Balanced Scorecard and Corporate Responsibility

Module 13: DiscussionMeasuring with Metrics
•
Define what a metric is and share an example of a metric that exists in your everyday
life, non-business related.
•
Now consider metrics that exist in businesses that you have worked for – what employee
performance and financial conditions were they measuring and why? (If the company
you worked for did not measure what do you think of that now and what should they
have measured?)
Directions:
•
Cite your textbooks and cite 2 peer reviewed articles.
•
Textbook name: Managerial Accounting by Carl S. Warren and William B. Tayler 2020
•
Reference : Warren, C. S., & Tayler, W. B. (2020). Managerial Accounting.
Cengage.
•
Read: Chapter 14 in Managerial Accounting
•
The paper should address all components of the question with a 500 word limit
•
No plagiarism
•
The main source is textbook
•
No ChatGPT
•
Headers for each question
Chapter 14
The Balanced
Scorecard and
Corporate Social
Responsibility
Learning Objectives
• Obj. 1: Describe the concept of a performance measurement
system.
• Obj. 2: Describe and illustrate the basic elements of a
balanced scorecard.
• Obj. 3: Describe and illustrate the balanced scorecard,
including the use and impact of strategy maps, measure
maps, strategic learning scorecard cascading, and cognitive
biases.
• Obj. 4: Describe corporate social responsibility (CSR),
including methods of measuring and encouraging social
responsibility using the balanced scorecard.
• Obj. 5: Use capital investment analysis to evaluate CSR
projects.
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Performance Measurement Systems
• Performance measurement systems are used by
management to assess how well employees or units within
a company meet the company’s goals and objectives.
o
A performance measurement system does this by using
metrics (or measures) of current conditions or performance.
▪ A metric or measure is a representation of something a person or
company cares about.
• Metrics like operating income and cash flows are often
used by companies to measure their financial
condition and performance.
• Strategic performance measurement systems define
and link strategic objectives to the performance metrics of
a company.
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The Balanced Scorecard
(slide 1 of 2)
• The balanced scorecard (BSC) is the best-known
strategic performance measurement system.
• The balanced scorecard emphasizes a balanced view
of performance, thus its name, from multiple
perspectives—not just financial.
• For example, nonfinancial performance metrics such
as customer satisfaction and employee training are
included within the balanced scorecard.
o
Such metrics are often leading indicators of future
financial performance.
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The Balanced Scorecard
(slide 2 of 2)
• For example, if customer satisfaction for a movie
theatre declines, sales for future months may also
decline.
o
In contrast, actual sales is normally considered a
lagging indicator.
• Some companies call their strategic performance
measurement systems balanced scorecards even if
they do not include all of the elements of a traditional
balanced scorecard.
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Elements of the Balanced Scorecard
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Performance Perspectives
(slide 1 of 4)
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Balance among Perspectives in the Balanced
Scorecard
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Performance Perspectives
(slide 2 of 4)
• The objectives of the performance perspectives are as
follows:
o
Focus management on looking beyond typical financial
measures of performance, such as sales and profits, and
thus, encourage a more balanced view of performance.
o
Organize the scorecard into types of performance.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Performance Perspectives
(slide 3 of 4)
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Performance Perspectives
(slide 4 of 4)
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Strategic Objectives
(slide 1 of 2)
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Strategic Objectives
(slide 2 of 2)
• Assume that Cordier Toys, Inc., an online toy retailer,
uses a balanced scorecard and has developed strategic
objectives for each of the four performance perspectives
as shown in Slide 14.
• These strategic objectives provide guidance to Cordier’s
management as to the actions that should be taken
related to the four performance perspectives.
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Cordier Toys’ Strategic Objectives
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Performance Metrics
• Performance metrics are used to assess performance in
achieving the strategic objectives.
o
At least one metric is used for each strategic objective.
• Cordier Toys, Inc., has developed the performance metrics
shown in Slide 16.
• Cordier Toys uses these performance metrics for
assessing its success in achieving its strategic objectives.
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Cordier Toys’ Performance Metrics
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Strategic Initiatives
• Strategic initiatives are action plans that management
implements to achieve the strategic objectives.
• Cordier Toys, Inc., plans to use two strategic initiatives to
achieve the strategic objectives of improving delivery
times and training employees.
o
To reduce delivery times, management plans to automate
its picking and packaging process.
o
To motivate employees to participate in training programs,
management plans to provide pay increases to employees
who achieve training goals.
• Slide 18 shows how these two strategic initiatives are
directed at achieving the strategic objectives of train
employees and improve delivery times.
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Cordier Toys’ Strategic Initiatives
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Performance Targets
(slide 1 of 2)
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Performance Targets
(slide 2 of 2)
• Cordier Toys, Inc., developed the following performance
targets to serve as employee goals:
o
Achieve 100 hours of median training time per employee.
o
Maintain an average employee tenure of at least 2.2 years.
o
Reduce the delivery time from the moment a product is ordered
to the time it is delivered to 60 hours or less.
o
Reduce erroneous shipments to 2 per week.
o
Increase the percentage of customers who return to the website
to make additional purchases to 45% or higher.
o
Increase the online customer satisfaction rating to 9.4 (out of 10)
or higher.
o
Increase market share to 1.31% or higher.
o
Increase operating profits to $57 million or higher.
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Cordier Toys’ Performance Targets
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Using the Balanced Scorecard
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Strategy Maps
(slide 1 of 3)
• A strategy map shows the expected cause-and-effect
relationships among strategic objectives.
o
In doing so, a strategy map shows how each strategic
objective contributes to the overall mission or strategy of
the company.
o
Sometimes a strategy map is referred to as a value chain.
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Cordier Toys’ Strategy Map
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Strategy Maps
(slide 2 of 3)
• Dotted arrows have been added to Cordier Toys’
balanced scorecard shown in Slide 24.
o
These arrows create a strategy map that links the strategic
objectives to each other and ultimately to the overall
objective of increasing profits.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Strategy Maps
(slide 3 of 3)
• Cordier Toys’ strategy map shows that training
employees and reducing employee turnover are
expected to improve delivery times and reduce shipping
errors.
o
In turn, improving delivery times and reducing shipping
errors are expected to increase customer delight, which in
turn is expected to increase profits.
o
Finally, reducing shipping errors will also increase profits
by reducing the costs associated with processing returns.
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Check Up Corner
Understanding a Strategy Map
• Cameron Tools Inc. has developed a balanced scorecard with six
objectives under the four standard performance perspectives.
o
o
o
o
In the learning and growth perspective, the company has strategic
objectives to (1) promote employees from within the company and (2)
recruit quality recent graduates.
In the internal processes perspective, the company has strategic
objectives to (1) increase innovation and (2) improve communication
between departments.
In the customer perspective, the company has a strategic objective to
provide higher-quality products that last longer.
Finally, in the financial perspective, the company has the strategic
objective to increase profits.
• Given these strategic objectives, draw a strategy map that shows
how these objectives influence each other and ultimately lead to the
company’s objective of increasing profits.
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Check Up Corner
Understanding a Strategy Map
Solution (slide 1 of 3)
• A possible version of the strategy map with an explanation of the
links between strategic objectives follows:
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Check Up Corner
Understanding a Strategy Map
Solution (slide 2 of 3)
• Promoting employees from within can be expected to:
o Increase the ability to recruit quality recent graduates, because these
new hires can look forward to job growth within the company.
o Increase innovation and improve communication between departments,
because employees will be more willing to innovate if they know it may
lead to a promotion, and employees who have spent a long time at the
company will better understand proper communication between
departments.
• Recruiting quality recent graduates can be expected to increase
innovation, because quality new hires are likely to bring a fresh
perspective and new ideas to the company.
• Both increased innovation and improved interdepartment
communications can be expected to lead to more efficient
production of higher-quality, more durable products.
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Check Up Corner
Understanding a Strategy Map
Solution (slide 3 of 3)
• Increased innovation and improved interdepartment communications
may also directly increase profits as more efficient, cost-reducing
production processes are developed and costly errors are avoided.
• Finally, the production of better products can also be expected to
increase profits.
• While the links provided in this solution represent a possible
mapping of strategic objectives on the balanced scorecard for
Cameron Tools Inc., this mapping is not the only possible solution.
o Linking strategic objectives together on a balanced scorecard always
involves some degree of subjectivity.
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Measure Maps (slide 1 of 3)
• A measure map shows the expected relationships
among performance metrics.
o
These expected relationships are based on the strategy
map, which links the strategic objectives.
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Measure Maps (slide 2 of 3)
• The measure map also shows which metrics are
leading indicators and which measures are lagging
indicators of performance.
o
Metrics that are early in the value chain are normally
considered leading indicators, while metrics later in the
value chain are normally lagging indicators.
▪ A leading indicator can be any metric where performance is
predictive of performance in another metric.
▪ A lagging indicator can be any metric where performance is
predicted by performance in another metric.
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Cordier Toys’ Measure Map
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Measure Maps (slide 3 of 3)
• The relationships shown in the measure map of Slide
33 are the same as the strategy map, with two
exceptions.
o
The delight the customer objective is related to the two
performance metrics of percentage of customers who
shop again and online customer satisfaction rating.
Both of these metrics are leading indicators for the two
performance metrics of market share and operating
profit.
o
The reduce shipping errors objective is related to the
number of erroneous shipments. While this metric is not
expected to significantly affect market share, it is a
leading indicator for operating profit. That is, the costs
of processing returns will decrease operating profit.
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Check Up Corner
•
•
Understanding a Measure Map
Building on the Cameron Tools Inc. balanced scorecard example from Slide 27,
assume that the company has the following performance metrics for each
strategic objective:
o Promote from within: Percentage of new managers promoted from within the
company
o Recruit quality recent graduates: Number of entry-level employees from top
10 manufacturing colleges
o Increase innovation: Product durability test scores and number of production
hours per product
o Improve communication between departments: Number of production errors
due to miscommunication
o Provide high-quality, durable products: Number of products returned on
warranty and online product ratings
o Increase profits: Market share and gross profit
Given these performance metrics and their related strategic objectives, draw a
measure map showing the expected relationships among performance metrics.
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Check Up Corner
Understanding a Measure Map Solution
(slide 1 of 4)
• The following is a possible version of the measure
map with an explanation of the links between
strategic objectives:
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Check Up Corner
Understanding a Measure Map Solution
(slide 2 of 4)
•
•
The links in the measure map are, for the most part, a reflection of the links in the
strategy map. For example, consider the percentage of new managers promoted
from within the company, which is a performance metric of the promote from
within objective. Because the promote from within objective is expected to
influence the recruit quality recent graduates, increase innovation, and improve
communication between departments objectives, the performance metrics of
these objectives will be related in a similar fashion. Specifically, the percentage of
new managers promoted from within the company should influence the number
of entry-level employees from top 10 manufacturing colleges (a performance
metric of recruit quality recent graduates), product durability test scores and
number of production hours per product (both performance metrics of increase
innovation), and number of production errors due to miscommunication (a
performance metric of improve communication between departments).
All other performance metric linkages in the measure map follow this pattern,
with two exceptions. First, note that there are two performance metrics of the
increase innovation objective. Each of these performance metrics represents a
different aspect of the increase innovation objective.
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Check Up Corner
Understanding a Measure Map Solution
(slide 3 of 4)
Product durability test scores represent innovation related to product design, while
number of production hours per product represents innovation related to the
production process. Further, only one of these performance metrics is expected to
have a direct effect on the increase profits objective. Because number of production
hours per product has clear implications for the cost of goods manufactured and sold,
this performance metric will likely impact gross profit (a performance metric of the
increase profits objective). Second, although there are two performance metrics
related to increasing profits, both performance metrics represent a different aspect of
this objective. Market share represents an increase in revenues, which will increase
profits. Gross profit represents both revenues and costs. Thus, performance metrics
that are likely to affect costs should directly link to the gross profit performance
metric in the measure map, while performance metrics that are likely to affect
revenues should directly link to both market share and gross profit. Accordingly,
because number of production hours per product and number of production errors
due to miscommunication both directly affect costs, they are both linked to gross
profit. However, because number of products returned on warranty and online
product ratings affect revenues, both performance metrics are linked to both market
share and gross profit.
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Check Up Corner
Understanding a Measure Map Solution
(slide 4 of 4)
•
•
Number of production hours per product and number of production errors due to
miscommunication can both be expected to directly influence gross profit.
Product durability test scores and number of production errors due to
miscommunication can both be expected to influence number of products
returned on warranty and online product ratings. These will both, in turn, affect
market share and gross profit.
While the links provided in this solution represent a possible mapping of
performance metrics on the balanced scorecard for Cameron Tools Inc., this
mapping is not the only possible solution. Linking performance metrics together
on a balanced scorecard always involves some degree of subjectivity.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Strategic Learning
(slide 1 of 4)
• If the expected relationships are not supported by statistical
analyses, management may need to adjust its strategic
objectives.
o
This process of using performance metrics to verify strategic
objective expectations and, if necessary, adjusting them is called
strategic learning.
• The lack of statistical support for a relationship among
performance metrics does not necessarily mean that the
strategic objective is flawed.
o
For example, the lack of statistical support may occur because
the performance metric does not accurately measure the
strategic objective. In other cases, there may be a time lag in
how the performance metric measures the strategic objective.
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Strategic Learning
(slide 2 of 4)
• Assume that Cordier Toys, Inc., uses statistical analyses
to verify expected relationships between its performance
metrics and strategic objectives.
• Assume that the analyses support most of the
relationships. However, an increase in the online
customer satisfaction rating did not generate an increase
in the operating profit, as shown in Slide 42.
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Analyzing Performance at Cordier Toys
• Possible reasons for this
result are as follows:
o
o
o
Reason 1: Delighting the
customer has no effect on
increasing profits.
Reason 2: Operating profit is
a poor performance metric
for increasing profits.
Reason 3: The online
customer satisfaction rating
is a poor performance metric
for delighting the customer.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Strategic Learning
(slide 3 of 4)
• Of the possible reasons for the unsupported relationship,
Reason 1 and Reason 2 do not seem logical.
o
Customer satisfaction should lead to an increase in
customers, sales, and profits (Reason 1).
o
Operating profit is a direct measure of increasing profits
(Reason 2).
• Online customer satisfaction rating is a poor metric for
increasing profits (Reason 3), as summarized in Slide
44.
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Strategic Learning at Cordier Toys
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Strategic Learning
(slide 4 of 4)
• Assume that upon further investigation, Cordier Toys learned
that to avoid low online customer satisfaction ratings, its sales
team had been contacting unsatisfied customers.
o
Specifically, the sales team offered to let the customers keep the
merchandise with a full refund, provided the customers adjust
their customer satisfaction feedback to a positive rating.
▪ While this practice increased Cordier Toys’ online customer
satisfaction ratings, it decreased operating profits. That is, sales
decreased (refunds), but cost of goods sold did not.
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Scorecard Cascading
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Cognitive Biases
• Decision making with the balanced scorecard may be
subject to cognitive or psychological biases.
• A cognitive bias results in decisions that are not
economically accurate or rational.
• Some of the cognitive biases that may affect the use of
balanced scorecards are as follows:
o
Motivated reasoning
o
Surrogation
o
Common measures bias
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Motivated Reasoning
(slide 1 of 4)
• Motivated reasoning is the tendency for a person to
see what they want to see in data. The reason people
are susceptible to motivated reasoning is that they want
to feel good about themselves.
o
As a result, they convince themselves that data they are
looking at tell them what they want to hear. People subject
to motivated reasoning tend to do the following:
▪ Ignore bad news
▪ Rely too heavily on good news
▪ Stop gathering information when results look good
▪ Continue searching for good news when things look bad
▪ Interpret ambiguous news as good news
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Motivated Reasoning
(slide 2 of 4)
• Assume that Cordier Toys, Inc., is evaluating the
strategic initiative of automating picking and
packaging systems in its 10 warehouses. Before
fully implementing the initiative, Cordier Toys
decided to try it out at Warehouses 1–5. After
one month, the following data have been
Automation NOT
Automation Implemented
gathered:
Implemented
(Pilot Program)
Warehouses 1–5
Warehouse number
1
Hours from ordered to
delivered
Number of erroneous
shipments
2
3
4
Warehouses 6–10
5
6
7
8
9
10
48 52 53 47 52
73 71 69 65
72
28 31 15 23 37
12
11
8 15 13
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Motivated Reasoning
(slide 3 of 4)
• The performance metric of hours from ordered to
delivered averaged 50.4 hours [(48 + 52 + 53 + 47 + 52)
÷ 5] at Warehouses 1–5 where the initiative was
implemented.
• At Warehouses 6–10 where the initiative was not
implemented, the average hours from ordered to
delivered was 70.0 hours [(73 + 71 + 69 + 65 + 72) ÷ 5].
o
As a result, the automation initiative was evaluated by the
manager in charge of the test as validated (successful).
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Motivated Reasoning
(slide 4 of 4)
• Assume that the manager who developed the initiative
was also in charge of evaluating its success. Because
the manager evaluating the initiative also developed it,
the manager may be biased by motivated reasoning to
find support for the initiative.
o
For example, the performance metric of number of
erroneous shipments was an average of 26.8 errors [(28 +
31 + 15 + 23 + 37) ÷ 5] at Warehouses 1–5 (with
automation). In contrast, Warehouses 6–10 (without
automation) had an average of 11.8 errors [(12 + 8 + 15 +
13 + 11) ÷ 5].
▪ Although the hours from ordered to delivered were lower in the
automated warehouses, the number of erroneous shipments
increased. Thus, the pilot program showed mixed results for
automating the warehouses.
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Surrogation
(slide 1 of 2)
• Surrogation is the tendency to behave like the
performance metrics are the strategic objectives.
• Cordier Toys, Inc., uses the online customer satisfaction
rating as a performance metric for the strategic objective
to delight the customer.
o
To maximize this metric, Cordier Toys’ employees sent
customers follow-up emails asking for positive ratings.
▪ While this may increase customer satisfaction ratings, it may not
actually increase customer satisfaction. It may, in fact, decrease
customer satisfaction when customers receive unsolicited emails.
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Surrogation
(slide 2 of 2)
• In this case, Cordier Toys’ employees are subject to
surrogation by treating the customer satisfaction rating
as though it is the strategic objective, forgetting that
customer delight is the true aim.
o
This surrogation effect may be compounded if Cordier
Toys uses the customer satisfaction rating for determining
employee pay raises.
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Common Measures Bias
(slide 1 of 4)
• Companies may use balanced scorecards for evaluating
the performance of their divisions. In such cases, the
scorecards for different divisions are often similar, but
not identical.
o
When managers compare the performance of divisions within a
company, they may ignore performance metrics that are unique
to individual divisions.
o
Instead, managers may focus on common performance metrics
for all divisions. This bias is called the common measures bias.
• A result of the common measures bias is that it ignores
the unique features of divisional scorecards. This can
lead to inaccurate assessments of divisional
performance.
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Common Measures Bias
(slide 2 of 4)
• Assume that Cordier Toys, Inc., has two divisions:
Warehousing and Sales. Each division has a unique
scorecard.
o
The Warehousing Division’s scorecard focuses on the
learning and growth and internal processes perspectives.
o
The Sales Division’s scorecard focuses on the learning
and growth and customer perspectives.
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Common Measures Bias
(slide 3 of 4)
• Both scorecards have the learning and growth
performance metrics of median training hours per
employee and average employee tenure. These are
common metrics.
o
The Warehousing scorecard has the unique metrics of
hours from ordered to delivered and number of erroneous
shipments.
o
The Sales scorecard has the unique metrics of percentage
of customers who shop again and online customer
satisfaction rating.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Common Measures Bias
(slide 4 of 4)
• Assume that in evaluating both divisions, Cordier Toys’
management focuses on median training hours per
employee and average employee tenure.
o
Because the Warehousing Division employees received
more training and stay longer with the company, Cordier
Toys awards the Warehousing Division manager a larger
bonus.
▪ The fact that Cordier Toys ignored the unique metrics for each
division is an example of the common measures bias.
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Divisional Scorecards at Cordier Toys
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Corporate Social Responsibility
• Corporate social responsibility (CSR) describes the
efforts of companies to take responsibility for the impact
their operations have on society and to improve social
well-being within and outside of the firm.
• CSR activities can include far-reaching issues such as
reducing global poverty and protecting the environment.
• When CSR activities involve ensuring the ability to meet
current needs without compromising the ability of future
generations to meet their needs (such as with efforts that
protect the environment), the CSR activities are referred
to as sustainability efforts.
o
Sometimes the terms CSR and sustainability are used
interchangeably.
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CSR Activities
Category
Description
Examples
Agriculture
Farming and ranching techniques
that do not damage or disrupt the
environment
Mixed farming, crop rotation,
multiple cropping
Energy
Generating energy with little or no
pollution
Wind turbines, solar power
Engineering and
construction
Designing and constructing buildings
that are highly efficient in using
natural resources while minimizing
pollution
Recycled building materials,
high-efficiency heating and
cooling systems, renewable
energy generation
Transportation
Using transportation methods that
result in little pollution and have a
minimal impact on the environment
Expanded public transportation
systems, green vehicles,
biofuel-powered vehicles
Waste minimization
Recycling and reuse practices that
reduce the amount of waste disposed
in landfills
Curbside recycling collection,
composting, reusable products
(e.g., water bottles)
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CSR Reporting
(slide 1 of 2)
• CSR and sustainability information can provide important
feedback to guide a company’s strategic and operational
decision making.
o
Managers can use this feedback to increase revenue,
control costs, and allocate resources efficiently.
o
For example, eco-efficiency measures are a form of CSR
information that helps managers evaluate the savings
generated by using fewer natural resources in a
company’s operations.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Eco-Efficiency Measures
Energy efficiency
Energy cost savings from replacing lighting fixtures
in a production facility with energy-efficient lighting
Material use efficiency
Materials cost savings from reducing the amount of
product packaging materials
Fuel efficiency
Fuel cost savings from replacing gas-powered
vehicles with hybrid or alternative energy vehicles
Waste efficiency
Waste removal cost savings from recycling and
reusing waste and byproduct materials
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CSR Reporting
(slide 2 of 2)
• The Global Reporting Initiative is an international
organization that develops and encourages the use of
sustainability reporting standards.
• Many corporations use a triple bottom line approach to
their sustainability by reporting on the following:
o
Financial performance
o
Social performance
o
Environmental performance
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Corporate Social Responsibility and the
Balanced Scorecard (slide 1 of 4)
• A balanced scorecard, which links all of the company’s
strategic objectives together, is helpful in integrating
CSR activities into the core strategy of the company.
o
In doing so, companies may include CSR activities in a
separate corporate social responsibility performance
perspective.
▪ Other companies integrate CSR strategic objectives into the four
perspectives (learning and growth, internal processes, customer,
and financial) of the balanced scorecard.
– This creates what is sometimes referred to as a sustainability
balanced scorecard (SBSC).
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Corporate Social Responsibility and the
Balanced Scorecard (slide 2 of 4)
• Assume that Cordier Toys, Inc., has decided to integrate
CSR strategic objectives into a SBSC balanced
scorecard. Specifically, Cordier Toys has developed the
following CSR strategic objectives:
o
Ensure that employees are satisfied with their work
environments (employee satisfaction)
o
Minimize waste of environmental resources, including
energy and water (minimize waste)
o
Maintain a socially responsible image for customers
(maintain CSR image)
• In developing its SBSC scorecard, Cordier Toys must
first decide where the CSR strategic objectives fit within
its strategy map.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sustainability Balanced Scorecard (SBSC)
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Corporate Social Responsibility and the
Balanced Scorecard (slide 3 of 4)
• Cordier Toys selected the following performance metrics
to match with its new CSR strategic objectives:
o
Employee satisfaction rating (for the employee satisfaction
objective)
o
Utility cost variance (for the minimize waste objective)
o
Customer survey rating on CSR (for the maintain CSR
image objective)
• For each of the new performance metrics, Cordier Toys
also sets the following performance targets:
o
Achieve employee satisfaction ratings of 8.5 or higher
o
Maintain a favorable utility cost variance
o
Achieve customer survey rating on CSR of 8.7 or higher
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Corporate Social Responsibility and the
Balanced Scorecard (slide 4 of 4)
• Cordier Toys has implemented two new strategic
initiatives.
o
To minimize waste, management has hired a continuous
improvement manager who is to oversee waste reduction.
o
To improve employee satisfaction, management has
added a vacation bonus for all employees.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Measures of CSR Strategic Objectives
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Encouraging Corporate Social Responsibility
• To be successful, a balanced scorecard must encourage
managers and employees to achieve strategic
objectives.
o
Tying manager and employee compensation directly to
performance metrics and targets encourages and
motivates managers and employees to achieve strategic
objectives.
• CSR activities are often used by recruiters to hire top
talent interested in making a difference beyond the
traditional financial results.
o
Management must carefully consider the trade-off between
intrinsic motivation and incentive compensation, especially
when attempting to motivate CSR-related performance.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Capital Investment in CSR
(slide 1 of 5)
• To implement CSR practices, significant capital
investments are often required.
• Some examples of CSR-related capital investments are
provided in Slide 72
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Examples of CSR Capital Investments
CSR Objective
Capital Investment Example
Minimize resource waste and
environmental degradation
A mining company invests in land, soil, and water
reclamation projects.
Develop new sustainable
markets
A consumer products company invests in equipment to
produce environmentally friendly cleaning products.
Reduce litigation risks
A paper mill invests in wastewater recycling to avoid the
potential legal liability for river contamination.
Maintain an attractive and safe
working environment
A software company invests in an employee wellness
and fitness center to attract and retain high-performance
employees.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Capital Investment in CSR
(slide 2 of 5)
• CSR investment proposals can be analyzed using
managerial accounting methods.
o
For example, the investment in manufacturing equipment
for a new environmentally safe cleaning product would
require capital investment analysis.
• The benefits of some CSR investments may be difficult
to measure and, thus, must be evaluated qualitatively.
o
For example, the benefits of a wellness and fitness center
for employees would be difficult to evaluate quantitatively.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Capital Investment in CSR
(slide 3 of 5)
• CSR investments may be legally mandated and, thus,
are justified more by the requirements of the law than by
their immediate economic benefits.
o
Examples might be land, soil, and water reclamation
projects and wastewater recycling project.
• Carpenter Company proposes to install solar panels to
satisfy a portion of its power requirements for its
manufacturing plant.
o
The solar panels’ investment cost is $150,000. The solar
panels’ operating and maintenance cost is expected to be
$20,000 per year.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Capital Investment in CSR
(slide 4 of 5)
o
The plant uses an average of 3,000 kilowatt-hours (kwh) per
day for 250 sunny days per year. A kilowatt-hour is the use of
1,000 watts per hour and is a standard measure of electricity
consumption.
o
The solar panels
replace metered
electricity from the
power company that
costs Carpenter
$0.12 per kwh.
o
The solar panels are
expected to last 10
years and have no
salvage value.
Annual cost savings:
Kilowatt-hours per day
3,000 kwh
Number of sunny operating days
×
250 days
Kilowatt-hours per year
750,000 kwh
Metered electricity cost per kwh
× $0.12 per kwh
Total metered cost savings
$ 90,000
Annual solar panel operating cost
(20,000)
Net annual savings
$ 70,000
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Capital Investment in CSR
(slide 5 of 5)
• The net present value of the project, assuming a
minimum rate of return of 10%, is computed as follows:
Annual net cash flow savings from installing solar panels
$ 70,000
Present value factor for an annuity of $1 at 10% for 10
periods (Appendix A)
× 6.14457
Present value of annual savings (rounded)
$ 430,120
Amount to be invested
(150,000)
Net present value
$ 280,120
• The net present value is positive; thus, the proposal is
supported by the analysis.
© 2020 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.