Overview of Balance Scorecard and its benefits

Discuss about the Improving Business Intelligence with Analytics.

In the recent period, Balance Scorecard has gain very high attention among the companies because of its unique features and use of methods that provides better understanding of the strategic objectives of the company. The balance scorecard has been based on management technique known as MBO (Management by objective). The balance scorecard technique is developed in such a way that it provides the base that helps in aligning the objectives of the organization with its activities. The balance scorecard uses systematic approach to align objectives of the organization with its defined activities in more meaningful way. It has seen that balance scorecard has numerous advantages that make it popular among the organization for describing the objectives and aligning them with activities. In addition to the advantages of the balance scorecard there are some limitations that makes is difficult for the organisations to implement it at all the stages. The implementation of the balance scorecard requires huge investment and well defined strategic objectives to make it successful.

Many organizations still uses traditional method financial performance management metric to benchmark the performance of all the individuals and to align the objectives with activities. The major limitation of the traditional method is that it only provides information about the past performance of the organization and it ignores the future financial performance. One more limitation is that it does not focus on any other perspectives of the organization except the financial perspectives. On the other hand balance scorecard takes into all the limitation of the traditional financial performance metrics and focuses on all the major perspectives of the business that helps in development of organization. Balance Scorecard also aims to develop the measures that focus on the future development of the organization (Niven, 2005).

The present report is developed to provide an in-depth understanding of the Balance Scorecard (BSC) and its benefits realized by private companies on implementation. This has been carried out on the perspective of a graduate consultant employed in a management consultancy firm and assigned to a team. The CEO of the client firm has attained a seminar on balance scorecard and aims to assess the potential application of BSC to the company undergoing an evaluation on its budgeting system. In this context, this report has been developed for the client for assessing whether the application of BSC is suitable for the company. This has been conducted by providing a description of the firm’s client, description of the BSC and its features and its difference from the traditional performance measurement systems. Lastly, it provides a discussion on the suitability of BSC for the firm’s client.

Traditional performance measurement vs. Balance Scorecard

Woolworths is recognized as a major Australian company actively involved in carrying out retail operations across Australia and New Zealand. It has attained a predominant position in Australia in the retailing sector by providing the best in class products and services to the customers. The company employs a workforce diversity of about   205,000 team members serving about 29 million customers every week in its target market. It is attributed to be largest Australian company in terms of revenue and one of the largest retailers across the world. The company is involved in carrying out diverse operations that includes supermarkets, petrol, liquor, general merchandise, home improvement, hotels and gambling. The company places large emphasis on achieving customer satisfaction by providing them better quality products to make their life simple, easier and better. The company nature of business operations is mainly governed on the basis of ethical standards of collaboration, fairness and responsible sourcing. It is able to create valuable products for the customers by developing long-term relations with the suppliers that enable it to source quality materials for manufacturing of its diverse range of products. It has classified its everyday kitchen and home items into macro and gold categories. Macro is classified as exclusive organic and natural range of products produced from sustainable framing and taking into consideration the highest standard welfare conditions (Woolworths Group, 2018). On the other hand, Gold is a premium class of products that have specially produced with the use of best-in-class ingredients. The major strategic priorities of the company are listed below:

• Developing a Diverse Culture Team
• Generation of Sustainable Sales and Growth in Food Items
• Continuous Evaluation of Drink Business for expanding its product portfolio and delivering more value to the customers
• Empowering Portfolio Businesses for Delivering Shareholder Value
• Becoming a lean retailer by development of excellence business processes and systems

The company is effectively responding to increasing competitive pressure in the retail market by placing customer at the heart of its every strategy. It places high focus on developing new and innovative products for the customers to seek their attention and responding effectively to their changing needs and expectations (Woolworths Group, 2018). The strategic intent developed by the company for achieving its strategic priorities can be depicted as:

BSC i.e. Balance Scorecard is one of most famous management approach that has been used by the management to align all the operational strategies with the entity operational objectives. The main purpose to implement the balance scorecard in the organization is to develop the measures to achieve the organization objectives and to set the defined set of standards on which performance of each individual can be measured. Balance Scorecard uses four main organization perspectives to divide organization objectives and to develop measures for them. These four perspectives are financial perspectives, internal processes, customer perspectives and learning & growth. Balance scorecard also ensures that business strategies are clearly defined and they are communicated to the employees in effective way (Schmeisser, Clausen, Popp, Ennemann and Drewicke, 2011).

Benefits of implementing Balance Scorecard for Woolworths

Balance scorecard is a performance measurement system used for strategic planning and management by an organization. It is mainly used for assessment of various internal functions of a business and their impact on the business performance. Balance Scorecard was developed by Robert Kalpan and the business executive David Norton in the year 1992 for examining the non-financial performance of an organization. The use of BSC is increasing in business organization nowadays and it is estimated that about 50% of large firms in the US have implemented BSC for measurement of their non-financial performance. It is regarded as one of the topmost used management tools across the world by a global study for strategic planning by businesses. It provides an assessment of the business performance on the basis of four perspectives that are financial, customer, process and people (Yilmaz, 2013).

• Financial Perspective: The financial perspective measures the financial performance of a company by assessing its net income, return on equity and other financial quantitative measures. It provides a strong base for analysis and evaluation of the performance of companies to investors mad make strong decisions whether to invest in a company or not. The financial measures provided a quantitative and accurate prediction of the present and future growth of a company and thereby providing large help to shareholders, investors, creditors and lenders to make effective investment decisions. It also facilities comparison between the performance of two companies operating in the same sector on the basis of their financial outcomes (Brown, 2007).
• Customer Perspective: This perspective of the BSC helps in gaining an evaluation of the target customer segments of a business company. This perspective assesses the non-financial performance of a company on the basis of the criteria’s of customer satisfaction, customer retention, customer acquisition, profitability and market share.
• Internal Processes Perspective: The business managers tend to identify the most significant internal processes for the growth and success of an organization. The analysis of the effectiveness of the internal business processes enables a business manager to examine the value propositions delivered by a business function and generating financial returns. The continuous monitoring and evaluation of the business process and systems is necessary for generating highly valuable products and services to the customers.
• Learning and Growth perspective: On the basis of the understanding and analyse of the business process and financial performance of the organization, it is must for managers to learn from mistakes and apply new expertise to achieve the required growth in the desired fields. Learning and growth is the most important activity in the organization as it set the base for future development and to increase the productivity of the workers. In this perspective organization has to focus on the staff training and development of the appropriate corporate culture. This perspective defines the incentives for the employees so that they can focus on learning of new technology and increase their productivity. In this context manager has the responsibility to develop the capabilities of the employees and apply measures for employees retention, employee satisfaction and overall productively of the employees (Kaplan and Norton, 2010).

• A good balance scorecard always has defined set of measures that defines the cause and effect relationship of the business objectives in regards to the stakeholders and employees. Balance Scorecard provides the description of company objectives and should define its target in detail and in clear manner so that to reduce the chances of any future conflicts (Adler, 2013).
• It should act as a communication tool that clearly provides the target of the company and define the strategic objectives in appropriate manner to all the employees of the company. It helps all the employees with clear and meaningful understanding their roles and functions to achieve the company objectives (Pramudita, 2016).
• A good balance scorecard must be able to communicate the impact of short term decisions on the growth of business. Generally it has been seen that short term decisions that are being taken in hurry harms the productivity and also impact the growth of the company. A good balance scorecard provides the clear picture of the outcome of the decisions taken by the management during the shorter period of time.
• A good balance scorecard provides all the strategies to employees of the organization and also aligns the employee’s ethics with the organizational goals and strategies (Maher, Stickney and Weil, 2012).

There are many differences between balance scorecard and traditional performance measurement. It is because balance scorecard takes all the perspectives of the business when developing the measures while traditional performance measurement takes into one perspective i.e. financial. The four perspectives that are being considered in the balance scorecard are financial, customer, internal processes and learning and growth. However, traditionally used quantitative performance measurement system relies mainly on financial measures such as profitability, revenue, cash flows, earnings per share and return on assets to analyse business performance. The performance assessed by traditional measurement systems does not take into account non-financial performance measures and therefore provides only a quantitative assessment. On the other hand, balance scorecard provides both qualitative and qualitative assessment of performance of a business entity (Niven, 2014).

Traditionally performance measurement systems are not suitable to be applied by the business organisations in the rapidly changing business environment. This is mainly because rapidly changing business environment is not adequate for depicting the overall performance of an organization. As such, the traditionally used systems were not apt for aligning the performance measurement to strategy and aligning of short and long-term objectives. However, balance scorecard can be regarded as an efficient tool for linking the organizational strategies with the business actions and providing an assessment of its overall performance such as customer relationships, employee and organizational capabilities for achieving success.

Woolworth’s places large emphasis on implementation and adoption of effective system and procedures for meeting its strategic aims and priorities. The company aims o deliver continued value to each of its stakeholder group by effectively aligning with its business direction. In this context, it needs to implement a performance measurement system for identifying the business opportunities, introducing new financial products and business practices for overcoming its weakness and maintaining its continued growth and development plan. The adoption of an adequate performance measurement system will ensure that the company daily operational activities are aligned with the business strategies and leading to its long-term growth and performance (Chavan, 2009).

How Balance Scorecard aligns with Woolworths’ values

The adoption of Balance Scorecard performance measurement system will prove to be largely effective for the company to identify its key performance indicators (KPSI’s) and linking them to its business strategy. This will enable the business managers of the company to create a connection between the business performance and strategies and assessing the progress made by it towards achieving its strategic priorities. It will provide an overview of the company performance and assessing whether it is aligned with the long-term goal and objectives. The extraction of accurate and reliable information will help in meeting its strategic goals and priorities. It would translate the vision and mission of the company into terms that can be effectively understood by staff. The company carries out its operations on the values of ‘Pride in our people’ ‘Exceeding customer expectations; and ‘everyday low prices’ and ‘return on investment’. As such, all these values can be strategically aligned by the company with the implementation of balance scorecard that would provide an assessment of its performance against these key performance indicators (Woolworths uses BI to hone business practices. 2002).

It can assess the realization of its value of return on investment through examining of its financial performance with the use of BSC. The measurement of the financial condition of the company on the basis of operating income, sales and growth will help to forecast its revenue and growth. The company can effective assess the achievement of its strategic priority of generation of sustainable sales across its various segments and the success realized by its new business segment of Drinks. Also, the company places customer at the core centre of each of its business strategy and therefore the customer perspective of BSC will be largely effective on analyzing whether it is able to create value for the customers. The perspective will help the company in assessing the customer satisfaction level and identifying the problems in their products and services with the use of feedback provided to them. The company can implement effective strategies for overcoming the quality issues in its products and services hindering the customer satisfaction level. The perspective will help in improving the financial results by the company by establishing a link between the business processes and the customers (Holloway, 2011).

The company strategic priority is to become a lean retailer through development of effective business processes and systems excellence. It can be achieved by business managers of Woolworths through the use of internal business process perspective of the balance scorecard.  It provides an assessment of the efficiency of the business process in delivering value proposition to the customers. The inefficiencies in the internal business procedures can be identified accurately with the help of this perspective. The business manager can implement effective methods for overcoming the inefficiencies in the business systems that is restricting the company to realize its strategic priority. Woolworth’s for realization of its value ‘pride in our people’ by the use of learning and growth perspective of the balance scorecard. The learning and growth perspective emphasizes on implementing actions for enhancing the ability and competencies of employees for attaining the current and long-term goals of the company. This is required for improving the business activities and delivering valuable products and services to the customers by developing a team of highly capable workforce team (Chavan, 2009).

Connecting business performance and strategies

As such, it can be said that the implementation of balance scorecard will help in measuring the performance of the company on the basis of its key performance indicators that are depicted below:

All these strategic priorities can be effectively achieved by the company with the use of balance scorecard. Therefore, it can be said that balance scorecard is an apt performance measurement tool to be used by Woolworth in achieving its strategic goals and objectives. It will help the company in aligning its values with its key strategic priorities and helping it to make progress towards the company sustainable growth and development. As such, BSC need to be applied by Woolworth for its better strategic positioning and achievement of its strategic priorities (Woolworths Group, 2018).

Conclusion

It can be stated from the overall discussion held in the report that BSC can be regarded as an effective performance measurement tool used by business organizations widely in strategic planning and management. The comparison of the BSC tool with the traditional performance measurement system has helped in developing an understanding of the benefits provided by this measurement tool in tracking the performance of business growth accurately. Woolworth strategic goals and prioritizes can be achieved effectively with the use of balance scorecard key component as discussed in the report. Therefore, Woolworth CEO is recommend to adopt the use of balance scorecard for achieving reliable and accurate results about its financial and non-financial performance measures.

References

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Woolworths uses BI to hone business practices. 2002. [Online]. Available at: https://www.itweb.co.za/content/KA3Ww7dl1ZK7rydZ [Accessed on: 15 May 2018].

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