Discuss About The Enterprise Structured Into Four Businesses.
As an employees of Jersey management consultancy, I was tasked with preparing a report to the CEO of George Weston Foods limited. The firm is currently reviewing its budgeting system with the CEO having an interest in the Balanced Scorecard. Having attended a seminar regarding a balanced scorecard, the CEO of the George Weston Foods requested our firm to evaluate the suitability of the balanced scorecard to their organisation.
This report thereby gives an overview of the George Weston Foods as well as the BSC system. Afterwards will evaluate the uniqueness of the BSC to other management systems. Finally, the suitability of the balanced scorecard will be analysed, and a recommendation made to the CEO on the way forward.
A description of George Weston Foods (GWF)
George Weston Foods limited is large food company operating in Australia and New Zealand with over 6000 employees spread across over 58 sites. The firm is a wholly owned subsidiary of Associated British Foods plc (ABF). ABF is a diversified food retailer who deals with sugar, agriculture, grocery and ingredients. The firm has over 10,000 employees who are spread across 46 countries. GWFs have been in operation for over 50 years of which the firm have grown to be one of the largest Australian and New Zealand’s food processor. The enterprise is structured into four businesses; Don, Mauri, Jasol and Tip Top. These businesses are responsible for several diverse activities which includes marketing, selling, distributing, innovating and manufacturing (George Weston Foods Limited, 2018).
A description of BSC and its features
The balanced scorecard is a strategic performance management tool, a mini standard structured report that can be applied by managers to keep a record of the staff execution of activities. This enables the management to monitor the staff actions and be able to control the consequences that may arise from the staff actions. The term balanced scorecard was primarily used to refer to management performance reports that were applied by the managers in implementing the organization’s strategies and operational activities (Ouchi, 1977).
The scorecard can also be applied by individuals in tracking their personal performance. This though is not commonly practised. The BSC can be applied in informing personal goal setting and calculating incentives. Balances scorecard can be defined by the below highlighted critical features;
- It gives weight to the strategic agendas of the concerned firm
- It involves a selection of a small sample of data to monitor
- The data involved in the balanced scorecard evaluation is a mixture of financial and non-financial data sets (Muralidharan, 2004).
Balanced score card is an example of a closed loop controller that the management put in place during strategy implementation. Here the actual performance is measured, the obtained value is thereafter compared to a reference value. The difference between the two will determine the corrective measures that the management need to put in place to optimise the performance of the enterprise. For the control measures to be effective there is need to accommodate three aspects;
- Selection of data to be measured
- Setting of the data reference values
- Capacity to make corrective intervention
From the strategy management perspective, all the three features of closed loop control elements should be derived from the firm’s strategies and should reflect the capacity of the observer to analyse performance and make appropriate interventions where necessary. Initially the use of balanced scorecard was promoted as a general-purpose performance management system, it was later promoted uniquely as a technique for evaluating strategic performance (Kaplan & Norton, 1992). The system has of recently been adopted by several organisations in their approach to measure and control strategic performance.
The two factors which still hinder the application of balanced score card designs are ease of selecting and observing the necessary data as well as ensuring data selection is in accordance with the observer’s capacity to intervene.
Features of balanced score card
The BSC is a management tool applied in evaluating an organisation. Rather than evaluate single features of the frim, the BSC takes in to consideration numerous features of the firm. From the late 1980s to early 1990 when the idea of BSC was first proposed, the idea has undergone evolutions with a recommended improvement. The system has become more flexible and is currently applicable to a variety of firms from several sectors (Epstein & Manzoni). The effectiveness, ease of use and designing of the systems have also been made easy. By using the balance scorecard, several features can be evaluated with equal weight. This way the success of a firm is evaluated based on its success on all the features. Even though several features can be added to the BSC based on the managers intention a good balance scorecard should accommodate at least the four features described below.
Evaluation of finances: this is one of the most ancient t feature that the balanced score was designed to measure. Finance plays a direct role in a firm’s profitability and no manager will show any interest in a tool which can not evaluate profitability. One of the objectives of the shareholders is to see the profitability of the firm improves (Kaplan & Norton, 1996). The managers being agents of the shareholders are expected to follow in the footsteps of the shareholders. Measurements of aspects such as return to equity, return to asset and profitability margins are crucial to the future strategies of the firm. This make this aspect of the BSC to be given more weight than all the other areas that the scorecard may be used to measure.
Gauging consumer perception; consumers defines the success of the organisation. Profitability is defined by sales which can only rise when the firm is able to seek and retain more and more consumers. The use of the BSC should therefore be able to measure the perception of the consumers regarding the firm. This way the manager will be able to evaluate the level of contention among the consumers and areas that need to be reviewed to make the consumers happier with the products of the firm. The measurement of consumer is a bit straightforward when compared to the financial evaluation as it lacks similar static performance indicators. Customer perception of a firm can normally be obtained through surveys which are designed to seek consumers opinion regarding the quality of the organisations’ products, their preference to the business brands and their willingness to be associated with the firm (Abernethy, Horne, Lillis, Malina, & Selto, 2005).
Identification of the firm’s internal business procedures; for a company to thrive it needs to have a good understanding of its competencies. The BSC can be applied to identify the internal business processes. This involve but is not limited to processes that are crucial, to the success of the firm and analysing the firm’s performance in these areas. With this the BSC can be used to gauge the efficiency of the organizations operations. Some of the areas that may be of importance are manufacturing, marketing and distribution (Shulver & Antarkar, 2001).
Growth and learning; the only way firms can constantly retain their market share is through constant development and technological advancement. It is therefore vital for the balance scorecard to be able to measure growth of the organisation by analysing the development progress. The BSC can be used to measure ways in which a firm is developing new innovations and the efficiency with which the growth can be converted to profitability of the firm. More dynamic firms do score higher in the BSC evaluations.
Design of BSC
The design of the BSC is concerned with identifying a sample of a small section of the financial and non-financial measures and incorporating targets beside them. this way through reviewing the measures the firm can gauge whether the current performance of the firm is as per the expected standards. The BSC will alert the managers to sections where deviations are significant and are out of the expectations’ bracket. Pointing out such areas allows the managers to focus their attention on them, this may trigger positive performance from the leadership of the enterprise (Moulin, 2017).
Originally BSC was designed to concentrate focus on information that relates to the strategies implementation, with time this boundary has been crossed and currently its being applied to cover both the control activities as well as the conventional strategic planning. The four steps below needed to design BSC will give a further illustration of this concept as per (Kaplan and Norton, 1990).
- Vision translation into operation goals
- Vision communication and link to performance of individuals
- Business planning (setting index)
- Feedback, learning and proper strategic adjustments
These steps are not just restricted to the identification of a small sample of financial and non-financial measures, they need to give an illustration of the design requirements in the process that will be applied to fit the result of the BSC to the overall business management procedures. Despite helping focus managers attention on strategic issues and the strategic managements implementation, we should take in to account that BSC plays no role in strategy formation and can even co-exist with the strategic planning systems as well as other tools (Ahn, 2001).
Ways in which BSC is different from traditional performance measurement systems
The traditional performance measurement systems
The traditional performance measurements systems are only concerned with tracking the firm’s financial performance measurements. The focus in this case is primarily in internal accounting reports pertaining to cashflows, earnings per share, revenue, profitability, return on asset as well economic value addition. These measures are referred to as lag indicators since they only reflect historical data performance. Despite the measures significance in assisting make decisions, relying on them may lead to incorrect steps that may end up curtailing the performance of the firm in the long run.
The over-relying on the financial metrics might be harmful as the managers may be misled in to making decisions that sacrifice the enterprise long term gains for the benefit of the short-term period. For instance, cost minimisation may appear to improve the firm’s profitability only to derail quality and lead to loss of business clients in the long term. The traditional measures were designed and applied in the industrial age. At that moment the use of historical data was sufficient to make production decisions. In the present business environment production have evolved from the past mass-production based to knowledge based. With this transformation relying solely on the measurement of tangible assets is no longer enough. Firms must go an extra mile to evaluate intangible assets like consumer relationship, intellectual and human capital (Irwin, 2002). The competitive environment that surround the current organisations make overreliance of measuring tangible assets performance to make decisions to be insufficient. There is need for firms to measure intangible assets and address the issue of business rivalry, this is not made possible by the traditional performance measurements systems since they are backward looking and may not assist the managers identify future problems that may threaten the profitability of the organisation.
Secondly, there is no link between the traditional performance measurements with the strategies of the organisation. Strategy is what defined a firm’s long-term success, scope of operations, matching firm’s activities to its available resources as well as accommodating the values and expectations of the firm’s stakeholders. The traditional performance measurements systems concentrate on the short terms profitability hence fails to connect the organizations long terms goals with the short-term decision making. For a firm to be successful there is need to make decisions that not only appreciate the past positive outcomes but also ensures positive future outcomes. Currently businesses face intense competition and therefore need to be flexible and adaptable to sustain and gain from competitive advantage. Firms need to strive to perform better in key critical areas such as organizational flexibility, customer relationship, supplier’s relationship, product and service quality, employees’ relationship, technical know-how among others. This makes the need to invest in the intangible assets to be a vital part of a firm’s strategy.
The intangible assets have capacity to create value and determine the long-term success of the organisation making them a serious source of competitive advantage (Kellermans, Floyd, Veiga, & Matherne, 2013). It is therefore necessary to measure the intangible assets to act as indicators to the management. Traditional performance systems do not cater for such measurements as they are non-financial. Focusing on the lag indicators at the expense of lead indicators brings the problem of short sightedness to the managers.
For this reason, the traditional performance evaluation systems are no longer relevant to the currently fast changing and dynamic environment. Using only one type of performance metric cannot be adequate to illustrate the entire performance, firms need to interrelate their strategies with the performance measurement metrics. With this both the nonfinancial as well as the financial measurements metrics need to be accounted for. The linking of the short-term decisions to the organization’s strategies and long terms expectations is what define a business success.
The BSC is a performance measurement tool that was designed to address some of the weaknesses that have been noted in the traditional performance evaluation system. Its use considers strategic non-financial performance metrics, something which the traditional system failed to consider. With the measurements of both the financial as well as the non-financial aspects of the organization’s operations the BSC provides a balance view of the entire performance. The system indicates changes in the modern business environment which have becomes more competitive and dynamic through the evaluation of the intangible assets performance.
The system is integrated in a way that the business activities are aligned to the organization’s strategy. The performance is linked with the strategic targets of the firm. This gives a highway through which the firms strategic goals can be translated to unique quantifiable performance targets which can be measured thereafter. The performance objectives are evaluated using four-interconnected perspectives;
- Financial perspective, this focus primarily on the forms financial targets. Here the BSC deals with tracking and observing financial success and the company’s appearance in the eyes of the shareholders. The measures undertaken include revenue, return on capital, cashflows etc. this is the only area that the traditional performance evaluation systems were designed to measure.
- Consumer perspective, this angle of evaluation is concerned by the way consumers view the firm. The focus here is the satisfaction of the clients and their retention. The aspect relates to the long-term stability of the organization. Through measuring consumer perspective, the firm can plan for the company’s long-term targets. The areas measured here include; consumer retention rate, satisfaction rate, delivery of quality, existing market share as well as percentage of sales to new clients among others.
- Growth and learning perspective, this aspect focuses on the intangible drivers of future growth examples being human and operational capital. the issues of interest in this area include capability of the firm to maintain growth, improve and create value. Due to the competitive and dynamic business environment there is need for firms to constantly adapt, change, learn, improve and innovate to create future value for survival purposes. Some of the measures given weight in this aspect include employee turnover, training, development rate of innovation among others (Clark, 2018).
- Internal business processes perspective. This aspect focuses primarily on the internal performance that the firm should attain to remain afloat. This assist defines how well the firm is operating and highlight the activities that are necessary to meet the needs of the consumers. For a firm to be competitive there is need to excel in areas that are key to delivering needs of the clients such as value addition to services and products, effective internal resources and assets utilisation among others. Some of the measures here include efficiency levels, unit costs value analysis as well as alignment of processes.
BSC stress the analysis of the four using the above described four perspectives from where the performance metrics are designed, collected and analysed accordance with each of the perspectives. The measurements and analysis of the aspects are correlated. By stressing on learning and growth aspects the firm will eventually be able to provide high quality internal processes which in turn means achieving the consumer needs and gaining more market share and clients loyalty necessary for future business success. The satisfaction of consumers will eventually transfer to better financial performance. The interrelation between the perspectives means that should a firm be able to excel in all of them then the firm will be assured of better long term financial success (Vaishak, 2018).
Suitability of BSC to George Weston Foods
The suitability of the BSC to George Weston Foods will be analysed based on how the aspects fit into the firm’s operations as well as future targets. From the alignment model of George Weston Foods, the firm aspire to diversify its businesses by working towards a common purpose, values and vision. It targets defining behaviours and capabilities that are necessary for future success. By 2020 the firm target to crate a world where consumers value and desire their products, services and expertise. The purpose of the organization clearly indicates that meeting the consumer demands and preference come first (George Weston Foods Limited, 2018).
To attain this target, the firm need to link the performance measurement criteria to the strategies put in place towards achieving the company purpose. Strategic decisions take place at various points of management, its therefore crucial that the firm’s objectives of business units are linked with the performance measurement system. The use of the traditional performance measurements that only concentrate on the financial performance is not relevant to the targets of George Weston Foods. The food industry is competitive and constantly changes as cultures mix and people come up with new preferences. The competitiveness requires the firm to innovate advance storage and transport facilities to maintain freshness. In addition to coming up with new recipes that meets the consumers preferences and tastes, this cannot be attained by solely relying on the traditional performance measurement system. There is need for performance to be in line with the firm’s purpose while at the same time taking measurements that encourage growth and positive future results which can replicate the historical positive performances.
The BSC is an integrated strategic management system that has addressed the vacancies which were previously present in the traditional performance measurement systems. The use of BSC will provide a balanced view to the managers of the GWF in that they are able to make decisions that are in line with their long-term aspirations. Since the firm’s objectives are targeted at future success the BSC seems to be the appropriate tool as it is future oriented giving a view of what the firm wants and what it needs to do to achieve this. Using the system avails avenues for testing the success of the firm towards achieving the set future targets hence the management will be able to make appropriate changes where necessary. By applying the use of BSC to the firm GWF’s managers will be able to transform their approaches from reactive to proactive. With this the firm will be able to think ahead and tackle future issues with much success. It is therefore recommended that the CEO of GWF consider implementing the BSC as tool to fend off competition through monitoring the future and taking advance steps towards achieving future targets.
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