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Chapter 23: Problem 18

The American Express Company is a major financial services company, noted for its American Express \({ }^{\mathbb{B}}\) card. Below are some of the performance measures used by the company in its balanced scorecard. \(\begin{array}{ll}\text { Average cardmember spending } & \text { Number of merchant signings } \\ \text { Cards in force } & \text { Number of card choices } \\ \text { Earnings growth } & \text { Number of new card launche } \\\ \text { Hours of credit consultant training } & \text { Return on equity } \\\ \text { Investment in information technology } & \text { Revenue growth } \\\ \text { Number of Internet features } & \end{array}\) For each measure, identify whether the measure best fits the innovation, customer, internal process, or financial dimension of the balanced scorecard.

Short Answer

Expert verified
Financial: Earnings growth, Return on equity, Revenue growth. Customer: Average cardmember spending, Cards in force, Number of card choices. Internal Process: Number of merchant signings, Number of Internet features. Innovation: Number of new card launches, Hours of credit consultant training, Investment in information technology.

Step by step solution

01

Understanding Balanced Scorecard Dimensions

The balanced scorecard (BSC) framework comprises four dimensions: financial, customer, internal process, and innovation/learning. Financial measures evaluate a company's profitability and fiscal health. Customer measures focus on customer satisfaction and market share. Internal process measures look into the efficiency of company operations. Lastly, innovation or learning measures gauge the company's capacity to improve and become more efficient over time.
02

Categorizing Financial Measures

Financial measures include metrics like 'Earnings growth,' 'Return on equity,' and 'Revenue growth,' as they directly pertain to the financial performance of the company.
03

Categorizing Customer Measures

Customer measures typically involve aspects that affect or reflect customer relationships. For this problem, 'Average cardmember spending,' 'Cards in force,' and 'Number of card choices' are measures that focus on customer interactions and satisfaction.
04

Categorizing Internal Process Measures

Internal process measures relate to the efficiency and effectiveness of the company's operations. 'Number of merchant signings' and 'Number of Internet features' correspond to internal process improvements aiming to enhance customer service delivery.
05

Categorizing Innovation/Learning Measures

Innovation or learning measures focus on improvements, advancements, and training within the company. In this set, 'Number of new card launches,' 'Hours of credit consultant training,' and 'Investment in information technology' are understood as innovation indicators, essential for future growth and development.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Financial Measures
Financial measures are crucial for evaluating a company's monetary health and profitability. These measures provide insight into how effectively a company is using its resources to generate profit. Common financial measures include:
  • Earnings Growth: This metric indicates how much the company's profit has increased over a specific period, helping investors gauge potential returns.
  • Return on Equity (ROE): ROE is used to assess a company's ability to generate earnings from its equity investments. It's calculated as Net Income divided by Shareholder Equity, indicating financial performance and efficiency.
  • Revenue Growth: This measures the increase in a company's sales over time, showcasing business expansion and market performance.
Understanding these metrics helps stakeholders make informed decisions regarding investments and growth strategies.
Customer Measures
Customer measures focus on understanding and improving customer satisfaction and retention. These metrics reflect a company's ability to meet customer needs and the level of loyalty they inspire. Important customer measures include:
  • Average Cardmember Spending: This indicates the average amount spent by each cardholder, reflecting customer engagement and satisfaction.
  • Cards in Force: Represents the total number of active accounts, illustrating the company's customer base size and retention capability.
  • Number of Card Choices: Variety in card options can attract different segments, enhancing customer satisfaction through tailored offerings.
Focusing on these measures helps boost customer relations and market share, vital for long-term success.
Internal Process Measures
Internal process measures evaluate the efficiency and effectiveness of a company's operations. These metrics highlight how well a company delivers its products or services to customers. Some key internal process measures are:
  • Number of Merchant Signings: Increasing the number of signing merchants can enhance service reach and customer convenience.
  • Number of Internet Features: Offering enhanced online features can improve user experience and operational efficiency through digital transformation.
By optimizing these processes, companies can achieve better service delivery, reduce costs, and improve overall performance.
Innovation Measures
Innovation measures concern a company's capacity to adapt, evolve, and invest in new technologies and ideas. They reveal how prepared a company is to sustain competition and foster growth. Essential innovation measures include:
  • Number of New Card Launches: This demonstrates the company鈥檚 agility in introducing new products to meet changing customer demands.
  • Hours of Credit Consultant Training: Investing in training ensures employees are up-to-date with industry standards and practices, aiding in customer service excellence.
  • Investment in Information Technology: IT investments are vital for developing innovative solutions and maintaining a technological edge.
Encouraging innovation is key to maintaining competitiveness and securing future success.

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Most popular questions from this chapter

Materials used by the Truck Division of Monumental Motors are currently purchased from outside suppliers at a cost of \(\$ 260\) per unit. However, the same materials are available from the Component Division. The Component Division has unused capacity and can produce the materials needed by the Truck Division at a variable cost of \(\$ 190\) per unit. a. If a transfer price of \(\$ 210\) per unit is established and 50,000 units of materials are transferred, with no reduction in the Component Division's current sales, how much would Monumental Motors' total income from operations increase? b. How much would the Truck Division's income from operations increase? c. How much would the Component Division's income from operations increase?

In divisional income statements prepared for Black Top Paving Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll checks, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of \(24,450, and the Purchasing Department had expenses of \)10,400 for the year. The following annual data for Residential, Commercial, and Highway Divisions were obtained from corporate records: \begin{tabular}{lrrr} & Residential & Commercial & Highway \\ \hline Sales & \(\$ 400,000\) & \(\$ 500,000\) & \(\$ 1,000,000\) \\ Number of employees: & & & \\ Weekly payroll (52 weeks per year) & 80 & 40 & 60 \\ Monthly payroll & 14 & 11 & 10 \\ Number of purchase requisitions per year & 1,000 & 850 & 750 \end{tabular} a. Determine the annual amount of payroll and purchasing costs charged back to the Residential, Commercial, and Highway Divisions from payroll and purchasing services. b. Why does the Residential Division have a larger service department charge than the other two divisions, even though its sales are lower?

Data for the North, East, South, and West Divisions of Columbia Wireless Communication Company are as follows: $$ \begin{array}{lcccccc} & \text { Sales } & \begin{array}{c} \text { Income } \\ \text { from } \\ \text { Operations } \end{array} & \begin{array}{c} \text { Invested } \\ \text { Assets } \end{array} & \begin{array}{c} \text { Rate of } \\ \text { Return on } \\ \text { Investment } \end{array} & \begin{array}{c} \text { Profit } \\ \text { Margin } \end{array} & \begin{array}{c} \text { Investment } \\ \text { Turnover } \end{array} \\ \hline \text { North } & \$ 365,000 & (\mathrm{a}) & \text { (b) } & 20 \% & 16 \% & \text { (c) } \\ \text { East } & \text { (d) } & \$ 60,000 & (\mathrm{e}) & (\mathrm{f}) & 12.5 \% & 0.64 \\ \text { South } & \$ 326,000 & (\mathrm{~g}) & \$ 407,500 & 12 \% & \text { (h) } & \text { (i) } \\ \text { West } & \$ 850,000 & \$ 119,000 & \$ 680,000 & (\mathrm{j}) & \text { (k) } & \text { (I) } \end{array} $$ a. Determine the missing items, identifying each by the letters (a) through (1). b. Determine the residual income for each division, assuming that the minimum acceptable rate of return established by management is \(10 \%\). c. Which division is the most profitable in terms of (1) return on investment and (2) residual income?

Hilton Hotels Corp. provides lodging services around the world. The company is separated into three major divisions: \- Hotel ownership: Hotels owned and operated by Hilton. \- Managing and franchising: Hotels franchised to others or managed for others. \- Timeshare: Resort properties managed for timeshare vacation owners. Financial information for each division, from a recent annual report, is as follows (in millions): $$ \begin{array}{lrrr} & \begin{array}{c} \text { Hotel } \\ \text { Ownership } \end{array} & \begin{array}{c} \text { Managing and } \\ \text { Franchising } \end{array} & \text { Timeshare } \\ \hline \text { Revenues } & \$ 2,388 & \$ 342 & \$ 320 \\ \text { Income from operations } & 470 & 290 & 86 \\ \text { Total assets } & 4,542 & 668 & 333 \end{array} $$ a. Use the DuPont formula to determine the return on investment for each of the Hilton business divisions. Round to four digits after the decimal place. b. Determine the residual income for each division, assuming a minimum acceptable income of 15% of total assets. c. Interpret your results.

Sierra Sporting Goods Co. operates two divisions鈥攖he Camping Equipment Division and the Ski Equipment Division. The following income and expense accounts were provided from the trial balance as of June 30, 2006, the end of the current fiscal year, after all adjustments, including those for inventories, were recorded and posted: Sales鈥擟amping Equipment Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(380,000 Sales鈥擲ki Equipment Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,000 Cost of Goods Sold鈥擟amping Equipment Division . . . . . . . . . . . . . . . . . . . . . . . . . . 205,000 Cost of Goods Sold鈥擲ki Equipment Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,000 Sales Expense鈥擟amping Equipment Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Sales Expense鈥擲ki Equipment Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,000 Administrative Expense鈥擟amping Equipment Division . . . . . . . . . . . . . . . . . . . . . . . 38,800 Administrative Expense鈥擲ki Equipment Division . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,200 Advertising Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,800 Transportation Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,140 Accounts Receivable Collection Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,620 Warehouse Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 The bases to be used in allocating expenses, together with other essential information, are as follows: a. Advertising expense鈥攊ncurred at headquarters, charged back to divisions on the basis of usage: Camping Equipment Division, \)11,200; Ski Equipment Division, \(14,600. b. Transportation expense鈥攃harged back to divisions at a transfer price of \)3.80 per bill of lading: Camping Equipment Division, 2,400 bills of lading; Ski Equipment Division, 2,900 bills of lading. c. Accounts receivable collection expense鈥攊ncurred at headquarters, charged back to divisions at a transfer price of $2.80 per invoice: Camping Equipment Division, 1,800 sales invoices; Ski Equipment Division, 2,350 sales invoices. d. Warehouse expense鈥攃harged back to divisions on the basis of floor space used in storing division products: Camping Equipment Division, 10,000 square feet; Ski Equipment Division, 5,000 square feet. Prepare a divisional income statement with two column headings: Camping Equipment Division and Ski Equipment Division. Provide supporting schedules for determining service department charges.
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