Balanced Score Card and Strategy Map for Home Retail Group - Example

BALANCED SCORE CARD AND STRATEGY MAP FOR HOME RETAIL GROUP By Affiliation Table of Contents Executive Summary 2 Vision and Strategy 3 Balanced Scorecard 4 Financial 7 Business Processes 7 Learning & Growth 8 Strategy Map 8 Recommendations 9 Critical Discussion 13 References 16 Executive Summary The key performance indicators identified in the case of Home Retail Group include operating profit, profit margin, stock turnover, and asset turnover. To meet the mission statement of the company, the company is observed to be capable of benefiting from the application of various financial and management theories. As a remedy to the problem of low value sales, the business is to adapt revenue mix such that the business does not profit from only one line of products. Using the customer relations concept and information capital, the business can produce or supply customers with the products they prefer. In addition, the theory of the firm shows that corporates must mitigate costly spending while at the same time creating wealth. To accomplish the objective of increasing the value of sales, low production or product acquisition cost should be kept at minimal and quality maintained. In order to ensure that shareholder value increases in the long run, the business is to hire experts and nurture its own innovators to strategize on what product lines to introduce to the market and how to position these products. In addition, the application of Herzberg’s motivation theory applies to showcase how workforce involvement in product development or innovation can benefit the company. Thus, in order for Home Retail Group to improve sales’ value, it should, through research and develop, provide customers with innovative products protected by patents. Additionally, the inclusion of new product and brands would occupy the underutilized assets such as to improve the overall business financial health and increase shareholder value. Satisfied customers and wealthy investors make perfect combination in the development of a sustainable financial environment. Vision and Strategy Home Retail Group Plc’s vision is to reduce its operating profit, increase its asset base utilization, and manage product cycle to increase organizational performance, as well as shareholder value. The company’s strategy includes improvement of profit generating operations in the long run to increase the percentage of income going to investors, improvement on ROI following a decline over FY2013 to FY2014, to stabilize the profit margin, reduce debtor collection cycle, stabilize the company’s liquidity position, improve the value of shares to increase earnings per share, and stabilization of dividend yield. These areas are the major areas that the company has to manage to ensure that profitability and sustainability in the long run are equally addressed to increase shareholder value, attract more investors, and improve the company’s liquidity ratio. Currently, the company seeks to improve its ability to invest in both short and long term business opportunities. However, following the poor liquidity position the company’s assets cannot be converted into cash within the short-term to secure the company an opportunity to invest, manage wealth, deploy resources, and improve the financial health of the company in both the short- and long-term. Balanced Scorecard Home Retail Group plc Financial perspective All Financial Goals are for the corporation as a whole GOAL KPI Target Initiative or ACTION 1 Cash Flow 75% increase in Cash Flow (5-years) Operating Capital 50% decrease in Operating Capital Cutting costs, 2 Shareholders 10% improvement in Earnings per share (5-years) Stock turnover 10% increase in Return on Equity Operational Optimization 3 Profitability 100% Sales’ Value (5-years) Profit Margin 50% return per sale Improved quality, rebranding, and positioning 4 Working Capital 50% Improvement in Working Capital (5-years) Asset turnover 100% Higher asset utilization Outsourcing Home Retail Group Plc Customer perspective GOAL KPI Target Initiatives or ACTIONS 1. Product Differentiation 20% more brands (2-years) Profit Margin 100% in sales’ value Product development 2. Price Controls Achieve 100% sales value (2-years) Stock turnover 100% value per unit Higher quality, Lower acquisition cost 3. Availability 75% Sustainability Supply (2-years) Stock turnover 75% Market Saturation Marketing 4. Quality Service Delivery 75% Improved Service delivery (2-years) Profit Margin Achieve 50% rate in return customers Performance Appraisals Home Retail Group plc Internal Business perspective GOAL KPI Target Initiatives or ACTIONS 1. Operations Management 100% Supply, Production, Distribution, and Risk Management efficiency (5-years) Asset turnover 100% Sales’ value Operation optimization 2. Customer Management 95% Customer retention, and sales growth (5-years) Profit Margin 100% customer retention Customer Relations Management 3.Innovation Management Improve Research and Development, Product design & development and Introduction to Market by 75% (5-years) Stock turnover 75% Sustainability of Growth Research & Development, Involving workforce in decision-making, motivation 4.Social Management 75% improvement in Corporate Social Responsibility, safety and health, workforce management, environment analysis (5-years) Operating Capital 95% operations acceptance Policy and Regulations Adherence Home Retail Group plc innovation and learning perspective GOAL KPI Target Initiatives or ACTIONS 1. Training and Development Improve productivity by 50% (5-years) Asset turnover 50% Higher productivity Training and hiring productive workforce 2. Information Management Improve information systems by 75% (5-years) Operating Capital 100% reliability Upgrading current systems 3. Innovation protection Improve innovation by 50% (5-years) Profit Margin 50% more sustainability Patenting 4. Leadership 100% Leadership efficiency (5-years) Operating Capital 100% leadership effectiveness Training and Development Financial As it is the business approach of Home Retail Group to outsource investment capital from shareholders, the financial perspective of the company’s operations relates to the company’s treatment of shareholders. In order to increase shareholder value, Home Retail Group faces the challenges of increasing revenue mix, improving operating efficiency, and stabilizing enterprise financial health. It is the duty of the company to ensure that its shareholders not only benefit from profitable investment of their money, but also grow their investment through value creation. In addition, the company’s stability based on its revenue generation shows underutilization of assets, a perspective that can benefit from revenue mix (Scott, 2010). Business Processes The business processes that Home Retail Group has to manage in order to operate profitably include the introduction of new products, targeting market segments, managing product cycle period, providing quick response, and consideration of new productive channels. To serve the financial perspective of the business model, the application of business processes such as the introduction of new products promote and support product mix. Additionally, based on the financial analysis of the stock turnover which shows that the company’s products take long in the warehouses before they are purchased. Cycle management and quick responses are business areas where the company would gain its business potential to increase revenue generation (David, 2014). Customer The customer perspective is the most important area to Home Retail Group. Customers provide demand for products and services while businesses on the other hand provide a platform for supplying customers with the demanded services and products. In order for the company to improve its shareholder value and stabilize its financial health, it has to provide customers with improved service delivery system, nurture customer trust and loyalty, provide genuine information on products, ensure timely distribution and supply of products, and diversify its products’ lines. Based on the company’s reputation, future financial challenges can be avoided by creating a stable foundation for the business to attract and retain customers (Michael, 2009). Learning & Growth Learning and growth is the ultimate approach for companies to create and sustain value. In the creation phase, the company sets specific goals and objectives and deploys resources that can deliver the goals. By nurturing technical talent, the company is able to train and develop the current workforce to be more productive and innovative. Additionally, based on the cost of workforce training and development for technical areas, hiring technical staff would catalyze the accomplishment of goals (Wong, 2006). Workforce commitment is to be aligned to suit and fit measurable goals. Aligned commitment is to increase workforce productivity while at the same time allowing the workforce to join in the decision-making processes. Through aligned commitment and enhanced talent management, innovations to diversify the product line will result (Larry, 2007). Strategy Map Mission: To become UK’s leading consumer goods’ retailer Vision: To stabilize and sustain business growth and development on the long-term Financial Increase in revenue mix Improved working capital Reduced operating profit Increased asset utilization Customer Perspective Product differentiation Price adjustment Availability Brand development Quality Service Delivery Internal Perspective Operations Supply management Production management Distribution management Risk Mitigation Customer Selection Acquisition Retention Growth Innovation Research and development Product design & Development Introduction to Market Regulations and Social Management Corporate Social Responsibility Safety and health Workforce management Environment analysis Learning & Growth Perspective Human capital training and development Information capital: Information systems installation Organization Capital: Talent nurturing and management Innovation protection and management Project leadership and management Recommendations To become UK’s leading consumer goods’ retailer, Home Retail Group has several areas to improve on in order to operate more sustainably. With the vision to stabilize and sustain growth and development in the long run, both short-term and long term changes are required. Among the different perspectives required in the development of more beneficial and revenue generating activities, the company should engage in product differentiation to ensure that customers from all social classes are able to purchase products fitting their taste and preferences while at the same time targeting market segments with products reflecting their lifestyles (Angela, 2012). Through market segmentation, the company will also engage in targeted marketing such that product acquisition and distribution serves the mission of the company (Lesley, 2005). To secure a more stable financial environment for its business, Home Retail Group is to reduce its operating profit by 75% in 5 years to improve Corporate Social Responsibility, safety and health, workforce management, and environment analysis. A reduced operating profit involves the reduction of the profits from the company’s core business activities. The reduction is to ensure that investment in other areas takes place concurrently as the business’s core activities generate profits. The operating profit, results from only activities that the company is directly involved with rather than other revenue generating activities such as company’s stake in another company. For the company, it is recommended that it reduces the operating profit and concentrate on increasing the value of sales. Through this approach, the company will be able to reduce the stock turnover by stocking fewer products of higher value. The return from highly valued sales will stabilize the company’s competitive position enabling it to only carry out highly beneficial and sustainable operations aiming at increasing the company’s financial health (Jain & Yadav, 2005). Based on 2013 and 2014’s competitive position, a fall was registered which shows that the company does not put to good use its assets. In order to ensure that asset-utilization is beneficial, the company should be able to cover larger market share while improving the deteriorating asset turnover. Increased revenue mix requires the use of various lines of products to ensure a larger customer base is captured while ensuring that supply of products to increasing customer demand can be met efficiently (David, 2014). The financial perspective requiring better 100% utilization of assets in operations aimed at improving the capacity in which the company operates to at least give 75% growth within 5-years’ period. Improved utilization of assets to 100% will improve the asset turnover to influence a 50% increase in productivity per year while at the same time serves the customer perspective in terms of products made available for sale (David, & Edmund, 2011). Through better management and use of assets, the customer perspective requiring the use of product differentiation can be met if the company expands its internal operations to target a larger market. By the introduction of 20% more products, the company would increase the value of its sales to 100% if the items it were selling did not have close alternatives. Through the development of new brands and their introduction to the market, a higher sales’ value of 100%, would be expected. Additionally, while on the aspect of product introduction and brand development, the company should develop a sales’ based forecast regarding the stock turnover to regulate production and facilitate a more focused and targeted marketing of new products and brands (Dias, 2007). Through targeted marketing, the high value sales considered under financial perspective would result from the 20% increase in product portfolio that differ considerably from the products offered by rival companies. The approach to introduce new brands and new product lines that would also result in the company’s image development. As a trusted business entity, the company has to ensure that the newly introduced line of products is acquires value through quality management, critical product placement. The introduction of new products also requires the company to ensure an established supply chain to plan and deliver orders on time (John, Joo-Yung, & So-Hyun, 2007). The company is to address lead times and ensure that supply chains do not result in delays inconveniencing customer service delivery. Improved customer service delivery requires the business process of ensuring diversified products are available to sustain vendor-customer relationship based on trust and leading to customer retention. Providing customers with 20% more products within 2 years to choose from increases the chances of the company trading profitably as alternatives to available products would nurture a larger market share (Meagan, 2013). Learning and growth perspectives are essential areas of the company for establishing a foundation and plan to meet various objectives as well as support the mission to develop as UK’s best consumer goods vendor. In order to increase shareholder value, a 20% revenue mix is required as an input (developing new products). In order to develop revenue mix, diversity in product offerings is crucial. The development of new products and brands requires management of internal affairs. Thus, through training and development, new products are designed or added to the list of products traded by the company promoting 75% sustainability in 2 years for growth and 100% leadership efficiency within 5 years. Growth and learning perspectives involve the acquisition and development of competent personnel (John, 2012). To satisfy the goal of being UK’s top consumer goods’ seller, the company has to train and develop the current workforce such that it can handle long-term challenges and provide solutions as problems, needs, and challenges emerge. In addition, the company is to invest in information technology increasing current systems by 75% in 5 years to influence 100% reliability to serve the purpose of collecting and analyzing data on the industry, customer trends, and positioning of competing products (Sharon et al. 2011). As identified earlier, asset turnover has been on the decline from 2013 to 2014, it is generally observed that the company does not operate at full capacity as it underutilizes its assets. To address this challenge, the company should develop talent and innovation management programs leading to the invention of new products and brands. Thus, to achieve this objective, the company develops intangible assets such as patents to protect its innovations from being copied by rival companies. As a remedy to the underutilization of assets, the development of innovations to fill the gap would require research and development costs to be covered. In addition to R&D costs, the desired increase in sales and improvement in sales’ value depend on competitive advantage (Thejendra, 2014). For a company to have the upper hand in attracting customers, it requires to provide the customers with unique products that other companies cannot imitate or do not have the clearance to develop and trade (Thejendra, 2008). Critical Discussion For Home Retail Group to manage its operations and increase its productivity in the long run, various theories provide insight on the impact and importance of deploying the above mentioned recommendations. Among the supporting theories to the recommendations of managing innovation, reducing costs and increasing value, and expanding the line of products provided to the customers include talent management concept, theory of the firm, Herzberg’s Motivational Theory, and customer relations management concept (Walker, & Check, 2014). Home Retail Group requires to introduce new products to the market, manage its operating profit, and train & develop technical staff to innovate and sustain higher value sales. Through talent management, Home Retail Group is able to identify talent from existing workforce to ensure that talents and competences are refined and developed respectively to benefit the company in long run. With protection against copyright infringement through the application of patents, the company would benefit from unique inventions leading to a more robust and competitive environment. This approach, would, in turn develop highly valued products influencing revenue mix and sustaining gradual financial stability to become UK’s leading consumer-goods retailer. In addition, to stabilize and sustain business growth and development on the long-term, the use of talent and innovation management protection of intellectual property through patents would provide the company with a lead over its competitors (Wiepking, & Bekker, 2010). By applying the theory of the firm, Home Retail Group is able to make strategic decisions to ensure that cost management and value creation go hand in hand. Such strategic decisions to cut costs and create higher value involve creation of brands and introduction of new products which attract more customers and are manageable to produce, market, and distribute. By cutting costs, the return per unit is higher which translates to higher value sales. However, the theory of the firm also addresses the challenge of interaction between cost reduction and quality management. As Home Retail Group seeks to increase the value of its sales, its sales must be able to compete effectively with sales of alternative products. In order to meet the objectives of satisfying and retaining customers, the company must apply the concept of competitive advantage to compete favorably with rivals (William, 2007). Internal operations of the company have been identified as the core business activities that accumulate revenue for the business model. To satisfy the demand from customers of the targeted segments, innovate approaches to marketing and product development/acquisition should be employed internally to develop new products and brands. Thus, to align commitment of workforce, Herzberg’s motivational theory applies to showcase the duties of stakeholders such as the workforce and management. The motivation theory shows that part of a company’s corporate social responsibility is to protect and develop careers. Through investment in training and development, technical staff is acquired. In addition, through the use of motivational strategies as such as performance-based reward-system to promote high performers, improved performance is achieved in return. In this case, the anticipated changes in the operations of the company can be opposed by the workforce thus change management should address motivational challenges before they resulted in poor performance. Customer relations management is a concept that supports affects performance of a business regarding how well the business model interacts with its customers. Through faster and quality service delivery, customer loyalty is nurtured. By upscaling the quality of products and lowering the acquisition or production cost satisfies the fact the theory of the firm. However, customer relations management in this case involves the applicability of cost management as market share expands. To achieve this goal, the business is to ensure learning and growth is concerned with data analysis on customer behavior and trends through the use of information capital (investment in IT). Accurate data analysis provides the business with the idea of what customer prefer and how to mitigate the problem of managing cost and quality. Product development or acquisition would be more specific with regard to stock turnover, value of sales, and general appeal to customers whose views are replicated in the product development. References Angela, C. (2012). Show Me the Money! Or at Least, How to Manage It Well. Nonprofit Financial Management: A Practical Guide by Charles K. Coe. Public Administration Review, Vol. 72, No. 5; pp. 762-765 David, A. (2014) Budget Implementation: Financial Management and Efficiency. Business & Professional Ethics Journal, Vol. 36, No. 1; pp. 14-19 David, Y., & Edmund, R. (2011). Financial Management Practices of Socially Responsible Entrepreneurs. Business & Professional Ethics Journal, Vol. 26, No. 1; pp. 71-99 Dias, A. (2007). Simulation Techniques in Financial Risk Management by Chan et al. Journal of the American Statistical Association, Vol. 102, No. 478 Jain, P., & Yadav, S. (2005). Financial Management of Public Sector Enterprises in India: Analysis of Profitability. Financial Management of Public Sector Enterprises in India: Analysis of Profitability. Economic and Political Weekly, Vol. 40, No. 39; pp. 4251-4256 John, E., Joo-Yung P, & So-Hyun, J. (2009). Explaining Financial Management Behavior for Koreans Living in the United States. The Journal of Consumer Affairs, Vol. 43, No. 1, pp. 80-107. John, K. (2012). Business Management Controls: Financial Management And Accounting Controls. IT Governance Ltd. pp. 112-127) Larry, C. (2007). Embedded Class Assessment of an Executive MBA Core Financial Management Course. Journal of Financial Education, Vol. 33. pp. 28-47. Lesley, F. (2005) Risk and Financial Management Journal of the Royal Statistical Society. Series A (Statistics in Society), Vol. 168, No. 2, p. 466 Meagan, M. (2013) Review of "Financial Management for Public, Health, and Not-for-Profit Organizations", Financial Management for Public, Health, and Not-for-Profit Organizations, Journal of Public Affairs Education, Vol. 19, No. 1; pp. 193-195 Michael, M., & Justin, N. (2009). Recent Iterations in the Public Financial Management Curriculum: Is What Practitioners Need Being Taught? Journal of Public Affairs Education, Vol. 15, No. 1, pp. 47-58 Scott, K. (2010). The Known, the Unknown, and the Unknowable in Financial Risk Management "The Role of Corporate Governance in Coping with Risk and Unknowns.” Princeton University Press; pp. 277-285 Sharon N., et al. (2011). Why Public Financial Management Matters. Journal of Public Administration Research and Theory: J-PART, Vol. 21, Supplement 1: pp. i113-i124 Thejendra, B. (2008). Practical it Service Management: Financial Management". IT Governance Ltd. pp. 203-210. Thejendra, B. (2014). Practical It Service Management: Financial Management For It Services" It Governance Ltd. pp. 227-235 Walker, J., & Check, H. (2009). Case Study: Financial Management Decision-Making At a Community Bank: A Case Study of Two Banks. Journal of Financial Education, Vol. 35; pp. 122-142 Wiepking, P., & Bekker, R. (2010). Does Who Decides Really Matter? Causes and Consequences of Personal Financial Management in the Case of Larger and Structural Charitable Donations. International Journal of Voluntary and Nonprofit Organizations, Vol. 21, No. 2; pp. 240-263 Wiliam, C. (2007). Using Cases to Teach Financial Management Skills in MPA Programs. Journal of Public Affairs Education, Vol. 13, No. 2; pp. 451-459 Wong, K. (2006) Financial Management: Professional Housing Management Practices in Hong Kong. Hong Kong: Hong Kong University Press; pp. 123-140 Read More