A root cause analysis may be necessary to identify and address the underlying problem.

Quiz 12: Strategic Performance Measurement