The Performance Enhancement Group (PEG) helps companies to build balanced scorecards. As part of its marketing efforts, PEG conducts an annual balanced scorecard workshop for prospective clients. You are PEG’s newest employee, so your boss has asked you to participate in this year’s workshop by explaining to attendees how a company’s strategy determines the measures that are appropriate for its balanced scorecard. Your boss has provided you with the excerpts below from the annual reports of two current PEG clients. She has asked you to use these excerpts in your portion of the workshop.
Excerpt from Applied Pharmaceuticals’ annual report: The keys to our business are consistent and timely new-product introductions and manufacturing process integrity. The new-product introduction side of the equation is a function of research and development (R&D) yield (e.g., the number of marketable drug compounds created relative to the total number of potential compounds pursued). We seek to optimize our R&D yield and first-to-market capability by investing in state-of- the-art technology, hiring the highest possible percentage of the “best and the brightest” engineers, and providing world-class training to those engineers. Manufacturing process integrity is all about establishing world-class quality specifications and then relentlessly engaging in prevention and appraisal activities to minimize defect rates. Our customers must have an awareness of and respect for our brand image of being “first to market and first in quality.” If we deliver on this pledge to our customers, then our financial goal of increasing our return on shareholders’ equity should take care of itself.
1. Based on the excerpts above, compare and contrast the strategies of Applied Pharmaceuticals and Destination Resorts International.
2. Select balanced scorecard measures for each company and link the scorecard measures using the framework from Exhibit 11–5. Use arrows to show the causal links between the performance measures and show whether the performance measure should increase or decrease over time. Feel free to create measures that may not be specifically mentioned in the chapter, but nonetheless make sense given the strategic goals of each company.
3. What hypotheses are built into each balanced scorecard? Why do the hypotheses differ between the two companies?