Intangibles; Validating the Balanced Scorecard Today intangibles, such as customer relationships, account for more than half of total assets of firms in the United States though such intangibles are not recorded on the firm’s balance sheet under current U.S. accounting standards. The importance of nonfinancial measures is one of the motivations for the increased use of the balanced scorecard, which includes a perspective on customer relationships. However, according to a 2005 research study, data on intangibles such as customer satisfaction can yield significant forecasts of earnings only when the data are analyzed in conjunction with financial statistics and only when tied to corporate strategy. This result is based on a wide range of customer relationship data (e.g., customer satisfaction, employee turnover, the speed of loan processing, and the average number of products and services purchased) from 115 retail banks and represents potentially useful guidance for managers wanting to know how to use nonfinancial measures effectively.
Required Comment on the implications of the study for the use of the balanced scorecard relative to profit centers. We have noted in the text that it is important to validate the balanced scorecard. What does it mean to validate the scorecard in the context of the retail bank example above?
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