Balanced Scorecard and Strategy Map for the Home Retail Group Plc - Example

Balanced Scorecard and Strategy Map for the Home retail Group Plc. Executive Summary The research report aims to provide the management of Home Retail Group Plc with key financial and non financial indicators, strategies and outcome of actions. The report includes a balanced scorecard approach to strategise the various aspects mentioned above. It aims to measure the performance of the company against its stated goals, strategies and projections. The performance indicators include its internal and external environment communications. Internal communications include employees, its business process and financial metrics. External communications comprise its customer segment. It also critically addresses the use of balanced scorecard approach to evaluate the performance of Home Retail Group Plc. It builds a strategy map to assist the management of the company in meeting its goals and objectives. Both the above approaches act as a tool to guide the management in taking sound business decisions that adds value to the company’s stockholders. Finally, the report offers recommendations based on the above approaches to evaluate the company’s performance. Table of Contents 1 Executive Summary 2 Table of Contents 3 Introduction 4 Vision and Strategy of Home Group Plc 5 Vision 5 Strategies 5 Balanced Score Card of Home Retail Group Plc 6 Home Retail Group plc AAA Division/SBU or Project 7 Strategy Mapping 17 Recommendations 19 Use of Balanced Scorecards for Performance Management and Monitoring 19 References 20 Introduction Home Retail Group Plc is a UK based home and general merchandise Retail Company. It has total employee strength of 48,000 and more than 1000 stores spread across UK and Republic of Ireland. Its product portfolio comprises 67000 products across its two brands Argos and Homebase. It also reported 183 million customer transactions last year. Argos is the largest retailer in UK and deals in general merchandise. It has 737 stores across UK and Republic of Ireland and 29000 products. Homebase caters to home enhancement retail business and has 336 stores in UK and RoI and has 38000 exclusive, own brand and branded products. Vision and Strategy of Home Group Plc Vision Home Retail Group Plc shares a vision of creating value and convenience for their customers through two of their flagship retail brands Argos and Homebase (Home Retail Group, 2015a). Strategies The company has separate distinctive strategies for its two retail brands i.e. Argos and Homebase to meet its vision. The strategies for both of them are as follows ((Home Retail Group, 2015a) : Operating Strategies Argos and Homebase Customer Offer Building on the existing business network. Improving in store collection of products. Faster delivery option i.e. next day delivery web based selling, etc Product Leadership Improve product quality and design Introducing competitive pricing Brand repositioning and more brand offers Digital Leadership Better customer experiences across the globe, through the web. Focussing on online sales growth Building methods to collect, customize and store customer data Financial services The in house finance division provides credit facilities to the customers and other loyalty schemes to attract new and retain old customers. Cost Management Making significant infrastructural changes to leverage its cost, while not compromising on business standards. Financial Leverage It has a strong cash flow of £331 million as on 1st March 2014 and undrawn reserves of £165 million, to complement its investment plans. Balanced Score Card of Home Retail Group Plc The above figure represents the balanced scorecard of Home Retail Group Plc. The scorecard illustrates the four performance metrics, including financial and non financial metrics to take business decisions (Henry, 2011) The scorecard evaluates the performance of the company with its strategies and aims to find the gaps in strategic implementation of its goals (Fonvielle and Carr, 2001). Home Retail Group plc AAA Division/SBU or Project 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 To improve the net cash flow position. Minimising trade working capital outflow i.e. loan book of customer credit PBT, operating income and cash from operating activities. Net cash flow level should be targeted at 30% that amounts to £100 million by next fiscal end. Control its loan book i.e. credit to customers and to the other wings of the Group. Recover from the marginal drop in net cash flow. 2 Shareholders Maximise shareholders return. Increase firm value and earnings available to stockholders (Collier, 2009). ROE, Dividend payout and EPS. (Home Retail Group, 2015.). Target dividend growth rate of 15% i.e. 3.8p for FY 2015. Though shareholder return is maximised by 58%, yet HRG Plc should look to gain market stability. It should increase its PAT margin and increase its earnings to common stockholders. . 3 Profitability HRG Plc aims at increasing its operating income, by reducing its cost of operations. Widening its online reach and reduce cost per customer. Revenue growth and operating profit. Achieve group sales growth of 5% and financial services share in group sales to increase to 4%. It should also try to reduce its corporate costs. Financial services and customer credit should be given to increase the group sales. 4Group financing To enjoy strong long term solvency. Undrawn funds and total loan book balance. Loan book balance to be reduced by at least £60 million. Equity capital should be increased to £100 million. Should reduce its liabilities i.e. operating leases should be reduced. Its total lease expenses were £2627 million. (Campbell, 2008). Home retail Group Plc has witnessed a significant growth in its business as observed in the financial statements. It should improve its net cash flows through cash generations over its earlier levels. In house card sales stood at £681 million, credit sales grew to 11.6%. Its gross margin rate took a hit by 100 basis points. Distribution and other administrative charges increased by £9 million, resulting in benchmark operating profit by £7.9 million. HRG should try to increase the dividend yield in the next fiscal. Capital expenditure also increased across the group from £78.7 million to £173.1 million. Tax payments also reduced from £26.1 million to £17.6 million, owing to reduced PBT. Though the company enjoys a healthy position, it still needs to supplement its revenue growth rate. Should lower its long term debt burden, capital structure should be aimed at reducing financial charges. With the observed level of post tax returns, HRG Plc dividend payments increased from £8 million to £23 million, resulting in value additions to its shareholders (Home Retail Group, 2015). Home Retail Group plc Customer perspective GOAL KPI Target Initiatives or ACTIONS 1Customer Focus To meet customer expectations by creating value for purchase (Crawford, 2008). Customer delight, revenue level and satisfaction level. Increase online product line to 30000 by mid of FY 2016 for Argos. Adding new product lines at the desired price levels. Customer participation programmes should be initiated. Develop products based on customer preferences. 2 Product delivery Convenience to customers, so that they can have a nice shopping experience. Customer waiting time, operational time.(British Retail Consortium, 2007). Increase internet channel sales to 50% of Argos sales and total multi channel sales to grow to 60% by FY 16. There should be a strategic implementation of the program. The result should be evaluated carefully, and quick follow ups should be taken. To roll out the customer service program by 2015. 3Product pricing Product pricing should be rationalised, based on customer judgements. Increased sales drive, better profit margin. Online product price to be decreased by 5% - 10% over the next two years. Pricing strategies should be implemented based on the product lines. There should not be uniform pricing of the portfolio of products. 4Data creation and storage There should be detailed information about customers that will be stored and will be accessed by the management as and when required. Customer data bank and common access by employees and staff. Data base management system is expected to reduce operational time by 20% - 30%. Customers should be incentivised for participating in management programs and surveys. The incentives should strategically give, so as to drive sales of the group. HRG Plc has been doing business keeping their customers in mind. They followed a customer centric approach, whereby they conducted various customer loyalty programs to understand their purchasing behaviour and reward them for their time (Boddy, 2005). Its major revenue is generated from credit sales; it offers in house shopping cards to its customers, to purchase goods on credit. It should develop products based on customer preferences. They have been continuously improving its product, pricing, delivery and promotion of its products to reach out to new customers and retain old customers. Data creation and management programs should be rolled out across the stores of HRG Plc in UK and RoI (Kaplan, and Norton, 2001). Home Retail Group plc Internal Business perspective (Home Retail Group, 2015). GOAL KPI Target Initiatives or ACTIONS 1 Operational efficiency Reducing cost per customers and transactions. Time, cost and cost per transaction. Target mobile sales share of 22% by mid FY2016. Making web based selling available to all regions of UK and RoI. The Group Plc should engage in new practices that will reduce the time per transactions 2More products at a faster rate Offering greater value at reduced price. Shorter transaction cycles and delivery time.. Extending Hub and spoke distribution model to at least 100 more stores by FY 2015 end. Trial run across the major stores of Argos will be conducted in FY 2015. It should initiate the ‘hub and spoke’ model that aims to reduce the inventory cost. 3 Restructuring delivery Providing customer satisfaction by delivering products at the door step of its customers. Shorter delivery cycle and developing new delivery channels. (Banker, Chang and Pizzini, 2004). Reducing stores to 700 and 300 for Argos and Homebase by FY 2016 end. Using various mobile phone apps and delivery by next day schemes will extend the brand reach. 4 Digital channels Greater cost benefit is associated with improving technology. Better customer experience, internet and mobile sales. 15 million customer registrations by FY 2016 end. Research and development costs can be brought down by implementing a proper customer feedback platform. Customer feedbacks can be used to make better business decisions at low cost (Sadler, 2003). Internal business perspective of a balanced scorecard is significant of the various internal processes that are engaged in product manufacturing to delivery. It shows how the company has leveraged its resources to improve its operational efficiency (Mcfarlin and Sweeney, 2008). It helps the management to identify the key areas of improvement in its operations. It reports the current operational process the company follows and the outcome of the same. HRG Plc used various online and social media platforms to reduce the transaction time, resulting in lower cost per customer. It has launched various online services like ‘My account’ and ‘1 click’ that help customers reduce search time by recording their tastes and preferences. The business perspective considers the possibilities to reduce the costs associated with its business operations, without compromising on the product quality and customer value (Bocij, Greasley and Hickie, 2008) Home Retail Group plc innovation and learning perspective (Home Retail Group, 2015b). GOAL KPI Target Initiatives or ACTIONS 1Specialist skill Group Plc wants its employees to be specialised in work, so as to maintain its high business standards. Performance evaluation and work efficiency. Quarterly assessing training needs and increasing work efficiency by 30%. Imparting specialised training to handle customer grievances and queries. Training should also be provided at operational level to increase the operational efficiency. 2 Talent Acquisition Attract new talent to its taskforce, making leaders of tomorrow. High workforce strength and low attrition rate. Hiring fresh graduates and interns for peak seasons in FY 2015. Home Retail Group Plc could invest in some graduate hiring programmes that will add a challenging and pro active task force. It can also introduce paid summer internship programs (Home Retail Group, 2015b). 3 Remuneration Home Retail Group Plc acknowledges the efforts of its colleagues and offers attractive remuneration packages. High salary cost and employee satisfaction level. Reducing the employee pension scheme deficit by £15 million by mid FY 2016. Remuneration package should be competitive. Yearly or half yearly performance appraisal. Encouraging savings by implementing pension and retirement funds. 4 Leadership Group Plc wants to inspire its work force towards goal achievement. Decision making and team performance Employee engagement to increase by 25% and team leader accountability index implementation by end of FY 2015. Delegating authority to encourage the work force. Forming small teams to achieve the desired target through leadership, co-operation and collaboration. Home Retail Group Plc engages in various employment engagement programs to encourage employee participation. It creates conducive environment for fresh graduates to learn while working i.e. experiential learning. It conducts succession planning programs, training and graduate hiring programs (Banker, and Chang, 2004). It has an attractive salary package to acknowledge the contributions of its colleagues as well as launched various pension and retirement schemes to promote a culture of savings (Home Retail Group, 2015b). Strategy Mapping The above diagram represents the strategy map of Home Retail Group Plc. The map is a tool that will guide the management in achieving its target performance. The financial and non financial metrics are on the vertical axis and the strategies with the respective metrics are on the horizontal axis (Niven, 2010). All the aspects of the map will result in achieving the bottom line i.e. financial goals. Learning and innovation strategies will impact the business process, the business process will further influence customers and their decisions, which in turn realizes into quantitative outcomes i.e. lower cost, increased revenue and increased profitability (Balanced Scorecard Institute, 2014). Recommendations Home Retail Group plc’s performance outlook is much favourable to its long term sustainability. Its financial metric shows positive outcomes in the future and the non financial metrics need to be strategically adjusted to the changing business space. It should evaluate its various programs to increase the impact of its strategies aligned with the goals. It should leverage its online platform to drive sales and harness its employee skill sets to satisfy its customers. Training effectiveness need to assessed, it should introduce new internships programmes to reach out to fresh graduates. It should not overlook the cost factors while moving in a customer centric direction as it will impact its earnings and firm value. It should not only focus on increasing the value proposition to its stockholders but also factor in its other stakeholders. Use of Balanced Scorecards for Performance Management and Monitoring Using only financial metrics to evaluate a company’s performance can often waive the implications of qualitative judgements. The use of balanced scorecard gives a 360 degree approach in making sound business decisions as it uses quantitative and qualitative data to monitor, control and improve companies’ strategic performance (Lasserre, 2012). The use of such strategic management tool in the case of Home Retail Group Plc’s will aid the management in evaluating its strategies and finding gaps in the business process, resulting in new strategies to gain competitive advantage. It uses the scorecard matrix to find avenues of performance improvement based on various indicators vis-a-vis financial – shareholders, customer perspective, operational efficiency – suppliers and management and learning and innovation – its colleagues (Ittner and Larcker, 2003). References Balanced Scorecard Institute, 2014. Balanced Scorecard Basics. [Online] Available at: http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard [Accessed on 13 March 2015] Banker, R. D. & Chang, H. 2004. A balanced scorecard analysis of performance metrics. European Journal of Operational Research. Vol. 15 (2), pp. 423–436. Banker, R. D., Chang, H. & Pizzini, M. 2004. The Balanced Scorecard: Judgmental Effects of Performance Measures Linked to Strategy. The Accounting Review. Vol.79 (1), pp.49-60. Bocij, P., Greasley, A. & Hickie, S. 2008. Business Information Systems (4th Ed.). Harlow: FT/Prentice Hall. Boddy, D. 2005. Management: An Introduction, (3rd Ed). Harlow: Pearson Education Limited. British Retail Consortium, 2007. British Retail Consortium 2007. Norwich: The Stationery Office. Campbell, D. 2008. Testing Strategy with Multiple Performance Measures: Evidence from a Balanced Scorecard. Journal of Accounting Research. Vol. 4(2), pp.31-36. Collier, P. M. 2009. Accounting for Managers: Interpreting Accounting Information for Decision Making. (3rd Ed). Chichester: Wiley. Crawford, D. 2008. The Balanced Scorecard and Corporate Social Responsibility: Aligning Values for Profit. Stamford: Cengage learning. Fonvielle, W., and Carr, L. P., 2001. Gaining strategic alignment: Making scorecards work. Management Accounting Quarterly, pp. 4-14. Henry, A., 2011. Understanding Strategic Management. New York: Oxford University Press Home Retail Group, 2015. Annual Report 2014. [Online] Available at: http://www.homeretailgroup.com/ar/2014/ [Accessed on 13 March 2015] Home Retail Group, 2015a. Our Values. [Online] Available at: https://www.homeretailgroup.com/careers/our-values/ [Accessed on 13 March 2015] Home Retail Group, 2015b. Our Governance. [Online] Available at: https://www.homeretailgroup.com/about-us/our-governance/ [Accessed on 13 March 2015] Ittner, C. D., and Larcker, D. F., 2003. Coming up short on nonfinancial performance measurement. Harvard Business Review, pp. 88-95. Kaplan, R. S., and Norton, D.P., 2001. Transforming the balanced scorecard from performance measurement to strategic management. Accounting Horizons, pp. 147-160. Lasserre, P., 2012. Global Strategic Management. Singapore: Palgrave Macmillan. Mcfarlin, D. B., and Sweeney, P. D., 2008. International Management. New Delhi: Dreamtech Press. Niven,P.R.,2010. Balanced Scorecard step-by-step: maximizing performance and maintaining results. Canada: John Wiley and Sons. Sadler, P., 2003. Strategic Management. London: Kogan Page Publishers. Read More