Benchmarking vs Balanced Scorecard Approach for Thorntons - Research Proposal Example

THORNTONS PLC About the Company The company was established in 1911 by Joseph Thornton. Thorntons operates and owns 379 shops and cafés along with 250 franchises with internet, mail order and commercial services. The company is famous as a premium chocolate provider in the UK with its core products being the boxed chocolate. The company is targeting a niche segment with high price and high quality chocolates and related products. As the new era dawns, the competition is increasing tremendously not only from local companies but from global operators as well such as Nestle and Cadbury. All these companies are now focusing on the same market segment as Thorntons as the customers demand for creative and innovative products is increasing. THORNTONS STRATEGY ANALYSIS Thorntons’ Previous Strategy From the inception of the company till the 2000s the company has followed many different short-term strategies to gain the profits quickly. The company has followed the strategy of product differentiation but lately it has lost focused of the strategy by stretching itself thin to pursue other objectives. The company had gained popularity as a chocolate specialist offering wide range of top quality products turning it into the competitive advantages of the company. The company’s strategy was to operate through its own stores to develop personal selling relations with the customers. But during the recent times, the company had changed this initial strategy by creating a cost effective strategy that was aimed to revitalise the marketing mix operating through other brand channels. The company’s strategy of placing the products in other channels (stores) was to reach more customers and therefore lure them to the original Thornton store. Thorntons’ Current Strategy Although the above mentioned strategies were working for the company in terms of sales and profits, the increased competition was decreasing the margins on the profits. The company therefore decided that in order to cope up with the competition a new strategy had to be developed that was focused on the long-term achievements rather than short-term gains. The company in the past few years has been working on five point strategy which is a price led marketing strategy. Thorntons five point strategy as written in the company’s annual report (2008) is as follows: Investment in the products and brands to enhance the relevance and give a premium feel Development of new innovative products Modernisation of in-store environment Expansion of commercial and direct business Attraction and retention of the best employees This five point strategy of the company can also be termed as the growth strategy and the company is doing well to implement this strategy although the macro-environment is providing hurdles and re-shaping the strategy. The analysis of the macro-environment is given below through the PESTLE Analysis and the Porter’s Generic Strategies. PESTLE Analysis The PESTLE analysis of the Thorntons is given taking the environmental factors affecting the company in to account. Political Environment The political environment refers to changes in the UK government as well as the legislation and the regulations that might affect the working of the confectionery industry as a whole and the individual companies in it. The political environment of the UK seems stable and is predicted that it will remain so over the coming next year. Economic Environment The economic environment of the confectionery industry and the country as a whole is affecting the company. The economy of UK is stable and has shown a good growth in the past 5 years. It is the fifth largest economy in the world and has had a GDP growth of US $2727 billion (UK Economy at a Glance, 2008). The UK’s food and drink sector has generated sales of £70 billion employing approximately 500,000 people. Despite the positive economic outlook, the devaluation in the pound sterling and the property market has had its impact on the Thorntons that is unable to meet its profits and customer demands. The UK chocolate market is estimated to be $3.1 billion and which is expected to grow in the future years. Social Environment Social environment refers to the changes in the demographics and lifestyle of the consumers. The customers are becoming more health conscious which in the beginning was not a cause of concern and did not impact the confectionery sector drastically. As the trend for healthy lifestyle is emerging, the concerns surrounding the effects of chocolates such as obesity is gaining momentum. Consumers are moving towards healthier options such as cakes, biscuits and cereal bars. In addition to this, the customers also want value for their money. If the quality of the chocolates is compromised due to reduced sugar content and artificial ingredients, the customers will not buy it. The companies are now focusing their direction to provide natural products with the same taste. Due to this, the trend in the manufacturing and packaging of dark chocolate has increased as it is a better alternative than the milk chocolates. The demographics and the seasonal buying of the Thorntons chocolates have also impacted the sales and strategy of the company. As Thorntons is a high assorted chocolate manufacturer, customers tend to buy on certain occasions such as Christmas, Easter and so on. The male customers, children and teenagers are also lowering the age profile of the Thorntons customers. Therefore the company is focusing on the development of new products and modernizing the stores to attract the customers throughout the year. Technological Environment In 1998, Thorntons installed the EPOS (electronic Point of Sales) to have a better appeal to the customers. As the internet based technology increased, Thorntons, strategy was modified to introduce internet and interactive television as part of their regular sales operations. Thorntons invested a lot of money in its new till system. But as the years passed, technology in the EPOS and till systems changed tremendously driving Thorntons to considering installing new technology and replacing the obsolete systems. Therefore the company decided that in an attempt to modernize itself as part of its strategy, it will install new shop till systems. The pilot run took place in 2008 and will be completed in the end of the year. This technology will help Thorntons’ shops to respond faster in order to reduce the queuing times. Legal Environment According to the article by Crowley (2008), the regulations governing the food and drink sector have been made on non-evidence base only to satisfy the public opinion. As consumers become more aware about their food contents, the government is placing restrictions on the food industry including the confectionery industry to reformulate their products and contents and provide clear nutritional labelling. The government has also placed restrictions on companies to reduce the level of advertising targeting the children. In light of this new regulation, Thorntons is working aggressively to remodel its packaging and introduce chocolates with some nutritional value. Environmental Analysis Duty of Care Regulations 1999 applies to all the businesses in all the industries under which the contents of storage, handling and disposal of waste apply. Any company that fails to comply with the environmental regulations will be heavily fined and worst offenders can be prosecuted. Thorntons being aware of this regulation has integrated certain measures with its strategy to lower waste and energy consumption. According to the annual report (2008) the company has set up waste management teams and is working on improving the segregation of waste recycled and as a result have managed to reduce the waste costs. Porter’s Generic Strategy Porter defined four strategies that the company can use in order to position itself in the market and against the competitors. A competition on the product pricing is a difficult thing as different manufacturing companies are in pursuit of differentiating themselves. The Porter’s Generic Strategy table is given below depicting the Thorntons two strategies: previous and current. Cost Leadership If a company follows this strategy it is aiming to be the lowest cost producer. The global competitors of the Thorntons such as Hershey’s, Cadbury and Nestle are following this strategy by producing chocolates that are relatively cheap and affordable by all the customers. As this strategy gives an advantage of entering any new market by charging the prices below the competitor’s price in this case Thorntons. Thorntons is seeing increasing threat from these competitors as they are entering the differentiation market and squeezing the market share and profits of Thorntons. Cost Focus In this strategy, a certain group of customers are targeted based on certain demographic characteristics or locations. The advantages of following this strategy is that the company has an extensive knowledge of the segment and can operate at low costs thus the pricing of products is low. Many different companies such as Aphrodite Handmate Chocolates on the local level are following this strategy in the chocolate confectionery industry. Differentiation Focus This strategy is aimed at narrow target market with premium products. This strategy was followed by Thorntons throughout its years but has changed recently. The company was focusing on the narrow or niche marketing by building strong customer relationships through quality and innovative products. This creates a higher image level of the chocolates but as time passed, the company tried to stretch itself to other market segments and thus was left between two strategies: differentiation focus and differentiation. This led to distortion of the focus and a slight downfall in the company. Differentiation The company is now targeting a broad market segment with the same premium price but is following focusing of five different strategies aforementioned to differentiate itself further from the competitors and thus gain a market share which it aims to be higher than the current 6% (Braithwaite 2008). The company is aiming to change its brand outlook and give its product a more rich and premium feel. In addition the company is also modernising the stores and developing innovative new products following the same differentiation strategy to be competitive. Strategy Clock Thorntons has been placed in the category of Differentiation. There are a number of reasons for doing so. Thorntons owns its distribution channels with the possibility of delivering commercial services. The whole retailing process guarantees excellent quality chocolate the process is owned by the company itself. The unique selling points of the company offer excellent service. Combined with freshness of the chocolate products the company wants to convey a special impression. Therefore all these features combined with premium prices is attracting competition in the market making it difficult for Thorntons to keep its competitive advantage. BALANCED SCORECARD The strategy of Thorntons is a five point strategy in which the company aims to: Revenue Strategy: Increase the revenue by expanding the business Product Strategy: Improving the product quality by developing new and innovative products In order to achieve the two strategies, Thorntons should use the balanced scorecard in order to have an action plan for achieving its strategies. This is based on the four perspectives: REVENUE STRATEGY PRODUCT STRATEGY Financial Perspective Customer Perspective Internal Perspective Learning & Growth Perspective Based on the above actions for achieving the strategies, a balanced scorecard is given below to have measurable account of the actions to be taken. The scorecard if implemented in Thorntons, it can help the company remain focused on its targets and strategies. The advantage of implementing a balanced scorecard in Thorntons is that the company can measure itself against the actions it takes and can return back if it gets off-track. STRATEGIC OBJECTIVES MEASUREMENTS Lag Indicators Lead Indicators Financial Perspective Increase returns Cost Effective Marketing Mix New innovative Product Development Return on development investment Increase brand awareness New Revenue Mix Increase in sales (%) Increase in profits (%) Customer Perspective Increase Product value for Money Increase satisfaction through quality service & product Customer retention Increase customer attraction through word of mouth Customer satisfaction feedback Increased customer relationship and loyalty Internal Perspective Recognize customer segment & needs Cross sell product line Reduce queuing time Hospitable environment Increase customer access Changes in customer access channel Order accomplishment time Reduced product delivery time Modernisation of store outlook Increase market share Learning & Growth Perspective Increase employee satisfaction Develop Strategic skills Feedback & ideas from Employees Increase employee empowerment Increase salary & compensation Employee surveys Decrease Employee Turnover (%) Availability of Information (%) This scorecard will provide the top management the a focus to achieve long term success as Thorntons is aiming in the same direction. If the company wants to implement the above scorecard successfully, it has to communicate and clarify the visions and strategies of Thorntons to the employees. BENCHMARKING Benchmarking is another tool that Thorntons can use to provide the company focus on the external environment so that it can increase its efficiency. The benchmarking process applied to Thorntons involves five steps described below: Planning: The critical success factors of Thorntons encompass the company’s approach to maintain the differentiation strategy by continuously developing new product lines in the chocolate category and other categories like cakes, flowers and so on. If the company manages to differentiate itself further and not compromise on the quality of the products, it can achieve greater sales. In order to implement the benchmarking process, Thorntons should follow the strategic benchmarking. This involves benchmarking the competitor companies on the strategic level such as their choices of product, markets and generic strategies. This is best process for Thorntons as the positioning of the Thorntons is its main strategy and focus in its market segment. Searching: In this process, the company has to identify the company that it will benchmark. Analysing the competitors of Thorntons, it can be seen that the company should benchmark two companies: one operating globally and other nationally/locally which are Cadbury and Green & Black’s respectively. Thorntons should analyze Cadbury because it is penetrating the market and covering all the available segments in the market while operating globally. The company can also provide measures that Thorntons can use if it wishes to launch itself on a global scale in the near future. Another competitor, Green & Black’s is operating nationally mostly on the same strategy as Thorntons’: differentiation strategy. Thorntons should benchmark the aforementioned companies’ strategies and product development and offering. Observation Thorntons must continuously observe the aforementioned benchmarked criteria of the competitive companies both performance wise and practice wise. While doing so, the management should document the findings. The methods that the company can use to collect the required data from the competitors is direct observation and interviews. Analysis After observing both the companies, Thorntons must compare the strategies with its own and identify the gaps and flaws in its strategies. For example, the Cadbury strategy of positioning its products in the differentiation segment is based on the company’s goodwill and brand name that customers will buy its chocolate no matter what the season is given the premium price. The gap the management will identify is that the company has not focused building customer relations and thus not a brand loyalty. Adaptation If Thorntons wishes to stay in the business, it has to develop its brand image and position itself as giving the best value for the customer’s money by offering the finest and superior quality assortment of chocolates for all occasions and all year round. EVALUATION OF BALANCED SCORECARD & BENCHMARKING Balanced Scorecard: Thorntons will be in a much better position of devising the actions for its strategy using balanced scorecard because it is simple to operate and straightforward. The management at Thorntons can use the card to track the planned goals of the company’s performance and can also help create focus on the long-term. The pitfall of the balanced scorecard technique is that Thorntons can have many measures in the four perspectives which can become too complex to handle. Also if the management is able to communicate effectively throughout the organization about the goals and strategies in the scorecard, only then can it become successful Benchmarking: The cons of using the benchmarking technique by Thorntons can be that the management can neglect the employees’ participation in the process as they are the ones who will use the information for the improvement in the process. Thorntons can also neglect to relate the strategy and positioning with the benchmarking process. The benchmarking process is not a one time project as Thorntons’ management is looking to improve its sales. This is an on-going process that requires attention and proper collection of information of continuous basis if the company is to sustain long-term growth. CONCLUSION After analysing the strategies of Thorntons and providing recommendations using the Balanced scorecard and Benchmarking, the best option in case of Thorntons is to follow and implement the Balanced Scorecard approach. The reason for this is that the benchmarking process will focus on only dimension whereas the company’s new long terms strategy are stretched to include customers as well as the employees. Another reason for using balanced scorecard approach is that the benchmarking approach is expensive, time consuming and difficult in the sense of extraction of information. As the competition is increasing rapidly and the external environment is also lending its hand of impacting Thorntons, the company does not have much time to go through the process of benchmarking. REFERENCES Braithwaite, T., 2008, Upmarket Taste Provides a Sweeter Thorntons. Financial Times. Available from Campbell, D., Stonehouse, G. & Houston, B., 2002 (Eds. 2). Business Strategy: An Introduction. 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