2.1 The Balanced Scorecard Model
The balanced scorecard model is a strategic system which facilitates the measuring of performance with respect to financial and non-financial metrics (Kaplan and Norton, 1996). The name of the model is derived from the balanced outlook it provides by combining traditional financial metrics with non-financial ones. The model helps organizations to decide objectives, targets, goals and measures to improve various internal and external aspects of their performance (Artley and Stroh, 2001). The model is made up of four aspects or perspectives – the financial perspective, the customer perspective, the internal perspective and the learning and growth perspective (Kaplan and Norton, 1996). The financial perspective is the leading perspective based on which the growth strategy, risks and profit models are developed. Some of the key measures of this perspective are stock values, share values, market value, costs, profits, growth ratios and net sales (Paul, 2008). The customer perspective deals with the organizational strategy with respect to customer needs and expectations (Paul, 2008). The key measures of this perspective are customer retention, satisfaction and loyalty. The learning and growth perspective deals with the creation and retention of valuable organizational knowledge and resources. It is related to issues such as employee satisfaction, employee trainings, contributions of individual employees and the IT infrastructure. Some of the central measures of this perspective include employee retention, satisfaction and efficiency (Paul, 2008). Finally, the internal perspective deals with the management of internal business processes to cater to the varying customer demands, improve quality of services, ensure timely deliverables and create seamless operations (Paul, 2008). While the financial perspective is the leading perspective of the balanced scorecard model, the others are also equally important and together help in fulfilling the vision and strategy of the organization.
2.2 Tesco’s Corporate Strategy
Tesco uses the balanced scorecard model as part of its corporate strategy (Tesco plc, 2010). The strategy of Tesco is driven by several characteristics like its sector, customer base, products and services. Being a retail giant offering a wide variety of products and services to a huge consumer base, Tesco needs to be heterogeneous, affordable, adaptable and accessible with smoothly flowing seamless operations and impeccable customer service. Additionally, the strategy of an organization is also determined by the kind of competition it faces which can be determined with the help of models like the Porter’s five forces model (Porter, 1979). According to this model, an organization usually faces five kinds of competitive threats – threat of new products, threat of substitutes, bargaining power of suppliers, bargaining power of buyers and rival organizations. Applying this model to Tesco, it can be said that the organization faces high competition due to substitute products, bargaining power of buyers and competitors. This is due to the fact that Tesco has several close competitors like Sainsbury and Asda in the UK market as well as local competitors in the international markets. Due to the high levels of competition, the threats of substitute products and bargaining power of buyers is also high. However, the bargaining power of suppliers and threat of new products can be assumed to be relatively low for the organization due to the various investments, legal and regulatory issues involved. In accordance with these threats, Tesco has a mixed strategy with a focus on long term sustainable growth and providing value added innovative services to customers. The core of Tesco’s strategy is centred around the balanced scorecard method with a focus on the four established elements of consumer, people, operations and finance as well as a fifth element called community (Tesco plc, 2010). This customised balanced scorecard model of Tesco is known as the steering wheel model.
2.3 Tesco’s Implementation of the Balanced Scorecard Model
The balanced scorecard model is implemented by Tesco with the help of a steering wheel with five perspectives. Each perspective is guided by a set of objectives, plans and strategies in accordance with the competitive threats and other characteristics of Tesco. The customer perspective is guided by the goals of earning customer loyalty, providing affordability and excellent customer service. Tesco implements these goals through initiatives like club cards, loyalty points, discounts and bonus (Tesco plc, 2010). The internal perspective is guided by the motives of smooth operations, ease of work for staff and better consumer experiences. These are implemented through the use of various cutting edge technologies like electronic retailer supplier communication system, replenishment and stock control systems, electronic shelf labelling and self-check-out machines (Temporal and Lee, 2001). The learning perspective is guided by the motives of effective supervision, training and growth opportunities. These are implemented using regular training initiatives, promotion opportunities and flexible working policies (Tesco plc, 2010). The financial perspective is guided by the objectives of increasing sales growth, maximising revenue and managing investments. Towards this end, Tesco is always venturing into new areas like personal finance and petroleum and offering new services to consumers like the customer champion service (Temporal and Lee, 2001). Finally, the fifth perspective of community is introduced by Tesco into the steering wheel owing to the negative attention that it has gained in the past due to its high levels of carbon footprints (Bichard and Cooper, 2008). Overall, all these perspectives are designed in accordance with the competitive threats of substitute products and rivals of Tesco. The best way to counteract these threats is to gain a loyal consumer base and maintain it. Hence, Tesco’s steering wheel strategies effective and successful as they help Tesco in overcoming competitive threats and maximise its performance. Owing to the steering wheel model, Tesco has a wide loyal consumer base today along with a major share of the UK market and a rapidly expanding international base.
3. Conclusion
Tesco’s use of the customised balanced scorecard model has succeeded due to various factors. First and foremost is the fact that the model is designed according to Tesco’s strategic goals and vision. This has helped the organization in creating a customised version of the model to maximize its growth potential. Secondly, the objectives of the model are guided by the competitive threats faced by Tesco. This has helped the organization in overcoming the threats. Finally, the objectives of the steering wheel model of Tesco are guided by clear and achievable initiatives. All these factors together have helped in making the balanced scorecard model a success in Tesco. Other organizations can use the same approach of designing strategy driven customised models with clear goals and objectives to achieve the same levels of success.
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