Balanced Scorecard and Strategy Map of Home Retail Group - Example

financial analysis of home retail group al Affiliation) Key words: Balance Scorecard, Strategy Map Contents Executive Summary 3 Introduction 3 Vision 4 Strategy 4 Compelling Customer Offer 4 Product Leadership 4 Digital Leadership 4 Financial Services 4 Cost Management 4 Financial Strength 5 Critically discuss and evaluate the function of a balanced scorecard 5 The Financial Perspective 8 Internal Business Process 8 Customer Perspective 8 Learning and Innovation 9 Strategy Map 12 Recommendation 14 References 16 Executive Summary A balance scorecard is a strategic tool used to assess the organization performance. It is used to align the business activities with the organization vision and strategies. Kaplan and Norton established the tool as a performance measure in order to provide the board of directors with an objective view of the organization performance. The paper will provide an analysis of the financial performance of the company using both 2013 and 2014 financial statements. The consolidated financial statement of the group shows the sales revenues and the cost of operations of the group. It will reflect on the strategies taken by the management to improve the performance of the company. Additionally, the report will provide a strength and weakness analysis of the company operations. The analysis will help provide solutions for improving the liquidity position of the company and pinpoint any misstatement in the financial statements. Introduction Home retail group owns a chain of super markets that deal with general merchandise and home products. The company acquired both Argo and Home base as its subsidiaries (Knox, & Denison, 2000). Its shares are traded on the London stock exchange. The company has recently expanded its operations in a number of countries across the world. As a result, this has opened up new opportunities to the company. Home Retail Company deals with general merchandizes and other home products. The company has experienced a number of challenges in the UK market specifically due to the growing competition from emerging retail companies. Vision The vision of Home Retail Group is to develop a flourishing business that focuses on providing outstanding quality and convenient services to the customer. Strategy The core strategy of Home Retail focuses on expanding its online business. The group strategy is founded on six pillars that support the organization vision. Compelling Customer Offer Home Retail group is committed to employing its scale advantage to offer a wide range of products at discounted prices. Product Leadership Home Retail Group utilizes the strengths of its retail brands to increase its market share by expanding its product range. Digital Leadership Home Retail endeavors to incorporate new technologies in its operations that resulted in the shift of the mode of the customer shopping because most customers prefer shopping online. Financial Services Home Retail group offers a broad range of credits products thus making it easy for the customers to purchase the product of their choice at any given time. Cost Management Home Retail Group has a revered record of accomplishment of providing a major organizational change that aims at cost reduction while augmenting its operational standards.. Financial Strength Home Retail group financial strength helps it to deliver both its long-term and short-term investment plans. Critically discuss and evaluate the function of a balanced scorecard The balance scorecard goes beyond the conventional measure of organization performance as it gives the management a better understanding of the operations of the company Kaplan, & Norton, 2005, p.55). As a non-financial indicator, the balanced scorecard is essential as it provides a means of projecting future financial performance rather than only a report of the present happening. The section provides an analysis of how the balanced scorecard can be used for performance management and monitoring. The growing global competition specifically in the retail business has forced companies to transform themselves for competition. Their ability to utilize their intangible assets has become more crucial that their ability to manage their fixed assets. The balance scorecard acts as a better substitute for the convectional financial measures with a criterion that emphasis on four major perspectives. Therefore, the balanced scorecard has helped the organization to track their financial outcomes while concurrently monitoring the progress in capacity building and acquiring assets that will facilitate their future expansion. However, it should be noted that the balanced scorecard is does not replace the traditional financial measure but rather complement them. Most companies have discovered the value of the balanced scorecard has a way of addressing the deficiency in the management system. Most organization operational management control system is founded on financial measures and targets that are not in line with the company’s long-term objectives. Companies put more emphasis on the short-term objectives thus leaving gaps between development and implementation of a strategy. A balanced score scorecard does not solely focus on short term financial measures as a measure of company performance. The scorecard provides management processes that link the long-term goals with the short-term operation (Fernie, Pfab & Marchant, 2000, p.54). The processes include vision translation, linking and communication, business planning, and feedback and learning. The process of vision translation helps the company collaborate the organization vision and strategy. For an organization to base their operation on the vision statement, the statement must be articulate and integrate the objectives and measures provided by the executives that illustrate the long-term success drivers. The process of communicating and linking helps the company management communicate the organization objective to the employees. A balanced scorecard ensures that all organization levels understand the long-term objectives and strategy of the company. The business planning process helps merge the company’s business with its financial plan. The goals provided by a balanced scorecard allow the management to coordinate and integrate its diverse initiatives towards the long-term objectives. The final process is the feedback and learning. The feedback process allows the company to check all the organization levels or if the employees meet the planned financial objectives. The balanced scorecard helps the company managers examine the short-term outcomes from the customer, learning and growth and internal business process perspectives (Fernie, Pfab & Marchant, 2000, p.44). In short, a balanced scorecard allows companies to adjust strategies to echo the real-time learning. As earlier mentioned, a balanced scorecard uses four parameters to track the operational and financial metrics of a company. The first parameter is the customer perspective of the company. The measure used under this perspective includes quality, lead times, costs, and performance and services. The management should determine the company core competencies that are vital, and use measures such as the employee skills and productivity to track them. Additionally, the company can monitor its ability to introduce new products that creates more customer value. According to Kaplan and Norton, the balance scorecard allows the executives check whether they have improved one process at the expense of another thus shielding the company from performance sub optimization. The second parameter is internal business perspective that examines the process that the company should excel in. It allows the company to focus on its competencies and helps determine the company’s competitive advantage. The innovation and learning perspective focuses on whether the company can continue to improve and create value. Financial perspective is the last parameter assesses the appropriate measures that can help create more value to the shareholders (Fernie, Pfab & Marchant, 2000, p.94). By providing the company management with the relevant information from four distinct perspectives, the balance scorecard reduces information overload by restricting the number of measures used. A company has nothing to lose by using few measures. The balanced scorecard allows the managers to concentrate only on the most critical measures. The adoption of a balanced scorecard is useful has it meets numerous managerial needs. First, it collaborate the company’s competitive agenda in a single report that provides the management with a balanced view of the company strategic operation. Some of these agendas include, reducing the response time, quality improvement, and emphasizing teamwork. As earlier mentioned, the balanced scorecard protects the company against sub optimization. The scorecard allows the manager to focus on all crucial measures at the same time. Home Retail Company can reduce marketing time, for instance in two distinct ways: improving the management of the launch of a new product or releasing a unique product. The Financial Perspective The goals attached to this perspective include convectional measures of financial performance such as the return on capital employed. However, it should be noted that these measures can be misleading if taken alone. Kaplan and Norton argued that the measures are essential as they provide crucial information to managers on the whether the strategies are in line with financial objectives. Financial instrument help to pin point the loopholes in the existing management system. Internal Business Process Under this perspective, the managers highlight crucial internal process that should succeed for the company to implement its strategy. Metrics involved in this perspective allows the management to measure the success rate of the organization in terms of customer satisfaction (Brewer & Speh, 2000, p.75). The measure of internal business process should concentrate on the internal business processes that a company requires to achieve its financial and customer objectives. Customer Perspective Home Retail Group strategies are centered on six key aspects earlier mentioned. It has invested heavily on human resource by providing adequate training facilities to its staff. Moreover, it has created more job opportunities in its stores spread across the globe. Home Retail Group reviews on an annual basis its entire range of products. In doing this, it aims at enhancing product availability and keeping the pace of innovation. The main goal is the promote brand loyalty. Home Retail Group has expended its online business to adapt to the changing customers’ needs. Learning and Innovation For Home Retail Group, the concept of innovation lies in enhancing customer services rather than in creating new products. The company believes that provision of quality customer services makes it an outstanding global retailer of home merchandise. Home Retail Group concept of shopping list reminds the employees in the retail stores of their role in customer service improvement (Brewer & Speh, 2000, p.29). Balanced scorecard Perspective: finance Key success factors (objectives) Measures (KPI) performance level (Target) Summary action plan (initiatives) Profitability Profit margin Greater than zero percentage increase in profit Cost reduction Waste reduction Penetrate new markets Improve sales Revenue Achieve 50 billion pounds revenue in the UK market Penetration of new market Provide discount offers cash flow Liquidity ratio Improve by 2.0 by the end of the year The management should review the existing credit system Capital utilization Return on capital employed Increase by 10% by year end Introduce overtime from Monday to Friday Perspective: learning and innovation Objectives Key Performance Indicator (Measures) Target Action Staff motivation Labor turnover rate Reduce employees turnover rate by 4% every year Restructuring the entire organization by engaging employee oriented initiatives New products in the market Number of product launched Four every three months Invest heavily in research and development Establish a design team New channels for marketing Number of market channels One every year Create a marketing team that engage the public directly to investigate the existing marketing gaps Perspective: internal business process Objectives Key Performance Indicator (Measures) Target Action Efficiency employee Increase by 15% by year end Provide a bonus scheme to the employees individual performance Effectiveness Sales revenue Increase the revenue by 10% at year end Provide other form of incentives to the employees whose stores records the highest revenue Product quality Customer feedback Create a brand label by year end Expand the existing product range Perspective: customer Objectives Key Performance Indicator (Measures) Target Action Selling price Average selling price To offer a discount price by reducing selling price by 6% a year Put up measures that aim at reducing the operating cost Reliability Number of customer complaint Reduce the number of complaints by 10% a year Put up measures that focus on continuous quality improvement. Evaluate the customer feedbacks in order to identify their exact needs Company image Market survey Best shopping choice in UK Provide quality services to the customer. Provide guarantees to the customer for goods purchased Strategy Map Innovation and learning perspective Internal business process perspective Customer perspective Financial perspective The strategy map helps expound the aspects analyzed in the balanced scorecard. It provides a framework that integrates the company objective in four perspectives of a balanced scorecard. The arrows in the above strategy map show the long run cause and effect. Each of the perspective is examine in a detailed manner. Each of the company strategy is analyzed in the strategy map. In developing the strategy map the following processes have been considered First, the vision and strategy of Home Retail Company was defined. As earlier mentioned, Home Retail Company strategy based on six pillars. The plans and organization strategies are then translated and aligned to organization objectives. Lastly, the strategies are tested and adapted to the organization. Recommendation Throughout the year, Home Retail strategies have helped the company achieve some of its objectives (Norreklit, 2000, p. 88). In 2014, the company performed poorly compared to previous year. For the company to maintain a steady growth below are some of the recommendations provided based on the financial analysis of Home Retail Group. First, the company should review its pricing model on a regular basis. Certain changes in the UK retail market may signal the company to raise it prices without the risk of losing its sale revenue. However, it advisable to test any price increases before making the prices permanent. Additionally, Home Retail Group should review its customer offers to determine if any improvement is necessary. The company should establish its market segment by identify its target customers. The type of customer on company target list can make a huge difference (Renold, 2002, p.530). Focusing on the most profitable customer while letting go the less profitable could help the company maintain a steady growth. The growing global competition in the retail industry requires companies to make improvement in their range of products and internal processes. Home Retail Company should be aware of its core competencies and focus on launching new products in the market (Niven, 2011, p.33). An organization can grow and expand by introducing new variety of goods and services and focusing on providing extra value to the customers. Therefore, the company is able to boost it operating efficiency and thus helping it penetrate new markets. Additionally, the company profitability is bound to grow as it expands into new market. Home Retail Company should identify its target customers and focus on a single market segment. The company should also identify measures of business performance in its respective segment (Arora, 2002, p. 247). However, for the company to benefit and achieve the objective of customer satisfaction the measures should be applied appropriately. Home Retail Group has developed its strategies as the international business on six key aspects earlier mentioned. The company should strive to provide its customers with the finest shopping experience thus raising it standard in the market place. All its internal processes should aim to promote the provision of quality goods and services to the customer at a competitive price. Therefore, this results in the enhancement of brand loyalty and the generation of customer value. By concentrating the business model on the customers, Home Retail Group can provide a broad array of products at fair prices sold in online store as well in store located in convenient locations (Nicholas & Watson, 2005, p.427). Home Retail Group should hold periodic meeting where the employees are briefed on the company’s strategies. The employees should feel free to raise their concerns with the top executives of the company to make the training process interactive. At the end of the day, the employees are motivated and have knowledge of their individual duties in the meeting the organization objectives (Brewer, & Speh, 2000, p.33). The strategies of the company differ across the stores located in different parts of UK and the world at large. In each of the stores, the employees should be free to highlight the strategies that they find to be good and those that are bad. Therefore, this helps reduce the employee turnover rate. Home Retail group business model should put more emphasis quality service delivery to the customer. All the internal processes should aim at promoting the provision of quality goods and services to the customer at a competitive price. Therefore, this will result in the enhancement of brand loyalty and the generation of customer value (Fernie, Pfab & Marchant, 2000, p.54). By concentrating the business model on the customers, Home Retail Group can provide a broad array of products at fair prices sold in online store as well in store located in convenient locations. Lastly, the company should focus on waste reduction throughout the business. Examples include cutting down power cost, subletting unused office space, negotiating for longer contracts with the suppliers among other (Nicholas & Watson, 2005, p.425). References Arora, R. (2002). Implementing KM-a balanced score card approach. Journal of knowledge management, 6(3), 240-249. Brewer, P. C., & Speh, T. W. (2000). Using the balanced scorecard to measure supply chain performance. Journal of Business logistics, 21(1), 75. Fernie, J., Pfab, F., & Marchant, C. (2000). Retail grocery logistics in the UK. The International Journal of Logistics Management, 11(2), 83-90. Gwynne, R. N. (2008). UK retail concentration, Chilean wine producers and value chains. The Geographical Journal, 174(2), 97-108. Kaplan, R. S., & Norton, D. P. (2004). Strategy maps: Converting intangible assets into tangible outcomes. Harvard Business Press. Kaplan, R., & Norton, D. (2005). The balanced scorecard. Harvard business review, 84(3), 100-109. Knox, S. D., & Denison, T. J. (2000). Store loyalty: its impact on retail revenue. An empirical study of purchasing behaviour in the UK. Journal of retailing and consumer services, 7(1), 33-45. Lipe, M. G., & Salterio, S. E. (2000). The balanced scorecard: Judgmental effects of common and unique performance measures. The Accounting Review, 75(3), 283-298. Nicholls, A., & Watson, A. (2005). Implementing e-value strategies in UK retailing. International Journal of Retail & Distribution Management, 33(6), 426-443. Niven, P. R. (2011). Balanced scorecard: Step-by-step for government and nonprofit agencies. John Wiley & Sons. Norreklit, H. (2000). The balance on the balanced scorecard a critical analysis of some of its assumptions. Management accounting research, 11(1), 65-88. Reynolds, J. (2002). Charting the multi-channel future: retail choices and constraints. International Journal of Retail & Distribution Management, 30(11), 530-535. Read More