The Use of Balanced Scorecard in Morrison Supermarket - Example

A report incorporating the use of Balanced Scorecard: Morrison Supermarket April 2, Executive Summary In the turbulent and competitive environment, most business would look for the aspects that would completely transform its overall image. Financial results alone does not give this picture, a complete analysis of the company using the balanced score card would. The scorecard uses four perspective when drawing the strategy map; financial, learning and growth, customer, and internal business processes. This paper explores the use of the balanced score card to achieve the intended transformation. The paper considers Morrison’s supermarket with the integration of the balanced scorecard to improve its performance. Finally, the paper provides a summary from the strategy map designed to the board of the supermarket. Introduction Morrison’s supermarket the fourth largest food retailer supermarket chain in the UK by market share is riding high on a steady rise in profitability. The report below explicitly entails the incorporation of the balanced scorecard into streamlining supermarket’s chain vision and strategy so the firm’s performance is monitored towards achieving specified goals. Based on the balanced scorecard methodology, the approach delves into the analysis of the supermarket’s overall performance in four ways; learning and growth, customer, internal business process and financial. According to Kaplan and Norton (1996), the balanced scorecard methodology is a broad system that explores an organization’s complete performance in four different approaches. The four ideas are based on the notion that assessing the company’s performance through only financial returns merely provides the information on the performance of the company prior to the assessment, and future performance can be predicted and sufficient actions are fronted to deliver quantifiable future performance. Financial analysis has always been the traditional way of assessing performance of an organization, of particular interest to the stake holders and the analysts are the operating costs and the return on investment. The other the three assessment criteria include; customer analysis which considers production and innovation, internal business processes considers the performance in terms of maximizing profit from the present products and monitoring future productivity indicators and finally, learning and growth which considers the effectiveness of management in form of employee satisfaction, retention, and information system performance. Morrison’s Supermarket’s Vision and Strategy The balanced scorecard structure breaks broad goals down into vision, strategies, tactical activities and metrics. With a customer base of 9 million people visiting the more than 438 stores every day, the giant retail’s chain mission should be streamlined within these boundaries. The company’s core vision and strategy as outlined in the Morrisons (2011) annual report and financial statements is to be ‘focused on delivering the next stage of growth, with a vision to be different and better than ever’. The next stage of growth and a vision to be different and better than ever entails processes that are quantifiable and results oriented. Improvement of the company towards realizing more customer base, improved financial performance, internal business improvements and improving the learning and growth of the supermarket should streamline the company towards the vision and strategy. The balanced scorecard focuses on factors that create long term value, though individually, the four focus points might transitively recur. For instance, a strategy in improving the customer base might in turn lead to lead to improved financial performance. The four perspectives apply to mission driven as well as profit driven and the supermarket’s mission must be divided into the two driving factors, profit and mission. The financial perspectives coupled with the profit agenda aspect must look into the satisfaction of the shareholders, while the mission agenda, consideration is on satisfying financial contributors. Second, the customer perspective when in line with the profit agenda, consideration must focus on customer expectation, while the identification of customers. Third, on the internal perspective, a profit driven agenda focuses on the kind of internal processes that must be adopted so that the shareholders and customers are satisfied. On the other hand, the mission driven agenda focuses on building the supermarket’s fiscal obligations to satisfy the customer base. Fourth, on the learning and growth perspective, a profit driven agenda is all about how personalities learn and respond towards skills developed towards future challenges. On the other hand, a mission driven agenda focuses on the manner in which people learn and develop skills so that they may respond to not only present but also future challenges. Designing Morrisons Supermarket Balanced Scorecard Financial Perspective Morrisons plc Financial perspective Key success factor(Objectives) Key Performance Indicator (Measures) Target Performance level (Target) Summary Action Plan (Initiatives) All Financial Goals are for the corporation as a whole GOAL KPI Target Initiative or ACTION 1 Return on Capital Employed To achieve double digits on ROCE ROCE for 2012 9.7% The company has largely targeted to tackling indirect procurement, increase network efficiency and in store productivity. Reducing operating expenses Reducing bottlenecks in the company 2 Shareholders To continue growing annual dividends and shareholders’ earnings Dividend cover 0.066% (2.56p) Earnings per share ^0.26 %. The company has targeted an increase of 10% growth in EPS. The company targets a stable growth in the running years. The company has targeted to have a stable position by 10% in the running years. Increasing the level of profit after tax Improving the dividend policy of the firm. 3 Profitability To achieve double digits in the growth in net profit margin and the return on net assets Return on net assets in the year 2011 and 2012 were 0.17 and 0.18 respectively A minimum of 5.00% return on net assets A minimum of 5.00% on the growth on net profit margin. Reducing the level of cost of goods sold by 50% and increasing the company’s turnover by up to 50 % 4 cash flow To achieve annual net cash flows The acid tests showed these results. the 2011/12 results showed 0.10 An acid ration of 2.0 Reduce unnecessary borrowing borrowings A 100% cash payment policy on the company product A 100 % cash payment policy on the company’s suppliers MORRISONS plc Customer perspective GOAL KPI Target Initiatives or ACTIONS 1Image To double the weekly customers number of customers who visit the stores in 2013. A current 9 million weekly customer base 80% customer loyalty retention rate 50% rise in the number of weekly shoppers in the chain’s stores. Market research surveys Improved customer service Quality products 2 Responsiveness To improve the level of customer service 439 stores with distinctive customer service department in each store. Short complaints should be handled in less than 30 minutes Moderately graded complaints should be handled with 6 hours Deep complaints, classified into this third level should be handled in less than 12 hours. Automation of the customer complaints section Hiring dedicated staff per store to handle customer complaints. 3 Reliability To be able to serve all the food items and in perfect quality under one roof. 439 stores packed with all the food items. To open 10 stores in the country to reach serve more customers A store in each main street in cities all over the country. 4 Selling Price To continue with the tradition of offering discounts to the customer base. Maintain the discount rate on the items throughout the store. To sell goods at lower prices than the main competitors by a respectable margin. A near uniform reduction in price. Table 2: Perspective: Internal Business process MORRISONS plc Internal Business perspective GOAL KPI Target Initiatives or ACTIONS 1Efficiency Frequent updating of the automation system to be in tandem with the current market conditions. 90% of shoppers use non -traditional shopping means. To commence accepting of online payment options by February 2013 Acceptance of other foreign currencies at the store Accepting PayPal and skill online payment methods 2Effectiveness Till service to be reduced by 10% Time spent in making home delivery of the products to be reduced by 10% Till service takes an average of 15 minutes Large customers with trolley to be served in 5 minutes Time taken to home deliveries o be reduced from the current average of 1 hour to 30 minutes. Automation of the till service. 3Product quality To sell fresh products 70 % of the food items on the chain’s stores are directly sourced from the company’s direct producers. To make inroads so that the company can access 100% of the direct producers of the food products. Supervise procurement of products to ensure only quality and fresh products find their ways into the shelves of the company’s 4Productive Lead Times To improve the time between placing an order for goods and delivery The average time taken between ordering and delivery is 1 week To reduce the average time between ordering and delivery to a minimum of three days. Automation of the ordering systems and purchase of fleet of vehicles to ensure timely delivery of company’s products. MORRISONS plc innovation and learning perspective GOAL KPI Target Initiatives or ACTIONS 1 Employee training For the company employees to be technically equipped to handle all the work and roles given to them. 9000 employees across the stores. To match employee performance to the corporate strategy Perform an job based assessments, using the O*NET database Hire career consultants into the company. 2 Illness rate To substantially reduce the level of absenteeism at the company 50% of employees report that they are ill every month and so unable to undertake their jobs. To reduce the level of absenteeism due to illness by 90 $ in the next year Hire career consultants so that they assist the company to put proper system in place and reduce the rate of illness in the stores. 3 Gender ratios To achieve a more balanced and equal representation at the place of work Male employees are more than the female counterparts on the ratio of 2 to 1 To increase female employment programs Hire more female employees without sacrificing the costs. 4 Internal Promotions To streamline internal promotions of employee to reflect performance and experience Promotion policy to give a weight of 0.6 to performance in a one year period Experience to be given a weight of 0.3 The rest of the factors to be given the weight of 0.1 A steady and progressive policy of promotions targeting performance Staff promotions tom be conducted once in every five years. Summary of the Map Above In the financial perspectives, the strategy map above considered the return on capital employed, shareholders, profitability and cash flows as the flagship instruments that will help the company to change its face. He four instrument, given the target and the goals and the courses of actions selected, would vastly improve the economic performance of the company. Every company is setup to make profit and profit arises when a company makes sales to a customer minus the cost of procuring the goods. Therefore customers are the most important stakeholders in the business, given the current competitive environment. A combination of four factors can lead to better customer management and they are image, reliability, responsiveness and the selling price. The image is the first selling point of the business as it builds reputational, reliable and responsive firm also becomes a magnet to the customers and a lower selling price compared to the competitors can attract huge swathes of customers to the stores. According to economic theory, a rational person would choose a lower price over a high price for a normal good; hence a discounted selling price would be instrumental in doubling the number of customers to the store weekly. Importance of the Balanced Scorecard Morrisons should handle costs related to inefficiency, ineffectiveness, quality issues and lead times perfectly. An inefficient and effective process reduces costs and improves on the image of the company. Quality products keeps customers trooping to the stores and improving provision of quality products is an internal and dynamic process that is built overtime. Finally reduction of lead times reduces the aspect of a customer gong to one of the stores and missing a product on the shelves. Poorly handled issues of employees always leads to costs due to industrial actions, illness rates, poor gender representation and a host of other factors. An investment in training and the selection process is a sure way of eliminating these bottlenecks. A properly functioning employee is the face of the company and can better provide the company with the image that is desired. Biazzo & Garengo, (2012) point out that the presence of a number of indicators coupled with the critical success factors, given the position of a company in the industry should be crucial and the defining statement of the balance scorecard.  A good balanced scorecard, typically, properly define the objectives of a company, more, the balance score should provide directions on cash balances of a company, profitability, market share amongst other important data. Secondly, the balance scorecard, based on stated objectives, should provide the measures that are in place to ensure the achievement of the stated objectives. Finally, initiatives should also be incorporated to ensure that the objectives are achieved. The scorecard designed for Morrisons is important as it helps the firm in monitoring progress and evaluating performance. For instance, a reduction of the level of industrial action from 35% to 10 % can immensely aid the company in reducing the variable overhead costs, which goes along the way in improving the image of the company and the profitability level. Pitfalls Certain pitfalls can affect implementation of the balanced scorecard, but not design of the scorecard. Niven (2006 301-302) identifies ten potential pitfalls which resonate with the case study. For instance, if Morrisons lacks of business strategy, a lack of guiding rationale for the balanced scorecard program, lack of consistency in the management practices. In addition, the lack of proper team development and a premature linking of the scorecard to management processes can potentially lead to a pitfall. Assumptions The assumptions in designing the scorecard were three and they included the following. First, the objectives in the scorecard are complimentary as one measure; ultimately leads to another and in the transitive sequence can lead to an overall improvement of the company. Secondly, Morrisons already have a company’s mission statement and a business strategy. Finally, the measures of success for Morrisons have been correctly been defined. The assumptions are based on the weekly sales record of the company, meaning that Morrisons is visible. Expansion projects to be undertaken by the firm in the next financial year are intended to improve the corporate value of the company. The four major areas initially identified in theory, and include financial, customer, business process, and innovation and learning can match the objectives of Morrisons. The scorecard developed above is the right one needed for the company, as it connects, objectives, to measures, to targets and finally to initiatives. This is the balance needed, however, neely (2002), suggests that a scorecard should be designed with the intent of not only accomplish short term goals but also longer term goals. Criticisms of the Balanced Scorecard The balanced scored has been criticized essentially, for the inability for a standard body to come up with a single style to be used in design, much more like accounting bodies. In addition the score is fragmented that it does not provide a unified view with observable recommendations. Often certain schools of thought have faulted the scorecard to be an unrealistic tool that does not incorporate the needs of all stakeholders, it is merely profit driven. Reference List Biazzo, S., & Garengo, P. (2012). Performance measurement with the balanced scorecard a practical approach to implementation within SMEs. Berlin, Springer. http://dx.doi.org/10.1007/978-3-642-24761-3. Kaplan, R, S., & Norton, D. P. (1996). The balanced scorecard: translating strategy into action. Kaplan, R. S., & Norton, D. P. (2013). The strategy-focused organization: how balanced scorecard companies thrive in the new business environment. Boston, Mass, Harvard Business School Press. Morrisons. (2011). Annual report and financial statements http://www.worldcat.org/title/balanced-scorecard-translating-strategy-into-action/oclc/34283015&referer=brief_results Neely, A. D. (2002). Business performance measurement theory and practice. Cambridge, Cambridge University Press. http://site.ebrary.com/id/10429311. Niven, P. R. (2006). Balanced Scorecard Diagnostics Maintaining Maximum Performance. Hoboken, John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=227393userid=^u Read More