The Balanced Scorecard EasyJet

“The balanced scorecard is a strategic management technique for communicating and evaluating achievement of the mission and strategy” d

The Balanced scorecard uses mostly non financial information consisting of external and internal factors, each strategic objective identified would be given performance measures in turn it would be put into action. Financial is not forgotten, the non financial part improves the financial position.

 

The process includes explaining and interpreting the company’s vision and strategy in to strategic objective. Then objective should support the strategy meaning that the objective should have identified measures. Then you set targets to achieve the objectives over a period of time. At the end of this, managers can monitor the strategy and provide feedback to make improvement, which can be helpful for the long-term.

Each performance measures fall into four perspectives and each perspective will have at least two to five measures and they are as follows.

Customer perspective

This looks at how gain customer (existing and potential) satisfaction and loyalty by identifying their target market. This is done by providing distinctive quality goods and services on time compared to competitors. Objectives to build reputation may include doing repeat business (customer retention), increase market share and gaining new customer. This has an affect on the financial, learning and growth perspective.  

Internal business process perspective

This concentrates on the business itself and what they are good at, how efficiently, effectively resources are used and how well the business is managed. This leads to achievement of loyal and satisfied customer and financial objectives also learning process. There are three processes as follows 

Innovation: developing a new differentiated product for a new market.

Operation: reducing the time to deliver the product to the customer.

Post sales services: support provided to the customers after the sale such as warranties, and repairs.

Learning and growth perspective

The key to creating customer loyalty is the employees having knowledge and skills to provide a service using the resources available. Training employees to learn and develop skills and understand what is expected from them.

It focuses on employee capabilities of doing their job, how much information they know about their customers and motivation of employees to meet their objectives. Employees should develop and learn new IT skills due to changes in technology.

In order to understand how the four perspectives support the strategy of the organisation in achieving it objectives, I will relate the balanced scorecard’s four perspectives to Easyjet, by identifying the possible objectives and the possible measures to achieve the objectives.  

Financial perspective

It is obvious that the main objective would be to maximise profit and shareholder wealth. Others objectives may be maximise sales, reducing cost, return on investment and growth. It is said non financial measures improves financial position. Although balanced scorecard places importance on non final information this should not disregard.

ANALYSIS

Easy jet is a ‘low cost, no frills’ budget airline with flights operating within Europe and North Africa. Their main competitor is Ryannair.

Benchmarking Easyjet

Benchmarking is a where you improve your products or services continuously at every stage to make it stand out from your competitor. You have to identify ‘best practice’, which is consistent with your business, ensuring you improve your performance.  

 

For Easyjet benchmarking, they need information on how Ryanair keeps cost low and use that as a start. Ryannair tend to lower their fares when competitors reduce their fares, so this is a challenge for them to stay number one in fare prices.  

In order for Easyjet to be identified from their competitors they need to ensure that their services is better than Ryanair is such as providing on-time service, quick response to queries Ryanair is to reply within a week and keep passengers updates with information about flight delays etc, therefore improving their customer service.

They also keep denied boarding to a minimal by reducing the overbooking on each aircraft. They also take measures to speed up boarding by online check in. Ryanair minimise their loss of luggage to 1 in 1000 bags. Easyjet should use this hopefully aim to reduce the number of bags lost.

According to their website they are number one for punctuality and flight completion. They are also number one for low customer complaints according to their website complaints. Easyjet should aim to become number one.

If Easyjet compares their business with their competitors, Easyjet can find places in their business to reduce cost. Any problems that can be identified can be worked on and improve on that area. The way Easyjet can stand out from their competitors and become a market leader they need to use benchmarking and implement best practice.

New costing method and its relevance to Easyjet

The way Easyjet keeps cost low is different from the techniques I have mentioned above. The way Easyjet keeps its cost low depends on the following

1) Flights were first sold over the phone, without travel agency. To reduce call centre cost and staff cost they started selling flights on the internet. It also reduces printing and postage cost of tickets. Passengers can book a holiday to sit them and pay online.

2) On each aircraft the cost per seat reduces if the plane if utilized to the maximum.

3) Instead of sending tickets to the customers, which cost for printing and postage and distribution cost. Passengers receive an email confirming their flight which they print and bring on the day.

4) Passengers do not get free lunch on board instead they pay for the food.  This reduces the cost.

5) Easyjet use main airports and making efficient use of them and at the same time having quick turnaround time.

6) In their office all work is done on the computer and minimizes the usage of paper having a paperless office.

Balanced Scorecard related to Easyjet

Customer perspective

Here the objective of Easyjet is to improve the sales every year, selling to existing and new customers. To do this they must gain customer satisfaction and loyalty, rest will speak for it self.

1) One of their focuses is to provide passengers with low cost travel with care and convenience. A measure to keep flights cheap is that Easyjet should control and reduce costs as they are doing currently enabling them to sell at low fares. Keeping the cost low means they can afford to give offers to their customers such as discounts or free tickets.

2) According to the Chief Executive Andrew Harrison passengers use them again and again and 92% would recommend other people. Measures which can be taken to do repeat business and gain new customer is to provide friendly service onboard and on the grounds, ensuring customers have no complaints about their service otherwise complaints may be raised and they turn to competitors. There target maybe keeping complaints below 10%.

3) One importance given to customer retention and gaining new customers is on-time flights and reaching destination in a short time. Having on time flights is not always possible, but if within their control it should be at a minimal level. Measures include getting passengers on board quickly 30 minutes before flight time or delays should be no longer then that.

4) To increase customer sales developing route network by providing customers with flights to new areas where there are no competitors, attracting different business and leisure travellers and attract new customers. They can also use primary as well as secondary airports.

5) The service they provide should be consistent with amount that customers paid. The fares should be reasonable of low cost from the customer’s point of view. This can be done where Easyjet maintains good relationship with it suppliers.

Other measures include reduce the number of baggage lost say 1 in 1000 bags, which could be improved. It is costly since they have to transfer the bags on another plane, also the need of staff and delivering baggage.

Another measure is also avoiding denied boarding to passenger unless it is for the safety of other passengers. This can be done by not overbooking a plane.

They can do questionnaires, check surveys by magazines to see their reputation.

Internal business process perspective

Here Easyjet identify the measures they excel and put into action to create satisfied and loyal customers.

1) Before planes can take off it is important the planes are fit and safe to fly and there are no major problems, which could put people lives in danger. Measures to ensure planes are safe to fly they should be serviced and maintained to meet safety requirements before flights. People may lose trust in Easyjet if planes have faults.

2) To ensure costs are low, planes should be utilised to the maximum capacity, where more seats are used on a single flight. Measures to ensure it is utilised is not to fly out until it is fully used. Customers should be notified if changes to the timing. It is not environmental friendly, you may have more flights to go to same country and fuel will be burning.

3) Once the plane has reached its destination it should spend less time on the ground so there is a need to get the plane back or to another destination as quick as possible. It should aim to turn around time say within 30minutes. It is also costly if they are on the ground longer. Being punctual is also important. This also ensures that airports are not congested.

4) They need the right amount of staffs such as pilots, flight attendants that are utilized to the maximum level. Extra workers may be useful to cover period when there are staff shortage due to absent workers who are ill, flight delays or busy days during holidays. Easyjet can use staff to do different task for example the people who check the passengers passports/boarding card and loading luggages before a flight can be used on the plane as a flight attendant, also at the destination checking your passports and unloading luggages.

5) To increase customer satisfaction/loyalty. The possible measure may be providing customers with more number of comfortable seats by purchasing new updated fleets within a short period, new fleets that also allows quick turnaround and more environmental friendly. One important is that customers are replied in short amount of time and offering better holiday packages.

Learning and growth perspective

This is where Easyjet create satisfied and loyal customer continuously. The key to this is the employees who are learning and developing their skills at all times, in return this will help Easyjet to maintain growth and improvement for the long-term.

1) Employees should go through training to develop and improve their skills enabling them to be more efficient and effective, find new ways of doing their job in short time also know about safety procedures. As a result of training employees know what is expected from them to keep customers happy.

2) Employees should be trained to tackle situations that would face on the airport floor or on the plane. If customers see that employees are good at their job and helpful, the customers may return. This also includes training on quick turnarounds procedures.

3) Praising the workers and providing incentives to keep up the good work even promoting them will motivate them to work harder. The workers may stay to progress their career with Easyjet.

4) Working in an open plan environment makes workers sense they are part of a team. They also need a safe working environment. This will also ensure that employee absenteeism is low for examples have absence below 5%.

5) Since Easyjet is operating in a paperless office and the industry they are in uses more technology. So worker should be experienced or at least have some knowledge in Information Technology. They should also know what alternatives there are when computer system is down.

Financial perspective

This is always going to be the main objective for Easyjet and any profit making company for example maximising profits and sales year upon year and increase returns for investors

1) One of the main objectives is to make a profit and as a result shareholders wealth/return should increase. To achieve this Easyjet needs to see an increase in their turnover e.g. 20% increase next year and lower cost. To increase market share/revenue they need to make more sales to customers. Make investment were returns are increasing.

2) Having fewer planes will reduce cost, increase revenue leading to increased profits. Fewer planes mean quick turnaround, with on time flights making customers happy. It may useful to know revenue/cost per passenger, the mix of freights such as economy class, first class and business class and the different fares charged also cost of flight attendants per flight and revenue earned from ancillary services.

3) Their aim is to have maximised profitability so it may useful to calculate certain ratios such as Return on Capital employed, Return on Equity, Net Profit Margin, earnings per share. This need to be increasing may also increase shareholders returns/wealth. Higher the profitability ratio means Easyjet a high financial performance.

4) They need standardised/upgraded planes, which is comfortable for the customers. They can decide whether to lease them or purchase them (purchase of fleets lowers the lease cost) and the average age of fleet (how long are they kept). If they update their fleets after certain periods cost may reduce and it better for the environment also gives better turnaround times.

CONCLUSION

The balanced scorecard is a way of achieving a firm’s mission/ objective. Objectives are identified and translated into performance measures, which are put into action. Targets and measures will be set out on how to achieve the objectives within a period of time. If it is successful the objectives will be achieved. It is also a way of improving the business and building on the weak areas not only for the short term but also for the long term.

It looks at only four perspective namely customer, internal business, learning and growth and financial. I think this is just the start it is a way of helping business improving their business competitiveness and a way to achieve their strategic objective. The benefit to the organisation is that it helps them to improve communication and evaluate their progress. Whatever accounting techniques there is, it is useful for business what is needed is just are improvements to the techniques and possible new techniques.

 But there is room for improvement for example it should a perspective relating to the environment. Measures can be identified as to what Easyjet can do to be more environmental friendly although this may be identified in the business perspective.

REFERENCE

a Defined by the American Accounting Association (citied in Drury, 2006, p5)

b (Bromwich and Bhimani, 1994, P127)

c Definition of Strategic management accounting provided by Bromwich (citied in Drury, 2006, p992)

d Drury, 2006, p1001        

BIBLIOGRAPHY

1) Bromwich M., Bhimani A. I, (1994), Management Accounting: Pathways to Progress, London

2) Drury C (2006) Management and cost accounting, (6th edition), London Thomson Learning, 2004.

3) Inman M (01/11/1999), Strategic management accounting,  (last accessed 28/02/2008)

5) The Balanced Scorecard,  (last accessed 28/02/2008)

5)  (last accessed 28/02/2008)

6)  (28/02/2008)

APPENDICES

T

Appendix 1

easyJet mission statement

To provide our customers with safe, good value, point-to-point air services. To effect and to offer a consistent and reliable product and fares appealing to leisure and business markets on a range of European routes. To achieve this we will develop our people and establish lasting relationships with our suppliers.

Appendix 2

About our fares

easyJet has transformed the European aviation industry by making flights affordable for everyone. By cutting out unnecessary frills and carefully controlling the cost of doing business, we are able to offer fares that represent great value for money - often at a fraction of the prices offered by other airlines.

Appendix 3

Aircraft and fleet information

The easyJet business model was built on the principle of one type of aircraft that can be utilised throughout the network, at anytime, by any crew. It appeared to be a contradiction when, in December 2002, easyJet signed a deal with Airbus to deliver 120 aircraft to the airline from September 2003 over five years, with 'price protection' on a further 120 Airbus A319 aircraft until 2012. There are a number of noticeable differences between the Boeing 737 and the Airbus A319. The Airbus is bigger and heavier (by some 4 tonnes), and is also around 14" wider. These additional inches create a wider aisle to allow crew and passengers to move around the cabin more easily, also helping to keep turnaround times to a minimum. In addition, the A319 has 156 seats, compared to 149 on the 737s, which means that each flight will require four members of cabin crew.

Appendix 4

On time performance

The punctuality of our flights is a top priority, second only to ensuring the safety of passengers and staff.

Because we appreciate how important the punctuality of flights is to our passengers, we work very hard to ensure that our services operate according to schedule. Despite the additional security measures we have in place, as a result of all our staff's efforts, our punctuality record meets - indeed often exceeds - the industry standard.

To illustrate our faith in our operation, we publish our on-time performance figures on weekly basis.

Week ending 24 February 2008

74% of all flights arrived on time1
94% of all flights arrived within one hour

1Within 15 minutes of scheduled arrival time.

Source: easyJet (validated punctuality information from the Civil Aviation Authority is published approximately three months in arrears.)

Appendix 5

Passenger statistics

As the growing passenger figures detailed below indicate, since its advent in 1995 easyJet has made air travel an affordable option for many more people by offering a reliable, quality service at great value fares.

Appendix 6

easyJet passenger statistics for January 2008

Below are the easyJet passenger statistics for January 2008.

Rolling 12 month endingJanuary 2008January 2007ChangePassengers138,422,84433,932,607+13.2%Load Factor283.1%84.6%(1.4)pp

Appendix 7

Appendix 8

Appendix 9

Appendix 10

Appendix 11

Appendix 12

Appendix 13

---