Balanced Scorecard and Strategy Map for the Tesco Company - Case Study Example

MASTER OF BUSINESS ADMINISTRATION GLOBAL BUSINESS M004LON Finance, Funding and Legislative Frameworks for Success End of Module Assignment ‘FinancialReport of Tesco PLC.’ Executives Summary This is the report of Telco’s Annual performance developed by the Board of Directors. This report contains the analysis of the indicators of performance, both financial and strategic indicators. It addresses the background information to show the organizations position at present and the focus of its future objectives. The report summarizes the balanced scorecard divided into four distinct segments to measure the performance of Tesco Corporation (Ioppolo, Saija and Salomone 2012, p47). These include the internal business perspective, the financial perspective, customer service focus and learning and development. The analysis has been prepared in alignment to the vision and the strategic plans of Tesco Corporation. Apart from the balanced score card, the board prepares a strategy map to demonstrate the relationship between the perspectives of the scorecard and the strategy of the organization. It shows how all the objectives and Key performance indicators can be mapped together to generate holistic outcomes. It also presents recommendations to make sure that Tesco operates in line with the analysis and that it sets optimal goals and moves in the best direction in which it can improve its key financial and key strategic performance indicators. 1. INTRODUCTION Tesco Plc. operates as one of the best performing retail outlets in the food industry in the UK. Its business began in the UK, which currently serves as the host for its head office, and has spread to various subsidiaries across the world. As the largest retail brand in the United Kingdom, Tesco holds a value of between £2 billion and £3 billion. Tesco Plc. is presently running its business through subsidiaries in about 12 nations in which it has staff numbering to more than 530000 people. Its weekly client size has grown to tens of millions. The service is done through the retail stores as well as through the online channels. One of the factors that contribute to the success in the Tesco’s retail business is the implementation of the globalization strategies. This enables Tesco as a company to link to the business opportunities in countries abroad. From the summary of the performance of Tesco, it plans to embark on expansion of its commercial operations with the hope of increasing its net trading profit by 10 %. This follows the previous year’s fall in the profits by 7.6 %. It therefore plans to introduce at least one hypermarket every week. 2. VISION AND STRATEGY Tesco Plc. operates with a vision to become the preferred retail outlet in the whole world. It aims at being the preference for shopping options as well as an employer of choice. The Tesco Plc.’s vision consists of five fundamental values as follows: A greatly wanted and needed organization worldwide An increasingly growing organization, with increased business opportunities Operating with modern ideal styles and innovations of skills Being a winner in the local scene and making global application of the skills Being a source of inspiration to win the confidence of the customers making them loyal to the company and the entire communities The organization aims at increasing the business performance, by exposing the major aspects of its development. The Board of Directors have introduced a slogan ‘Build a Better Tesco’ to be the guiding principle of the entire organization, in the plan to strengthened their base in the United Kingdom. In the global expansion plan, the board has plans to increase the volume of sales and the trading profits of its international subsidiaries. They do this by increasing the size and the varieties of products to be able to continue in its high quality products and services (Papalexandris, Ioannou and Prastacos 2004, p54), (Kaplan & Norton 2004, p37) and (Lawrie and Cobbold 2004, p47). The first range of products is the sales of foodstuffs, from which it intends to diversify to other complementary and supplementary products. In addition, the board of directors intend to expand the Tesco service to introduce financial services such as banking to support its international business opportunities. In order to win the loyalty of the community, Tesco intends to be involved in the Corporate Social Responsibilities program. Through this, Tesco intends to let the community know the value it returns to the community as its contribution, and the need to maintain goodwill and mutual relationship. The senior management of Tesco emphasizes on the significance of having an element of diversification in its workforce. It implements a training, learning and development strategy to prepare the future leaders in the responsibility of managing the future expansion of the company. 3. BALANCED SCORECARD 3.1 Financial perspective Goal Key Performance Indicators Initiative/Action plan Target Actual Rating Weighting (%) Score 1 2 3 4 5 25 Increase the sales The Annual amount of Increase product brands, conduct sales stimulation program, Strengthen the global markets and acquire international business opportunities To increase the sales by +0.6% in 2014 from the 2013 sales 10 Increasing the Return Rate on the Capital Employed Rate of Capital Improve the investment portfolio, Diversify the international Trading and increase the profits percentages To focus on increasing therate of Return on Capital in 2014 from 12 to 15 % 5 Reduce the Capital Expenses The ratio of Capital Expenses to Sales To introduce Investments that do not consume much of the Capital to give more returns To retain capital Expenses at 3.4% of sales for 2014, a reduction 0.2% from 2013 5 To increase the Online market in the UK business Increase in Online Sales by percentage Invest 1 billion in the ‘Build a better Tesco’ plan, conduct online advertisement To increase the volume of online sales by 10% in 2014 5 Total Score 25 Table1: Balanced Score Card - Financials As the year moved on Tesco Plc. was dealing with increasing the home business while at the same time acquiring other markets in other regions of the world. Its asset base also increased both at home and in the international market. 3.2 Customer perspective Goal Key Performance Indicators Initiative/Action plan Target Actual Rating Weighting (%) Score 1 2 3 4 5 25 Improve Customer Satisfaction Customer opinion assessment, Customer complement, customer recommendations and reactions. Increase Strategic aspects of customer satisfaction by at least +10%. Increase the number of employees from 8000 to 250,000 to increase the customer satisfaction indexfrom 65% in 2013 to 80% in 2014 10 Increase the Customer retention and Loyalty % of repeat customers, the number of reward points per customer Aim at retaining at least 80% of the customers who shop at Tesco outlets To introduce loyalty points, Diversify Tesco services including launch of Tesco Banking services in the local and foreign markets 5 Improve on the product Pricing Positive Customer Feedback about prices To increase the awareness of the clients about the prices To maintain the automated pricing model by mid of 2014 5 To reduce the Turn Around Time per customer Customer opinion assessment, Customer complement, customer recommendations and reactions. Aim to reduce the average customer TAT from 10 minutes to 1 minute To serve each customer within 1 minute 5 Total Score 25 Table2: Balances Score Card - Customer Focus Tesco has a special focus on the ways of improving the experiences of their customers. It receives regular feedback from customers and improves their shopping experience both in the local market in the UK and internationally. It paid attention to the information it received from the shoppers in the year and introduced new usability features such as the “scan as you shop” program. 3.3 Internal Business Performance Aspect Goal Key Performance Indicators Initiative/Action plan Target Actual Rating Weighting (%) Score 1 2 3 4 5 25 Create Strong influential Brands Measure of the sales per department as a percentage of the entire annual sale Increase the percentage of brand sales by 40 % from 2013 To increase customer loyalty by 80%, to launch the “Make a better Tesco” by mid of 2014 To improve the sales volume of the brands per month and increase the customers awareness about the brands from Tesco by 77% from 2013 10 To Improve on the relationship with the suppliers Supplier opinions, complains, feedback and complements To increase the supplier’s satisfaction index from 71 in 2013 to 74 % in the year2014 To increase the diversification of Commercial business on food and other items Simple interactions with the suppliers, Launch of toaward to recognize the contributions of the suppliers 5 Promote Green Agenda Level of Carbon Emissions Reduce the level of carbon dioxide by half and plant 1000 trees per year Invest in tree planting and regulation of carbon dioxide using special equipment 5 Develop adequate growth using sustainable leadership strategies Implement international profit through online sales Increase global profit by £300 million Increase global Online sales from 50% in 2014 Increase the range of products. Increase the number of subsidiaries. Launch Tesco Banking services. 5 Total Score 25 Table 3: BSC of Internal Business Perspective Tesco Plc. has an objective for the present year to increase its internal portfolio to raise the Tesco’s core strength. It seeks to increase the level of product knowledge among its staff members to stimulate the level of sales. It also seeks to improve its internal working structure such that there is a reduced amount of carbon pollution during the production of food products. 3.4 Learning and Growth perspective Goal Key Performance Indicators Initiative/Action plan Target Actual Rating Weighting (%) Score 1 2 3 4 5 25 Improve on the rate of Employee Retention Number of Employees Retained per year Increase the retention from 1% to 90% per year in 2014 Training the staff and enabling them to develop their careers, recognition and development of talents 12 Increase the number of staff being presently in training The number and percentage of workers in training in a year To increase the number of workers in training by 10% 2014 Implement the slogan of ‘Build a Better Tesco’ and increase the number of workers in the program 3 Increase the growth of the main market in the UK Introduce fast moving foods in the UK market Improve the sales of fast foods by 50 %in the year 2014 Invest at least £1.5 Billion in the ‘Building a Better Tesco’. Promote the user experience in the UK market by increasing the user complements by 10% in 2014 5 Introduce and launch new products Number and capacity of new products sold Improve the number of new products sold by 70 % in the year 2014 above that of 2013 Introduce at least 2 products per year and increase the sales by 70 % every year for each product. 5 Total Score 25 Table 4: BSC of Learning and Growth Perspective In line with the development of talents and capacity, Tesco Plc. has been emphasizing on the ways of increasing the amount of training among its employees. It also seeks to increase the retention rate of its employees and customers. While it works on the retention of employees, there has been a large number of employees moving from Tesco and becoming employees of other companies. 4. BALANCING OF THE BSC The summary of the Balanced score card is shown below: Performance Perspective The Number Of Metrics Weight Score Financial 4 25% Customer 4 25% Internal business Growth 4 25% Learning and Development 4 25% Total Measure 16 100% Table 5: Balancing the TESCO BSC Figure 1: The balance between the 4 performance perspectives The scales of the Ratings are as follows: OVERALL PERFORMANCE RATING 1 = Does Not Meet Targets 2 = Partially Meets Targets 3 = Met Performance Targets 4 = Generally Exceeds Targets 5 = Exceeded Targets By Far In order to find the overall score for all the performance perspectives, the Board of directors will have to decide on the individual scores in each of the 16 metrics in every perspective. Each of the measures has ratings ranging from one to five. The calculation of the scores uses the formula below: Score = (Rating x Weight) / 100 For example for the Internal Growth perspective, the balanced score card will appear as follows: Goal Key Performance Indicators Initiative/Action plan Target Actual Rating Weighting (%) Score 1 2 3 4 5 25 Create Strong influential Brands X 10 0.4 To Improve on the relationship with the suppliers X 5 0.25 Promote Green Agenda X 5 0.20 Develop adequate growth using sustainable leadership strategies X 5 0.2 Total Score 25 1.05 Table 6: Demonstrating the scores In the sample, the scores are calculated as follows: Score 1 = (4 x 10) / 100 Score 1 = (5 x 5) / 100 = 0.25 Score 1 = (4 x 5) / 100 = 0.20 Score 1 = (4 x 5) / 100 = 0.20 The total score = 1.05 The same is done to all the remaining three perspectives and the total scores are added up. Assuming that in all the perspectives, Tesco Plc. Scored the same 1.05, the overall result for the company becomes 1.05 + 1.05 + 1.05 + 1.05 = 4.20. This example places Tesco Plc at the scale of “Generally exceeds the target”. The board of directors then have to use the scorecard ratings of the previous year to develop the targets for the current year, whose implementation will have to be accompanied by the strategy map. 5. STRATEGY MAP OF TESCO PLC The strategy map shows the road map that will be followed to implement all the actions recommended in the balanced score card. Strategy Map Figure 6: The Tesco Plc. Strategy map for 2014 The figure above is a strategy map for Tesco Plc. Showing the interconnection between all the perspectives and the metrics of performance. It is essential in demonstrating how the different objectives of the company can be mapped to the performance scorecard in order to bring them into reality (Abernethy et al 2005, p62) and (Kennerley and Neely 2000, p38). The map separates the organization into four different locations in the order of their performance perspectives. It shows the order of actions to be followed. For example, after creating the strong influential brand, the next goal is to increase the customer service level of satisfaction. 6. RECOMMENDATIONS From the Balanced Score card and the strategy map, there are four vital recommendations for the improvement of Tesco Plc. A combination of the two tools is vital for the company since they exhaustively explore the performance factors of the company (Kaplan and Norton 2004, p43). They provide holistic consideration to the company’s development by recommending the specific areas of improvement. 6.1. Financial Perspective It is recommendable for Tesco Plc. to keep all the company expenditure to the minimal level, while maximizing income. On the same note, the company management has to develop strategies for reducing operational losses. 6.2. Customer Focus Tesco Plc has to increase the customer satisfaction in order to increase and retain high numbers of customers. This can be done through introduction of new products and improvement of the quality of customer service. 6.3. Learning, Growth and Development Tesco Plc. ought to recognize the talents among its employees in order to train the employees and provide rooms for diversification through innovative ideas. 6.4. Internal Business Perspective The company ought to develop strong relationships with the customers and the suppliers alike, since they are all stakeholders to the organization. 7. CRITICALLY DISCUSS AND EVALUATE The balanced scorecard of Tesco Plc. indicates that the company has considered the board of directors has considered all the important key performance factors. The past performance of the company for the year 2013 was an average score of less than 4. The challenge of Tesco Plc for the year 2014 can grow beyond 4 if the management applies effective combination of the score card and the strategy map. Another challenge is the speed with which the company ought to develop new products to win customers’ loyalty. However, Tesco’s scorecard shows success in the expansion of businesses both in the local UK market and globally. 8. CONCLUSION The balanced score card and the strategy map are two great tools to the strategic plan of the Tesco Plc. considering the vast spread of its business across the world. However, for the two to deliver the best results, there has to be a lot of emphasis on using the strategy map (Voelpel et al 2006, p21). This is because with the balanced score card alone, there are tendencies of the implementers to apply more efforts on a few selected perspectives. Secondly, the balanced score card alone may not be effective in itself because it is an individual self-assessment tool. The strategy map therefore guides the implementation of the balanced score card to focus on the core priorities. References Abernethy, M.A., Horne, M.H., Lillis, A.M., Malina, M.A. and Selto, F.H., 2005, "A multi-method approach to building causal performance maps from expert knowledge" p. 36. Ioppolo, G., Saija, G., Salomone, R., 2012. Developing a Territory Balanced Scorecard approach to manage projects for local development: Two case studies. Land Use Policy 29 (3), pp. 62–64. Kaplan, R. S., & Norton, D. P. 2004. Measuring the strategic readiness of intangible assets. Harvard Business Review, 82(2): 52-63. Kaplan, R.S. Norton, D.P. 2004. Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Boston, Massachusetts, USA: Harvard Business School Press. p. 7. Kennerley, M, Neely, A D. 2000. "Performance Measurement Frameworks – A Review", Proceedings, 2nd International Conference on Performance Measurement, Cambridge, UK Lawrie, G. J. G., Cobbold, I 2004, "Third-generation Balanced Scorecard: evolution of an effective strategic control tool", International Journal of Productivity and Performance Management 53 (7): 61–62. Papalexandris, A., Ioannou, G. and Prastacos, G.P. 2004. Implementing the Balanced Scorecard in Greece: a software firm’s experience. Long Range Planning, 37(4), 34-36. Voelpel, S., Leibold M., Eckhoff R., Davenport T. 2006, The tyranny of the Balanced Scorecard in the innovation economy, Journal of Intellectual Capital, Vol. 7, n° 1, pp. 45. [2]. Read More