A note on “strategy, the balanced scorecard and quality” terms in advanced management accounting study

A note on “strategy, the balanced scorecard and quality” terms in advanced management accounting study

 

Briefly describe the following “strategy, the balanced scorecard and quality” terms in advanced management accounting study:

(Terms used in Chapter 20)

 

1.    What is strategic management accounting?

2.    What is a balanced scorecard and features of a good balanced scorecard

3.    Aligning the balanced scorecard to strategy

4.    Pitfalls to avoid when implementing a balanced scorecard

5.    What is a Tableau de bord

6.    Cost of quality under the balanced scorecard: the financial perspective, the customer perspective, the internal-business-process perspective, and the learning-and growth perspective

 

Strategic management accounting (SMA) and the balanced scorecard (BSC) are complementary: SMA supplies strategically relevant information, while the BSC converts strategy into linked objectives, measures, targets, and initiatives.

1. Strategic management accounting

Strategic management accounting (SMA) is the provision and analysis of accounting and non-accounting information to develop, implement, monitor, and revise business strategy. Unlike conventional management accounting, it is explicitly forward-looking and externally oriented—considering competitors, customers, suppliers, markets, product positioning, and long-term competitive advantage.

Typical SMA techniques include:

• Competitor cost and performance analysis
• Target costing and lifecycle costing
• Value-chain analysis
• Customer profitability analysis
• Strategic pricing and profitability analysis
• Benchmarking

2. Balanced scorecard

A balanced scorecard is a strategic performance-management system that translates vision and strategy into a small, coherent set of objectives and measures across four linked perspectives:

Perspective	Core question
Financial	How should we perform for shareholders/ owners?
Customer	How should customers see us?
Internal business processes	What processes must we excel at?
Learning and growth	How will we sustain improvement, innovation, and capability?

A good BSC:

• Is derived directly from the organisation’s strategy, not merely a long KPI list.
• Contains a limited number of critical measures—neither too few nor too many.
• Balances financial and non-financial measures.
• Balances lagging indicators (outcomes, such as profit or customer retention) with leading indicators (drivers, such as employee training or defect-prevention rates).
• Specifies objectives, measures, targets, initiatives, ownership, and review frequency.
• Shows plausible cause-and-effect links between capability, processes, customers, and financial outcomes.

3. Aligning BSC to strategy

Alignment means making the BSC the mechanism through which strategy is communicated and executed.

1.    Clarify the strategic destination—for example, “compete through reliable, premium customer service.”

2.    Develop a strategy map showing causal logic:

Learning and growth → Internal processes → Customer value → Financial results

Set objectives and measures for each perspective.

3.    Cascade relevant objectives to business units, teams, and individuals.

4.    Link budgets, resource allocation, projects, and incentives to strategic priorities.

5.    Hold periodic strategic-review meetings to test assumptions and revise the strategy or measures when evidence indicates they are no longer valid.

Kaplan and Norton’s framework stresses translating strategy, aligning the organisation, linking resources, and using strategic—not only operational—feedback.

4. BSC implementation pitfalls

Avoid the following:

• Weak strategic link: selecting familiar KPIs rather than measures that express the strategic value proposition.
• Too many measures: creates reporting overload and obscures priorities.
• Too few measures: fails to represent the full strategy or balance leading and lagging indicators.
• No causal logic: treating the four perspectives as separate scorecards rather than a linked strategy system.
• Lack of senior-management ownership: delegating it solely to middle management, finance, IT, or consultants.
• Insufficient employee involvement: employees do not understand the strategy or their contribution to it.
• Treating it as a one-off measurement or IT project: the BSC must be a continuing management process.
• No link to resources: strategic objectives must influence budgets, investment decisions, and improvement initiatives.
• Using it only for compensation: this can encourage gaming and short-term metric optimisation.
• Static measures: failing to revise objectives when strategy, customer needs, competitors, or the environment change.

5. Tableau de bord

A tableau de bord (“dashboard” or “control panel”) is a French management-control tool that gives a manager a rapid, condensed view of the indicators relevant to their area of responsibility. Historically, it was designed to help managers “pilot” their operations by identifying deviations and prompting corrective action.

 

Compared with a balanced scorecard:

Tableau de bord	Balanced scorecard
Often decentralised and tailored to each manager/ unit	Built around organisation-wide strategy
Traditionally focused on operational control and timely action	Focused on translating and executing strategy
May use locally selected indicators	Uses objectives and measures linked across four perspectives
Emphasises monitoring and corrective control	Emphasises strategic cause-and-effect and organisational alignment

In practice, a tableau de bord can complement a BSC: the BSC states the strategic objectives; unit-level tableaux de bord provide detailed, timely operating information for managing them.

6. Cost of quality in the BSC

Cost of quality (COQ) covers the costs of achieving quality and the costs arising from poor quality. Its standard categories are prevention, appraisal, internal failure, and external failure. Prevention includes avoiding defects; appraisal concerns inspection and conformance checking; internal failures occur before delivery; and external failures are found after the customer receives the product or service.

BSC perspective	Quality-cost focus	Example measures
Financial	Measure the financial consequences of quality and poor quality. The aim is generally to reduce total COQ and especially costly failure costs, while investing appropriately in prevention.	COQ as % of sales; scrap and rework cost; warranty cost; returns/ refunds; cost of recalls; profit lost from defective service
Customer	Capture the customer’s experience of quality, reliability, and recovery from failure. External failure costs often damage satisfaction, loyalty, and reputation.	Complaint rate; return rate; on-time-and-in-full delivery; customer satisfaction; defect-free deliveries; warranty claims; retention rate
Internal business process	Control and improve the processes that create or prevent defects. Focus on preventing errors and detecting them early, before they reach customers.	First-pass yield; defect rate; rework hours; process capability; cycle time; inspection/test failures; supplier defect rate
Learning and growth	Build the people, systems, culture, and knowledge needed for continuous quality improvement. This is the leading foundation for better processes and lower future failure costs.	Quality-training hours; employee quality suggestions; problem-solving participation; certification levels; use of root-cause analysis; employee engagement in continuous improvement

A typical causal chain is: invest in staff quality training and process knowledge (learning and growth) → improve process control and reduce defects (internal process) → improve reliability and satisfaction (customer) → reduce warranty, returns, and lost sales while improving profitability (financial). This illustrates why prevention expenditure should not automatically be treated as waste: it may be a strategic investment that reduces much larger internal and external failure costs later.

Videos on the topic of this note: v1: balanced scorecard;