Balanced Scorecard as a Performance Management Tool - Essay Example

? Individual End-of-Module Report Executive Summary This study is based on balanced scorecard and its utilisation as a performance management tool for Thornton Chocolate Company. The balanced scorecard discussed in this study also considers the key performance indicators of the company. The performance of the company has been assessed under five different segments and the illustrations are based on the annual reports of 2012 and 2011. The first segment of this study is dedicated towards the mission and vision of the company, which further extends towards describing the strategic direction of the company in the next five years. Thornton Chocolate Company has been going through a rough phase, as the company has to deal with consecutive losses. In this scenario development of balanced scorecard and strategic map for guidance become necessary for the company. A comprehensive discussion on balanced scorecard and the key performance indicators, targets, and objectives of the company are also ascertained to develop a strategic map for the company. The strategic map will put forward the strategies by which Thorntons Chocolate Company can pull up sales, minimise cost and increase their market share in the industry. The balanced scorecard has identified the unfavourable effect of performance indicators and stated strategies to pull up company’s performance. Table of Contents Executive Summary 2 Introduction 4 Vision and Mission of Thorntons Chocolate Company 5 Strategic Direction 5 Balanced Scorecard 7 Balanced Scorecard and Thornton Chocolate Company 9 Strategic Map 12 Recommendations 13 References 15 Appendices 16 Appendix 1 16 Appendix 2 16 Appendix 3 18 Appendix 4 19 Appendix 5 20 Introduction Thorntons Chocolate Company was established in the year 1911, in Derbyshire, UK. The company was established by Joseph William Thornton and after the recent takeover of Cadbury it became the largest independent confectionary and chocolate company. Thorntons Chocolate Company has more than 360 cafes and shops and apart from this, it also owns 230 franchises that offer commercial, internet and mail order services. The revenue of the company decreased to ?217,144 million in 2012, which was ?218,255 million in 2011. This reveals a decline in revenue by 0.51percent and the company is also running at a loss since past few years. Thorntons Chocolate Company is listed on the London Stock Exchange and it has more than 4200 employees. Presently the company holds around 7.9 percent of market share in the chocolate industry of UK, which the management expects would increase in the coming years (Jennings, 2005). Reasons like dull marketing, dismal display, or unappealing packaging are being put forward for escalating profit warnings for Thorntons Chocolate Company. The company however, blames it on the climatic condition and snow. Britain’s largest chocolate company has revealed a decrease of 23 percent in chocolate sales in the recent times. The franchises and shops are struggling hard to sell their products in the market. Even the share prices have fallen by 30 percent in the last 1 year, which is also posing as a profit warning for the company. Thorntons Chocolate Company was one of the best selling brands on High street, but the future projections do not reveal the same picture (Jennings, 2005). This study aims to develop a balanced scorecard for Thorntons Chocolate Company and link it to a strategic map. Keeping in mind the recent turn of events and financial position of the company, the balanced score card would be developed and strategic map would be prepared, so that the management of the company can identify ways of reviving the company’s position and pull it up to the place that Thorntons Chocolate Company had, as one of the largest Chocolate makers (Haberberg, 2008). Vision and Mission of Thorntons Chocolate Company Thorntons Chocolate Company enjoy a 100 years of heritage of treating its customers with delicious confectionaries and chocolate. The vision of the company is “To be Britain’s best-loved chocolate brand, making every customer smile.” The mission of the company when it started its journey was to be the best sweet shop in the town, but as time passed by and Thorntons Chocolate Company moved towards its mission of being the best sweet shop, the mission of the company started broadening. Over a span of 100 years, the company was successful in being the best sweet shop in town. The mission of Thorntons Chocolate Company after 100 years of its journey is to help their customers communicate with their loved ones with chocolate. The goal is to make everyday special for its customers. Strategic Direction This section of the study will assist in identifying six major areas that will provide a strategic direction to the revival process of Thorntons Chocolate Company and also support in development of balanced scorecard for the company; they are stated below: 1. Closure of stores: It would be better if Thorntons Chocolate Company close down around 180 unproductive stores for minimizing its cost of operations. Thorntons Chocolate Company Chocolate should rather focus towards direct channels, franchise and commercial ways of doing business. The stores can be replaced by franchises and commercial channels will also grow, which will increase the distribution of products. This will save around ? 2,000,000 of the supply chain expense of the company (Bacal, 2011). 2. Dependence on seasonal market: Thorntons Chocolate Company should not completely depend on sales during the festive seasons, such as Easter or Christmas for its yearly profit. This is possible by offering products for several other occasions like thanks giving, birthdays, marriage, etc. 3. New product development: The product line should be extended and diversified to match with the latest trends of the confectionary and chocolate industry. In this way Thornton would be able to attract customers from different age groups and for different occasions (Cardy and Leonard, 2011.). 4. Innovation: Many innovative chocolates and confectionary can be seen in the market. Innovation is done in terms of design, taste and ingredients used for the products. Thorntons Chocolate Company can also go for such innovation, keeping the essence of their products intact (Hannabarger, Buchman and Economy, 2011.). 5. Maintenance of food and safety standards: The strategic framework of food safety and standard has to be maintained because customers are highly conscious about these things now. Products should not be sold after their expiry dates and quality standard should be high. 6. Modernization and re-engineering: updating the business model of the company based on the present market scenario will assist Thorntons Chocolate Company to save cost and also utilise other significant channels of product sales and distribution. Balanced Scorecard It is very important to analyse the performance of the business in order to analyse the position of the firm in the market. The data that are received through various measures are used to see how the business is performing. The Balance Scorecard was developed by Robert Kaplan and Dr. David Norton in the year 1992. It is a tool developed to measure the level of performance (M. Bourne and P. Bourne, 2012). In a Balanced Scorecard system performance is measured on the basis of several perspectives such financial, customers, learning and development, internal business process, etc. It contains both the target scores and the scores achieved based on the given category. So it becomes easy to measure high as well as low performances (Balance Scorecard Institute, 2012). Figure 1: Balanced Scorecard Source: (Balance Scorecard Institute. 2012) Balanced scorecard has four major components, such as financial Perspective, Customers Perspective, Internal business process and Learning and growth, as can be seen in Figure 1. Financial Perspective: The traditional requirement for financial data is not disregarded by Kaplan and Norton. However, accurate data funding would be always the priority and it is the managers’ duty to provide necessary data. The financial information play significant role in assessing the company’s profitability. In this case Thorntons Chocolate Company’s financial performance reveals that the company is going through a financially unbalanced phase, where it has to incur losses. This is also evident from the decreasing revenue of the chocolate giant (Jennings, 2005). Customer Perspective: The recent management theories consider customers’ perspective to be one of the most significant aspects in balanced scorecard. The unsatisfied customers are a major indicator in this case. In case of Thorntons Chocolate Company, the sales have decreased which also indicate that customer’s are getting less drawn towards purchase of sweets or confectionary as before. However, one of the reasons might be the decreasing purchasing power of customers due to recession and financial crisis. Dissatisfaction from traditional sweets and change of preference are also the indicators in this segment (Ali Zairi, and Eid, 2009). Internal Business Perspective: This perspective describes the internal business processes, which is based on the metrics that allow the managers to ascertain how well the operational functions are going on. The metrics need to be developed by those who have detailed idea of the business process of the company. In Thornton, the internal processes should be efficiently managing distribution, store operation, manufacturing process, production, ingredients and raw material supply, etc. Learning and growth: Learning and growth perspective includes training and development, research and employee benefit schemes in the company. In this perspective, Thorntons Chocolate Company has a lot of strategies to develop in this perspective because aspects like motivating employees through appropriate leadership, developing innovative methods and ingredients for new confectionaries and chocolates and training the factory workers with new methods of chocolate manufacturing would pull up sales of Thornton (Andersen, Cobbold and Lawrie, 2001). Balanced Scorecard and Thornton Chocolate Company Thornton Chocolate Company Objectives Measures Targets Initiatives Financial Maintaining financial stability. Increase revenue and reaping profits. Encourage more investments. Take risk measures through external auditing. Reduce cost To achieve 40 % revenue. Close approximately 180 shops -Increase the revenue through direct, mail, and internet services Acquiring small chocolate or confectionery company to increase customer base. Customer Offering diverse variety of chocolate and confectionery Luring customers through better packaging Developing cost-effective channels for attracting new customer segment Regularly monitor the customer’s feedback. Provide quick and effective customer service. To offer various delicious chocolates at attractive packaging To introduce new strategies for attracting more customers Provide a better shopping experience Internal Business Processes Provide better working environment and pay to employees, like pension plans, etc. Enhancing the quality of raw materials used and the quality of products. Developing better relationship with suppliers Quality and time of products delivered should be measured. Sales and distribution process should be closely monitored Inject additional capital for diversification in confectionary from sweets to ready to cook meals, etc. Software implementation for better inventory management Using high-technology equipment for escalating the production and distribution process Learning & Growth Monitor the demand and supply for existing products and introducing new products Planning new chocolates and confectionery offerings for occasions Introduction of new employee benefit schemes and training programs Training for various new product recopies Establishing better distribution network by eliminating excess middle-men Research and planning for experimental products, which are healthy and tasty Introducing ready to cook food Bakery items which are health and sweet like other confectionary Research on various children food items and confectionary can be done to diversify in a new segment to increase sales. Strategic Map The balanced scorecard for Thornton Chocolate Company has been prepared in line with the strategic map that has been stated above. Strategic maps are the communication tools that assist the managers to direct how the balanced scorecard should be utilised. They indicate a logical step-wise procedure and develop a strategic relationship between the strategic objectives of the company and the components of balanced scorecard. In this study, Thornton is one of the biggest independent British chocolate companies, but it is running at loss. The financial aspect is evident from the figures that are revealed through financial statement. Sales have decreased, which also indicate diminishing customers’ preference towards traditional chocolates and confectionery. The strategic map stated above and the balanced scorecard developed would be helpful in analysing these performance indicators and providing a solution for them. Recommendations The recommendations are stated in line with the balanced scorecard and the strategic map presented in this study. Thorntons Chocolate Company is among high quality chocolate makers and this market is highly seasonal in nature. To eliminate this drawback Thorntons Chocolate Company should introduce diverse product line for other occasions like birthdays, anniversaries, etc. Thorntons Chocolate Company should focus towards identification of its core capabilities, because it manufactures and also sells its chocolates, so this would be a difficult task for the company (Gia, 2009.) Thorntons Chocolate Company should move away from extensive elaborate establishments and focus towards franchises and other commercial channels of sales, which will assist in avoiding complications and the products, would be sold at more outlets. The products need to be re-packed and re-developed, as the present product portfolio has proved to be unprofitable for the company (Chavan, 2009). References Ali A. A., Zairi, M. and Eid, R., 2009. Industrial management & data systems. How to profit from the balanced scorecard: an implementation roadmap [e-journal] 56(1). Available through: Emerald Group Publishing Limited [Accessed 17 June 2013]. Andersen, H., Cobbold, I. and Lawrie, G., 2001. Balanced scorecard implementation in SMEs: reflection in literature and practice. 2GC conference paper. [e-journal]. Available through: Creative Commons License. [Accessed 17 June 2013]. Bacal, R., 2011. Performance management. 2nd ed. New York: McGraw-Hill Professional. Balance Scorecard Institute. 2012. Balanced scorecard basics. [online]. Available at: [Accessed 17 June 2013]. Bourne, M. and Bourne, P., 2012. Handbook of corporate performance management. 2nd ed. New Cardy, R. L. and Leonard, B., 2011. Performance management: Concepts, skills and exercises. 2nd ed. New York: M.E. Sharpe. Chavan M., 2009. The balanced scorecard: a new challenge. Journal of management development [e-journal] 28(5). Available through: Emerald Group Publishing Limited [Accessed 17 June 2013]. Gia, K. P., 2009. Balanced scorecard - Solving all problems of traditional accounting systems. Munich: GRIN Verlag. Haberberg, A., 2008. Strategic management: Theory and application. Oxford: Oxford University Press. Hannabarger, C., Buchman, F. and Economy, P., 2011. Balanced scorecard strategy for dummies. New Jersey: John Wiley & Sons. Jennings, D., 2005. Thorntons plc: Corporate and business strategy. [online] Available at: < http://pgsm.co.uk/members/teaching/strategic/thorntons.pdf> [Accessed 17 June 2013]. Appendices Appendix 1 1. Comparison of Latest year results with previous year results. 2012 ?’000 2011 ?’000 Different Percentage REVENUE 217,144 218,255 -1111 0.51% Cost of goods sold 121507 117516 3991 3% TAXATION 1316 818 498 60.88% PROFIT FOR THE YEAR -898 -253 -645 254.94% EARNING PER SHARE (BASIC) -1.4p -0.4p -1p Appendix 2 Liquidity 2012 2011 Liquid ratio 0.31 times 0.32 times Current ratio 0.93 0.97 Interest cover 1.16 0.55 Solvency 2012 2011 Gearing 1.96% 1.29% Working capital management 2012 2011 Stock turnover 63.97 days 61.89 days Debtor collecting period 28.61 days 27.96 days Creditor payment period 88.74 days 101.61days ASSET EFFICIENCY 2012 2011 Fixed Asset Turnover 3.68 times 3.53 times Total Asset Turnover 1.86 times 1.87 times Net Asset Turnover 191.75days 204.21 days PROFITABILITY 2012 2011 Return on capital employed (ROCE) -4% -12% Profit margin -1% -0.5% Asset utilization 3.93% 2.61% Capital utilization 31.76% 31.92% Gross profit margin 44% 46% Return on net assets -2% -1% Return on net shareholders funds -34% -75% Net asset turnover 1.90 times 1.78 times Appendix 3 Income Statement 30 June 2012 of Thorntons Inc Appendix 4 Balance sheet 30 June 2012 of Thorntons Inc Appendix 5 Read More