Perspectives of the Balanced Scorecard to Implement at Marks and Spencer - Case Study Example

Report to the Board of Directors (Marks & Spencer) Task Executive Summary The paper seeks to present a report to the Board of Director of Marks and Spencer Ltd, recommending the appropriate strategies under the four perspectives of the balanced scorecard to implement. The company uses financial bases in measuring its performance. It is advisable for the company to consider implementing the balanced scorecard since it presents a holistic view of the company’s performance. The four perspectives include the financial, customer, learning and growth and business processes. The initiatives, goals, key performance indicators and targets to be used by the company in ensuring that the overall goal (to become international and multi-channel retailer) is delivered are presented in Tables 1, 2, 3, and 4 below. The report also contains the strategy map that explains how the balanced scorecard will help the company achieve its goal (Appendix 1). Last, the report presents the advantages and disadvantages of the Balanced Scorecard. Table of Contents Executive Summary 2 Table of Contents 3 Introduction 4 Marks and Spencer (M & S) operations 4 The company’s mission and strategy 6 Performance measurement 7 The Balanced Scorecard 8 Table 1: The financial perspective 10 Table 2: The customer perspective 10 Table 3: the growth and learning perspective 11 Table 4: The business process perspective 11 Strategy Map (See Appendix 1) 12 Summary of the recommendations 13 Critical evaluation of the Balanced Scorecard 13 Advantages of the Balanced Scorecard 13 Disadvantages of the Balanced Scorecard 14 List of References 16 Appendix 1: Strategy Map 17 Introduction M&S is a universal multi-direct retailer headquartered in Westminster, London, UK. It is one of the UKs driving retailers that has developed from a solitary business in 1884 to a worldwide, multi-channel retailer that covers an incredible scope of offering items containing sleek, astounding, extraordinary quality garments, home items and exceptional quality sustenance, with around 3,000 suppliers universally to offer asset dependably. M & S was founded by Michael Marks and Thomas Spencer in 1884 and has made significant progress in the International expansion. M & S’s stores are spread across Europe, Asia, the Middle East, etc. The paper seeks to present a report to the Board of Directors of Marks and Spencer (M & S) regarding both the financial and non-financial performance measures in light of the vision, mission and strategies. Marks and Spencer (M & S) operations The company has 798 stores in the UK. In addition, developed e-commerce business platforms that jointly have seen a significant increase in the market share to about 34 million customers. The companies operations in the UK falls into two categories. That is, food (55% of the turnover) and General Merchandise (45%). The company is a pioneer in Women’s Wear, Lingerie, and Menswear. M&Ss worldwide achieve keeps on growing. The company currently operates in 54 domains crosswise over Europe, Asia, and the Middle East. Marks and Spencer are additionally growing its worldwide vicinity with the take off of nation-specific websites. Marks and Spencer have four business areas. That is, clothing, food, M & S.com and Brand. The impact of the recent economic recession is still felt in the UK economy. The gross domestic product is growing at a slower rate. On the other hand, the interest rate is very low. Jointly, the two economic performance measures discourage the overall performance of businesses since the investment activities decline, which in turn decreases the gross domestic product. The tough economic times in the UK and across the globe has induced cautious spending among the customers. The unfavorable economic situations have influenced the operations of the company. The general clothing business developed in worth terms however moderated in volume terms as customers reduced their rate of spending. While confidence levels were up on a year ago, this did not mean solid deals on the high road, in spite of the fact that indications of a change in the garments business began to make it through. The consumers became more cautious when spending as their interest was to purchase superior quality for their money. The company responded to the customers’ interests by re-launching of the Women’s wear on style, quality, and configuration. The company overhauled 70% of its fabric, included more rich completes and enhanced its better and best offer with more cowhide, silk and cashmere, which conveyed more clarity and refinement to the sub-brands to make them all the more convincing and less demanding to shop, which had a decent reaction from our intended interest groups. The inflation rate declined underneath the Bank of Englands objective of 2% without precedent for years, giving family units and appreciated relief from the crush on their funds. Food value development was among those to fall. Other businesses in the food retail industry adopted a strategy to reduce the cost, provide quality and deliver a variety of products. The increasing growth in the ethnic restaurants has captured the attention of the consumers. The interest of the customer is shifting to the restaurants. Marks and Spencer responded by adopting competitive pricing strategy, delivering top quality food and availing a wide variety of food to the clients. The third business area is the M & S.com. The UK online retail market growth rate was 16% in 2013 and was conjectured to develop by a further 17% in 2014. 2013 was the year of the versatile, with twice as much spent using cell phones in December 2013 than the prior year. Shoppers over the UK now hope to have the capacity to browse the shop and gather their products anytime, any place and anywhere. M&S launched a website to serve the purpose of online purchasing and window shopping. The last business area is the brand. Notwithstanding the enhancing economy, purchasers need to purchase marks on which they knew they could depend on. Social networking has become an undeniably incorporated part of numerous individuals lives. The brands should convey a strong message to the consumers. The company responded by launching a bold campaign that reinforced the company’s top quality brand by increasingly using the social media platform. The company’s mission and strategy As mentioned above, Marks and Spencer has four business areas (Food, clothing, brand and M & S.com). The company has mentions in its 2014 annual report the mission for its food business area, which is “to delight and excite our customer with high quality, good value products”. (M & S Annual Report 2014, pp. 22). The strategies used involve innovation and discovery of a new variety of food, the introduction of new experience, producing unique products, and the introduction of seasonal products such as Sugar Plum Christmas Pudding. The mission of the clothing business unit is not directly stated. However based on the descriptions, it can be inferred that the mission is to deliver quality and style. The strategy used by the company involves the introduction of noble fabrics, innovation, intensive campaigns, and the production of wide variety of clothes with different sizes and design. The mission for the brand business area is to showcase M & S as a brand of style and substance. (M & S Annual Report 2014, pp. 18). The strategy used to achieve the mission is through launching leading campaigns such as the “Leading Ladies campaign by Annie Leibovitz” (M & S Annual Report 2014, pp. 18). The mission for M & S.com is to convert M & S into an international, multi-channel retailer that delivers convenience. Through M&S.com, customers are able to shop online, in stores or via mobile phones. The overall vision for Marks and Spencer is “to become an international, multi-channel retailer” (M & S Annual Report 2014, pp. 38). The mission for M & S.com is to convert M & S into an international, multi-channel retailer that delivers convenience. Through M&S.com, customers are able to shop online, in stores or via mobile phones. Therefore, the primary advantage of M & S.com is that it delivers convenience. Initially, the company was using Amazon as the online shopping platform until they launched their own. The overall vision for Marks and Spencer is “to become an international, multi-channel retailer” (M & S Annual Report 2014, pp. 38). Performance measurement In order to achieve the company’s vision, it will have to develop effective strategies for all the business areas. The reason is that the companies operations are managed at the level of the four business areas. Therefore, the achievement of the vision calls for efficient, effective and competitive operations at the business areas. For that reason, the management of Marks and Spencer should formulate a holistic performance measurement tool, which will help align the business activities with the company’s overall vision. The most appropriate performance measurement tool is the balanced scorecard. The company already had bases of measuring its performance, which includes the Return on Capital Employed, revenue, net profit margin, earnings per share, free cash flow and dividend per share. These performance measurement bases are exclusively financial. The company uses its key performance indicators to measure its performance in the following way: First, the ROCE, the basis shows the amount money generated by the company’s capital investments towards the profitability. The company targets to increase continuously the ROCE by reducing both the cost of goods sold and other operating expenses. In 2014, ROCE decreased to 14.8% from 15.8% in the previous year. Based on the measure, the company did not achieve its objective. Second, revenue, the basis indicates the amount of money generated from selling the company’s products. The company’s target is to increase the sales both in the UK and International market. In 2014, the target was achieved by increasing both the UK and the international revenue by more than 2.7%. However, a decrease in revenue level was experienced in the general merchandise unit (0.03%). Third, net profit margin, the basis shows the percentage of the company’s revenue that translated into net profit. It also indicates the ability of the company to manage the cost of operations. The company had a target of reducing the cost of goods sold to £ 6100 by 2015. The net profit margin of Marks and Spencer increased to 4.9% in 2014 from 4.4% in 2013. However, the cost of goods sold increased by 3.35% between the two periods. Fourth, the earnings per share, measures the earning power of the company. A high EPS indicates higher earnings power and vice versa. The company targets to improve the international revenues by 25% and increase the International operating profit by 40% by 2017. Last, the company targets to improve its free cash flow in 2015. The Balanced Scorecard The balanced scorecard is a performance measurement tool that focuses on more than the financial performance of the organization. The tool is used to develop strategies that are used to enhance the internal activities of an organization in order to improve the organization’s performance in the eye of the external stakeholders. The following are the four perspectives of the balanced scorecard: the financial perspective, the customer perspective, the growth and learning perspective and the internal process perspective. As mentioned above, the overall goal of Marks and Spencer is “to become an international multi-channel retailer” (M & S Annual Report 2014, pp. 38). In order for the company to align business activities to its goal and be able to monitor performance against strategic goals, tables 1, 2, 3 and 4 below shows the appropriate approach to be taken by the company’s board of directors. The financial perspective – the perspective involves the use of financial data such as the annual reports to conduct analysis on the financial performance of the company. Such analysis involves the use of financial ratios like the current ratio, net profit margin, the earnings per share, etc. The financial perspective intends to improve the financial performance of the company and ensure the achievement of goals. The customer perspective – the perspective is concerned with ensuring that the company adopts strategies that will meet the customers’ needs and deliver satisfaction. The perspective is effective in ensuring that potential customers are attracted, and the existing customer retained (Niven 2006, pp. 1-20). The growth and learning perspective – the perspective is concerned with ensuring that employees of the organization are trained and developed in order to improve their capacity to work in the continuously changing environment. Highly skilled employees improve the competitiveness of the organization. The business process perspective – the perspective is concerned with ensuring that the internal activities of the company are improved to enhance the quality of products and services delivered to customers. It helps the company meets the interest of the clients, thus, achieve the objectives (Person 2013, pp. 31-47). Table 1: The financial perspective Objective Goal KPI Target Initiative Cash Flow Improve free cash flow in 2014 (CWI) Free Cash Flow 8% by 2016 Invest in viable projects Shareholders To grow sales (CW1) EPS 2% by 2016 Increase product line. Increase market share. Profitability Reduce CoGs by £ 6100 in 2015(CW1) Net profit margin 4% increase by 2016 Improve efficiency of resource utilization Activities Increase UK and International revenue (CW1) Revenue 6% increase by 2016 Improve the quality of products and services. Intense campaigns. Table 2: The customer perspective Objective Goal KPI Target Initiative Market share Increase market share Number of customers 20% increase by 2016 Campaigns Customer retaining Maintain existing customers Repeat purchases 100% by 2016 Superior quality products and services at affordable prices Customer loyalty Improve customer loyalty Repeat purchases 100% by 2016 Superior quality products and services at affordable prices Customer relation Appeal to the customers Positive Feedback 96% by 2016 Unique, quality and durable products. Effective customer relations. Table 3: the growth and learning perspective Objective Goal KPI Target Initiative Performance Improve performance Completed tasks 98% annually Employee training program Market driven skills cultivate market driven skill Hours of training 6 hours daily Competency profiling Employee satisfaction To deliver leading employee satisfaction Employee satisfaction rating (Scale of 1-10) Average of 8-10 annually Performance-based compensation Leadership To enhance leadership Leadership effectiveness ratio (Scale of 1-10) Average of 8-10 annually Leadership training program Table 4: The business process perspective Objectives Goal KPI Target Initiative Research & Development Improve R&D Degree of reliance on R&D 100% annually Increase budget allocation for R&D Customer service Improve customer service Customer satisfaction rate (Scale of 1-10) Average of 8-10 annually Upgrading customer support center Efficiency Improve efficiency % of cost reduction Reduce cost by not less than 1.5% annually Eliminate irrelevant operations Asset utilization Optimize asset utilization % rate capacity 80% and above annually Improve asset maintenance Strategy Map (See Appendix 1) The strategy map shows the how the perspectives would help the company achieve its goal of becoming an International and multi-channel retailer. Marks and Spencer can only achieve the overall goal by achieving the objectives of it business areas. For instance, the objective of food business area is to delight and excite customers with high quality, good value product. The achievement of the objective requires a lot of innovative activities, which are expensive. The company needs a substantial amount of money to produce exciting and unique products. Therefore, the availability of a substantial amount of cash is appropriate for funding such activities. Ultimately, the Marks and Spencer will achieve its overall goal (Kaplan and Norton 2014, par. 1-4). The business process perspective – the strategy will help M & S improve efficiency, improve customer service, improve research and development and optimize asset utilization. The strategies will help the company improve sales and profitability, which will increase the availability of more funds for running operations leading to the achievement of the overall objective. Customer perspective – the strategy will help the company appeal to more customer, improve customer loyalty, maintain the existing customers and increase the market share. Therefore, M & S will certainly become an international and multi-channel retailer (Kaplan and Norton 2014, par. 1-4). Growth and learning perspective – the strategies will see that the company enhance employee satisfaction, enhance leadership, instill market-driven skills in employees and improve the employee performance. The mentioned objectives will lead to increased market share thus, deliver the goals (Kaplan and Norton 2014, par. 1-4). Summary of the recommendations Tables 1, 2, 3, and four above contain the goal, key performance indicators (KPIs), target, and initiatives of the four perspectives. The board of directors should implement the items under the column “initiatives” in order to achieve the goal, and measure the achievement of the initiative using the items under “key performance indicators” and benchmark the actual result with the items under “target”. For instance, concerning the business process perspective, the achievement of the second goal – to improve customer service – can be achieved through upgrading customer support center. In order to measure the level of improvement of customer service, the company should use the customer satisfaction rate, which falls within a scale of 1-10. The actual customer satisfaction rate should then be compared against the targeted satisfaction rate, which is within a scale of 8-10. If the actual satisfaction rate is within the scale, then the performance of M & S in that category is good. However, if the actual satisfaction rate is below the targeted level, the performance of the company is poor. Both the financial and non-financial strategies recommended in the balanced scorecard will ensure that Marks and Spencer achieve its goal. Critical evaluation of the Balanced Scorecard Advantages of the Balanced Scorecard First, the Balanced Scorecard can help M & S to cross over any barrier between the statement of purpose or all-encompassing objectives and how everyday exercises bolster the organizations main goal or targets. The balanced scorecard objective of satisfying the client can be attached to enhancing specialized bolster execution. Second, the Balanced Scorecards can give a visual method for exhibiting how diverse objectives are connected. Increased revenue enhances the net income or revenue objectives under the Financial segment. Enhanced client administration helps the company meet the clients’ interests (Bowen 2011, par. 1-8). Third, by implementing the balanced scorecard, M & S can make sure that any key activity executed matches the anticipated results. For instance, the company can assess whether raising the cost of an item delivers the organization goal over the long haul (Bowen 2011, par. 1-8). Fourth, the main point of interest of utilizing the balanced scorecard system is that by analysing the four parts of an organizations execution, one truly understands the balanced perspective of organization activities. The balanced scorecard gives a full picture regarding whether the organization is meeting its targets. While it may appear that an organization is doing admirably monetarily, it might be that consumer loyalty is down, worker preparing is insufficient, or that the procedures are obsolete (Bowen 2011, par. 1-8). Disadvantages of the Balanced Scorecard First, while the balanced scorecard (BSC) has been utilized viably by numerous organizations that are vocal supporters for its utilization as a key arranging apparatus, they are additionally brisk to concede that it can be an unreasonable and drawn out device. Right utilization of the apparatus obliges an exhaustive comprehension of the procedure and unless somebody in the association has involvement with it, may include the utilization of an outside expert to help with the process. Those included in the key arranging procedure and the utilization of the balanced scorecard to oversee procedures and track comes about all need to have learning of how the scorecard functions. For most extreme adequacy, the whole association ought to comprehend the hypothesis behind the utilization of the adjusted scorecard, the significance of accomplishing adjust the different measures, and how the apparatus can be utilized for procedure change. That is no little deed and can be trying for little associations to fulfill (Bowen 2011, par. 1-8). Second, the handiness of the balanced scorecard methodology is subject to the estimation of the data that is driving the procedure. While the apparatus can work, it will just work if both the right components have been chosen for audit and if the data used to assess advancement is finished, exact and applicable to the range being tended to (Hashmi 2014, par. 1-9). Third, since Balanced Scorecard can constitute another reporting without fundamentally enhancing quality or monetary numbers, it can appear to be an extra arrangement of non-esteem included reporting or, more terrible, a diversion from accomplishing genuine objectives, etc (Bowen 2011, par. 1-8). List of References Bowen, R 2011, Weighing the pros and cons of Balanced Scorecards, viewed 21 June 2015, http://www.brighthub.com/office/finance/articles/70687.aspx CWI Hashmi, 2014, Balanced Scorecard, viewed 21 June 2015, http://www.thebalancedscorecards.com/balanced-scorecard-benefits/ Kaplan and Norton 2014, Strategy Maps, viewed June 21, 2015, http://www.valuebasedmanagement.net/methods_strategy_maps_strategic_communication.html M & S Annual Report 2014, viewed 21 June 2015, http://corporate.marksandspencer.com/investors/b73df1d3e4f54f429210f115ab11e2f6 Niven, P. R. 2006, Balanced Scorecard step-by-step maximizing performance and maintaining results, Wiley, Hoboken, N.J. Person, R. 2013, Balanced scorecards & operational dashboards with Microsoft Excel, Wiley [Indianapolis, IN?]. Appendix 1: Strategy Map Read More