Chadwick

Division managers at Chadwick had complained to the Controller about the continual pressure to meet short-term financial objectives. As a producer of consumer products and pharmaceuticals, divisions at Chadwick engaged in long-term projects with uncertain payoffs. Managers did not believe that using a single target, return on capital employed, linked current actions and efforts to longer term value creation.

The corporate controller has recently learned about the Balanced Scorecard. He presented the concept to the president and chief operating officer who then issued a call to all Chadwick division managers to develop a scorecard for their divisions. The divisional controller at the Norwalk division was given the task of heading the effort to formulate scorecard measures for the division.

Pedagogical Objectives

A discussion of the Balanced Scorecard concept can focus on three objectives. First, the discussion should address questions about why financial measures are insufficient when they are used alone. Second, the discussion should question and review the concept of the Balanced Scorecard and its dimensions Third, students should practice exploring linkages between goals and measures on scorecard dimensions so that they can see how performance on one dimension supports or encourages achievement on others.

[For part (a), see the “Suggestions for Classroom Use” section. Also see textbook questions 9-1, 9-2, 9-3, 9-4, 9-5, and 9-11, and exercises 9-31, 9-33, and 9-38.]

[(b) and (c)]

Opportunities for Student Analysis

Although the case is short, it provides a remarkable amount of information about Chadwick, Inc. and the Norwalk Division. Using this information, students are able to relate objectives and needs to scorecard dimensions. They can construct a scorecard by associating goals and needs along each dimension and then putting these together into a proposed scorecard.

Some of the things they will consider include the following.

For the customer perspective. Customer retention, market share, number of new products released, key relationships with distributors and final customers, new applications suggested by customers, new applications suggested by salespeople, customers’ profits—how much do distributors earn, customer rankings through surveys.

For the internal [process] perspective list consider the [value-creating] cycle of the business:

Identify unmet customer needs => explore compounds => test compounds in laboratory [and] in field => gain government approval [ => launch product] => release marketing, production, and distribution [market, produce, and distribute product].

Measures for the innovation part of the internal value chain [process perspective] could include number of products in development, number of products in laboratory testing, number of products in test in field testing, number of products under review for government approval, average time in each stage of cycle, the yield of ratio, moving from stage to stage in development cycle, number of new products released, [ratio of new product sales — first two years — to total development costs, and the following measures that could also be included in the learning and growth perspective: percentage of sales from new applications, number of new fundamentally new compounds relative to extensions of existing applications, gross margin on new products, and number of suggestions from distributors and from customers.]

Manufacturing efficiencies, cost, quality, and distribution are candidates for the operating cycle. [The measures might include manufacturing cycle times, order lead times, on-time delivery percentages, inventory availability, and percentage of stockouts.]

For the innovation and learning [learning and growth] perspective. Percentage of sales from new applications, number of new applications, compared to extensions of existing applications, gross margin on new products, suggestions from distributors, and suggestions from customers. [Possible employee-related measures include employee climate or attitude survey (relative to feelings of empowerment and decision-making autonomy), number of employees with requisite technical skills (including, perhaps, new bio-technology skills), number of employees with requisite commercial skills,