The Balanced Scorecard

Applied on Ericsson AB


Term Paper (Advanced seminar), 2011

21 Pages, Grade: 1,7


Excerpt

Table of Contents

1. Introduction
1.1. The Balanced Scorecard
1.1.1. The Financial Perspective
1.1.2. The Customer Perspective
1.1.3. The Internal Perspective
1.1.4. The Innovation and Human Perspective
1.2. Background Ericsson

2. Application of the Balanced Scorecard
2.1. Ericsson and the implementation of a scorecard
2.2. Financial Perspective at Ericsson
2.2.1. Strategic themes for the Financial Perspective at Ericsson
2.3. Customer Perspective at Ericsson
2.3.1. Strategic themes for the Customer Perspective
2.4. Internal Perspective at Ericsson
2.4.1. Strategic themes for the in Internal Perspective
2.5. Innovation and Human Perspective at Ericsson
2.5.1. Strategic themes for the Innovation and Human Perspective at Ericsson

3. Conclusion

4. References
4.1. Books
4.2. Articles
4.3. Reports
4.4. Internet sources

5. List of figures

6. Appendix
6.1. Explanation of terms used

1. Introduction

Ericsson, operating in four major segments, providing communication networks, services, multimedia solutions and mobile phones, has become a multinational cooperation. Despite its traditional roots, emphasize lays on quality, innovation and sustainability. Due to its large size it has become vital to find a management system everyone is able to participate in on the one hand and which properly and timely monitors success and failure on the other hand.

This Case explains the Balanced Scorecard, a performance measurement system, which includes four different perspectives, the Financial Perspective, the Customer Perspective, the Internal Perspective and the Innovation and Human Perspective. These perspectives are implemented into the strategy of a company. After having described the Balanced Scorecard, a Balanced Scorecard will be derived for Ericsson according to information from the Annual Report 2009 and information found about the company’s operating techniques.

1.1. The Balanced Scorecard

The aim of the Balance Scorecard is to turn an organization’s vision and strategy into a measurable set of scale. This is the outline for a successful management system (Kaplan, Norton, 1996). The Balanced Scorecard considers four different aspects: financial-, customer- , innovation- and internal perspective. In the early nineties the Balanced Scorecard was developed to replace previous performance measurement tools, which only included financial dimensions (Kaplan, Norton, 1992). Due to the fast moving pace of the modern society, companies need to find new solutions to adapt to their business environment. According to Kaplan and Norton (1996) these new solutions should combine financial and non-financial measures in an information system that includes staff throughout the organization. The performance measurement system, the Balanced Scorecard, distances itself from being a controlling system to be an educational, informational and communications instrument (Kaplan, Norton, 1996). The Balanced Scorecard is a fresh approach towards integrating several performance drivers and evoking a company’s strategy (Kaplan, Norton, 1992). As the name Balanced Scorecard implies, a balance of external and internal figures is created. External factors consist of shareholders and costumer’s interests, whereas innovation- and insider perspectives are internal factors. Furthermore are past and future performances equally weighted. Financial data lays the foundation for all strategic action, nevertheless it lays in the past. Intangible assets are reflected in future dimensions. (Kaplan, Norton, 1996)

Short and long term objectives are replicated in the four following perspectives: financial-, customer-, internal- and innovative perspective. The Financial Perspective covers financial key data, e.g. the annual financial report, through which profits and losses are clearly indicated (Kaplan, Norton, 1992). The Customer Perspective defines target groups and market segments. The Innovative Perspective describes a healthy working climate to sustain future growth. The Internal Perspective goes beyond financial measures and attempts to improve existing business processes within the company (Kaplan, Norton, 1992).

1.1.1. The Financial Perspective

The Balanced Scorecard aims to incorporate a company’s strategy into financial measurements (Kaplan, Norton, 1996). According to Kaplan and Norton, the Scorecard’s foundation should lay on financial data as it represents the company’s long-term goals. These financial goals should then be transformed into action, e.g. „[...] increasing revenues, improving cost and productivity, enhancing asset utilization, and reducing risk [...]“ (Kaplan, Norton, 1996, p.47). Financial aspects are so very important to consider when developing a Balanced Scorecard as a companies financial situation might well be a question of survival.

Moreover are financial plans linked to all other four aspects of the Balanced Scorecard and imply cause and effect relationships among each other.

Furthermore is the company’s life circle to be considered. A company in the early stages, or the stage of growth will need different actions than a company in later, stagnating stages, the state of sustained and the stage of harvesting. (Kaplan, Norton, 1996)

1.1.2. The Customer Perspective

The Customer Perspective has great importance for the Balanced Scorecard concept. The success of a company depends on its ability to sell its products. The Customer Perspective describes the interaction between customer needs and company strategies. The task is to analyze how the customers see the company and how the company satisfies the customer. The company business can only be successful, if the company delivers the right products on time. The customer must get the feeling that he gets good quality products for reasonable prices.

The delivery process has to be guaranteed in short run as well as in long run. (Olve et al, 2000).

From a customer perspective the service quality is decisive; Liability of deliveries, product service, pricing, functionality and even image, all this factors must satisfy the customer needs.

For the producer the Balance Scorecard must indicate how important the customer actually is. The company evaluates Market shares, customer loyalty, measured by frequency of purchases and customer satisfaction with product and services.

During the selling process it is important for every company to find out the changes in customer preferences and behavior.

1.1.3. The Internal Perspective

This perspective refers to the combination of internal, shareholder- and external, customer objectives (Kaplan, Norton, 1996). It describes the process that creates value for costumers and lead to the fulfillment of shareholder expectations (Olive, Sjöstrand, 2006).

Present and to the future are emphasized in the Internal Perspective, while pointing out two major approaches (Kaplan, Norton, 1996). Firstly the Traditional perspective which tries to monitor and improve existing business processes e.g. the producing process, which is necessary to create new products and anticipate costumer needs already identified (Kaplan, Norton, 1996). Secondly the scorecard approach, which identifies entirely different processes at which organization, must excel to meet costumer and financial objectives e.g. deliver new product and services that target costumer value (Kaplan, Norton, 1992).

1.1.4. The Innovation and Human Perspective

The last and fourth perspective relies heavily on the goals set for the three previous perspectives. It has a long-term orientation to invest enduring in the future, including people, systems and processes (Kaplan, Norton, 1992). Three major categories are linked to the Innovation and Human Perspective, Employees capabilities, information system capabilities as well as motivation, empowerment and alignment (Kaplan, Norton, 1996).

1.2. Background Ericsson

“LM Ericsson” was founded by Lars Magnus Ericsson in 1876 in Stockholm. Lars Magnus Ericsson was born in 1846 and grew up in a poor family in Värmland. From an early age on he had to provide for his family. He studied in several countries such as Russia and Germany with a scholarship. Returning to Stockholm, Ericsson gained expertise at a telegraph company. When he was thirty years old he started a shop where he repaired and sold telegraphing equipment. Twenty years later he turned the small repair shop into a corporation. His ambition was to satisfy customers with high quality and he aimed to secure his company for crisis. Lars Magnus Ericsson had a strong belief and vision for his company. This Ericsson spirit consisted of devotedness and responsibility, feeling of belonging and unity the employees. His success grew rapidly due to his reputation for excellent quality. He covered the whole market of Scandinavia with his phones. In the 1890s L.M. Ericsson expanded his business to further European countries. (Wennberg, 2006)

Throughout the years Ericsson turned into a technological company, developing and supplying companies with their technology all around the world (www.ericssonhistory.com, 2011). Ericsson is a communication hub and operates in four major segments, providing communications networks, telecom services, multimedia solutions and mobile phones. The cooperation has become a world leader in the telecommunication service provider (CSP) industry. Offering equipment, related services and operating networks. “Over 1,000 networks in more than 175 countries utilize [Ericssons] network equipment and 40 percent of all mobile calls are made through [their] systems.” (www.ericsson.com, 2011). Ericsson’s network’s infrastructure division still generates most of the company’s turnover. (www.ericsson.com, 2011)

Ericsson’s vision is “to be the Prime Driver in an all-communicating world” (www.ericsson.com, 2011), enabling people everywhere across the globe at any time to communicate.

[...]

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Details

Title
The Balanced Scorecard
Subtitle
Applied on Ericsson AB
College
Linnaeus University
Course
Management Accounting
Grade
1,7
Author
Year
2011
Pages
21
Catalog Number
V168541
ISBN (eBook)
9783640987382
ISBN (Book)
9783640987504
File size
570 KB
Language
English
Tags
Management Accounting, BSC, Balance Scorecard, Balanced Scorecard, Porter, Ericsson, Ericsson AB, Financial Perspective, Customer Perspective, Markting, Value Chain, Management Accounting Information Systems, Telecommunication, vision, strategy, mission, five forces, fünf kräfte
Quote paper
Anna Lena Bischoff (Author), 2011, The Balanced Scorecard, Munich, GRIN Verlag, https://www.grin.com/document/168541

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