Easy
What does the Balanced Scorecard help a company do?
Monitor and implement its strategy by tracking performance from four perspectives.
What is surrogation?
A subconscious bias where people mentally replace the strategy with the metrics meant to represent it.
Could a company raise its EVA without increasing profit? How?
Yes. It could reduce invested capital, for example by exiting assets that earn below their cost of capital, or it could lower its cost of capital.
Which of the following is NOT one of the four perspectives of the Balanced Scorecard?
A. Financial
B. Customer
C. Internal Business Process
D. Competitor
Answer: D. Competitor
Why can outsourcing raise EVA?
It reduces invested capital and turns fixed costs into variable ones.
How does the Balanced Scorecard help reduce surrogation?
It uses multiple metrics across four perspectives, so no single number can stand in for the strategy.
What does EVA stand for?
A. Estimated Value Assessment
B. Economic Value Added
C. Enterprise Value Analysis
D. Economic Variable Adjustment
Answer: B. Economic Value Added
What is the main purpose of ROMI?
Answer: To assess the financial impact of marketing investment on the firm's bottom line and help managers make marketing investment decisions.
Why does the Balanced Scorecard complement EVA rather than simply replace it?
Answer: EVA is mainly backward-looking and focuses on financial outcomes, while the Balanced Scorecard provides a broader and more forward-looking view through financial, customer, internal business process, and innovation and learning perspectives.
What are the three critical equities that marketing investment can improve?
Answer: Value Equity, Brand Equity, and Relationship Equity.
Why are marketing metrics useful alongside EVA and the Balanced Scorecard?
A. They focus more directly on customer-related measures
B. They completely replace financial measures
C. They only measure accounting profit
D. They eliminate the need to measure firm performance
Answer: A. They focus more directly on customer-related measures
A company measures only the number of sales calls made by its salespeople. Management notices that call numbers are increasing, but sales performance is not improving.
What is the main measurement problem?
Answer: The company is focusing on an observable activity rather than understanding the factors that lead to successful sales. The metric may therefore be misaligned with the real purpose of performance measurement.
Is EVA the same as accounting profit?
Answer: No. EVA considers the cost of capital, while accounting profit does not.
A company introduces a loyalty program to encourage customers to stay with the brand. Which type of equity is it mainly trying to improve?
A. Value Equity
B. Brand Equity
C. Relationship Equity
D. Financial Equity
Answer: C. Relationship Equity
A company says that innovation is a strategic priority, but employees are rewarded mainly for avoiding mistakes and using proven methods. What performance measurement problem does this illustrate?
A. Excessive capital employed
B. Measuring and rewarding the wrong things
C. Negative relationship equity
D. High cost of capital
Answer: B. Measuring and rewarding the wrong things