Merlin Entertainment Balanced Scorecard - Example

Merlin entertainment Balanced Scorecard Executive Summary The following report is aimed at Merlin Entertainment PLC board of directors with an aim of revealing and describing activities considered important for the company to achieve its goal of shareholder wealth maximization. In addition, the report reveals the strategy that the company uses to achieve its vision or goals as well as the control and monitoring measures necessary. Merlin’s vision and strategy has then been developed into the Balanced Scorecard model in which four perspectives have been addressed. These include the learning and growth perspective, internal business processes perspective, the customer perspective and the financial perspective. The Balanced Score Card has detailed out the key performance indicators, the measures and the measurement criteria as well as the initiatives that the company has to implement in achieving the objectives. The balanced score card has the aim of aligning the goals of the stakeholders to those of Merlin through focusing on the strategies and goals to be achieved for the company. The report has also used a strategy map to link and explain all the Balanced Scorecard’s perspectives while revealing the impact each of the perspectives has on each other and on the overall company’s goal of shareholder wealth maximization. The report gives recommendation to the board on what activities should be prioritized if the company is to achieve its goals. Finally, the report has discussed and evaluated the use of the Balanced Scorecard as a tool of performance and monitoring and hence the need for the board to adopt it. Table of Contents Executive Summary 1 Table of Contents 2 1.Introduction 3 2.Vision and Strategy of Merlin Entertainment PLC 3 2.1 Vision 4 2.2 Strategy 4 3.0 The Balanced Scorecard 5 3.1 Learning and growth perspective 5 3.2 Internal business processes perspective 6 3.3 Customer perspective 7 3.4 Financial perspective 8 4.0 Strategy map 10 4.1How each aspect of the scorecard can assist the company in achieving its goals and targets; 10 5.0 Recommendations to the board 13 6.0 The use of balanced scorecards for performance management and monitoring 13 7.0 Conclusion, 15 8.0 References: 16 1. Introduction Merlin Entertainment PLC reported improved performance from the fiscal year 2012 to 2013 with significant improvement reportedin working capital management hence becoming more profitable. The company’s improved performance was also recorded for the company in comparison with its peers. This is an indication that the strategies that the company has put in place to enable it achieve its vision are working properly. However, it should be noted that Merlin has just listed in the London stock exchange hence heightening the need for the company to work harder in a bid to maximize shareholders wealth. Furthermore, the entertainment market is becoming more and more competitive which calls for the company to come up with new strategies that will help it stay on top of the market while delivering value for its shareholders. In this regard, the following Balanced Scorecard has been prepared for the board in order to guide the company into achieving the goals of the organization. The balanced scorecard touches on four areas that affect the company’s performance (Lawrie, 2002). The financial performance details strategies that the company should use to improve its profitability and hence maximize shareholders wealth. The customers are the source of revenue for the company and hence strategies of increasing customers’ numbers and confidence in the company have been addressed in the customers’ perspective. Internal business perspective has a bearing on the company’s financial performance and hence the balanced scorecard has detailed strategies that can help improve the company’s internal business processes. Lastly, learning and growth has been addressed. This includes strategies that could help boost employees’ morale and hence boost their satisfaction so that they can serve the customers better. As all the perspectives are linked and affect the overall performance of the company, a strategy map has been used to show how they interact and how they are linked and relate to the overall goal of shareholder wealth maximization (Jensen, 2003). It is important that the board and hence the company adopt the Balanced Scorecard since it will help in improving performance as well as monitoring whether the company is progressing well towards achieving its goals. 2. Vision and Strategy of Merlin Entertainment PLC VISION STRATEGY IMPLEMENTATION TIME SCALE Acquire more customers Brand line extension Improve marketing effort Develop new brand line Improve marketing efforts Previous period-current period Reaching consumers in new markets Open entertainment facilities in new areas Open entertainment facilities in new areas Previous period-current period Retain old customers -Increasing brand awareness - Improving customer satisfaction -Improving customer loyalty -improve promotional efforts while opening entertainment facilities in new areas -Improving service quality -introducing loyalty awards and improving quality of service Previous period –current period Previous period- current period Previous period –current period Improve financial performance Improving profitability Aggressive marketing, Develop new markets, Develop entertainment facilities in new areas Previous period –current period Reduce operational cost Introduce cost cutting measures in all facilities -achieve cost cutting of up to $50 million Current period 2.1 Vision Merlin entertainment PLC has the vision of becoming the world leader in branded location based entertainment. The company aims at creating a high growth, high return, family entertainment based on strong brands and a global portfolio which is naturally balanced against the impact of external factors (Merlin entertainments, 2015). The company also aims at delivering memorable experiences that put smiles on the guests they serve while immersing the guests in the company’s brands, constantly delighting them and often enlightening them through fun learning. 2.2 Strategy Merlin entertainment PLC has some strategies in place for achieving its vision as stated above. Its strategy is mainly centered around six highly complementally growth drivers including; i) Growing the existing estate through planned capital investment cycles appropriate to each operating group and broadly in line with depreciation overall (Roca, 2012) ii) Exploiting strategic synergies which leverage group marketing and buying strengths iii) Transforming the organization’s theme parks into destination resorts via the addition of themed accommodation and additional attractions iv) Rolling out new midway attractions with an increasing focus on establishing clusters of the company’s brands in the same city or resort location v) Developing new LEGOLAND parks for which the company holds global exclusive license vi) Strategic acquisition where they advance the company’s strategic objectives in key regions and markets. 3.0 The Balanced Scorecard 3.1 Learning and growth perspective Goal KPI Target Initiative or action To become leading organization in employee satisfaction The level of employee satisfaction in terms of percentage of employees who are satisfied 95% by the end of current year Introduce new reward systems that recognize performance To ensure that our employees possess market driven skills -The number of training hours attended by employees per year -The level of employees possessing strategic skills for operating in the entertainment industry -15 hours by the end of current period -85% of employee to possess strategic training by the end of current year -Introduce new strategic training programs -Increase the number of graduate employees and encourage employees to undertake Merlin’s training initiatives such as Merlin school of magic To develop new products and launch the Merlin brand in new areas in a bid to increase customer numbers and roll out new midway attractions -The number of new LEGOLAND parks opened by the year end -The number of acquisitions undertaken in the current year -10 new LEGOLAND parks to be opened in the current year -3 acquisitions to be carried out within the current year -Allocate more funds for doing research and opening new LEGOLANDS -Allocate funds for strategic acquisitions Learning and growth is vital for the improvement in performance for any company since it helps in improving the internal capabilities of the company. Improved internal capabilities are vital especially when penetrating into new markets. Developing new products and taking the Merlin brand into areas will be vital as it will give customers more options of our products while penetrating new markets will improve our market share. In this regard, the company should target opening 10 new LEGOLAND brand facilities within the current year given that this is the most favorite brand. In addition, the company should aim at concluding 3 strategic acquisitions this year. Acquiring new businesses and introducing new products will have the effect of increasing customer numbers and hence sales and profitability thus improving shareholder value (Kaplan and Norton, 1996). On the other hand, staff satisfaction and development is vital in ensuring that we offer superior quality services to the customers. This will have the effect of improving customer satisfaction and hence sales and profits thus improving shareholder value. 3.2 Internal business processes perspective Goal KPI Target Initiative or action To introduce cost cutting measures -The amount of cost savings achieved due to cost cutting measures $50 million within the next two years Conducting financial and costing analysis with the finance department quarterly so as to eliminate unnecessary costs To transform our theme parks into destination resorts -The number of our theme parks transformed into destination resorts 2 theme parks to be transformed into destination resorts within the year -Allocate funds to transform theme parks into destination resorts To improve the quality of services offered to customers -Reduction in customer complaints or the level of customer satisfaction Achieve 95% level of customer satisfaction this year from 90% achieved last year -Create a quality assurance department to give guidance on the quality of services being offered at Merlin facilities wherever they exist. Business growth through optimizing trading opportunities while introducing new product and services offering The level of trading revenue from new product offerings and new services New services to compose 15% of total revenue in the next two years Open new LEGOLANDS in new areas and introduce new services For the business to achieve its goal of maximizing shareholders value, it is important that Merlin takes control of its internal processes in a bid to become more efficient and ensure all unnecessary costs are eliminated. The factors to be considered in this perspective are included above (Rompho, 2011). It is important that the business works on its internal processes since this will lead to reduction in costs of operation while improving the quality of services offered to the customers. The overall effect of this is increasing the profits achieved by the firm which will lead to improvement of shareholder value. 3.3 Customer perspective Goal KPI Target Initiative or action To improve the level of customer satisfaction The level of customer satisfaction as per the customer satisfaction survey Improve customer satisfaction ratings to 95% by the end of current period Provide high quality services to the customers as well as offering good and polite customer service whenever necessary To increase market share by acquiring more customers The percentage of market share that we will have gained at the year end Improve our market share by 5 percent in the next two years Adopt new marketing and promotion measures such as internet marketing while intensifying use of traditional channels such as the television To retain old customers by increasing customer loyalty The percentage of repeat customers The mount spent by each customer vising Merlin -Repeat customers to compose 70% of total customers at the year end -Increase the amount spent by each customer $20.5 from the current $19.9 by the end of the current period Introduction of Merlin membership cards programs offering discounts for most regular customers upon attainment of a certain number of loyalty points To improve our brand image The level of brand awareness improvement per year Improve brand awareness by 5 percent within the current period Expanding into new markets such as in Africa Many people nowadays are seeking for the kind of entertainment that Merlin offers. However, the competition in the industry has intensified as many people establish companies in a bid to share in the lucrative business. This calls for Merlin to carefully consider the customer perspective if it is to add new customers while retaining the existing ones. In this regard, there is the need to differentiate ourselves from our competitors by maintaining good relationship with our customers. We need to increase the level of customer satisfaction and loyalty if we are to keep them given the increasing competition. In this regard, strategies of increasing customer satisfaction and loyalty as have been suggested above should be implemented. Apart from maintaining our current customers, we also need to acquire new ones. This will be achieved through increased brand awareness while providing quality services to our customers. This will ensure that we increase our market share. Increased market share will mean increased revenue and hence profitability thus maximizing shareholder value. 3.4 Financial perspective Goal KPIs Target Action or initiative To grow revenue generated from our activities The level of improvement in the amount of sales from last year’s figures Increase revenue by 12% in the current period Improve marketing efforts while improving the value of our offering at competitive prices To increase our profitability The level of increase in return on capital employed To achieve a 5% improvement in the return on capital employed ratio in the current period Improvement of sales revenue through increased marketing efforts. This will also be achieved by expanding into new markets outside our traditional market areas Achieve optimum use of assets Level of increase in Returns on Assets Achieve an improvement of 5% in the ratio of return on assets in the current year Increase promotion efforts to attract more customers to ensure efficient use of assets Return on investment Level of improvement of return on shareholders’ funds Increase return on investment by 10% in the current period Increase our market share by opening new Merlin enterprises outside traditional areas such as in Africa by the end of current year The success of any business is measured in terms of how much profit and hence shareholder value it makes. Also, having been listed in the stock exchange in the previous period, the financial incentive is considered vital to the company (Norreklit, 2000). The company needs to improve its profitability while reducing costs. Profitability will also be improved through efficient use of assets hence improving returns on assets. In addition, the company should put in place strategies that will lead to improvement in the amount of sales that the company makes. All these efforts are likely to lead to increased profitability and hence an increase in shareholders’ value which is the ultimate goal for the company. 4.0 Strategy map Learning and growth perspective Internal business perspective Customer perspective Financial perspective 4.1How each aspect of the scorecard can assist the company in achieving its goals and targets; The strategy map above has shown how the four aspects that affect the company’s performance and which are key to the achievement of the company’s ultimate goal of maximizing the shareholders returns are related to one another and to the company’s strategic objective. For Merlin to improve its performance and hence maximize shareholders returns, each of the factors considered in the four perspectives should be implemented. As shown in the strategy map, implementing one strategy in a given perspective will assist the company achieve other strategies in other perspectives. For instance, if we train our employees to attain strategic qualifications necessary for our industry, we will be motivating them indirectly. Motivated employees will on the other hand offer high quality services to customers. This is likely to increase their loyalty which will assure us of repeat visits which is likely to lead to improvement in revenue levels. Improved revenues may lead to increased profitability and hence maximize shareholders returns. Our learning and growth strategies include that of developing new markets. Development of new markets call for us to be more innovative and hence develop products that are tailored towards meeting the needs of local customers. These strategies are likely to lead to an increase in our market share. An increased market share will lead to growth in revenues which is likely to lead to increased profitability and hence maximize shareholder value. In other words; a) Financial perspective- the financial perspective is the main aim for which Merlin entertainment PLC was established in that the main aim for establishing a business is profit. As such, the group’s financial goals should include profit maximization and cost efficiency with an aim of maximizing shareholders value. As such, the financial perspective of the company should incorporate the following; i) The company’s main aim should be that of maximizing returns to the shareholders. To achieve this, the group should continue expanding all its business segments into new areas where it is not operating currently. Other ways in which the group can maximize shareholders value are explained below ii) The company should aim at improving its profitability to the levels shown in the balanced scorecard in the current period. Increasing the company’s marketing activity should ensure increased business for the group and hence increased revenue iii) The company should ensure effective and efficient use of its assets in generating revenue. If the assets are used more efficiently, more revenue and hence profit will be generated thus maximizing shareholder value. iv) The company should aim at reducing its operational costs and hence increase return on investment. This will lead to increased profitability and hence shareholders value maximization (Preko, 2012). b) Customer perspective – customers are the backbone of any business and hence if Merlin is to maximize shareholder value, it ought to ensure customer satisfaction while recruiting more customers to adopt the brand. This will mean increased guests (revenue) and hence increased profitability which would maximize shareholders value. In this regard; i) Improving customer satisfaction by offering them superior quality services will ensure their loyalty and hence continued profitability which leads to maximized shareholder value ii) Increasing our market share through such activities as increased marketing effort should lead to more sales hence increased profitability which should improve shareholders value iii) Activities aimed at improving the company’s brand image while expanding to new markets imply improved revenues and hence increased profits since customers always prefer dominant brands. This will eventually lead to improved shareholder value. c) Internal business processes perspective – In its bid to maximize shareholder value, Merlin shouldreorganizeits internal business processes in a way that they will lead to increased effectiveness and efficiency. This should lead to more customer satisfaction thus enhancing the brand image which should also lead to improved market share. This would in turn lead to increased sales revenue and hence profitability which should lead to improved shareholder value. d) Learning and growth perspective- for the organization to continue maximizing shareholder value, it has to be a learning organization. In this regard, the group will have to ensure continuous staff building and guidance at all times. Motivated staff will offer quality services to customers which will boost the brand while leading to growth. This will then result in improved revenues and hence profitability which should lead to maximization of shareholder value. The following steps will help the group achieve its goals; From the above analysis, it is evident that maximizing shareholder value for the company will not only depend on the improvement in financial matters of the organization. The company will need to ensure more satisfiedcustomers while increasing their numbers, improve its internal process while developing its stakeholders especially the employees. With all these aspects improving, Merlin will ensure shareholders wealth maximization which is its main goal of establishment. 5.0 Recommendations to the board In a bid to achieve the company’s strategic goal of shareholder wealth maximization as outlined above, there is a need for the board to successfully implement the above score card. The following is recommended for the board; i) Merlin ought to expand into new markets outside its traditional markets to areas such as Africa and Asia where much unexploited potential lie. In this regard, more innovative products tailor-made for the needs of this area should be developed. This will enhance our market share hence improving profitability and thus shareholder value. ii) Merlin should improve promotional and marketing efforts in a bid to attract and retain more customers which should increase sales and thus profit iii) The company should continuously introduce training programs for our employees in a bid to ensure that their skills are continuously updated in line with the demands of the market. This should ensure superior quality services to our customers which should maximize earnings and hence shareholder value. In the same vein, there is need to introduce new employee motivation programs in a bid to ensure high level of employee satisfaction. Satisfied employees will work harder for the company in order to achieve our goals thus maximizing shareholders value iv) The company ought to improve efficiency by enacting cost cutting measures which should lead to improved profitability and hence shareholder value maximization 6.0 The use of balanced scorecards for performance management and monitoring Merlin’s entertainment PLC can use the above balanced score card for performance management and monitoring. It can be seen that the balanced scorecard has enabled a comprehensive view of all functions affecting the group’s performance and not just its financial results. It has included key performance indicators in all of the company’s employees, the group’s internal processes as well as customers in addition to its financial perspective. These key performance indicators are specific to Merlin entertainment PLC and have been chosen to support the company’s strategies. For instance, the company’s financial success has been identified to depend on having well trained employees, efficiency in all its operations, innovating new products while expanding into new areas as well as having satisfied customers and increasing the company’s marketing efforts. The balanced scorecard has further identified the criteria through which the identified key performance indicators will be measured before the performance being reported in the balanced score card. For instance, the company’s financial performance and hence extent of shareholder wealth maximization will be measured through such metrics as return on equity as well as profit margin (Rillo, 2003). On the other hand, non-financial measures will have their performance measured using non-financial metrics. Such metrics include the number of training sessions completed by each employee in assessing their acquiring market driven skills (Roca, 2012). On the other hand, customer satisfaction will be measured using such metrics as return purchases as well as the number of customer complaints to gauge their level of satisfaction. The group’s performance in each of its key performance areas is then recorded in the balanced scored card. It should be noted that the above balanced score card has provided targets that the company should set for itself to achieve within a certain timeline. At the end of the timeline or within the timeline, the company is able to evaluate its performance vis-à-vis its targeted performance. Where the targets have been achieved, new targets can be set. On the other hand, where targets have not been achieved, there will be need to evaluate why the company has not met its targets and hence remedial measures undertaken. In the same line, the balanced scorecard can also be used for monitoring the company’s performance towards achieving the set targets. For instance, if the company is progressing well in undertaking the initiatives aimed at helping it achieve the set targets, then it is likely that the company will achieve its targets. This shows that organizations can successfully use balanced scorecard as a tool for measuring performance and monitoring. 7.0 Conclusion, This report has established a balanced scorecard for Merlin entertainment PLC as a tool that will guide the company into achieving its strategic objectives. As seen above, the Balanced Scorecard has broken away from the traditional view of just focusing on the company’s financial objectives. As such, the report has outlined what the company should do to improve each of the four perspectives that affect its performance including financial, customer, growth and learning as well as its internal business processes perspective. However, it should be noted that successful implementation of the balanced scorecard will call for participation of all the stakeholders concerned. As such, the management should also communicate the company’s mission and objectives to the employees so as to achieve successful implementation of its strategies outlined above. 8.0 References: Lawrie, G2002, Performance measurement frameworks: A review, Cambridge, Cambridge University Press. Jensen, B2003, Applying the balanced scorecard concept: An Experience report, Long Range Planning, vol.30, no.2, pp.242-253. Roca, L2012, An analysis of indicators disclosed in corporate sustainability reports. Journal of Cleaner Production, 20(1), pp. 103-118. Merlin entertainments, 2015, Retrieved on 27th March 2015, from; http://www.merlinentertainments.biz/ Kaplan, R&, Norton, P1996, The balanced Scorecard, Harvard Business Review, vol. 70, no. 1, pp.71-89. Norreklit, H2000, ‘The balance on the balanced scorecard: A critical analysis of some of its assumptions, Management accounting research, vol. 11, no. 1, pp. 65-88. Preko, A2012, The effect of sales promotion on TV advertising revenue: a case study of TV Africa, Ghana, Journal of Emerging Trends in Economics and Management Sciences (JETEMS)’, vol.3, no.2, pp. 141-146. Rillo, M2003‘Limitation of Balance Scorecard’ [online], Retrieved on 27th March 2015, from; [17 February 2014] Rompho, N2011, ‘Why the Balanced Scorecard Fails in SMEs: A Case Study, International Journal of Business & Management, vol. 6, no. 11, pp.85-92. Read More