Introduction
The Balanced Scorecard (BSC) model is a mechanism that is mainly used by organizations to enhance their efficiency, particularly when it comes to the issue of strategy management and achievement. Often, organizations rely on several indicators to determine whether their performances are well in track to achieve organizational objectives. Such indicators, including the financial measurements are, however, inadequate in pointing out accurately an organization’s actual position in as far as it business operations and performance are concerned.
The BSC provides an elaborate mechanism for organizations to determine several indicators, which are all used in determining strategy. This paper seeks to discuss the use and efficiency of BSCs by organizations as they pursue their strategies and objectives. In particular, the paper seeks to discuss Tesco Plc. and its application of BSC.
Tesco Plc. is the leading British retailer of food, selling more than 4000 varied food products. The retailer has further expanded its portfolio to include the sale of other non-food items, including electronics, kitchen utensils, stationery, and clothing among many other commodities.
The Tesco chain of stores is currently ranked as the third largest in the world, after global leader Walmart of the USA and French company Carrefour. Apart from operating in native Britain, Tesco also has a presence in at least 13 other countries across the globe (Datamonitor, 2011). In 2012, Tesco achieved a total group sales value of ÂŁ72 billion and ÂŁ3.8 billion in profits before taxation. The underlying diluted earnings per share increased by 2.1%, while the full year dividend per share stood at 14.76% (Tesco Plc, 2012).
Tesco introduced its BSC in 1998. Over the years, the BSC has been critical in enabling the firm to achieve its strategies and objectives. Each year, the firm reviews its BSC with the intention of ensuring that its organizational goals are achieved. There is strict adherence to the BSC in Tesco.
Weekly data is accumulated and stored. The scorecard in every store helps managers to also access the corporate scorecard that is presented on quarterly basis (Witcher & Chau, 2008). Management staffs at the top of the hierarchy oversee the firm’s performance in the process of unearthing problems in the firm. However, once the problem areas have been identified the local management is given the mandate to resolve and improve on the areas.
Given the size of Tesco Plc., the firm requires a BSC methodology to balance its strategies in the main areas of finance, innovation concerns, process, and customer procedures. This report specifically dwells on highlighting a proposed BSC model that would be appropriate for application at Tesco Plc.
The BSC proposal enumerates targets that the company ought to pursue. The proposal defines a raft of initiatives as well as measures that the management needs to put into consideration as they steer the company into achieving growth and prosperity.
Literature on BSC
The Balanced Score Card has particularly gained prominence in the 21st century owing to the transformations from the industrial age to the knowledge or information age (Saraiva, 2011). Kaplan and Norton are credited with formulating and introducing BSC into the field of management in 1992.
In their argument and support for this model, Kaplan and Norton (1996) have vehemently argued against the use of traditional mechanisms that have been in use by organizations to evaluate their performance. The financial accounting measures, they argued, lack the depth to give an actual picture of how the business performs.
The invention of the BSC, thus, was mainly done with the view of supplementing the few areas where the financial measures failed to consider in their evaluation of the organization. The main intent of BSC, according to Wong-On-Wing et al. (2007), is to maintain score on various items that keep a balance of the short-term as well as long-term objectives.
It also keeps a balance between the lagging and leading indicators, as well as the performance perspectives both within and outside the organization. This broad range of perspectives that are offered by BSC, in turn, help the management to make certain good-short-time financial outcomes, as well as helping in the guidance of the business in seeking to achieve the strategic objectives.
BSC also plays a critical role in helping the company to handle fundamental efforts as it defines and communicates its key interests to the managers, employees, the customers, and other investors (Kaplan & Norton, 1993). The BSC’s capability plays a crucial role in enabling managers to recognize performance indicators that could be used to make forecasts about the firm’s wealth and health.
Because of its ability to quickly translate strategy in quick actions that are quantifiable, BSC is able to control strategy within the firm’s environment, helping to discover any hidden assets or information. Pineno (2002) points out that the idea of linking the strategy with the people working internally in the organization and those who are out, such as the stakeholders, helps in enhancing continuous learning together with development.
Despite its numerous strengths and advantages, however, BSC also has its limitations that tend to lower its effectiveness. The strategic perspectives as identified by BSC, for instance, lack a causal connection (Nørreklit, 2000). Additionally, although BSC insists on customer satisfaction, there is little evidence to support the analogy that it automatically results in superior financial outcomes.
Although Nørreklit (2000) is in agreement with the thinking that several actions introduced by a firm result in high customer value ratio, which leads to good financial standings in turn, the whole matter lacks causality. In essence, the assumptions made by BSC can be regarded as illogical and have the potential of creating anticipation of incoherent evaluation. This could be the reason why a firm may end up registering sub-optimal performance.
The BSC, as a management tool, lacks absolute representativeness (Nørreklit, 2000). The model overlooks any rapport between what the environment holds and what the organization stands for. For instance, the assumption by BSC appears to neglect the existence and importance of competition to the organization. It is critical to point out that the existence of variance between the strategy being articulated and the one being presumed needs to be acknowledged in order to enhance performance and results (Nørreklit, 2000).
Proposed BSC for Tesco Plc
Strategic requirements
To emerge as a leading retailer internationally
Tesco’s intentions should be to surpass both Walmart and Carrefour as the leading retail chains globally. This should be by way of profit margins as well as the number of stores established throughout the world. Thus, the firm’s target should be to expand its branch network, particularly in the international market while also seeking to increase its customer base.
To maintain leadership in the UK market
The local UK market remains to be integral to the growth of Tesco’s business. The firm should seek to maintain the local market’s leadership by mainly improving on its customers’ overall shopping experience. Competition should be sustained by way of offering greater returns to the shareholders than is the case with other rival stores in the UK. Competitive pricing should also be pursued to ensure that customers are able to achieve value in their purchases.
To create highly valued brands
The Tesco brand remains the strongest within the local UK market. It deals in a wider range of products and services both in the UK and in the international market. Because of the diverse customer needs that are involved, Tesco should seek to offer customer with quality products whose prices reflect on the value of the brands. Rebranding of products using the Tesco label will reassure customers of the value involved in the products they purchase.
To develop the Tesco team
Tesco should equally focus on improving and developing the internal team as a means of adding more value. More leaders should be nurtured from within the firm’s workforce to be able to take up new responsibilities that are emerging with the steady growth. Developing the team from within will potentially help the firm to achieve sustainability over a long period.
To commit service to the communities
Tesco needs to extend its services to the community by integrating social responsibilities as part of its corporate strategy. This should involve limiting their environmental impacts to the society, as well as introducing initiatives that are meant to bring more value to the communities at large.
Financial Perspective
To emerge as a leading retailer internationally
The strategic objectives involved include increasing the international market sales of the company. The sales can be measured by the amount of revenue that the firm will collect. As a set target, Tesco should seek to surpass the ÂŁ50 billion mark in terms of revenues collected from the internal markets.
The second strategic objective is to expand the profit margins for the firm. The appropriate measure to ascertain this will be the actual profit figure achieved each year. The target should involve achieving a growth rate of 10%.
The firm must also strategically seek to expand its customer base. This can be measured by the number of its registered customers, especially those who sign up for services such as shopper’s cards and online purchasing. Tesco’s target should be to have at least half a billion customers registered in its database from across the globe.
To maintain leadership in the UK market
The first strategic objective under this strategy includes improving sales, which can be measured by the revenues achieved. The target should be to be to achieve a revenue figure of ÂŁ50 billion for the UK market alone.
The second strategic objective is to expand the current profit margins, which can be measured through the annual profits registered by the firm. The target should be to achieve growth in percentage of the company’s profits compared to its previous years’ performances.
The third strategic objective is to achieve return on the capital employed by the firm. The ROCE can be used as a measure of establishing this. As part of the target, Tesco should seek to achieve a 20% growth within the next ten years.
To create highly valued brands
The strategic objective in this aspect should be to register growth in all the underlying diluted earnings to the firm. The appropriate measures here include the earnings per share (EPS) and the total shareholder return (TSR). The target for the company should be to maintain an EPS and TSR ratio of greater than 3.5%.
Customer Perspective
Tesco’s main priority in seeking to address the customer perspective should involve several initiatives that require proper management right from the firm’s top management.
Low prices
The firm should adopt a pricing policy that sets prices at a lower and competitive level compared to the prices set by competitors. The prices must be able to sustain the operations of the firm, while at the same time attracting more buyers. Achieving low prices is possible for Tesco if the company ensures that it efficiently manages its logistics.
Such inventory management methodologies, such as Just-In-Time management (JIT) must be employed at the stores’ depots to ensure they cut down on the cost of holding too much inventory. This will also ensure that customers enjoy higher efficiency in service delivery as products will not run out of stock at any given time. Tesco should continuously suggest ideas of achieving efficiency in its performance and service delivery and help its suppliers to implement the strategies.
Innovation
A review of the whole range of products that the company deals in should be undertaken with the view of refreshing their outlook in the eyes of the customers. The company must integrate technology in its operations, such as introducing online purchase, in order to adapt to the changing needs of its customers.
The packaging for the Tesco-branded products must be revised to capture the attention of buyers, as well as achieve greater convenience during shopping. Tesco can also seek to collaborate with product manufacturers in a way that ensures greater value is added to their products.
For instance, shop floor areas can be assigned to different marketers to promote their products, while creating awareness to the shoppers at the stores. Products manufacturers can also be allowed to advertise their products within the Tesco stores, as well as online through the official Tesco website. This will increase awareness amongst the prospective buyers and increase the likelihood of more buyers buying the products either physically at the stores or online.
Managers must be given the freedom to identify the appropriate customer as well as market segments that can enable Tesco to compete effectively with other retail chains. The managers must also identify the appropriate measures to be applied within the targeted segments. In order to successfully manage this, the firm must have a feedback mechanism that allows its customers to give information about the products and services being offered by the firm.
The feedback mechanism could either be a toll free telephone contact, an email address, and a suggestion box situated strategically at all the Tesco stores. From these feedback messages, the management will be able to determine what the customers want and currently not on offer at the stores. They will also be able to learn about customers’ feelings and thoughts on prices. These details will be critical for helping the managers to make adaptive decisions that take care of customers’ concerns.
Deliveries also need to be organized and made to the physical locations of the customers. This will increase customer convenience in the sense that they will manage to carry out their shopping and have their goods without physically going to the stores. This can be efficiently done through the use of online shopping.
The cost involved in delivering goods to the parents must be fairly determined to match with the value. Delivery services must also emphasize on safety in order to minimize on damages and cases of returned goods. Offers for online shoppers as well as occasional free deliveries will increase Tesco’s ability to attract more customers and enhance its revenue and profit value.
Increase the size and skill of staff
The number of workers currently employed at the firm should be increased in order to match the increasing number of customers. The quality of services and performance of the workers also need to be enhanced to match the rising expectations of the customers. The firm must train the workers as a way of developing their customer skills. This will improve product availability as well as presentation for the customers. People and communication skills should be of particular interest to the firm.
Internal Business Process Perspective
Product
Tesco must address the issue of improving products and their safety. Several control mechanisms can be put in place to ensure this is achieved. They include establishing elaborate procedures to be employed globally as a way of ensuring product integrity, strict regulations that address technical safety and regular reporting and establishing clearly spelt out processes on crisis management. Equally, a close partnership between the firm and its business associates, such as suppliers, would help to achieve mutual understanding, especially where standards are involved. Developments must be monitored closely to help with quick response where customer trends or legislation changes.
Operations
There is need for Tesco to establish and maintain control of the quality of its food as well as the non-food products. This may include establishing teams of experts whose main role would be to ensure that the quality standards are adhered to during implementation. High internal standards should be set out and the workers trained on how to observe and implement them. Tesco should work closely with the suppliers to help them constantly achieve the high standards.
Tesco’s operations within the foreign market entail a number of issues and challenges that the management should seek to address. This may involve making collaboration decisions with other local firms and people, such as the supply and distribution networks. The collaborations and close relations should ensure that the partners adhere to the working standards and practices at Tesco.
Management must determine the employment policy that will achieve integration of the local expertise, while seeking to achieve greater growth and development. Workers acquired within the foreign markets must be trained on the basic principles and practices that form the overall corporate mission and objective.
Customers
The focus of the company with respect to managing internal processes should be to achieve great customer satisfaction. Customer feedback must be tracked and management decisions made to reflect on the changing market trends. Increased customer satisfaction can be achieved by using Tesco labels on as many products as possible in order to offer greater assurance of quality to the customers. Concerns raised by the customers must be handled immediately in order to restore their trust.
Community initiatives
Programs must be devised by the company with the sole objective of improving on the welfare of the communities living around Tesco stores and operations. Environmental initiatives must be pursued for the purpose of limiting the carbon footprint. This may include adopting the use of natural energy, such as solar power, as opposed to fossils fuels.
Sponsorship programs to public community projects, such as schools, charity organizations, hospitals, and even sports events will be critical in integrating the communities into the group’s operations. It will highlight Tesco’s commitment to improve the welfare of the communities in general.
Community initiatives should also seek to achieve growth and improvement of Tesco’s third party business associates, such as the distributors and suppliers. This will enhance effective business practice and operations, while also helping to achieve continuity and sustainability.
Innovation
Tesco must continuously seek for ways of improving customer experience. The idea should be to increase convenience whenever customers think about shopping at the retail stores. Advancement in technology can be integrated and used to create the desired convenience, such as enabling customers to do their shopping online even in locations where Tesco has no physical stores available.
Tesco should employ mechanisms of locking in its already existing customers such that it may not be easier for them to consider other retail stores for their shopping needs. This may be achieved by use of shoppers’ cards that accumulate points every time the customer shops at any Tesco retail store. The accumulated points can later be rewarded by allowing the customer to shop at the stores free of charge basing on their accumulated points.
Additionally, Tesco has also introduced banking services that can be used to add more value to the shoppers. Customers need to be encouraged to open bank accounts with the facility and the benefits tied to their shopping. For instance, the bank should be able to offer credit services that allow the shoppers to do their shopping at any of the Tesco stores even when they do not have cash with them. Such facilities and benefits will maintain customers within the Tesco Group and allow the firm to improve on its revenues and profits.
Learning and Growth Perspective
Training programs are needed to enable workers at the firm to develop mandatory skills that would enhance customer experience. Communication channels must be established at the firm to enable the employees receive clear directives from the management. Equally, the management must be able to receive questions and concerns that are raised by their subordinates. Training of employees in the various international markets should be done in a unique manner that addresses the country’s needs directly.
Customer service should be pursued as the sure avenue of achieving global leadership in retail business. Employees must constantly be reminded of their mandate in ensuring that Tesco maintains great services to the customers. Promotions should be tied to individual performance as a way of motivating the employees to give their best contributions. The mission, vision, and value statements need to be printed and copies availed to the workers to make them understand what their objectives at the firm are.
Strategy design and formulation should not be an exclusive reserve for only a few individuals who are charged with the responsibility of running the strategy department. Instead, Tesco should welcome individual workers to offer suggestions and even come up with ideas on how to improve on the organizational objectives.
When workers are allowed to be part of the operations through providing direct contributions, they will feel as though they are part of the process. Their participation will improve growth and the learning aspect of Tesco. Given that Tesco operates in many countries where it faces numerous cultural and societal challenges, allowing workers to come up with strategies that they deem to be appropriate will create customization and enhance performance.
There is need for Tesco to integrate performance on the part of the workers as the organizational culture. Emphasizing this to the employees from the first day of their selection to the firm would ensure that they are psychologically ready and prepared to work that extra mile in ensuring that they serve their customers with diligence.
Although minimum academic qualification should be set and considered for each role during employee recruitment drives, graduates training should be emphasized. On-the-job training programs should also be introduced and evaluations done on a continuous basis in order to track on the progress of the individuals.
In order to achieve long-term sustainability, Tesco must ensure that it retains its workers for longer durations. In other words, there is need to address turnover ratio with a move to reduce it. Tesco should competitively remunerate its employees to minimize the chances of them being attracted to other employers. Other benefits and welfare issues must be included to make workers feel at home while working for Tesco.
Because it is costly for the firm to train workers continuously and then lose them to other rival employers, it is important that Tesco’s welfare and remuneration remain the most attractive in the industry. This will ensure continuity of the learning curve while providing the benefits in form of improved customer service and quality service delivery.
Conclusion
The Balanced Scorecard matrix is a model applied by companies to ensure the successful attainment of their strategies and objectives. This measure is more elaborate compared to the financial measures that have been traditionally employed. BSC is widespread in its focus and predictability as it touches on both the internal people at the firm, as well as the external shareholders.
The management of firms establishes their objectives in the main perspectives of BSC, which include finance, customer, internal business process, as well as learning and growth and measure their achievements against established targets. Tesco Plc. is a leading retail company in the UK. A BSC model for the retailer would help it achieve numerous strategic objectives that touch on its customers, finances, the internal processes, and learning and growth.
Customers require value for their money. The firm can achieve this by improving on the quality of its products and services. Financially, the firm can seek to increase its revenues and improve on its profit margin, while it can seek to develop the skills of its workers through training and expand the workforce to match the growing customer base.
References
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