404 Part 3: Strategic Actions: Strategy Implementation
As we explained in Chapter 11, financial control focuses on short-term financial
outcomes. In contrast, strategic control focuses on the content of strategic actions
rather than their outcomes. Some strategic actions can be correct but still result in
poor financial outcomes because of external conditions, such as an economic recession,
unexpected domestic or foreign government actions, or natural disasters. Therefore,
emphasizing financial controls often produces more short-term and risk-averse deci-
sions because financial outcomes may be caused by events beyond leaders and managers’
direct control. Alternatively, strategic control encourages lower-level managers to make
decisions that incorporate moderate and acceptable levels of risk because leaders and
managers throughout the firm share the responsibility for the outcomes of those deci-
sions and actions resulting from them.
The challenge for strategic leaders is to balance the use of strategic and finan-
cial controls for the purpose of supporting efforts to improve the firm’s performance.
The balanced scorecard is a tool strategic leaders use to achieve the sought after balance.The Balanced Scorecard
The balanced scorecard is a tool firms use to determine if they are achieving an appro-
priate balance when using strategic and financial controls as a means of positively influ-
encing performance.^135 This tool is most appropriate to use when evaluating business-level
strategies; however, it can also be used with the other strategies firms implement
(e.g., corporate, international, and cooperative).
The underlying premise of the balanced scorecard is that firms jeopardize their future
performance when financial controls are emphasized at the expense of strategic con-
trols.^136 This occurs because financial controls provide feedback about outcomes achieved
from past actions but do not communicate the drivers of future performance. Thus, an
overemphasis on financial controls may promote behavior that sacrifices the firm’s long-
term, value-creating potential for short-term performance gains. In effect, managers can
make self-serving decisions when they focus on the shortterm. Research shows that deci-
sions balancing short-term goals with long-term goals generally lead to higher perfor-
mance.^137 An appropriate balance of strategic controls and financial controls, rather than
an overemphasis on either, allows firms to achieve higher levels of performance.
Four perspectives are integrated to form the balanced scorecard:
■■ financial (concerned with growth, profitability, and risk from the shareholders’ per-
spective)
■■customer (concerned with the amount of value customers perceive was created by the
firm’s products)
■■internal business processes (with a focus on the priorities for various business pro-
cesses that create customer and shareholder satisfaction)
■■learning and growth (concerned with the firm’s effort to create a climate that supports
change, innovation, and growth)
Thus, using the balanced scorecard finds the firm seeking to understand how it
responds to shareholders (financial perspective), how customers view it (customer
perspective), what processes to emphasize to successfully use its competitive advan-
tage (internal perspective), and what it can do to improve its performance in order to
grow (learning and growth perspective).^138 Generally speaking, firms tend to empha-
size strategic controls when assessing their performance relative to the learning and
growth perspective, whereas the tendency is to emphasize financial controls when
assessing performance in terms of the financial perspective.
Firms use different criteria to measure their standing relative to the balanced score-
card’s four perspectives. We show sample criteria in Figure 12.5. The firm should select theThe balanced scorecard is
a tool firms use to determine
if they are achieving an
appropriate balance when
using strategic and financial
controls as a means of
positively influencing
performance.