The balanced scorecard can also show the business’ viewpoint from the numerical side and help spot weaknesses as well as strengths.
On the other hand, the balanced scorecard also has some limitations. It is vital to set the appropriate measure which will bond with the company`s objective. However, new objectives are quite abstract and employees find it hard to spot a relevant measure. Therefore, it can be misleading and slow the strategic plans.
To sum up, the balanced scorecard is a helpful management technique which helps a company to develop but it should be used very vigilantly.
Part B
Normal financial accounting measures do not go beyond the standard financial measures whereas the Balanced Scorecard draws attention to the four key perspectives of performance of the company. These are the financial, internal business process, customer and learning and growth perspectives.
Financial Perspective
The financial perspective looks at how the company’s return on capital employed and operating profit are affected as a result of reducing cost to sell more units. Providing precise and appropriate information will be a company’s priority and managers will do everything in their power to make sure that this is done. It could be argued that improvement in the other perspective will lead to an improvement in the financial perspective.
Nowadays there is an awful lot of handling of financial data. Companies use such systems as corporate database which helps them in processing all financial information and make their job easier. However, all such systems make only an emphasis on financial perspectives leaving other perspective in a shadow.
Internal Business Perspective
The internal business perspective focuses mainly on the inner operations that benefit the financial perspective by increasing shareholder’s wealth and creating customer value for the customer perspective. This business perspective consists of three other subdivisions which are the innovation process, the operations process and the after-sales service. The innovation process simply means meeting the needs of the customers via research to be able to create products/ services that they will be interested in. The operation process ensures that all the existing products and services are being produced and delivered to the customers. And after-sales service ensures that the customers are happy with their purchases and provide them support if needed.
Customer Perspective
Customer satisfaction and customer focus is the main concern of the management within a company. With competition increasing, customers are easily able to switch between suppliers and therefore customer targets may not be met. The aim of the customer perspective is to achieve the target revenue by distinguishing the customers they will target from the market in which they will target in. Examples of measures a company may look into with the customer perspective may be customer satisfaction and loyalty or the amount of profit they are making from their customers. Based on Pareto analysis they may be making majority amount of the profit from only 20% of their overall customers and therefore may need to focus on their needs should they know what they are. There are three measures in which the customer perspective tends to fall within, these are:
Table 2
1. Quality of their products and services
2. Company’s relationship with their customers
3. Reputation and image of the company
Learning and Growth Perspective
The learning and growth perspective looks into the company`s resources – workforce and knowledge. Examples of areas in which they can measure within this perspective are: employee satisfaction, intangible assets which consist of utilization of human, information and organizational capital.
Human capital includes measures which are aimed straight at the employee by providing professional training to the workforce on a continuous basis. By doing so, the employees become a part of their intangible assets as they have more skills and knowledge. Having knowledge of the financial environment falls within the information capital area. It can include information about the markets, products and latest technologies. There can be no value for such types of information as it is vital for the company to keep track of the latest news to continuously improve. Organisational capital consists of organising the work of the personnel (e.g. motivation, layout of work and relationships). An organization will have an advantage over their competitors if they are able to manage all the capitals.
Part C
HMV operates in retail business. It sells DVD’s, blue-ray movies, games, music etc. Under each perspective HMV can choose few measures accordingly to its objectives to see how they perform so they can set up higher goals to achieve company`s objectives.
Table 3
Financial perspective
Simply by measuring profit HMV managers could be motivated to work as efficiently as they can to achieve profit target.
Also HMV’s top management could try to decrease their expenses by measuring how much of operating cost is absorbed by one customer. This could be achieved by increasing number of customers or by decreasing daily expenses spent on administration or sales.
Return on capital employed ratio shows how well a company is utilizing its capital to generate revenue. Hence why by measuring it, managers will be able to see how well they are utilizing their machinery, stores and buildings.
Customer perspective
The customer brings profit to a firm. The more satisfied customers are the more likely it is that they will return. Therefore, by measuring the following factors HMV can improve on their customer satisfaction:
As HMV sell a lot of music and DVD’s there is a probability that some of these products sold may not be of a quality standard. Nevertheless there could be other factors for returning goods. By measuring the number of defective goods amongst returned goods HMV tries and solves the problem so they decrease the amount of returned goods.
Moreover HMV can measure the number of complaints they receive and try to see how efficiently they deal with those complaints. The faster they deal with each complaint the more satisfied the customer would be. For instance, a target for each employee to deal with 10 complaints per 1000 customers could be set up and managers would have to achieve it (e.g. by investing in employee training).
Internal business process perspective
HMV could achieve higher sales by developing its internal processes such as stock turnover and employee motivation. Appropriate goals should be set up to increase stock turnover due to the reason that the higher stock turnover, the more successful the business is. The number of events during the year such as music concerts, charity fundraising and promotions as well as releases of new films would influence their stock turnover. This would make the HMV brand more recognisable. Advertisements would influence product awareness if placed in public areas e.g. underground stations near to a HMV store.
Employee efficiency is one of the major parts of successfulness of the business. Sales per employee will help to measure it. Goals could be achieved by investing in employee training.
Learning and growth perspective
HMV could concentrate on employee satisfaction, which will stimulate employees to work more efficiently. By measuring Training Hours/per employee allows the managers to see how much time was spent to train each employee. HMV managers could achieve higher standards by increasing training hours. Employee Survey helps to see how satisfied employees are in their jobs and identifies areas of improvement.
Number of discounts on books/CDs/DVDs and other incentives could be provided by HMV for their employees to make them more satisfied.
Global leading information service organisation, supplying data as well as analytical implements to clients all over the world. Experian supports businesses in managing their ability to prevent risks of adverse credit and fraud prevention from unauthorised parties.
Financial Perspective
As Experian purely deals with providing people with different financial services, it could also measure the number of its customers. That measure will show the overall view of company`s successfulness and also will stimulate managers to work on customers focus.
TrueTouch is one of the products which Experian created and launched to the market in 2007 which enhances communications with its consumers and helps to understand customer needs better. By measuring the volume of sales of TrueTouch, Experian can measure how successful the launch of the new product is and whether its worth investing in the continuation of its production. Experian provides services and incurs operating costs per customer, therefore measuring operating cost per customer could be very useful.
Customer Perspective
Number of credit applications per department helps to measure the number of customers.
By measuring the number of complaints, it helps to identify the quality of its customer services to see how satisfied customers are. The number of advertisement will increase its brand name recognisability and attract new customers.
Internal Business Process Perspective
Fraud prevention is a large service that Experian provides. They have prevented fraudulent activities of £35 million in just 6 months. By measuring this, it enables them to ensures the quality of their service. Another major service is Experian Intact which deals with cleaning data online. By monitoring the number of downloads, it will help the business measure the software popularity, its reliability and help generate additional income. As Experian provides a lot of financial data, there could be some numerical mistakes. To ensure accuracy, new systems and software can be installed to reduce the level of mistakes.
Learning and Growth Perspective
As Experian has over 33000 employees which are dealing with customers on a day-to-day basis it would be very useful to get employees trained well so the customer satisfaction level is sustained or increased. Training hours per employee will help to see if their workers are trained well enough to provide a high standard service.
Measuring employee efficiency shows how well each employee performs in taking time to deal with each client/customer. The more satisfied employees are the higher quality service they provide. Keeping an eye on employee’s satisfaction by measuring number of their complaints will increase their efficiency. Experian should see how efficiently their employees work and additional actions could be taken if employee serves not sufficient number of clients during particular period.
UK and Ireland’s largest operator in the budget hotel and restaurant sector. Listed on the London Stock Exchange as well as the FTSE4Good Index, Whitbread is the fastest growing hotel trade and the first hotel group in Britain which is a part of Visit Britain national tourist panel quality assessment scheme designated for budget accommodation .
Financial Perspectives
Franchise agreements help the company expand its business sector and increase its sales revenue and widen their reputation which would enable them to expand further.
Whitbread has a lot of assets such as buildings, land and measurement of how it utilizes their assets would be relevant. Monitoring company’s sales on a monthly or weekly basis enables them to spot any trends in the sales and make vital decisions based on that.
Customer Perspective
Views Surveys allow the customer to express their opinions or add suggestions about the business which are very helpful when trying to improve the business’ product or service, so Whitbread can attract wider range of customers and generate more sales. Customer’s complaints play an important part in decisions made to improve company’s inadequacies or faults.
By wisely analysing the complaints and solving them in a speedy and efficient manner, the business and its product or service appears more attractive to the customer. Hence, the number of complaints will decrease and this will increase its profits.
Internal business process perspective
Employee turnover measures the number of employees that were replaced over specified period in time. It helps the company to decide whether to improve their employee training schemes or whether their employment tactics are inefficient hence must be changed or amended.
Customer % using self service kiosk versus reception check-in cuts down the queuing time as well as allows the customer to book a room to their own preference if no access to internet or unable to communicate at the reception.
Similarly, online check-in helps the customer make it more convenient to book a room when they have no time to call in person.
Learning and growth perspective
If a high number of incentives are allocated to its employees this states how well the employees have performed in their tasks and activities set by the managers, which shows the firm has performed well in providing training and treating its employees fairly.
Number of apprentices in the business gives an idea how well the business uses its educational services to expand and invest in potential employees and trains them to their own standards.
The amount of hours spent on the training reflects how much the firm is dedicating its facilities to invest in better future of its employees.
Part D
Cost of quality
Nowadays quality of products and services became main priority of customers and companies. In order to keep customers satisfied a company has to provide products or services at reasonable level, therefore businesses can focus on the quality rather than quantity.
Companies use Total Quality Management (TQM) to control the quality over the production period. It is a term which describes upgrading of the production process within an organization on a continuous basis.
Managers use a Cost of Quality Report to track the costs which are incurred at each of four stages of the production of goods or the providing of services. These four stages are as follows:
- Prevention costs
- Appraisal costs
- Internal failure costs
- External failure costs
Prevention costs are the costs which are incurred to prevent defective goods from going to the next stage of the production process. Such costs are employee training, purchasing of higher quality raw materials, precautionary maintenance.
Appraisal costs consist of the costs which are spent for inspection and checking of the raw materials to make sure that they are at satisfied quality and can be used in production. Examples of appraisal costs are inspection of supplied materials and field tests.
Internal failure costs include costs which were incurred to fix, redo or repair defective goods. They consists of repair, work stoppages and scrappage costs.
External failure costs are the costs incurred after the sale the final product. Once the product of unsatisfied quality was sold and customer complained about it, that is when the external failure costs begin. It includes warranty replacement, damaged public image and all costs involved when solving customers’ issues.
Cost of Quality report helps to see where the major part of the costs are incurred and decides where additional investments are needed. If company spends a lot on internal failure costs, it means that a lot of goods are not of satisfied quality and customers are not happy with it. Additional investments in prevention and appraisal costs could significantly reduce internal costs as well as external failure costs.
Total Quality Management tries to achieve “zero defects” and fulfil customers’ satisfaction. Incurring additional costs in training of employees, purchasing of higher quality raw materials, inspection of them and all preventive maintenance costs will help an organisation to achieve these two goals. Once the production process will achieve zero defects than there will be no external failure costs and internal failure costs will be significantly minimised.
Whitbread could use cost of quality technique to reduce costs and improve their brand name. One of the services that Whitbread provides room booking within their hotels. We can take hotel room as the service they provide and examine it from total quality management point of view. Whitbread’s employees prepare hotel room for sale: room service, etc. Preparing it for use of customer qualifies under prevention and appraisal costs. If some work is not done properly (e.g. room not up to its standard) than additional costs would incur to redo this. If the customer is not satisfied with hotel service and makes a complaint this would result in external failure costs. Their brand name would be affected. Therefore, to avoid internal and external failure costs Whitbread managers should focus more on employee training and inspection. Supervisors should be appointed to check the work before selling it (appraisal cost). Using costs of quality will support Whitbread in achieving full customer’s satisfaction.
Experian can use cost of quality technique to improve the quality of their services making them more efficient and process customer data more securely. By investing into innovative technology they can develop more advanced statistical investigation methods, provide faster and more cost-efficient services to their clients. Experian is one of world's leading trade names and with their leading technology and expertise they can take full advantage of creating successful customer services and building excellent credit collection. Using total quality technique they are on a right track of achieving the zero defects satisfaction, gaining minimal failures which will help reduce expenses covered within the Internal Failure Costs.
The statistics show that poor quality could result in additional costs being incurred, BBC video ‘Quality in Practice shows that the cost of quality for sales is 20 percent in the manufacturing sector and 30 percent for businesses in the service sector. For this reason The level of demand for a product or service is determined through its quality. Consumers are more willing to purchase products/services with high level of quality rather than products/services with low level of quality. Theoretically, low quality products will not last that long and need to be replaced quickly, whereas high quality products will last for a longer period. This applies in the same way for the service sector; people tend to want ‘value for money’. This consumer behaviour has a big impact upon businesses, who are customer focused. This could be applied in both business sectors for Whitbread as well as Experian.
Target Costing
Target costing is a customer focused technique that can be used within a competitive industry whereby the organizations in this industry have little control over the selling price. Using target costing a company will be able to gain control over the selling price by pursuing the following four stages:
- Establishing a price that targeted customers are willing to pay for the product
- Take away target profit margin form target price (price which customers are willing to pay) and target cost will be worked out
- Calculate approximate cost of the product
- Define the ways in which actual cost can be reduced only in case when actual cost of product goes above the target cost
First stage involves marketing personnel. They have to do a research and find out how much customer is willing to pay for a product, which features, colours or patterns they want to be included. After deducting profit margin, company gets actual cost and in case when it goes above target cost, team of designers, management accountants, purchasing sector and other departmental personnel have to investigate where and how they can reduce costs. This can be done by replacing components to cheaper substitutions, removing unnecessary features or parts.
Reverse Engineering can be applied to spot the improvement/s that may need to be done to the product. Reverse Engineering involves examining competitors` product in every detail and deciding how they can improve their own product in order to get a competitive advantage.
In addition, value analysis should be used. It analyses the whole product from its different sides: functionality, design and cost. Customers value each feature, characteristic or parts differently. So, some of them are more valuable than other. This analysis helps to decide which features should be removed in order to achieve the target cost.
One of the Whitbread`s objectives in the near future is to expand their business. Hence why, Whitbread is planning to increase number of hotels and rooms.
Marketing department of Whitbread should do a research and find out which rooms customers are most likely to buy (e.g. single, double, luxurious) and what do they want to have in their room (e.g. TV, phone, fridge, Jacuzzi). If actual cost goes above the target cost than the team of designers, management accountants and purchasing personnel should deal with it. This team could try to find cheaper substitutes for furniture or accessories in the hotel room, i.e. redesign rooms to make them more functional.
Whitbread can also use Reverse Engineering by staying in competitors` hotel rooms to see what drawbacks and advantages they have. Based on that, Whitbread can highlight the main tasks which will be incorporated in the new hotels and rooms.
Benchmarking
It is an ongoing process of identifying, measuring products as well as services or activities against the market’s most successful businesses or divisions within the same sector in order to ascertain targets which will provide a leading advantage over the rivals.
There are key four stages for the benchmarking application which are as follows:
There are various benchmarking techniques, these are as follows:
Identifies areas of business in need of improvement by investigating long term strategies. It engages high level features such as core competencies, new product and service expansion as well as improvement of the abilities to cope with outer changes
- Performance of Competitive Benchmarking
Recognizing company’s performance in comparison to its direct rival across the entire range of industry rivals.
Accomplishing specific process enhancements in order to achieve immediate benefits
Ascertain ways of business sector improvements by analyzing certain functions commonly used within the business
Contrasts related operations within the company. A key advantage of internal benchmarking is that a company is able to get their hands on information and sensitive data more easily. Within internal benchmarking the amount of innovation is lacking and to find the best performance within the sector, companies will have to use external benchmarking.
It consist of observing other companies within the same sector to understand how their goals are being achieved in a more cost efficient way. Nevertheless this type of benchmarking is time consuming and requires a lot of resources to compare the data and information obtained.
- International Benchmarking
Similar to other projects, but more costly and complicated. International benchmarking is only necessary when the other types of benchmarking fail to achieve the desired outcome.
Since HMV is in a very competitive market, they are faced by great competition from their rivals. By using one of the benchmarking techniques HMV can identify and measure their own products and services against the best performing competitors within the sector in order to outperform them. Applying, for example, External Benchmarking HMV can achieve higher standards in serving customers at check-out, delivering stocks to the store, etc. HMV has to look how other companies perform within the same sector. Amazon, as their main rival, operates in identical market, selling similar products. Observing how Amazon provides their service to its customers, by monitoring their online sales, forums and feedback ratings, they can distinguish what customers value within their company and how can they compete with them.
Comparison and Contrasting
One of the major problems faced by HMV is the amount of online downloading there is available for people to get hold of. Due to the current economic climate group partner Waterstones have gone into administration which has created negative publicity on HMV. On the other hand one of HMV’s biggest rival- Zavvi which has gone into liquidation. This will have a positive effect on HMV`s revenue and it is an indication that they are doing better that their competitor. Currently the retail sector suffers from the overcapacity due to the fact that consumption has gone down in number.
Due to decrease in trading within the leisure sector, Whitbread is faced with maintaining its position in the budget hotel industry. Large number of higher standard competitors are slashing their prices down rapidly which will cause problems for Whitbread who are already offering low rates on their rooms and services. Hospitality sector provides customers with services whereas the retail division provides products which are more necessary in everyday life, hence why the demand for retail products would be greater. Based on research carried out on Whitbread and its main rivals, it can clearly be seen that despite of the strong competition they are faced with, Whitbread are still ahead of their rivals and more successful till date.
Due to economic crisis, Experian has lost many clients as large number of them have dissolved or decreased in size and therefore fewer companies require credit checks on their customers. In addition, Experian have had to cut down on the number of employees due to the financial crisis.
Experian has been also faced with many customers complaints relating to identity theft and inaccurate information supplied to customers as well as clients.
According to latest statistics, Experian is outperforming its main rival Equifax by being the leader in this type of industry.
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