Questions:
BALANCED SCORECARD, STRATEGIC ALIGNMENT
Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic devices into the printed circuit board. Bannister sells its products to original equipment manufacturers. Profits for the last two years have been less than expected. Mandy Confer, owner of Bannister, was convinced that her firm needed to adopt a revenue growth and cost reduction strategy to increase overall profits. After a careful review of her firm's condition, Mandy realized that the main obstacle for increasing revenues and reducing costs was the high defect rate of her products (a 6 percent reject rate). She was certain that revenues would grow if the defect rate was reduced dramatically. Costs would also decline as there would be fewer rejects and less rework. By decreasing the defect rate, customer satisfaction would increase, causing, in turn, an increase in market share. Mandy also felt that the following actions were needed to help ensure the success of the revenue growth and cost reduction strategy:
a. Improve the soldering capabilities by sending employees to an outside course.
b. Redesign the insertion process to eliminate some of the common mistakes.
c. Improve the procurement process by selecting suppliers that provide higherquality circuit boards.
Suppose that Mandy communicates the following weights to her CEO:
Perspective: Financial, 40%; Customer, 20%; Process, 20%; Learning & growth, 20% Financial objectives: Profits, 50%; Revenues, 25%; Costs, 25% Customer objectives: Customer satisfaction, 60%; Market share, 40% Process objectives: Defects decrease, 40%; Supplier selection, 30%; Redesign process, 30% Learning & growth objective: Training, 100% Mandy next sets up a bonus pool of $100,000 and indicates that the weighting scheme just described will be used to determine the amount of potential bonus for each perspective and each objective.
Required:
1. Calculate the potential bonus for each perspective and objective.
2. Describe how Mandy might award actual bonuses so that her managers will be encouraged to implement the Balanced Scorecard.
3. What are some other ways that Mandy can use to encourage alignment with the\ company's strategic objectives (other than incentive compensation)?