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Implementing the balanced scorecard using the analytic hierarchy process & the analytic network process

  • Theoretical Paper
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Journal of the Operational Research Society

Abstract

The balanced scorecard (BSC) is a multi-attribute evaluation concept that highlights the importance of non-financial attributes. By incorporating a wider set of non-financial attributes into the measurement system of a firm, the BSC captures not only a firm's current performance, but also the drivers of its future performance. Although there is an abundance of literature on the BSC framework, there is a scarcity of literature on how the framework should be properly implemented. In this paper, we use the analytic hierarchy process (AHP) and its variant the analytic network process (ANP) to facilitate the implementation of the BSC. We show that the AHP and the ANP can be tailor-made for specific situations and can be used to overcome some of the traditional problems of BSC implementation, such as the dependency relationship between measures and the use of subjective versus objective measures. Numerical examples are included throughout.

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Acknowledgements

We would like to thank the referees for their thoughtful comments.

Author information

Authors and Affiliations

  1. The Chinese University of Hong Kong, Shatin, Hong Kong, China

    L C Leung & K C Lam

  2. University of Quebec at Trois-Rivieres, Quebec, Canada

    D Cao

Authors
  1. L C Leung
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  2. K C Lam
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  3. D Cao
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Corresponding author

Correspondence to L C Leung.

Appendix A

Appendix A

Detailed List (Source: Kaplan and Atkinson: Advanced Management Accounting: Chapters 7–12)

  1. 1)

    Financial perspective

    • Sales: annual growth in sales and profits.

    • Cost of sales: extent that it remains flat or decreases each year.

    • Profitability: EVA or return on total capital employed.

    • Prosperity: cash flows.

    • Company growth versus industry growth.

    • Ratio of international sales to total sales.

    • New product: gross profit/growth from new products.

    • Industry leadership: market share.

  2. 2)

    Customer perspective

    • Market share for target customer segment.

    • Customer retention/percentage of growth with existing customers.

    • Customer acquisition: number of new customers/total sales to new customers/actual new customers divided by prospective inquiries.

    • Customer satisfaction (via satisfaction surveys).

    • Customer profitability (via accounting analyses).

    • Customer lead time (on-time delivery).

    • Quality: parts-per-million (PPM) defect rates, reworks, percentage of returns.

  3. 3)

    Internal business perspective

    • Manufacturing cycle effectiveness=processing time/throughput time.

    • Cost of quality comparison.

    • Low cost producer: unit cost versus competitors’ unit cost.

    • Reduce inventory: inventory as percentage of sales.

    • Output per hour/plant utilization.

    • Safety incident index.

  4. 4)

    Learning and growth

    • Innovation measures

      • Breakeven time: the time from the beginning of product development work until the product has been introduced.

      • Rate of new product introduction per quarter.

      • Number of new products with patented technology/ new patents.

      • Annual increase in number of new products per engineer.

    • Employee capabilities

      • Employee satisfaction survey.

      • Employee retention: percentage of key staff turnover.

      • Employee productivity: revenue per employee.

      • Salaries compared to the norm in the local area.

      • Percentage of competency deployment matrix filled.

      • Number of promotions from within.

      • Absenteeism rate.

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Leung, L., Lam, K. & Cao, D. Implementing the balanced scorecard using the analytic hierarchy process & the analytic network process. J Oper Res Soc 57, 682–691 (2006). https://doi.org/10.1057/palgrave.jors.2602040

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  • DOI: https://doi.org/10.1057/palgrave.jors.2602040

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