The Balanced Scorecard for Marks and Spencer - Essay Example

?Mark & Spencer Executive Summary This framework was developed by David Norton and Robert Kaplan as a performance measurement framework that adds certain non-financial performance measures along with the traditional financial performance measures that helps the managers and executives of an organization to have a much broader and balanced view of the organization’s performance. The balanced scorecard provides a clearer view regarding the ways in which the financial perspective of the operations can be balanced with the strategic plans of the organization. This study highlights on preparing the balanced scorecard for Marks and Spencer. In this respect, firstly the current objectives and strategy of the organization has been identified and based on which the future objectives and the ways in which they can be measured are prepared. While preparing this, the four perspectives of balanced scorecard has been taken into consideration. The objective mainly concentrates on gaining profitability in the business, increasing customer satisfaction and base, increasing the employee satisfaction and retention and finally creating values for the stakeholders. In order to achieve these objectives, the strategic map has been developed and recommendations have been made to the board of directors. Balanced scorecard has been proved to be the most efficient way in designing strategies, through which the organizational objectives can be achieved. At the same time this organizational objectives will be conveyed to the departmental level. The management can also use this in reviewing the strategies and making changes to them. Table of Contents Executive Summary 2 1. Introduction 4 2. The vision and strategy 4 3. Balanced Score Card 6 3.1 Financial perspective 7 3.1.1 Objectives 8 3.1.2 Measures 9 3.2 Customer Perspective 9 3.2.1 Objectives 9 3.2.2 Measures 10 3.3 Internal business Perspectives 10 3.3.1 Objectives 11 3.3.2 Measures 11 3.4 Learning and Growth perspective 11 3.4.1 Objectives 11 3.4.2 Measures 12 4. Strategy Map 12 5. Recommendations 13 6. Use of Balanced Scorecards 14 Reference list 16 1. Introduction Balanced scorecard can be defined as the set of measures that has been selected carefully and derived from the strategy of the organization. The measures that are selected under the balanced scorecard are the tools via which the leaders can communicate with the external stakeholders and the employees regarding the performance and the outcome drivers through which the organization will succeed in achieving the strategic objectives and mission. In simple terms, balanced scorecard is a useful tool for three things like a strategic management system, a management system and a communication tool (Niven, 2011). Over 129 years, Marks and Spencer (M&S) has developed from a single market stall to a multi-channel retailer. The organization is now operating in more than 50 territories with over 82,000 people (Marks and Spencer plc, 2013a). The organization is true to the foundation values and offers the customers, products that are relevant to their choice and preferences. They aim to deliver excellent shopping experience to the customers. This study focus on using balanced scorecard for developing a strategic map for the organization. 2. The vision and strategy The vision of M&S is to expand their international presence and develop into a multi-channel retailer, so that they are accessible to a large number of customers present all around the world. In order to achieve this vision, the company has adopted a large number of activities and has been making good progress over the time. The strategies that they follow are discussed below: In order to increase their focus on the business of United Kingdom (UK), they have initiated activities like trusted food, perfectly edited, Cheshire Oak and concept of new home. Trusts are the most important aspect that is given importance by the customers while choosing a brand. The customers turn towards M&S because of their responsibly sourced and high quality food. In order to maintain this trust, the organization is continuously innovating and has decided to launch 1900 new product lines. In order to give the customers a stunning shopping experience the company is revamping the stores, giving a green touch all throughout and increasing the visibility of the products. In perfectly edited, the organization has brought some edited collection of the iconic quality wardrobe. The home concept was refurbished, which further accelerated the multi-channel approach (Marks and Spencer plc, 2013b). The organization is focusing on the multi-channel approach to expand their business. In this context they are following the strategies like online sales, developing e-commerce distribution centre in UK, developing the iPhone application and free of cost next day delivery. The online sales of the organization have experienced a boost, which has compelled the organization to enhance the navigation and provide more choices. Special e-commerce facility has been developed, which has the capacity to process and ship more than one million products every week to the store and to the homes of the customers. Sales via mobile phones have increased, which has compelled the company to develop their first transactional iPhone apps (Marks and Spencer plc, 2013b). Expanding their international presence is also one of the important visions that the organization wants to accomplish. Multi-channel expansion, opening of new stores, accessing more customers and Golden Bell are some of the initiatives taken by the company. In the multi channel expansion, M&S has focused on the business of Europe and France. They have planned to open some more full line stores in 2013. M&S is highly focused towards the international growth. They have identified the key locations in some of their high priority markets and have decided to open their stores in these markets through mix of ownership models like franchises and partnerships. Shanghai has been identified as the strategic international market. Golden Bell Plaza is the most popular shopping destination of the region, where M&S will be constructing their flagship store. The organization has launched online stores in Belgium, Austria, Spain and Germany (Marks and Spencer plc, 2013b). Apart from giving importance to their business expansion so that their sales and profitability increases, M&S also gives importance to environmental aspect. They aim to achieve their business objectives, such that they do not create any adverse effect on the environmental issues. (Marks and Spencer plc, 2013b). 3. Balanced Score Card The balanced scorecard evaluates the organization from four perspectives by creating metrics, accumulating data and lastly analysing them. The four perspectives that balanced scorecard follows are discussed below: Figure 1: Four perspectives of Balance Score Card (Source: Kaplan and Norton, 1996, p. 76) 3.1 Financial perspective Financial perspective deals with the return on equity, growth in income and sales and cash flow. This perspective assists in evaluating the performance of the organization from the profitability domain and helps in determining whether the strategies are executed properly such that objectives are accomplished. If the financial goals of the organization are identified properly then actions can be taken to enhance the productivity and revenue, improve asset utilization and reduce risk and cost. Financial aspect is very significant in the survival of the organization as the cause and effect relationship helps in determining the connection between the financial aspect and the three other perspectives of the balanced scorecard (Bischoff, 2011; Niven, 2005). 3.1.1 Objectives From the financial perspective the objectives that the organization should follow are: Increasing liquid assets: The organization is more likely to face problems in meeting the short-term obligations as its lower amount of liquid assets as compared to the current liabilities. Apart from this, the solvency position of the organization is also disturbed, which suggests that the M&S can fail while meeting its debt obligations. The quick ratio is currently at 0.257, which is much lower than the industry standard. Reduce the dependency on debt financing: Though the debt equity position of the organization has improved as compared to the previous year; however it needs to be improved further. This requires the organization to decrease its dependency from debt. Currently the debt to equity ratio is at 0.618, whereas the industry standard is at 42.35. Increase in profitability: Current situation of the organization suggests that the organization is losing its profitability. The gross profit has been seen to reduce. This requires the company to increase its profitability. The gross profit ratio is at 7.5. Enhance the return on capital employed: The return of capital employed is also seen to decrease, when the return on capital employed was calculated and the figures of 2011 were compared with that of 2012. Thus, the organization should utilise their investment in an optimum manner, so that the creditors and the owners get good returns. The ROCE is currently at 13.31. 3.1.2 Measures In order to measure whether the M&S is increasing the liquid assets so that it can meet the short term liabilities, the quick ratio of the organization must be calculated and compared with the industry standard of 0.82. For measuring whether the M&S is reducing dependency on debt financing, the organization needs to calculate the debt to equity ratio and compare it with the industry standard, which are 42.35. In order to measure whether the profitability of the M&S is increasing, the gross profit ratio of the organization is to be compared with the industry standard. Apart from this, the gross profit ratio should show a rising trend. The return on capital employed need to be calculated and compared to the industry standard, which is at 17.9. 3.2 Customer Perspective This component of the balanced scorecard is directed towards the target customers, whom the M&S wants to cater and improve their performance. The major outcomes of this strategy includes enhancement in customer retention and satisfaction, acquiring new customers and increasing the market share related to the target segment (Kaplan and Norton, 1996; Mowen, Hansen and Heitger, 2008). 3.2.1 Objectives Increase in customer satisfaction: M&S has been seen not to perform well in case of special offers and low priced goods. Other budget stores are beating M&S in this respect. Thus, the organization should work to satisfy the cash-strapped shoppers along with other customers (Daily Mail Reporter, 2011). Increase in the number of transaction: M&S should aim towards increasing the number of transactions that each customer is having. This in turn will help the organization in attaining the financial objectives. Rise in the number of customers: Customers are the main source of income for M&S. If the number of customers increases then the sales of the organization will also increase. Therefore, special attention should be paid to them. 3.2.2 Measures The satisfaction of the customers can be judged by conducting a customer survey and evaluating the median score. The number of transactions that are occurring in a day should be judged. The total number of customer visiting the store should be calculated to examine the rise in number of customers. 3.3 Internal business Perspectives This component of the balanced scorecard revolves around how the organization is improving the value rendered to the shareholders and performing better than the competitors. In this context operating processes, customer service and innovation plays an important role (Holl and Bohm, 2005; Eigenmann, 2007). 3.3.1 Objectives Reduction in cost: The overall cost should be reduced, so that income increases. Improve product and services: Improvement in product and services will enhance customer satisfaction, which in turn increases sales. Increase in market share: The market share of the company should be improved. 3.3.2 Measures Per unit cost should be compared with previous year’s figure. Customer satisfaction towards the product should be checked along with expense towards innovation. Percentage of market share should be calculated. 3.4 Learning and Growth perspective This component signifies the core competencies and skills of the employees and the technologies used, which supports the strategy framed by the organization (Pangarkar and Kirkwood, 2012). 3.4.1 Objectives Improvement in knowledge and skills: The knowledge and skill of the employees must be enhanced, so that they can match with the changing requirement of the customers. Satisfaction of the employee: A highly satisfied employee delivers 100 percent to the organization, which is very important in order to gain profitability. 3.4.2 Measures Improvement in knowledge and skill can be measured from the frequency of training and development. Satisfaction of the employees can be measured from reduction in attrition rate and gathering feedback. 4. Strategy Map Table 1 OBJECTIVE MEASURES TARGETS INITIATIVES FINANCIAL PERSPECTIVE Increasing liquid assets Current ratio Industry standard Increase current assets Reduce the dependency on debt financing Debt to Equity ratio Industry standard Control of procuring fixed assets via debt financing Increase in profitability Gross profit ratio Industry standard Reduction in cost Enhance the return on capital employed Return on capital employed (ROCE) Industry standard Proper utilization of resources CUSTOMER PERSPECTIVE Increase in customer satisfaction Median score in customer survey 90%. Provide proper services and product. Increase in the number of transaction Transaction size per day ?100. Providing better offers Rise in the number of customers Number of customer visiting each day. Rise by 3%. Expansion of the business. INTERNAL BUSINESS PERSPECTIVE Reduction in cost Percentage decrease in cost 2% Proper utilization of resources Increase in Market share Percentage increase in the market share 3% Product as per the choices of customers Enhancement of product and services Customer satisfaction as well as total expense towards R&D. Median score of customer satisfaction survey= 90% or Increase in expense towards R&D = 4% Innovation LEARNING AND GROWTH PERSPECTIVE Improvement in employee’s skills and knowledge Frequency of training Twice every quarter Regular training and development programs. Satisfaction amongst the employees Median score of the employee satisfaction survey and decrease in attrition rate Median score = 90% or reduction by 2% Provide perks and attractive schemes. 5. Recommendations The targets that are set under the financial perspective should be monitored on a regular basis. Since the organization is seen to be heavily dependent on debt financing, so the management should consider their decision of acquiring any assets via debt financing very minutely. The position of current assets should be improved, so that short term liabilities can be met. The business of M&S is highly customer centric. Therefore, satisfaction of the customers is very important. In this regards the organization should give greater importance to the satisfaction of the customers. They should conduct customer satisfaction survey and collect regular feedback, so that they can work upon them. Innovative and preferable products and services should be provided to the customers. Apart from this, attractive offers should also be provided in order to attract the cash-strapped shoppers. In order to provide greater values to the stakeholder, M&S needs to develop profitable business by enhancing the product and services and reducing the cost. Both the conditions will lead to higher profitability. Increasing the market share of the organization will also lead to accomplishment of the objective. The employees should always be upgraded via training and development programs. This is not only beneficial for the employees, but also for the organization. This will help them in rendering better services to the customers. Apart from this, the employee satisfaction should also be evaluated. Employees frequently leaving the job are harmful for the organization. 6. Use of Balanced Scorecards The balanced scorecard helps the managers in evaluating the key performance measures and communicating the same to the employees. In the present scenario, scorecard has become the important management control system in many of the organization. In this case the balanced scorecard designed for M&S will help the management to frame the strategic initiative. Through the scorecard the strategic objectives can be converted to quantifiable targets. It also helps in changing the macro objectives of the organization into operational one and communicating the same throughout the organization. The organizational objectives that are identified are distributed along the various levels of department and team with the help of balanced scorecard. It also helps in aligning the departmental objectives with those of individuals. Apart from this, it also helps in conducting regular review and obtaining feedback on the implementation process. Based on the feedbacks, the management can take proper steps to modify the strategy and successfully implement them (C.A Rao, B.P. Rao and Sivaramakrishna, 2009). Reference list Bischoff, A.L., 2011. The balanced scorecard: Applied on Ericsson AB. Norderstedt: GRIN Verlag. Daily Mail Reporter, 2011. Aldi and Lidl Beat M&S for Shopper Satisfaction with Low-Priced Offers for Cash-Strapped Customers. Daily Mail [online] Available at < http://www.dailymail.co.uk/news/article-2074352/Aldi-Lidl-beat-M-S-shopper-satisfaction-low-priced-offers-cash-strapped-customers.html> [Accessed 18 September 2013]. Eigenmann, U., 2007. Design and implementation of a human capital oriented balanced scorecard in an engineering services unit. Norderstedt: GRIN Verlag. Holl, R. and Bohm, S., 2005. Zero base budgeting using the balanced scorecard. Norderstedt: GRIN Verlag. Kaplan, R.S. and Norton, D.P., 1996. The balanced scorecard: Translating strategy into action. California: Harvard Business Press. Marks and Spencer plc, 2013a. Company Overview [online] Available at < http://corporate.marksandspencer.com/aboutus/company_overview> [Accessed 18 September 2013]. Marks and Spencer plc, 2013b. Our Plan [online] Available at < http://corporate.marksandspencer.com/aboutus/our_plan> [Accessed 18 September 2013]. Mowen, M.M., Hansen, D.R. and Heitger, D.L., 2008. Cornerstones of managerial accounting. Connecticut: Cengage Learning. Niven, P.R., 2005. Balanced scorecard diagnostics: Maintaining maximum performance. New Jersey: John Wiley & Sons. Niven, P.R., 2011. Balanced scorecard: Step-by-step for government and non-profit agencies. New Jersey: John Wiley & Sons. Pangarkar, A. and Kirkwood, T., 2012. The trainer's balanced scorecard: A complete resource for linking learning to organizational strategy. New Jersey: John Wiley & Sons. Rao, C.A., Rao, B.P. and Sivaramakrishna, K., 2009. Strategic management and business policy. New Delhi: Excel Books India. Read More