Balanced Scorecards Key Features - Southwest Airlines - Case Study Example

20 November Introduction Balanced scorecard (BSC) has gained currency for the performance measurement and management systems. Many organizations rely on the use of the BSC as it has inbuilt ability to assess both financial and non-financial performance of an organization (Niven 13). Financially, it can highlight the specific but strategic financial goals with particular measures for improving and enhancing the financial indicators; similarly, it is designed to look into the operational metrics as well including learning and innovation, internal business processes and the customer management as well. In the following parts of this paper, first balanced scorecard has been elaborated in which its features, relationship between features, and its measuring strength have been highlighted. It is followed by the application of the BSC on Southwest airline. Before the conclusion part, comparison and contrast relating to the BSC of four airlines companies: Southwest, Delta, American and United Airlines. Balanced Scorecard’s key features Balanced Scorecard (BSC) is a strategic planning and strategic management and measurement system designed to forecast the future performance of different segments working (Kaplan 4). Fundamentally, the BSC is a non-financial tool but takes into account the strategically important perspectives of organization and they encompass: Financial perspective, customer perspective, learning and growth perspective and internal business process perspective (Kaplan 4). Each perspective has unique and own strategic objectives and strategies as well. In the financial perspective, mainly indicators, such as sales growth, return on equity margin, gross profit margin and net profit margin, are those which are included. In the customer perspective, the goals relating to customer are included. For example, every organization always endeavors to ensure customer satisfaction, which is a prime goal normally seen in the customer satisfaction segment. In the internal business process, organizations are more interested to increase their Balanced Scorecard for measuring performance In each segment, four fundamental sub-segments are provided and they are: goals, measures, targets and initiatives as well. In each segment, these strategic activities are carried out in a sequenced manner. For example, first goals are determined and selected; it is followed by measure, which is also known as Key Performance Indicator (KPI); after this step, potential targets are chosen and subsequent initiatives are provided which translate targets into action. In addition, there are other ways through which the use of the BSC would be productive for an organization. For example, an organization intends to satisfy their shareholders. And their satisfaction will be achieved by ascertaining a financial goal, which is to increase earnings per share. For obtaining and retaining this goal, the organization is required to determiner earnings per share (EPS) as a measure for satisfying the expectations of shareholders. Subsequently, the organization targets 10 per cent increase in the EPS for the next year. After this stage, it is important that the related initiatives should be taken for ensuring attainment of this goal. For this purpose, the organization may reduce cost of sales or production by eliminating those costs which can be avoided without putting any effect on the normal business operations of the organization. Relationship between the key areas of Balanced Scorecard Each perspective of the BSC is inter-related and interconnected as well. For example, choosing the customer perspective is the best way to identify and define the relationship between all four perspectives. For example, customer satisfaction is the main goal normally pursued by organizations. For this purpose, organizations first determine their target customers, their taste, preferences and expectations. After knowing this basic information, an organization would become in a position to develop its subsequent strategic planning in other perspectives by linking them with the aim of satisfying the customers’ expectations and for ensuring their loyalty with the organization’s products and services. Subsequently, after knowing the customer’s requirements, the organization would concentrate on the internal business processes and would try to accommodate those changes or expectations which have been found in the customer perspective. After this step, the organization would attach this objective and introduce the relevant changes in the innovation and learning perspective. In this perspective, the organization may be required to introduce new technology for including the customer expectations. For attaining this objective, the organization would be required to provide training and development programs. After this step, if these three steps work simultaneously and generate the expected objective of satisfying customers, the financial perspective would be served in which sales’ performance would be improved, cost of production would be diminished, and additional value in terms to return on equity and dividend would be shared with the shareholders of the organization. Southwest: Mission Statement The mission statement is mainly related to the customer services. “The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit”(Southwest airlines one report 93). This mission statement highlights the core strategic objective of the company in which customer service quality has been identified as the highest strategic aim of the company besides highlighting the importance of supporting services through providing words, such as individual pride, warmth, friendliness and company spirit as well. at the same time, for the employees, the Airline has provided a separate mission statement: it is the intent of the company to provide stable workplace environment along with equal opportunity for learning and growth; both innovation and creativity are supported and encouraged for enhancing the effectiveness of Southwest (Southwest airlines one report 93). Southwest Airline long term objectives The Airline’s long term objective has been defined very precisely. “Connect People to what’s important in their lives through friendly, reliable, and low-cost air travel” (Southwest airlines one report 93). In this single long term strategic objective, the company has primarily focused on four aspects: connectivity, friendliness, reliability and low-cost. The company is endeavoring to ensure that these four strategic long term objectives are met. Two performance measures of each balanced scorecard feature Financial Perspective Goal Measure Target Initiative 1 Profitability Increasing gross profit Gross profit 8 per cent rise This can be improved by two ways, either to increase revenue or to decrease business cost. Currently, the Airline industry has become very competitive. Thereby, the company should focus on reducing operating expenses. 2 Revenue Increase in revenue Sales revenue 10 per cent increase Revenue can be increased by looking into new potential markets lucrative for airline industry. Currently, China and India are booming; investment in these economics provides a possibility to increase revenue. Business Process Perspective Goal Measure Target Initiative 1 Fuel Fuel consumption reduction Alternatives to fuel consumption 10 per cent increase in natural gas For this goal, Southwest should contact with the natural gas suppliers and enter into agreements for obtaining stable and steady supply of the natural gas. 2 cost reduction Cost decrease Fuel efficiency 6 per cent increase in fuel efficiency Southwest should ensure that maintenance of all aircrafts is routinely carried out by the maintenance department. Customer Perspective Goal Measure Target Initiative 1 Customer satisfaction Reduction in customer complaints Customer complaints 15 per cent reduction in the customer complaints annually. For the customer satisfaction, Southwest should investigate the reasons behind the customer complaints and ensure that they are properly entertained and addressed as well. 2 customer expectations Knowing customer expectations Customer research 10 per cent increase expenditure on customer research Southwest should increase its research expenditure especially with a particular aim of understanding and analyzing and forecasting potential trends in customer taste and choices as well. Innovation and Learning Perspective Goal Measure Target Initiative 1 Employee productivity Increasing employee productivity Training and development courses 20% increase in training and development courses For improving employee productivity, Southwest should increase its budget for investing in human capital and capabilities. 2 Greenhouse gas emissions Reduction in greenhouse gas emission Technological innovation in fuel energy and sustainable use of resources 10 per cent increase in fuel energy innovative methods For this goal, Southwest should invest in sustainability for reducing the greenhouse gas emission. Second part Southwest Airline Financial Perspective Goal Measure Customer Perspective Goal Measure 1 Return on assets Increasing return on assets Efficient utilization of assets 1 Queries Customer queries Well-established customer department ensuring that all customer queries are entertained on time. 2 Dividend Increase in dividend Cost minimization and revenue maximization 2 Retention Customer retention Searching out those methods which increase trust and loyalty of customers. American Airline Financial Perspective Goal Measure Customer Perspective Goal Measure 1 Gross Profit Increasing gross profit Reducing operating expenses 1 Customer loyalty Quality services 2 Net profit Improving net profit Ways to decrease overall expenses including energy consumption. 2 Customer access Effective marketing of all types Delta Airline Financial Perspective Goal Measure Learning and Innovation Perspective Goal Measure 1 Return on equity Increasing return on equity Searching better strategic investment opportunities 1 Cost minimization Efficient use of resources, such energy. Earnings per share Increasing earnings per share Obtaining competitive advantage through maximizing returns on current investment. 2 Cost reduction per flight Effective use of available flights United Airline Internal business Perspective Goal Measure Innovation and Learning Perspective Goal Measure 1 Faster internal communication Effective and efficient use of data management systems 1 Retaining talent Providing lucrative incentives 2 Technological advancement Automation instead of manual use of information and operations as well. 2 Qualified workforce Highly selective and effective hiring criterion. Comparison and contrast A comparison and contrast reflect different operational and financial preferences of each airline company. For example, Southwest has specifically focused on financial perspective and customer perspective, reflecting that the company has been desperately working to attain its long term objectives and mission statement of the company. On the other hand, Delta has purely emphasizing on the use of the financial perspective and learning and innovation perspective. Similarly, American airline relies more on the use of financial perspective and customer perspective whereas internal business process perspective and innovation and learning perspective are being pursued by the United Airline. When the financial perspectives of both Southwest and American Airline are compared, it can be extracted that the former is more related to increase value for shareholders while the latter is more interested to increase financial performance of the company. Southwest attempts to increase return on assets and dividend as well. in this regard, it is important to mention that dividend is a form of return that is always expected by the shareholders, who are the real owners of company; if shareholders observe that the company is financially performing well, in that case, there are chances that the company would announce attractive dividend and subsequently which would increase the worth of company’s share. On the other hand, American airline is only focusing on improving the financial performance by purely emphasizing to improve gross profit and net profit as well. Based on this situation, it can be deduced that Southwest, when compared with American airline’s balanced scorecard, is more related to the external affairs of the company whereas the American airline is influenced by the internal affairs of the company as it is only seeking to improve the overall profitability of the company. At the same time, it is also important to highlight that the company is not only restricted to increase gross profit instead is more inclined to improve the overall profitability of the company. At the same time, contrast is also reflected by the balanced scorecard of both United Airline and Delta airline as well. The United airline’s important balanced scorecard perspectives are internal business perspective and innovation and learning perspective whereas financial perspective and learning and innovation perspective are determined for Delta airline. A closer analysis to the financial perspective of Delta reveals that the company is more inclined to increase return on equity and earnings per share as well; cost minimization and cost reduction per flight are two activities found under the heading of learning and innovation. On the other hand, faster internal communication, technological advancement, retaining talent and qualified workforce are specific goals which are being pursued by the United Airline. Based on this information, it can be extracted that the United Airline is focusing on the internal business processes and intend to improve the business operations of the company besides improving the overall productivity and performance of its workforce through hiring qualified workforce. On the other hand, Delta airline endeavors to decrease its business cost and improve its financial performance through increasing return on equity and earnings per share. This comparison clearly highlights that the United Airline is primarily focusing on the use of its internal resources and human capital for improving the business operations and performance as well. In contrast, the Delta airline is keen to decrease its operational cost of running business operations. Conclusion Balanced scorecard is an important strategic performance measurement tool. Through the application of this tool, both financial and non-financial performance is measured and assessed as well. The BSC of Southwest highlights that the company needs to improve its financial performance by specifically focusing on the profitability and revenue as well. Although the mission statement is more customers specific, more emphasis on the financial perspective is highly recommended. When Southwest’s perspectives are compared with the perspectives of Delta airline, the results indicate that Delta is more focusing on the learning and innovation along with financial perspective. A closer analysis highlights that Delta is more interested to increase return on equity and earnings per share besides endeavoring to minimize cost and cost per flight as well. On the other hand, the United Airline focuses on faster internal communication, technological advancement and on qualified and talented workforce. Works Cited Kaplan, S. Robert. “Conceptual Foundations of the Balanced Scorecard.” Harvard Business Review (2010): 1-36. Print. Niven, Paul, R. Balanced Scorecard Step-by-Step: Maximizing Performance and Maintaining Results. 2nd ed. New Jersey: Wiley, 2006. Print. Southwest airlines one report. “Annual Report 2013.” Southwest Airline (2013): 93. Print. Read More