Balance Scorecard of Restaurant Group Plc - Example

Balance Scorecard of Restaurant Group Plc Student’s Name: Institution Affiliation: Course Code: Date: Executive Summary This report involves an in-depth analysis of Restaurant Group Plc financial statements for financial year ending 2013-14. This report is based on the audited financial information which was prepared in accordance with the accounting standards and principles (Roca, 2012). To effectively conduct financial analysis, financial analysis models are used to ensure there is thorough financial scrutiny to ascertain the going concerns, liquidity, profitability, gearing and viability of this to Restaurant Group Plc (Tracy, 2012). The role of financial analysis is to provide profitability, efficiency, liquidity and marketing information which can be used to generate important information to investors, management and other executives. The financial performance of Restaurant Group Plc involves the use of ratio analysis which is able to show whether the company has experienced positive or negative growth. In this analysis we will be able to use liquidity ratios, profitability ratio, gearing ratios and efficiency ratios. Contents Introduction………………………………………………………………………………………..3 1.0Vision and Long Term strategies of Restaurant Group Plc……………………………………3 2.0 Balanced scorecard……………………………………………………………………………4 2.1 Financial Performance Perspective……………………………………………………………5 2.2 The Customer Perspective…………………………………………………………………….6 2.3 Internal perspective……………………………………………………………………………7 2.4 Innovation and Learning perspectives………………………………………………………...7 2.5 Balancing the Balanced Scorecard…………………………………………………………….8 3.0Strategic Map…………………………………………………………………………………..9 3.1 Links and Communicates Strategies of Strategy Map……………………………………….10 3.2 Strategy Map Summary……………………………………………………………………...11 4.0 Recommendation…………………………………………………………………………….12 5.0 Evaluation and Discussion…………………………………………………………………...13 5.1 Practical Use of Balance Scorecard………………………………………………………….14 5.2 Limitation…………………………………………………………………………………….14 5.3 Evaluation……………………………………………………………………………………15 Bibliography……………………………………………………………………………………..16 Introduction In UK, the largest sector of economy is covered by food and drink industry. It is responsible for providing job opportunities to more than three millions people in UK. This report is based on financial analysis of Restaurant Group Plc which is required to provide management scorecard responsible for aligning business activities to the identified visions and strategies (Roca, 2012). Restaurant Group Plc is one of the largest restaurants in UK and it has more than 450 restaurants and pubs store within UK. It also has 26000 employees. Restaurant Group Plc sells more than 60 different brands of alcohol and soft drinks such as chiquito and garfunkel’s which makes it to produce high performance in terms of liquidity, profitability and efficiency. This company also has a large market share in UK approximately 30.7% with a market capitalization of GBP 33b. This shows that it is financially stable and therefore able to finance its operations effectively 1.0Vision and Long Term strategies of Restaurant Group Plc Vision Strategy Implementation Time scale Attract new customers Cost leadership Introduce activity based costing Now Reach out more customers New market multichannel Open more stores in other markets Now Retain existing customers Create product and brand awareness Promotion on digital media and internet Now Customer satisfaction Increase customer service Now Increase production level Increase the number and capacity of production machines Introduce new system of production supported by IT technology. Now Vision Restaurant Group Plc has a vision of becoming the best international restaurant that provides value to customers (James Reeve, 2013). It also has a vision of being a market leader in food and drink industry by providing quality and satisfactory services to its customers. Long Term strategies of Restaurant Group Plc This company has five long term strategies which it is to achieve. To be a successful international market leader in food and drink industry To increase its UK core business To have high profit margin To increase its sale revenues To put the community at the heart of what it does To have quality services 2.0 Balanced scorecard The balanced scorecard is a very important tool that links the company objectives, initiatives and metrics to the organizational strategies when the management communicates their priorities to other employees. It is also connected to project approval process, budgeting methodologies, reward system, training plans and the engagement of the local communities. The result of Restaurant Group Plc has been good though there has been interruption of growth and the implementation of other strategies to foster success. Main aspects of the Balanced Scorecard Balanced scorecard has four main parts that can be used to align the business activities. These include financial perspectives, customer perspectives, internal perspectives and innovation and learning perspectives. 2.1 Financial Performance Perspective Restaurant Group plc financial perspective Goals KPI Target Initiative Shareholders To maximize shareholders returns Earning per share To increase earning per share by 10% in the next 2 years Increase the production capacity and reduce operation expenses. Profitability To increase profitability Turnover and profit To increase sales revenues by 15% in the next 3 years. Increase the investment in current assets Growth in sales revenues To increase the annual profitability Sales performance Increase by 10% annually Increase the quality of product and customer awareness. Cash Flow To have high liquidity position Increase in liquidity from 0.33 to 0.35 To have liquidity of 1:1 To increase cash inflows by increasing credit payment period and reducing debt collection period. Appropriate use of assets To increase the efficiency of assets Return on net asset To increase return on asset by 5% Create an overtime scheme for 2 hours a day from Monday to Thursday Also invest more in more efficient machinery 2.2 The Customer Perspective Restaurant Group plc customer perspective Goals KPI Target Initiative Increasing of customer awareness for the brand Market share rate per annual Increase market share by 10% for next year Spend more in promotion such as advertising in newspaper and television with budget 10% more than marketing budget from last year and review the customers reaction every 1 month Increase customer satisfaction To increase the value of customers Customers satisfaction index for a year Increase 2% of the78 benchmark Increase the quality of customer service, product quality Increase customer Loyalty To prevent customers from switching to competitors Customer individual spend per annual Increase it from £22.63 last year to average £22.70 Create a loyalty programme with loyalty point based on numbers of purchasing and make a discount coupons of particular products to customers who spend more than average buying per customer monthly Increase Customer retention To increase the number of customers attending the restaurant Increase in the number of times customers are using the restaurant Increase 5% of customers’ repetition in buying goods Improve service quality and brand loyalty. 2.3 Internal perspective Restaurant Group Plc Internal Perspective Goals KPI Target Initiative Production Efficiency -To improves the skills of employees In-store and distribution productivity improvements percentage Achieve 5% by year end -Formation of training schemes. Offering training to employees annually. Cost control monitoring To reduce production cost Efficiency savings amount Deliver £50m of efficiency per 6 months for 2 years Reviewing the financial with financing teams every 2 months and eliminate inappropriate cost for 1% each month Increasing of stock distribution to consumers To increase efficiency Stock turnover ratio per year Achieving 10 days stock turnover ratio of average per year for 2 years Promote products with more frequency to encourage customers for buying products and give discount to unsold products Product Quality To increase the revenues of the company Numbers of inventory rejected per annual Reduce rejection rate to 2% per annum for 2 years Create a product quality monitoring team in the factory and stores to monitor the qualities tightly 2.4 Innovation and Learning perspectives Restaurant Group Plc Innovation and Learning perspectives Goal KPI Target Initiative New Channel to the market To increase sales revenues Number of stores opened Start more than 10 stores per month Create team to analyze the market demand and numbers of potential buyers of several locations/ regions to be invested new stores, or even if it is appropriate to expand overseas New Domestic Product Product focus Numbers of new brand extension launched Launch 6000 brand lines/ year for 2 years Designing and budgeting new own brand lines with expectation finishing prototype in 6th months. Development of Staff Annual training hours per employee 10 hours/ year for 2 years Create training programme for each division and improve their skills by providing technology implementation training 2.5 Balancing the Balanced Scorecard Perspective Number of Metrics Weight Financial 5 25% Innovation and Learning 3 25% Internal 4 25% Customer 4 25% Total 16 measures 100% To prove that the four perspectives are able to achieve greater success in future for Restaurant Group plc, the table above shows that each perspective is allocated equal weight of 25%. This is to ensure that the interest of each perspective is able to achieve success (Clyde, 2009). There is also a strong relationship between these perspectives that affect each other. This is to say the contribution of one perspective affect the success of another perspective. 3.0Strategic Map This is a facilitated strategic development that is responsible for explaining the complexity of the business environment and issues with a more elaborate and visualized strategy (Ittelson, 2009). It goes beyond strategic visioning and it is essential to business organizations that require healthy strategic development process that is made by all company stakeholders. It performs best with the use of available organization plan, performance measures and business processes 3.1 Links and Communicates Strategies of Strategy Map In the above strategic map, the different balanced scorecard perspectives are able to affect each other. Each of them in the strategic map has the potential to illustrate its key success factor that is able to increase the overall performance of the company through the creation of strategies that are able to achieve the goal of each success factor (Stickney, 2009). The inter-connection of success factor of each perspective indicates that the strategies of one perspective have the potential in influence the implementation of other strategies in different perspective. The above strategic map new domestic product can support in achieving the objective of introduced channels. This happens when the company wants to open its branch in a new market. This can be achieved by adjusting the needs of customers (Eccles, 2012). New domestic product is also important in achieving customer perspective goals by increasing customer awareness to the brand. In the strategic map above internal business process directly affect the also of innovation and learning perspectives. It helps to improve stock distribution, measuring stock turnover (Ittelson, 2009). The innovativeness and effectiveness of the products of this company is able to increase employee’s performance which ensures that the company attract new customers and retain the existing ones. The quality of product in the internal perspective has high contribution because it increases customer satisfaction, customer loyalty and retention. The improvement of the quality of products of this company directly affects the customer preference and satisfaction and this makes them to develop customer loyalty (Ittelson, 2009). There is also a link between customer perspective and financial perspective is also of very importance to the company. This is because all the effort made to improve customer’s perspective is directly towards improving company profitability in the financial perspective. Finally, customer perspective is there to influence increase in sales revenues by the improvement of customer loyalty and satisfaction. The importance of all these are reflected in the financial perspective. 3.2 Strategy Map Summary It is important to note that all the goals in strategic map contribute significantly to the achievement of other goals (Tracy, 2012). It is therefore effective for Restaurant group Plc to implement the strategies in the strategic map one after the other to ensure that the company achieves greater success. In this company all the strategies in the strategic map have been of great importance for this company to meet its financial perspective goals and for that matter this company is able to get high profitability, return on investment, return on asset and high profit margin. 4.0 Recommendation The financial analysis in the financial perspective shows that this company is profitable, liquid and is efficient enough to achieve greater competitive advantage (Clyde, 2009). The only action that the management should take is to increase its liquidity so that it can meet most of its current financial obligations (Tracy, 2012). It is also recommended for Restaurant Group Plc to improve the quality of its services further by developing a website which can allow its customers to do online purchase. The company can also increase its customer loyalty by selling customized products which is able to provide specific need of different customers (Roca, 2012). In addition, Restaurant Group Plc should also value its customers by ensuring that it sells quality products at a fair price to them so that it may be seen more competitive than restaurants in UK (Eccles, 2012). In relation to internal perspective the employees should be provided with training that ensures they have sufficient knowledge and skills to deliver quality services to customers. They must even know the importance of after sale services. 5.0 Evaluation and Discussion 5.1 Practical Use of Balance Scorecard The use of balance scorecard in the organization is very important in the organization. The benefit of balance scorecard is that it makes the company to translate its vision and strategies into actions (Stickney, 2009). This makes the company to achieve its vision through actual implementation of strategies. Balance scorecard defines the strategic linkages to integrate performance throughout the organization. It also communicates objectives and also evaluates every part of the organization for better understanding of the strengths and weaknesses of each business unit. Balance scorecard is also important in aligning strategic initiatives and employees so that the company can achieve its long term goals (Ittelson, 2009).The use of balance scorecard also enables the management to obtain feedback on how the strategies are functioning (Roca, 2012). This is important in seeing that the management correct and adjust its strategies in a way that it can make the company achieve its strategic goals. The use of balance scorecard is also having some limitations which make the company to achieve its objectives (Avkiran, 2011). The balance scorecard is not easy to implement. This is due to high subjectivity which it has. It is also very complex and therefore not easy top understand by ordinary people. These drawbacks make most companies to ignore the use of balance scorecard to measure performance of management. 5.2 Limitation Balance scorecard has some limitations which makes it not to work effectively. It is seen as a conceptual model that is quite difficult to elaborate without the application of past practical experience (Roca, 2012). In Restaurant group Plc, for it to increase customer service, there is need to understand the lack of customer service potential by gaining experience through some years or months. It is also revealed that balanced scorecard cannot be used in all companies. As it relies on the actions required to make changes and its effects is based on the company size. 5.3 Evaluation For the purpose of implementing the strategies of Restaurant Group Plc, the company must communicate its goals and missions to all the stakeholders (Tracy, 2012). This will reduce chances of employee’s resistance as communication will increase their engagement in strategic implementation. After the determination of the strengths and weaknesses of balanced scorecard and strategic map, Restaurant group Plc should focus on strategic management so that it can implement all its strategies appropriately (Clyde, 2009). The financial perspectives objectives are the key objectives which must be achieved through the support of other perspectives. The company must ensure that there is collaboration of all the perspectives as one perspective has a greater effect on achieving the goals of other perspectives (James, 2013). This can be seen in customers and financial perspective where increase in customer loyalty and customer satisfaction lead to the increase in growth in sales revenues. Bibliography Avkiran, N. 2011. Association of DEA super-efficiency estimates with financial ratios. Investigating the case for Chinese banks, 39(3), pp. 323-334 Clyde, S.2009. Financial Accounting: An Introduction to Concepts, Mthods and Uses.In: s.l.:Cengage Learning, p. 317. Eccles, R.2012. The impact of a corporate culture of sustainability on corporate behavior and performance. National Bureau of Economic Research. Gibson, C. 2010. Financial Reporting and Analysis: Using Financial Accounting Information. In: s.l.:Cengage Learning, p. 10. Hřebíček, J. 2014. Corporate key performance indicators for environmental management and reporting. 59(2), pp. 99-108. Ittelson, T. 2009. Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports. Career Press, Incorporated. James Reeve, J.2013. Financial analysis and Managerial Accounting. Cengage Learning. Roca, L 2012. An analysis of indicators disclosed in corporate sustainability reports. Journal of Cleaner Production, 20(1), pp. 103-118. Stickney, C. 2009. Financial accounting: an introduction to concepts, methods and uses. s.l.:Cengage Learning. Tracy, A. 2012. Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. s.l.:RatioAnalysis.net. Read More