Home Retail Groups Vision, Strategy, and Balanced Scorecard - Example

Business Report of Home Retail Group Executive Summary In the home retails market in UK the trend is about providing fast and convenient service which is vital to compete within the industry. Home retail group is one of the major players and most successful organization of home retail merchandises in UK. This report evaluates the financial statement of years 2013 and 2014, annual report 2014 of home retail group (Van Veen-Dirks and Wijn, 2002). This evaluation shows the profitability and outcomes of the actual situation within home retail group. The purpose of the study is to report the company’s performance in years 2013-2014 and reveal the strategies and management of the organization. The report focuses on the home retail group business position and also provides solution to build up financial statement and continue improving the liquidity of the organization (Chia, Goh and Hum, 2009). Moreover the report focuses on the non-financial indicators and designs a balanced scorecard that can assist the company in achieving its targets. The study also spotlight on the use of the balanced scorecard in company’s performance management and monitoring. Table of Contents 1. Introduction 4 2. Home Retail Group’s Vision and Strategy 4 3. Proposed Balanced Scorecard for Home Retail Group 5 3.1 Internal Business Process Perspective 6 3.2 Customer Perspective 7 3.3 Innovation & Learning Perspective 7 3.4 Finance Perspective 9 4. Balanced Scorecard Strategy Map in Assisting Company Goals 10 4.1. Financial Perspective of Home Retail Group 11 4.2. Home Retail Group Customers’ Perspective 12 4.3. Internal Business Perspective 13 4.4. Innovation and Learning Perspective 13 5. Balanced Scorecard in Performance Management and Monitoring 14 6. Measurement against Company’s KPI 16 7. Conclusions 16 8. Recommendations 17 Reference List 18 1. Introduction Home retail group is one of the major companies of home retail industry in UK. Argos, home base and financial service are the three divisions’ of the company. The report evaluates the financial performance of the company from year 2013-2014. Argos is a digital retailer which sells its products through 734 outlets and also through websites (Voelpel, Leibold and Eckhoff, 2006). Home base is a home enhancement retailer and provides a wide range of home improvement products in a differentiated industry environment. Home retail group operates its business in the home and general merchandise market reporting sales of £5.7 billion in the financial year. The company observed its overall market share increase by maintain its leading position in the market in the key product categories in which it trades and is observed to possess a sound financial position by focusing on its liquidity. The company’s strategic plans contributed to its progress (Chae, 2009). This plans focuses on the competitive retail environment where the shopping behaviours are rapidly changing. The report is an in-depth study of the financial and non-financial performance of the company. It also includes the key performance indicators, balanced scorecard analysis and the financial performance of the company. 2. Home Retail Group’s Vision and Strategy The company’s vision is to fabricate successful businesses that will offer outstanding value and convenience to their customers. Every retail brands of the company has its unique clear strategic plans to achieve this vision. The company proposed the five year strategic ‘transformation plan’ in order to reinvent Argos as a digital retail leader (Del-Rey-Chamorro, Roy, van Wegen and Steele, 2003). The ‘home base renewal’ plan is another strategy which is intended to position the business as a visibly differentiated multichannel home enhancement retailer. Home retail group’s strategy has been developed with intention to create long term value for their shareholders by delivering sustainable development in their retail brands. The company’s strategies focus on the cost management (Del-Rey-Chamorro, Roy, van Wegen and Steele, 2003). They have a well-built track record of providing considerable organizational and infrastructural changes which enhances the flexibility of the business and reduce costs along with maintaining and enhancing operational standards. They maintain a lean and flexible cost base through ongoing cost reduction programs and continuing to reshape the retail outlets. Their strategy is to maintain product leadership and exclusive brands. Home retail group employs the strength of their retail brands in order to drive leadership in their core markets through diversifying their product ranges (Veen-Dirks and Wijn, 2002). They always look for opportunities to provide new products and services in order to remain competitive. 3. Proposed Balanced Scorecard for Home Retail Group A balanced scorecard is a set of measures that can help top manages of the Home retail group to get a fast and a comprehensive look of the business operations. It is designed to align business activities to the company’s vision and strategies and for monitoring the business performance against company’s Strategic goals (Veen-Dirks and Wijn, 2002). The balanced Scorecard can be used by the company which will provide a comprehensive framework for converting the company’s objectives into a coherent set of performance measures. The balanced scorecard consists of the following perspectives: Financial perspectives (Goals and measures) Internal business process perspectives (Goals and measures) Customers perspectives (Goals and measures) Innovation and learning perspectives (Goals and measures) Each of these perspectives consists of goals and measures for evaluating the business performance of the company (Olson and Slater, 2002). Through the proposed balanced scorecard framework the company put forward two claims such as construction of a single management report covering every aspect of the business operations and safeguard against sub-optimization. 3.1 Internal Business Process Perspective Key Success Factors (Objectives) Key Performance Indicator (Measures) Target Performance Level (Targets) Summary Action Plan (Initiatives) competence Output of workforce Efficient to boost by 15% at the year end. Motivated production teams needs to be created and internal group information requires to be published for gaining a competitive edge. Efficient machinery needs to be introduced and bonus schemes to be introduced depending on the group performance to boost employee morale. efficiency Quarterly output To increase by 5% at the quarter end. Energy saving bulbs to be introduced after discussion with the sale directors. manufactured goods Quality transformation of existing inspection system New equipment was developed and implemented within 3 months. Decrease of rejection arête to 2% at the year end. Transfer the responsibility for quality to the respective teams and limit final inspection. Production lead period quantity of production order overruns due to acknowledgment of large orders from few large supermarkets Total number of days overrun each year needs to be reduced by 40% by month 7. Beginning additional shifts in the weekend which is necessary. This requires to be done at onetime rates to deliver huge orders as quickly as possible. Internal business process of Home Retail Group can be improved by considering the balanced scorecard details and by achieving the target performance level. To boost efficiency of the employees and gain a competitive advantage the group needs to motivate them as per action plan and also implement new machinery. Weekend shifts also needs to be introduced to meet the demand on time. 3.2 Customer Perspective Key Success Factors (Objectives) Key Performance Indicator (Measures) Target Performance Level (Targets) Summary Action Plan (Initiatives) Image Analysing market shares and surveying by market research companies. To position the brand as the customers first preference. Innovate new packaging design and develop new advertising campaign focusing on product quality. receptiveness Sales order dealing out time. Decrease the average from 28 to 21 days by end of 9 month. Bring in external consultants to inspect recent systems. consistency Feedback of customers. Decrease the number by 4% each quarter. Quality inspection system needs to be changed for enhancing quality. Selling price Average selling price. Lessen the selling price by 4% at the end of the year. Raw materials cost needs to be reduced to remain in the profitable position. To position itself in the competitive market Home Retail Group needs to monitor its key success factors. The group needs to develop new packaging design and run advertising campaigns focusing on quality to boost sales. It also needs to reduce raw material cost to maintain its profitable position. 3.3 Innovation & Learning Perspective Key Success Factors (Objectives) Key Performance Indicator (Measures) Target Performance Level (Targets) Summary Action Plan (Initiatives) Employee driving force Employee turnover rate. At the end of the year reduce rate from 8% to 5%. Develop team working for staff involved in production. Employee development Training time taken by each employee every year. An estimate of 6 hours each year. Provide appropriate training in case of new machinery deployment. New domestic commodities Number of new products introduced in the market. 2 products introduced. Employ temporary design team. New market channels Number of new market channels formed. 2 every year. Build team for investigating direct online selling to customers. To enhance the learning process in the organization Home Retail Group requires focusing on the key success factors. The group needs to encourage team working for their production workforce. Continuous training in case of introduction of new equipment in the organization requires to be provided to the staff. 3.4 Finance Perspective Key Success Factors (Objectives) Key Performance Indicator (Measures) Target Performance Level (Targets) Summary Action Plan (Initiatives) Cash flow Liquid ratio Improve to 2.0 at the month 5. Financial directors need to inspect the credit control system. Asset deployment Asset turnover ratio Increase to 2.9 at the end of month 6. Invest in up to date and more efficient machinery. Sales profit growth Cost of sales Increase by 4% every 6 months. Reduce selling prices and run advertising campaign centred on quality to boost sales. Profitability Return on employed capital Increase by 18% from 12% by the year end. Enhance sales profit and asset utilization. To improve its financial performance, the Home Retail Group requires focusing on its key success factors depicted in the balance scorecard. Financial directors of the group should inspect the credit control system on a regular basis and invest up to £ 12,000 in the new machinery for increasing production efficiency. Additionally, cost reductions are to be investigated by the production director to increase profitability. 4. Balanced Scorecard Strategy Map in Assisting Company Goals Every aspect of the proposed balanced scorecard can assist Home Retail Group to achieve its target. Balanced scorecard map takes into account the non financial measures in addition to the financial measures which are essential to power the company’s chosen strategies (Olson and Slater, 2002). Home Retail Group for maintaining its competitive position is measuring customer and employee satisfaction and other non- financial performance areas which are highly believed to have an effect on the company’s profitability. Figure 1: Balanced Scorecard Strategy Map Innovation and Learning Process Perspective International Business Process Perspective Customer Perspective Financial Perspective (Source: Authors Creation) The strategy map depicts that the employee driving force will get enhanced through learning process which will in turn increase employee efficiency and manufactured goods quality. Attaining efficiency will help in gaining competence. Delivering quality services will improve image of Home Retail Group in the market. Meeting production lead times will help in gaining stability of its current position and will lead to increased cash flows. Strategy map created by the company will help them work as per their planned strategies. 4.1. Financial Perspective of Home Retail Group The financial perspective measures identifies whether the strategies of the company and its implementation plays a key role in its profitability or not. Financial goals are defined with respect to the company’s profitability, cash flow position and shareholders’ value (Olson and Slater, 2002). Cash flow- Cash flow from the operating activities in Home Retail Group is observed to be £161 million. This £161 decrease is attributable to decrease in cash inflow from trade working capital. There was also an increase in outflow with respect to re-structuring charges. The net cash position of the company in the current year is £331 million that is a decrease of £65 million over the year (Group Annual Report, 2014). Shareholders- The board Home Retail Group is observed mindful of both the investment needs of the group and the importance of dividends to their shareholders. They recommend a final dividend of 2.3p and a full dividend of 3.3p. This depicts 10% increase in dividends in the current year (Group Annual Report, 2014). Profitability Profitability Ratio (%) Current year (2014) Previous year (2013) Change Return on Shareholder’s Funds 87.6% 148.71% (61.10%) Return on net assets 2.7 4.4 (2.3) Profit margin 1.3 2.2 (0.9) The return on shareholders fund (ROSF) is considered to be an important measure of profitability of Home Retail Group. It is observed that ROSF position of the company is not desirable as compared to 87.6% of the current year with the previous year (Group Annual Report, 2014). Due to inefficient business performance it is observed that the profit margin of the Home Retail Group has decreased 41% from 2013 £ 0.013 before interest and tax in the current year as compared to the previous year. Profit margin table is shown as under. 4.2. Home Retail Group Customers’ Perspective Objectives and target- Home Retail Group’s goals are centred on customer satisfaction. The key performance indicators used by them to measure customer satisfaction are the company’s market share and occupancy ratio analysis. The mission statement of the company focuses solely on customers (Group Annual Report, 2014). KPI- Changes in the company require to be based on creating value for its customers. Balanced scorecard ensures that the managers translate their mission statement in four necessary categories for customers namely time, quality, performance, service delivery and price. The company in order to apply balanced scorecard approach should express their goals based on these categories and then convert them into specific metrics (Group Annual Report, 2014). Initiatives- The top managers of the company require focusing on those important operations which will make them able to meet the needs of the customers. The company recognizes its internal processes metrics of their balanced scorecard generally after identifying financial and customer perspective goals and metrics (Home Retail Group Annual Report, 2014). The internal processes metrics needs to be selected based on the business processes which are known to have more effect on the customer satisfaction. Home Retail Group therefore needs to decide in which processes they desire to be at the top and characterize each metric in relation to these items. The number of highly satisfied customers has increased from 60% to 66% in the current year and the new format stores have encountered increased customer satisfaction (Home Retail Group Annual Report, 2014). Also the tremendous growth in market shares of the company depicts its increased level of customer satisfaction. Argos will continue to expand its customer database of their registered customers and will gather more customer data and use them to further improve customer satisfaction with its new offerings. 4.3. Internal Business Perspective Goals and target- The internal business goals of Home Retail Group is unit cost reduction. The company’s target is to significantly reduce operating costs by maintaining the operational standards (Home Retail Group Annual Report, 2014). The internal business perspective aims at developing product leadership strategy, customer intimacy strategy and operational excellence strategy. Product leadership strategy includes developing new products, innovating existing products and enhancing speed to deliver the products. Operational excellence strategy includes reducing operational costs and cycle time, ensures high quality standards and delivery time and optimization of supply chain for improving business performance. KPI- The key performance measures of internal business performance of the company are analyzing cost as percentage of revenue and operating expense as percentage of profit. Total distribution and operating costs increased by £5m as a consequence of increased sales, underlying cost inflation and cost investment moderately offset by additional cost saving initiatives (Banker, Chang, Janakiraman and Konstans, 2004). Initiatives- Various strategic initiatives such as ongoing cost reduction approaches and re-shaping the store estate are being implemented by the company for successful cost reduction and improving the flexibility of the business operations (Olson and Slater, 2002). The group expects the costs to increase in the upcoming years as they continue to invest in its strategic development plans. However, the company will seek to reduce costs to some extent and mitigate such cost increase. 4.4. Innovation and Learning Perspective Goals and target- The goals and metrics related to the company’s internal processes needs to be identified and the target of the company is to identify and realize the gap between current organizational infrastructures and optimized level for attaining its goals. The company’s target is to extend the use of new technological platforms and other product innovations to offer customers choice in how they shop with Home Retail Group. KPI- Key performance metrics based on internal processes which are vital to identify key parameters for the company’s competitive success. Good governance provides an environment within which the innovation and the strategies can flourish. Customers’ perception towards the new products also serves as an important performance metric (Brewer and Speh, 2000). Initiatives- the Company’s capability and initiative in innovation, improvement and learning directly affects the company’s value. Home Retail Group is taking strategic initiatives such as in offering new products, creating value for their customers and continuous improvement of operational efficiency in order to enter new markets and increase revenue and income (Oliveira, 2001). The group entered into a lot of strategic technology partnerships to improve innovation and technology. The diversified talent pool also supports them to drive innovation and supports the company to attain their strategic goals efficiently. 5. Balanced Scorecard in Performance Management and Monitoring The balanced scorecard is employed by the Home Retail Group for its performance management and effective monitoring of its business operations. The strategy scorecard provides the company a logical and comprehensive way to describe the organizational strategies. The scorecard approach is an effective performance measurement tool because of its time horizon. It reflects the time horizon through which the environmental and social management activities can be expected to create value (Ittner, Larcker and Meyer, 2003). The scorecard approach involves the top management to acknowledge implicitly the drawbacks of solely relying on the financial measures. It assists the company in overcoming there major issues: efficient organizational performance measurement, the increase of intangible assets and the challenges of strategy implementation. Improvement in the financial position, the increasing prominence of the intangible assets, value creation in the new economy are the major criteria focused on by the balanced scorecard to evaluate Home Retail Group’s performance (Kaplan and Norton, 2001). According to the balanced scorecard business performance of the Home Retail group requires to be measured and noticed from four aspects: How should the company be in their customers view? In which internal processes the company needs to transcends? Will the company be able to stand in the continuous improvement and value creation? How should the company be in the shareholders view? Aligning the financial perspective of balanced scorecard Home Retail group has developed strategies for monitoring growth and business performance by increasing sales. Favourable cash flow position is ensured by the group and they make certain growth in underlying diluting earnings (Veen-Dirks and Wijn, 2002). Efficient asset utilization and introduction of current and highly effective machinery in the production process are key performance and quality monitoring tools for the group that ensures high quality bulk production within a timeframe. Aligning the customers’ perspective the group identifies the customers and market segments in which the business unit will compete. The group has developed various performance management strategies such as employing more staff for superior service, developing and refreshing their entire range of products and decreasing the prices for increased sales (Veen-Dirks and Wijn, 2002). Aligning the internal business perspective the group enhanced the operations management process and product safety. Product safety is a vital performance for the group as they offer consumer goods (Chae, 2009). Key monitoring factors are thorough and established methods that operated globally to ensure product integrity and clarified and tested crisis management process. Aligning the innovation and learning perspective, the group’s performance management and monitoring strategies are to improve the product and the production processes on a regular basis (Chae, 2009). Additionally, the group realises their core skills and capabilities to launch new products to the market. For efficient training the group has organized quarterly meetings so that the employees can ask questions directly to the chief executive and get a clear idea of their work and objectives. In turn the staff can contribute enthusiastically towards goal achievement. Focus and improvement in all these factors also in the near future will certainly enhance Home Retail Groups business performance in addition to aligning its goal and strategy in each aspect (Berman and Thelen, 2004). The balanced scorecard will help in further improvement of the company’s creativity, learning and growth. 6. Measurement against Company’s KPI The key performance indicator (KPI) is the tool that appraises the value of an organization and it can help Home Retail Group to analyze its ability to operate business successfully. Additionally, it can evaluate how effectively the company is striving to achieve its goals. A large number of companies along with Home Retail Group employ KPI to evaluate the company’s performance. The performance measures selected by the company for the purposes of the annual bonus plan and long-term incentive plan are few key indicators for Home Retail Group. These indicators support sustainable and long term shareholder value creation (Kaplan and Norton, 2004). The performance targets are set by taking into consideration prior-year performance, annual budgets and long term financial plans, strategic imperatives and some external factors such as analyst forecast. Home Retail Group solely takes into consideration the key performance indicators for their performance analysis. According to the results of the KPI the sale of the company has increased by 3% to 5,663 million pound (Cheng and Humphreys, 2012). The benchmark operation profit has increased by 21% to 113 million pound and benchmark operating profit margin has increased by 2% in the financial year. Moreover, the basic benchmark earning per share (EPS) has increased by 35% to 10.4 per share and the company earned high benchmark profit in the current year. Considering the net cash position of the company, the cash position decreased by 65 million to 331 million pound (Kaplan and Norton, 2004). Finally, the share price performance of the company has increased in the current year. 7. Conclusions By conducting in depth study of the financial and non financial performance of the company it is analyzed that Home Retail Group is experiencing good performances both at Argos and Home based business sectors, both delivering positive sales growth since the previous year. Sales have increased to 3% at £ 5,663 million and operating and distribution costs from £ 13 million to £ 1,921 million which resulted from the increased investments in the strategic initiatives across both Argos and Home based business sectors. 8. Recommendations The board of Home Retail Group is recommended to more effectively employ the balanced scorecard approach for successful and fast evaluation of their business performance. The balance scorecard takes into account key performance indicators of the company and measures its business performance aligning those indicators (Chae, 2009). This approach helps the company to measure performance beyond financial perspectives and includes some key non financial perspectives which are considered equally important in evaluating business performance and customer satisfaction. The board is also recommended to focus on its liquidity position and take strategic initiatives to improve its liquidity for its smooth operations in future. They require engaging the financial directors to inspect the credit control system on a regular basis. The board is recommended to reduce selling prices of the company’s products and run quality centred advertising campaigns to increase their sales (Chae, 2009). Moreover, it is recommended to centre on more efficient asset utilization for profit maximization. Additionally, in order to increase production efficiency the group requires investing in modern and efficient machineries. The board is recommended to build a highly motivated workforce, especially those who are involved ion the production process through proper training. In turn, a motivated workforce will effectively contribute towards achieving maximum quality production. Reference List Banker, R. D., Chang, H., Janakiraman, S. N. and Konstans, C., 2004. A balanced scorecard analysis of performance metrics. European journal of operational research, 154(2), pp. 423-436. Berman, B. and Thelen, S., 2004. A guide to developing and managing a well-integrated multi-channel retail strategy. International Journal of Retail & Distribution Management, 32(3), pp. 147-156. Brewer, P. C. and Speh, T. W., 2000. Using the balanced scorecard to measure supply chain performance. Journal of Business logistics, 21(1), p. 75. Chae, B., 2009. Developing key performance indicators for supply chain: an industry perspective. Supply Chain Management: An International Journal, 14(6), pp. 422-428. Cheng, M. M. and Humphreys, K. 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