Business Simulation Seminar Evaluating a Business The Balanced Scorecard

Evaluating a Business  Difficult to find one number to evaluate how well management is doing  For example Stock price may go up but machinery is obsolete Profits may be good but employees are leaving and you have stock-outs

Evaluating a Business  Each measure trades off with others  What you measure is what you get If you emphasize only one metric, others will suffer E.g. If emphasize profits only, then may get no new investments or maintenance

Balanced Scorecard  Answers four questions 1. How do our customers see us? (customer perspective) 2. What must we excel at? (internal business perspective) 3. Can we continue to improve and create value? (innovation and learning perspective) 4. How do we look to shareholders? (financial perspective)

Balanced Scorecard  For each round Measures are defined in each of the four areas Results are totaled for an overall score  At the conclusion of all rounds (recap) Summary measures are defined for each area Results are totaled for overall score

Balanced Scorecard  To see scoring details Go to Industry Scoring -> Balanced scorecard Click on a round score Click on the specific measure  E.g. Stock price  Will show how score is determined

Customer Perspective Concerns  Quality  Time  Performance  Service

Customer Perspective Measures No CreditPartial CreditFull Credit Customer Buying Criteria <= 2121 – 39>= 39 Customer Awareness <= 50%50% - 90%>= 90% Customer Accessibility <= 50%50% - 90%>= 90% Product Count <= 11 – 8>= 8 SG&A Expense (SG&A / sales) = 25% 5% - 7% or 20% - 25% 7% - 20%

Internal Business Perspective No CreditPartial CreditFull Credit Contribution margin (Price - Labor - Material - Inventory Carry)/Price) <= 27%27% – 36%>= 36% Plant utilization = 200% 90% - 100% or 180% - 200% 100% - 180% Days of working capital (curr assets – curr liab.) = 105 days days or 90 – 105 days 30 – 90 days Stock-out costs (lost sales as % of sales) >= 5%0% - 5%0% Inventory carrying costs (cost of inv as % of sales) >= 3.5%1% - 3.5%<= 1%

Financial Perspective No Credit Partial Credit Full Credit Stock price<= $2$2 - $32>= $32 Profits<= $1M$1M - $7M>= $7M Leverage (assets / liab) = – 1.8 or 2.8 – – 2.8

Innovation and Learning Perspective No CreditPartial CreditFull Credit Employee turnover rate >= 10.5%9.5% – 10.5%<= 9% Employee productivity (improvement due to HR and TQM) <= 100%100% - 118%>= 118% TQM material reduction (effect on process impr. Vendor and 6 Sigma) 0%0% - 7%>= 7% TQM R&D Reduction 0%0% - 40%>= 40% TQM admin cost reduction 0%0% - 60%>= 60% TQM demand increase 0%0% - 10%>= 10%

Recap Scoring  Evaluation at the end of the simulation  Looks at factors that may fluctuate during the rounds  Looks at same four areas 1. customer perspective 2. internal business perspective 3. innovation and learning perspective 4. financial perspective

Customer Perspective Measures No CreditPartial CreditFull Credit Weighted Cust Survey (combines buying criteria, awareness, and accessability) <= 88 – 31>= 31 Market Share (sales / industry sales) <= 8%8% - 22%>= 22%

Internal Business Perspective No CreditPartial CreditFull Credit Operating Profit (net profit, excluding extraordinary items) <= $2.225M $2.225M - $135M >= $135M

Financial Perspective No CreditPartial CreditFull Credit Market Cap (company stock value as $ of industry) <= 1%1%- 30%>= 30% Sales<= $15M$15M - $181M>= $181M Emergency Loan (% of assets) >= 1%0% – 1%0%

Innovation and Learning Perspective No CreditPartial CreditFull Credit Sales per Employee <= $118k$118k - $271k>= $271k Assets per Employee <= $84k$84k - $253k>= $253k Profits per Employee $0$0 - $273k>=$273k

Balanced Scorecard  Score for entire simulation is sum of round and recap scores  Available in Capsim Under Reports  Will also be used for final exam