Mr. Greenfield, to begin my presentation on the proposed implementation of the Balanced Scorecard process of performance evaluation, please allow me to outline the various advantages offered by this innovative strategic management tool. Due to the decentralized nature of Chadwick Inc.'s divisional structure, and the diversification of the conglomerate's various holdings, the traditional system of financial measurement currently in place has become convoluted and ineffective. By applying the typically short-term objectives necessitated by Return on Capital Employed (ROCE) to the relatively long-term strategic planning utilized by divisions such as Norwalk Pharmaceutical, Chadwick's upper management has severely limited the ability of divisional managers like yourself to measure performance and present operational results. While purely financial measures like ROCE are indeed useful in determining a division's relative level of success, it fails to account for the increasing importance of intangible assets such as customer loyalty, organizational culture, and productive relationships with distributors, manufacturers, and other essential components of the product delivery process.
Chadwick Inc. Case Study & Balanced Scorecard
Greenfield, to begin my presentation on the proposed implementation of the Balanced Scorecard process of performance evaluation, please allow me to outline the various advantages offered by this innovative strategic management tool. Due to the decentralized nature of Chadwick Inc.'s divisional structure, and the diversification of the conglomerate's various holdings, the traditional system of financial measurement currently in place has become convoluted and ineffective. By applying the typically short-term objectives necessitated by Return on Capital Employed (ROCE) to the relatively long-term strategic planning utilized by divisions such as Norwalk Pharmaceutical, Chadwick's upper management has severely limited the ability of divisional managers like yourself to measure performance and present operational results. While purely financial measures like ROCE are indeed useful in determining a division's relative level of success, it fails to account for the increasing importance of intangible assets such as customer loyalty, organizational culture, and productive relationships with distributors, manufacturers, and other essential components of the product delivery process. By implementing the systematic approach to performance assessment advocated by the Balanced Scorecard method, Norwalk Pharmaceutical can translate the divisional Business Strategy you have provided in Exhibit 1 of the case study into a clearly delineated set of objectives, measures, and targets.
The traditional managerial emphasis placed on financial measures has allowed managers to consider the concept of organizational achievement as the combination of various inputs and outputs, but while measures like ROCE are useful in orienting Norwalk's short-term priorities, this approach has proven to be incompatible with the long-term nature of Norwalk's processes. As a purveyor of ethical drugs for human and animal consumption, Norwalk Pharmaceutical is reliant on an intensive process of research, identification, testing, and governmental approval, a development cycle which typically takes 12 years to transform a promising compound into a viable drug ready for market. By shifting to the Balanced Scorecard approach to performance management, Norwalk's management can ensure strategic alignment with your recently devised Business Strategy, while enabling division managers to submit monthly reports to Chadwick's executive committee that more accurately reflect the pursuit of long-term organizational objectives.
As you can see below, in the sample Balanced Scorecard created for Norwalk Pharmaceutical, there are four distinct perspectives that this performance management tool informs: the Financial Perspective, the Customer Perspective, the Internal Perspective, and the Innovation and Learning Perspective. These four core components of the Balanced Scorecard are designed to reflect the Business Strategy you have provided in Exhibit 1 of the case study, which advised the Norwalk Pharmaceutical division to manage its portfolio of investments, satisfy customer needs, drive responsibility to the lowest level, and emphasize the development of personnel resources. Each of the four perspectives which form the basis of the Balanced Scorecard are then supported by the establishment of three goals, and three corresponding measures which can be used to assess the division's relative progress in accomplishing those goals. For example, the first goal of Norwalk's Customer Perspective is to develop brand loyalty and build a loyal consumer base, and the measurement technique used to gauge progress in this regard is the rate of customer retention associated with the division's brand name drugs.
The following review of the Balanced Scorecard's various goals and measures is intended to provide you with a firm grasp of this performance measurement system's construction and implementation. In addition, the rationale and justification for including each of these goals and measures will be provided, so that a more complete understanding of their function in the Balanced Scorecard methodology can be gained. Continuing with the Customer Perspective, the second goal is to position Norwalk as the industry leader in ethical drug manufacturing, a goal which can be most accurately measured through market share analysis. In a fractured industry like pharmaceuticals, market share is an invaluable asset, and this long-term strategic objective is best assessed through the Balanced Scorecard. The third goal of the Customer Perspective is to actively seek the input of customers and distributors who often have viable ideas for the adaptation of existing compounds for alternative applications. This goal is measured by tallying the total number of new compound applications suggested by customers and/or distributors. Shifting to the Financial Perspective, the first goal is to expand Norwalk's internal capabilities in terms of compound research and development (R&D), a goal which is measured by tracking the percentage of divisional expenditures allocated to the R&D department. Increasing the R&D infrastructure used by Norwalk to identify and develop new compounds is another example of long-term goal which cannot be readily quantified simply through monthly ROCE reports. The second goal of the Financial Perspective is to harness the power of social media to rebrand Norwalk as the leader in ethical drug manufacturing, a goal which can be measured by tracking the percentage of divisional expenditures allocated to the marketing department. This long-term strategic policy is best assessed by the Balanced Scorecard because marketing campaigns such as this often involve the exploitation of intangible resources. The third goal of the Financial perspective harkens back to the traditional method of ROCE measurement, by setting a target of either meeting or exceeding current levels of ROCE on investment portfolios, R&D projects, and other capital expenditures.
Norwalk Pharmaceutical Division Balanced Scorecard
Financial Perspective
Customer Perspective
Goal 1: Expand Norwalk's Internal Ability to Identify New Applications for Existing Compounds
Measure 1: Dollars and Percent of Spending on Research and Development
Goal 1: Develop Brand Loyalty and a Build a Loyal Consumer Base
Measure 1: Customer Retention Rates
Goal 2: Rebrand Norwalk Pharmaceutical as the Leader in Ethical Drugs Through an Innovative Social Media Campaign
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