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Chapter 23: Problem 19

Several years ago, United Parcel Service (UPS) believed that the Internet was going to change the parcel delivery market and would require UPS to become a more nimble and customer-focused organization. As a result, UPS replaced its old measurement system, which was \(90 \%\) oriented toward financial performance, with a balanced scorecard. The scorecard emphasized four "point of arrival" measures, which were: 1\. Customer satisfaction index-a measure of customer satisfaction. 2\. Employee relations index-a measure of employee sentiment and morale. 3\. Competitive position-delivery performance relative to competition. 4\. Time in transit-the time from order entry to delivery. a. Why did UPS introduce a balanced scorecard and nonfinancial measures in its new performance measurement system? b. Why do you think UPS included a factor measuring employee sentiment?

Short Answer

Expert verified
UPS introduced a balanced scorecard to transform its focus towards becoming more customer-centric, agile, and responsive to market changes. Measuring employee sentiment helps ensure motivated and satisfied employees, which is crucial for delivering high-quality service.

Step by step solution

01

Understanding the Balanced Scorecard

The balanced scorecard is a strategic management tool that includes financial and nonfinancial performance measures. It provides a more comprehensive perspective on organizational performance by incorporating various dimensions such as customer satisfaction, internal processes, and employee morale, beyond traditional financial metrics.
02

Analyzing UPS's Motivation

UPS introduced a balanced scorecard to shift from a primarily financial focus to a more customer-oriented and agile approach. This change reflects their understanding that success in the parcel delivery market involves more than just financial performance, needing attention to customer satisfaction, employee morale, and competitive performance.
03

Assessing the Importance of Nonfinancial Measures

Nonfinancial measures, such as customer satisfaction and employee relations, offer insights into areas that affect long-term sustainability and competitive positioning. They help identify strengths and areas for improvement that directly impact customer loyalty and employee retention, both of which are crucial for organizational success.
04

Evaluating Employee Sentiment

Including a measure for employee sentiment is crucial because employees play a direct role in service quality and customer satisfaction. Understanding employee morale can help management improve working conditions and motivation, leading to better performance and lower turnover, thereby positively influencing overall delivery performance.

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Key Concepts

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

Nonfinancial Measures
When organizations reevaluate how they measure success, they often look beyond traditional financial metrics. Nonfinancial measures can provide a holistic view of a company鈥檚 performance. These metrics do not directly relate to dollar figures but can offer insights into factors influencing financial outcomes over time. For instance, customer satisfaction levels, employee morale, and delivery times are all nonfinancial measures that directly affect a company's reputation and efficiency.

Nonfinancial metrics allow companies like UPS to spot issues or growth opportunities early on and guide strategic decisions to enhance service quality. They help bridge the gap between short-term financial performance and long-term business health. By focusing on these measures, a business can better align its operations with customer expectations and workforce needs.
Employee Sentiment
Employee sentiment refers to workers鈥� feelings and attitudes about their job, workplace, and the organization as a whole. It's a powerful indicator of the work environment's health and productivity potential. High employee morale often results in increased productivity, better customer interactions, and reduced turnover rates.

When organizations, such as UPS, measure and understand employee sentiment, they gain insights into the employee experience. This knowledge helps them make informed decisions to improve aspects like work culture, resource allocation, and employee engagement strategies. Happy and motivated employees are an asset, leading to more efficient operations and satisfied customers.
Customer Satisfaction
Customer satisfaction is a crucial nonfinancial measure that reflects how well a company's products or services meet or exceed customer expectations. It is directly linked to customer loyalty, repeat business, and overall brand reputation. Higher levels of customer satisfaction can lead to increased market share and revenue as satisfied customers are more likely to recommend the service to others.

By focusing on customer satisfaction, UPS can enhance service delivery and build stronger customer relationships. Metrics like the customer satisfaction index serve as a barometer for potential improvements, helping organizations identify and rectify service shortcomings promptly. In turn, this can foster brand loyalty and distinguish a company in a competitive market.
Performance Measurement Systems
Performance measurement systems encompass both financial and nonfinancial metrics to provide a comprehensive view of an organization鈥檚 health. These systems support strategic planning and operational efficiency by offering insights into various performance aspects.

For UPS, transitioning to a balanced scorecard meant adopting a more inclusive approach by integrating metrics such as customer satisfaction, employee sentiment, competitive positions, and operational efficiencies like time in transit. This balanced approach helps ensure that no single area is disproportionately prioritized over others.

A well-rounded performance measurement system helps a company adapt to market changes, align its strategies with customer and employee needs, and ensure sustainable growth.

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Most popular questions from this chapter

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.

Entertainment Electronics Company has two divisions, Video and Audio, and two corporate service departments, Computer Support and Accounts Payable. The corporate expenses for the year ended December 31,2006 , are as follows: The other corporate administrative expenses include officers' salaries and other expenses required by the corporation. The Computer Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Accounts Payable Department charges divisions for services, based on the number of checks issued. The usage of service by the two divisions is as follows: \(\begin{array}{lll}\text { Video Division } & 180 \text { computers } & 4,200 \text { checks } \\ \text { Audio Division } & \underline{120} & \underline{7,800} \\ \text { Total } & \underline{\underline{300}} \text { computers } & \underline{12,000} \text { checks }\end{array}\) The service department charges of the Computer Support Department and the Accounts Payable Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows: \begin{tabular}{lrr} & \multicolumn{1}{c}{ Video } & \multicolumn{1}{c}{ Audio } \\ \hline Revenues & \(\$ 4,000,000\) & \(\$ 3,400,000\) \\ Cost of goods sold & \(2,100,000\) & \(1,600,000\) \\ Operating expenses & 750,000 & 700,000 \end{tabular} Prepare the divisional income statements for the two divisions.

The condensed income statement for the New England Division of Eastern Gas Co. is as follows (assuming no service department charges): $$ \begin{array}{lr} \text { Sales } & \$ 700,000 \\ \text { Cost of goods sold } & 320,000 \\ \text { Gross profit } & \$ 380,000 \\ \text { Administrative expenses } & 222,500 \\ \hline \text { Income from operations } & \$ 157,500 \\ \hline \end{array} $$ The manager of the New England Division is considering ways to increase the rate of return on investment. a. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment of the New England Division, assuming that \(1,250,000 of assets have been invested in the New England Division. b. If expenses could be reduced by \)39,375 without decreasing sales, what would be the impact on the profit margin, investment turnover, and rate of return on investment for the New England Division?

For each of the following service departments, select the activity base listed that is most appropriate for charging service expenses to responsible units. \begin{tabular}{lll} \multicolumn{1}{l}{ Service Department } & & Activity Base \\ a. Central Purchasing & & 1\. Number of purchase requisitions \\ b. Training & 2\. Number of travel claims \\ c. Computer Support & 3\. Number of conference attendees \\ d. Employee Travel & 4\. Number of payroll checks \\ e. Telecommunications & 5\. Number of telephone lines \\ f. Payroll Accounting & 6\. Number of computers \\ g. Conferences & 7\. Number of employees trained \\ h. Accounts Receivable & 8\. Number of sales invoices \end{tabular} h. Accounts Receivable 8\. Number of sales invoices

One item is omitted from each of the following computations of the rate of return on investment: $$ \begin{aligned} &\text { Rate of return on investment }=\text { Profit margin } \times \text { Investment turnover }\\\ &\begin{array}{clccc} \hline 21 \% & = & 15 \% & \times & \text { (a) } \\ \text { (b) } & = & 8 \% & \times & 1.75 \\ 18 \% & = & \text { (c) } & \times & 0.75 \\ 27 \% & = & 18 \% & \times & \text { (d) } \\ \text { (e) } & = & 12 \% & \times & 2.0 \end{array} \end{aligned} $$ Determine the missing items, identifying each by the appropriate letter.
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