Corporate Finance

A Follow-up Note on Capital Budgeting 
 265

VISION
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CORPORATE STRATEGY

Performance Appraisal

Reward System

Bringing Them All Together...

Strategy, performance evaluation and corporate culture are three components of a value maximizing capital
allocation system (Exhibit 13.2).

Exhibit 13.2 Value maximizing capital allocation system

Performance

evaluation

Corporate

culture

Value

maximizing

capital

allocation

system

Strategy

The balanced scorecard popularized by Kaplan and Norton^8 could serve as the focal point for the
organization’s efforts, communicating priorities to managers, employees, investors and customers. It is
important to understand that performance measurement is an important aspect of strategy. What gets measured
gets done. The balanced scorecard tries to measure the capital allocation efficiency of executives from
various perspectives. From a purely financial perspective, ROI, cash flow, project profitability and sales

(^8) Kaplan, Robert and David Norton (1993). ‘Putting the Balanced Scorecard to Work’, Harvard Business Review, Sep–Oct.