Four Perspectives of Balanced Score Card - Article Example

?  Business of the Table of Contents Table of Contents 2 Balanced Scorecard 4 2. McDonald’s 5 2 Objective 6 2.2 Objective of Marketing Unit 7 3. Financial Perspective 7 3.1 Objective 8 Increase in revenue 8 Ensure growth in operating income 8 Maintaining the Short term and Long term solvency 9 3.2 Measures 9 4. Customer Perspective 9 4.1 Objectives 10 Increase in customer satisfaction 10 Increase in the transaction size 10 Increase in the number of customers 10 4.2 Measures 11 5. Internal Business Perspective 11 5.1 Objective 11 Improvement of product and services 11 Increase in Market share 12 Minimization of cost 12 5.2 Measures 12 6. Learning and Growth perspective 12 6.1 Objectives 13 Increase the skills and knowledge of the employees 13 Satisfaction amongst the employees 13 Reduce the attrition rate of the employees 13 6.2 Measures 13 7. Initiative 14 REFERENCES 18 1. Balanced Scorecard The balanced scorecard is a tactical arrangement and management system that is extensively used in industry, government, business and non-profit organization all over the world in order to align the activities of the business to the strategy and vision of the of the organization, enhance the external and internal communication and monitor the performance of the organization against the predetermined strategic goals. This has been created by Professors David Norton and Robert Kaplan as a framework for performance measurement that adds traditional financial metrics with the non-financial performance measures that provides the executives and the managers with a balanced view of the performance of the organization. The balanced scorecard model is used by the organization to get a clear perspective about what the organization should measure in order to balance the financial perspective in operation with the organization of strategic plans. The balance scorecard changes the strategic plan of the organization from a striking but passive document into an active one for the daily basis. It is a framework that not only provides the executives of the company with performance measures but also helps them in identifying and planning what can be done. It makes the executives capable of framing strategies. The balanced scorecard claims to consider an organization from four perspectives and look for developing metrics, collecting the data and analyzing them. The four perspectives are financial perspective that looks at the return on equity, cash flow, sales and income growth. Second is the customer’s satisfaction perspective that measures on time delivery, product development, defect levels and warranty support. Third is the business process perspective that measures the efficiency of the internal business processes that is measured via cycle time, quality, productivity and downtime. Lastly learning and growth perspective that measure organizational and innovation learning measured performance on the dimensions like product development cycle, technological leadership, operational improvement etc. This study focuses on the measuring the performance of marketing unit of McDonalds through balanced scorecard approach. Figure 1: Four perspectives of Balance Score Card (Source: Kaplan & Norton, 1996, p. 76) 2. McDonald’s McDonald’s started their journey in the year 1955 and since then they have been proudly serving some of the world’s most favorite food (McDonald’s, 2013a). They have not just managed history but have created it. Currently McDonald’s is operating as the world’s biggest retailer in foodservices with over 34,000 local restaurants offering food to about 69 million people in around 118 countries per day. The company has employee strength of 1.8 million. About 80% of all the existing restaurants of McDonald’s are run by franchisee (McDonald’s, 2013b). They started “from drive-thru restaurants to Chicken McNuggets to college credits from Hamburger U and much more.” Ray Kroc dreamt of starting a restaurant chain that will be famous for its food which provides uniform preparation method and consistent high quality. He wanted to deal in fries, buns, burgers and beverages that would taste same as in Alaska and in Alabama. In order to achieve this he selected a unique path. He persuaded both suppliers and franchise to buy his vision that they ate not working for McDonald’s but for themselves with the support of McDonald’s. He endorsed the slogan “In business for yourself, but not by yourself”. His principle was seen as a stool with three legs, one was McDonald itself, the second was the suppliers and the third was the franchisee. All three of them made the stool to stand strongly. 2.1 Objective The main objective of the organization is to be the customer’s favorite place where they can eat and drink. All their operations across the world are inclined towards the global strategy called “Plan to Win” whose main motto is to ensure exceptional experience for the customers. The whole organization is committed towards continuous augmentation of their operations and enhancing the experience of the customers. They believe that their existence is due to the support of the customers. So consumers are their first priority and they demonstrate their appreciation by offering high quality food with superior services in a welcoming atmosphere to them. The organization also tracks the changing requirements of the customers and adopts themselves accordingly through constant innovation and evolution. Apart from customers the organization also looks at their employees as important assets and their interest and changing needs are also taken care of. For the business to operate successful it is important that every individual coming from a diverse background acts together towards a common objective. To serve this purpose the organization looks toward nurturing the employees, rewarding them for achievement and providing opportunity to develop as a leader. They also show their commitment towards the society by supporting charity (McDonald’s, 2013c). 2.2 Objective of Marketing Unit The marketing team of McDonald’s desires to localize their strategy for marketing communication as they require considering a huge range of cultural differences along with other differences that they may face in the each of the countries they operate in. Ignoring those local factors would be naive since they may affect the performance of the product, which in turn would affect the business significantly. Thus the marketing unit goes for in-depth analysis of the consumer’s approach towards product, their usage pattern, religious belief and other environmental consideration. The main idea behind doing this is to create a global image of McDonald’s. Before entering into any country, McDonald’s studies the community very deeply. The motto behind the promotion strategies created by the marketing unit is to advertise locally for a global brand (Sandler & Shani, 1991). All its marketing activities starting from advertising, public relation, sponsorship and community relation are so designed that it helps in positioning the global brand image of the company locally (Vignali, 2001). 3. Financial Perspective For profit, non-profit or public organization financial measure is a vital component of the Balanced Scorecard. This perspective helps in deciding the profit domain of the organization and determines whether the execution of the strategy is improving the bottom line result. Various indicators are encountered during this financial measure like revenue, asset utilization or profitability (Niven, 2005). The long term goals of the organization are decided through the financial perspective. After the financial goals are identified then proper actions are taken to increase the revenue and productivity, improve cost, reduce risk and enhance asset utilization. Financial aspects are very important to be considered since it leads to the question of survival of the organization. A cause and effect relationship is also determined due to the linkage of financial situation with the other three aspects of the balanced scorecard. While deciding the financial aspect of the organization, it is important to decide whether it is operating in the early stage or in the growth stage; since actions differs if the organization is operating in stagnating or sustained or harvesting stage (Bischoff, 2011). 3.1 Objective Before planning for any achievement the objective behind this must be decided. In financial perspective the company has three major objectives Increase in revenue and sales, ensure growth in operating profit and maintain both short and long term solvency. Increase in revenue The main source of revenue of the organization is the sales of their food items and the services that they provide to their customers. In the year 2012 the revenue were seen to grow by 2% whereas the growth in the sales is by 3.1% (McDonald’s Corporation, 2012). Ensure growth in operating income The two sources of income for the company are from the sales that are made through the company owned restaurant and the royalty and rental income from the franchised restaurants. Various cost parameters should be taken into consideration while deciding on income from the company owned restaurants. On the other hand in case of franchisee, after paying the rentals and the royalty income for using the property of the organization, they keep all the profit. The organization has experienced an increase in the income by 1% (McDonald’s Corporation, 2012). Maintaining the Short term and Long term solvency Solvency is important for the company in order to meet its both short and long term goals. In this regards the long term solvency and short term solvency should be judged. The current ratio of McDonald’s is 1.45, which is good. McDonald’s has a debt equity ratio of 0.89, which is moderate (McDonald’s Corporation, 2012). 3.2 Measures The increase in the revenue and sales can be measured by comparing the revenue and sales figure of the current year with the previous year. Increase in operating income can be measured by comparing the figure of the operating income of the present year with the previous. The short term solvency of the company is decided by the current ratio. If the current ratio is more than 1 that means the investment in the company is less risky. However a very high current ratio signifies that the company is not using its current assets more efficiently. Current ratio is calculated as current asset divided by current liabilities. On the other hand the long term solvency is calculated by debt equity ratio. 4. Customer Perspective In the customer perspective component of the balanced scorecard the target segment and the customers are identified to whom the company wants to cater and improve their performance. This perspective specifically includes several generic and core measures that leads to the successful outcome by implementing certain well planned and designed strategies. The main outcome of the strategy includes customer satisfaction, customer profitability, customer retention, market share of the targeted segment and new customer acquisition (Kaplan & Norton, 1996; Mowen, Hansen & Heitger, 2008). 4.1 Objectives Customers take the first place in the priority list of the company. They believe that their existence is due to the constant support from the customers. In this regards they always look for various means to satisfy and build a long term relationship with the customers. The main objective of McDonald’s in this regards is to increase the satisfaction of the customers, increase the number of customers visiting the restaurant and maintaining the transaction size. Increase in customer satisfaction McDonald’s value the satisfaction of the customers, which they want to make better by providing customized products with high quality and prompt services. Recently some of the customers visiting the franchisee store complained about unfriendliness of the employees, slow service delivery and lack of professionalism (White, 2013). Increase in the transaction size The increase in the transaction size of the customer will also lead to the achievement of the financial objectives of the company. Increase in the number of customers The company deals in the business in which the main source of income is the customer. The increase in the number of customers is therefore one of the main objective of McDonald’s. The number of customers served per day is seen to increase from 67 million to 69 million (McDonald’s Corporation, 2012). 4.2 Measures The satisfaction of the customers can be judged by analyzing the median score of the customer survey. The increase in the transaction size can be measured by the average transaction size per day. Increase in number of customers can be measured by finding the number of customers visiting the restaurant. 5. Internal Business Perspective Internal business perspective is the process through which the company can achieve the growing value added rates for the shareholders and the customers. The main idea revolves around the concept of how the value of the shareholders can be improved than the previous year and how can the organization perform better than the competitors by improving the external and the internal processes. In this context three significant business processes are considered like the innovation, customer service and operating processes (Holl & Bohm, 2005; Eigenmann, 2007). 5.1 Objective The main objective of McDonald’s for its internal business processes so that the business goal can be achieved are improvement in product and services, increase in market share and minimization of cost. Improvement of product and services The company should upgrade its product through constant innovation in order to cater to the changing taste of the customers and attract them with exciting tastes. The services also need to be changed so that the customer satisfaction may be increased. Increase in Market share Increasing the market share is another objective of the company. In the year 2012 the company has recorded a steady growth in the market share. They aim to continue this upward trend. McDonald’s is the market leader and aims to remain like that. Minimization of cost Minimization of the cost will lead to increase the income of the company. This would help it in achieving various financial goals set by the company. 5.2 Measures The improvement in the product and services can be tracked from the customer satisfaction as well as the percentage of expense in R&D to revenue. Increase in the market share can be measured by the percentage increase in the market share as compared to the previous year. Minimization of cost can be measured by reduction in the cost per unit of product as compared to the previous year’s figure. 6. Learning and Growth perspective Learning and growth perspective defines the technologies, skills and core competencies of the employees and the corporate culture required to support the strategy of the organization. After the other perspectives have been defined there exists incongruence between required skill of the employees and the technological advancement and the expected organizational output. Here the learning strategy is required that helps in bridging and reducing the skill gap (Pangarkar & Kirkwood, 2012). 6.1 Objectives Increase the skills and knowledge of the employees Increase in the knowledge and skills of the employees lead to the development of the organization, which in turn paves the pathway for the organization to achieve its goals and objectives. Satisfaction amongst the employees Satisfied employees lead to increased productivity and with increasing productivity the motivation of these employees also increases which is reflected in their work. Since McDonald’s deals directly with the employees hence the services rendered by the employees should be optimum that would help the organization in attracting customers. Reduce the attrition rate of the employees If the employees are satisfied with their job then they should not leave the job. So reduction in the attrition rate is another objective of the organization. 6.2 Measures Increase in the employee knowledge and skill can be measured from the number of hours the employees has spent in training. The satisfaction among the employees can be judged from the median score of the employee satisfaction survey. The reduction in the attrition rate can be measured by comparing the attrition rate of the present year with the previous. 7. Initiative In order to increase the revenue, the organization always looks towards creating innovative food that may cater to the changing needs of the customer. In this respect they are reinvesting their earnings to open 1500 to 1600 new restaurants and re-imaging over 1600 locations (McDonald’s, 2013d). In order to increase the income the cost involved in production should be controlled like the labor cost and other variable costs. At the same time the cost involved in marketing should also be regulated and monitored properly. In order to maintain the solvency, the company they should preserve healthy asset position and reduce its liabilities. The company before entering into any country should scan the needs and attitude of the customers towards the product that McDonald’s serves. So that the product and the services can be matched to the customers requirement. At the same time special care should be taken about the physical evidence of the restaurant like the cleanliness and the ambience. Moreover the franchisees should be also aware of the vision and mission of the company so that they may also help in maintaining the image of the organization. Some of the products are customized as per the requirement of the customers. For instance Big Macs were served without cheeses in several outlets of Israel. However the standardized set of items is kept same in taste. This step should be further exaggerated for which innovation and development along with market analysis is necessary. The organization should move into more and more countries in order to increase the customer base, which in turn can increase the number of customers. They should also bring some more innovative products so that other customer segments can also be attracted. The market share can be increased by catering to more customers and diversifying their products. The product and services need to be upgraded so that the changing need of the customers can be catered. Cost minimization techniques should be implemented all throughout the various units of the organization. The variable cost should be reduced. The training and development of the organization should be done at regular interval and knowledge transfer should also be encouraged. The training and development programs enhances the performance of the organization Employees should be given various perks and other incentives for their job for increasing their motivation. The attrition rate of the employees can be reduced by offering them good compensation, incentive, proper appraisal and other perks that would make them feel to be a part of the success of the organization. OBJECTIVE MEASURES TARGETS INITIATIVES FINANCIAL PERSPECTIVE Increase in revenue Percentage change in revenue as compared to previous year 3% Creating innovative food Ensure growth in operating income Percentage change in operating income as compared to previous year Increase Operating income by 2% Proper monitoring and controlling of cost Maintaining the Short term and Long term solvency Short term solvency is calculated by current ration. Long term solvency is measured by debt equity ratio Current ratio= 1.45 and Debt Equity ratio= 0.75. Preserve healthy asset position and reduce its liabilities CUSTOMER PERSPECTIVE Increase in customer satisfaction Median score in customer survey 90%. Provide proper services and product to the customers. Increase in the transaction size Average transaction size of the customers per day $100. Customization of product and providing special offers on certain products. Increase in the number of customers Number of customer visiting per day. 3%. Expand in other countries or diversification of product INTERNAL BUSINESS PERSPECTIVE Improvement of product and services Customer satisfaction as well as the percentage of expense in R&D to revenue Median score of customer satisfaction= 90% or R&D expense to revenue= 4% Innovation Increase in Market share Percentage increase in the market share 6% Attract more customer through attractive product and services Minimization of cost Reduction in the cost per unit of product 2% Optimum utilization of resources and reducing wastage. LEARNING AND GROWTH PERSPECTIVE Increase the skills and knowledge of the employees The number of hours the employees has spent in training On an average 576 hours per year Regular training and development programs for the customers. Satisfaction amongst the employees Median score of the employee satisfaction survey 90% Provide perks and goods schemes. Reduce the attrition rate of the employees Comparing the attrition rate of the present year with the previous 13% Proper compensation, perks, proper appraisal and other incentives for the employees. REFERENCES Bischoff, A.L. (2011). The Balanced Scorecard: Applied on Ericsson AB. Norderstedt: GRIN Verlag, 19-Aug-2011 Eigenmann, U. (2007). Design and Implementation of a Human Capital Oriented Balanced Scorecard in an Engineering Services Unit. Norderstedt: GRIN Verlag. Holl, R. & Bohm, S. (2005). Zero Base Budgeting Using the Balanced Scorecard. Norderstedt: GRIN Verlag. Kaplan, R.S. & Norton, D.P. (1996). 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