The Performance Evaluation of Burberry - Case Study Example

Module Number: of assignment: Word Count: 2503 Table of Contents Executive Summary 3 Introduction 4 1.Vision and Strategy of Burberry 5 2. Development of Balance Scorecard 8 2.1 Financial Perspective 8 2.2. Customer Perspective 9 2.3 Internal Business Perspective 10 2.4 Learning and Growth Perspective 11 1.Strategic Map 13 2.Recommendation 14 3.Evaluation of Balance Scorecard 14 15 Reference List 16 Executive Summary Balance scorecard is a management framework which is employed by many companies for acquiring information regarding different perspectives of their business. The perspectives are financial, internal process, learning and growth and lastly customer. The balance scorecard of Burberry Plc is elaborated in the report by highlighting the key perspectives. The balance scorecard is followed by strategy map of the company. The strategy map is prepared based on the balance scorecard. The strategy map helps a company to articulate its best strategies which are required for the achievement of its objectives. It clarifies the mission and the strategic vision of the company. The balance scorecard designs the process which is formed on the basis of the strategy. The strategies are a set of hypothesis regarding cause and effect. The strategies direct the companies towards its future development from its current position. Thus, with the help of the scorecard and the metrics associated with it, the cause and effect relationship between the impacts and actions can be tested. The balance scorecard of Burberry indicates the main areas where the company has to make improvement and implement strategies that can enhance its performance. The performance evaluation of Burberry is followed by recommendations that are provided to the Board of Directors. Introduction Burberry Group Plc. is a British luxury fashion house which distributes cloth and fashion accessories to the end consumers through both wholesale and retail channels. The retail sales of Burberry in 2012/2013 accounted to 71% and that of whole sale was 24% (Burberry Group Plc., 2014a). Its distinctive tartan pattern has become one of its most widely copied trademarks. It also provided license agreements to Japan and other countries. Through this license it leveraged technical and local expertise of the licence partners. Burberry is most famous for its trench coat, which was designed by founder Thomas Burberry. The company has branded stores and franchises around the world and also sells through concessions in third-party stores. Queen Elizabeth II and the Prince of Wales have granted the company Royal Warrants. The Chief Creative Officer is Christopher Bailey. The company is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. According to a 2013 report by Interbrands, Burberry was the 77th most valuable brand in the world that year (Burberry Group Plc., 2014b). The company has maintained discipline and balance all across their channels and helped the end consumers to get the best products. The report elaborates the strategies that lead to the preparation of balance scorecard. The evaluation of balance scorecard is also executed in order to examine whether the strategic objectives are relevant for the success of the company. After the critical evaluation of the balance scorecard and strategic map, recommendations are made to the Board of Directors. 1. Vision and Strategy of Burberry Burberry has its operation in four regions. In 2012/2013, the business in Asia Pacific collected 39% of revenue from retail/ wholesale whereas 30% of the revenue is collected from Europe, 25% from America and rest 6% from rest of the world (Burberry Group Plc., 2014a). Figure 1: Product Mix (Source: Burberry Group Plc., 2014a) The above figure elaborates the sales of Burberry by customer types. It is observed that the highest revenue is generated from the sale of women clothes and accessories for all. This implies that Burberry has satisfied the needs of women by concentrating on fashion and style that they desire to wear. Burberry established in 1856 had developed its integrity by manufacturing varieties of coats that were founded by Thomas Burberry for the cartographers, mountain climbers and aviators. The coats also attracted the passionate adventurers who wore them for experiencing the most precious moments of their in a comfortable way. For developing its global business, Burberry employees has worked aiming a single vision which is to build trust and honesty among the customers and build a honest relationship which will led to its success. Burberry has also decided to make its company digital end-to-end (Lamb, 2012). Strategy The main aim of the company is to enhance consumer resonance and operate effectively through better use of assets of brands combined with action across the organisation. Thus, the company concentrates in developing one company and one brand. To fulfil its aim Burberry concentrated on following strategies to enhance its operation: 1) Brand momentum: It has been ensured by Burberry that strength, purity and positioning of the brand is its main priority (Burberry Group Plc., 2014b). 2) Beauty: Burberry on October, 2012 announced conversion from a licensed fragrance and make-up business to a directly operating structure. The consumers have experienced the elegance of the brand and thus the company has encountered extensive growth in its image. The business integration plan was completed during the following years and the inauguration took place on 1 April 2013 (Burberry Group Plc., 2014b). 3) Burberry World Live: Burberry Regent Street was inaugurated in September in London, the most expressive part of the brand. It introduced the idea of ‘Burberry World Live’. The new idea highlighted all the aspects of the brands. The idea helped the customers to know the offers through an enhanced experience of digital environment The store gave product satisfaction to its customers by providing them with 100 screens. The display in the screen included product specific content that is triggered by RFID-enabled merchandise on the mirrors that turned instantly to the screens. In the store, the audiences can watch their key brand live from any locations. The products included the women wear A/W13 and S/S13 runway shows. It gave a live expression to the innovative digital launches of the brand. This comprised of live music events that featured artists of Burberry Acoustic and first experience at the store of Burberry Bespoke (Burberry Group Plc., 2014b). 4) Digital: The investment made in burberry.com had been continued after the expanded delivery to 100 countries. The Spanish and Korean brought in a number of languages online. Additional 84 stores were rolled out which extended global streaming of the brand content in the flagship market. Retail theatre was rolled out to a further 84 stores after the extension of the global brand under the flagship of the market. 5) Brand recognition: The company was listed in Top 100 Global Brands for fourth time in consecutive years. Burberry was recognised as one of the most luxurious fashion brand that has concentrated in increasing its brand value over the years. The company was quoted by Altagamma as the most luxury brand that has the highest awareness among the digital customer. It was also regarded as the “media think tank L2’s ‘Fashion Digital IQ Index’ for the second time in a year” (Burberry Group Plc., 2013b). Burberry is also named as the luxurious fashion brand which owns the “highest ‘digital IQ’ in China” by L2 (Burberry Group Plc., 2014b). However, LinkedIn had ranked Burberry 29 and stated it as the most demanded employer worldwide. 6) Marketing innovation: The continued extension of the company’s boundary by marketing innovation and leveraging the brand content for engaging and connecting the audiences globally has made the brand world famous. 7) Digital engagement: The brand excitement has been driven across a range of platforms globally. The main campaign of S/S13 has generated the awareness among the traditional and social media by launching video which generated around 1.7 million views on the Burberry and YouTube platform (Burberry Group Plc., 2014b). 2. Development of Balance Scorecard The concept of Balance Scorecard was established by Kaplan and Norton in 1992. It is regarded as the management framework that is modified, adopted and applied by a number of companies worldwide. The thorough understanding of the framework contributes positively to the success of the organisation. The scorecard aims at translating the strategy and vision of companies into four theoretical quadrants (Chartered Institute of Management Accountants, 2005). The quadrants reflected the following implications and perspective of the strategies as described by Kaplan and Norton: ● Financial ● Customer ● Internal business processes and ● Learning and growth Since its development, the balance scorecard has helped the companies to convert its mission and strategy into metrics and tangible goals. It is not only measurement tool for a company rather it is an effective tool for strategic management. It helps the management to get useful information regarding its internal process, financial performance, customer perceptions and internal learning and growth (Kalpan, 2010). In the following sections the four perspectives are described with respect to Burberry. 2.1 Financial Perspective Objective or Goal KPI Measures Target Revenue 8% (growth) The revenue of Burberry has encountered an increase of only 8% compared to previous year which was 23%. The majority of revenue is generated from the retail shops. Profit Performance Profit margin The profit margin of Burberry has decreased over the years from 20.293% in 2012 to 17.03% in 2012. The total liability and asset have decreased during the period and the cash flow at the end of 2013 has also decreased which justifies the decrease of profit in 2013 (Burberry Group Plc., 2014c). Reduction in borrowing Gearing ratio The gearing ratio of Burberry has decreased from 0.137 in 2012 to 0.123 in 2013 which implies that the company has decreased its source of fund from equity funding. It indicates that the company has decreased it leverage and the risk of increasing debt (Burberry Group Plc., 2014c). Liquidity performance Current ratio The current ratio of Burberry is observed to increase in 2013 than 2012 however both the values signifies that the company does not possess enough current assets to pay off its short term obligations. Earnings per share Increase in EPS Burberry could have increased its EPS by 14% in 2013 however it increased only 12% of the previous year. Burberry should concentrate on its sales and make an effort to increase it so as to earn profit. The increased profit will help them to attract more shareholders since the latter will receive increased EPS for the invested shares. The liquidity position should also be rectified since the company can encounter financial crunch in future with the increase in liquidity. 2.2. Customer Perspective Objective or Goal KPI Measures Target Burberry World Live Customer satisfaction The worldwide Burberry stores gave product satisfaction to its customers by providing them with 100 screens which displayed the product specifications. Increase in customer awareness Customer retention Campaign of S/S13 has generated customer awareness through the traditional and social media by launching video which generated around 1.7 million views on the Burberry and YouTube platform (Burberry Group Plc., 2014d). Digital Customer base expansion 84 stores were opened globally for streaming the content of the brand under the flagship market. Burberry can extend its product range so as to satisfy increased number of customers. The company should also concentrate on increasing the customer base by penetrating new countries. Customer retention is very important for a company since there is huge competition in the market. Burberry can gain trust of its customers by providing them with differentiated products. The company should make its way to China so as to bring in more customers who are fashionable and brand loyal. 2.3 Internal Business Perspective Objective or Goal KPI Measures Target Increase efficiency in utilization of assets Stock turnover The stock turnover of the company has increased over the years from 2012 to 2013 which indicates that sales of Burberry in decreasing over the years as the inventory is piling up. Employees efficiency a global reputation for the company Employee efficiency The efficiency of the employees is increased by providing them with 100% knowledge regarding the various brands of the company. Product quality and research development New product development New products are developed for satisfying customer needs. Training employees to improve satisfaction Service to customers Burberry provides an excellent work environment to the employees who share their difficulties with the higher authorities without any hesitation. Training of the new products is given to the employees so that they acquire appropriate knowledge regarding the products (Burberry Group Plc., 2014e). Burberry concentrated on the employee efficiency since it portrayed the reputation of the company to a great extent. Thus, the company train its employee’s efficiently is that they can deliver their best before the customers and progress the company towards success. 2.4 Learning and Growth Perspective Objective or Goal KPI Measures Target Increase the recruitment of employees Employee recruitment Burberry has recruited best talent across the world. Employee Motivation Satisfaction of employees The company has organised different programs for the employees to boost up their interest in their job. Burberry has concentrated in sharing knowledge among its employees so that they can perform best in their work and make effort in contributing positively to the success of the company. 1. Strategic Map The strategic map of Burberry is as follows: Figure 2: Strategy map of Burberry (Source: Kalpan, 2010) From the above strategy map it can be inferred that the company is seeking to enhance its brand value through the growth in revenue. Burberry has given efforts in enhancing the value of the shareholders by proving them high earning per share. The cost structure of Burberry is also improved by using cost effective processes for manufacturing clothes and accessories. Burberry has concentrated in expanding its business by penetrating new untapped markets like China where the mass is fashionable and brand loyal. The asset utilisation of Burberry should be improved so as to bring in cash for paying the liabilities. 2. Recommendation The following are the recommendations that are provided to the board of directors after the evaluation of balance scorecard of Burberry: The asset base of Burberry should be improved in order to pay off its liabilities with ease. The loan amount should be decreased and the company should focus on issuing more shares so that they can raise fund. Burberry should focus on their augmenting sales so that it can improve their profit percentage. The customer services should be improved so that they are satisfied with the products as well as the services that they receive during the visit in the stores. The employees should be trained properly so as to give them 100% knowledge regarding the products. The implementation of the recommendations will assist Burberry to become a more powerful brand. 3. Evaluation of Balance Scorecard The balance scorecard of Burberry will assist the top management to evaluate the performance. Thus, it is desired that the company should have a clear goal so as to formulate strategies to attain growth. It is helpful for a company to avoid its short term behaviour and concentrate on the long term prospects so as to gain competitive advantage over other companies. The evaluation of financial perspective of the scorecard is based on the past information and thus the potential future growth cannot be evaluated. However, the evaluation of non-financial indicators measures the future financial performance of the company. Thus, it can be concluded that the four perspectives are important for the performance evaluation of a company. Reference List Burberry Group Plc., 2014a. Channel Mix. [online] Available at: < http://www.burberryplc.com/about_burberry/group-overview?WT.ac=Group+Overview > [Accessed 2 April 2014]. Burberry Group Plc., 2014b. Our Strategy. [online] Available at: < http://www.burberryplc.com/about_burberry/our_strategy/leverage-the-franchise > [Accessed 2 April 2014]. Burberry Group Plc., 2014c. Annual Report 2012. [online] Available at: < http://www.burberryplc.com/investor_relations/annual_reports/previous_annual_reports > [Accessed 2 January 2014]. Burberry Group Plc., 2014d. Share Information. [online] Available at: < http://www.burberryplc.com/investor_relations/share_performance/share_analysis > [Accessed 2 January 2014]. Burberry Group Plc., 2014e. Press Release. [online] Available at: < http://www.burberryplc.com/media_centre/press_releases/2013/burberry-uses-iphone-5s-to-capture-spring--summer-2014-runway-show_2 > [Accessed 2 January 2014]. Chartered Institute of Management Accountants, 2005. Effective Performance Management with the Balanced Scorecard Technical Report. [pdf] CIMA. Harvard Business School. Available at: < http://www.cimaglobal.com/Documents/ImportedDocuments/Tech_rept_Effective_Performance_Mgt_with_Balanced_Scd_July_2005.pdf > [Accessed 2 April 2014]. Kalpan, R., 2010. Conceptual Foundations of the Balanced Scorecard. [pdf] Harvard Business School. Available at: < http://www.hbs.edu/faculty/Publication%20Files/10-074.pdf > [Accessed 2 April 2014]. Lamb, R., 2012. Burberry CEO: United Company Vision Key To Brand Success. [online] Available at: < http://www.luxurydaily.com/burberry-ceo-brand-image-is-no-1-priority-for-a-united-company-vision/ > [Accessed 2 April 2014]. Read More