In many ways, today’s business environment has changed qualitatively since the late 1980s. In just a few short years, Globalization has started a variety of trends with profound consequences: the opening of markets, true global competition, widespread deregulation of industry, and an abundance of accessible capital. Began to breakthrough on information technology perspective have changed the capacity to manage business independent through the traditional system restriction of space or time. From past to now, traditional performance measure system focus on ‘Financial Performance’ and usually ignore the other aspects of performance and evaluation like Financial; Customer; Internal Business Processes and Learning and Growth.
The weakness of adopting a financial performance is accounting methodologies as follow: “Certain financial analysis may be adversely affected by a company’s accounting methodologies. For example, accelerated depreciation may overstate the true depreciation cost to the company. Debt may be financed through various subsidiaries or off-balance sheet accounts. Thus, when reviewing the results of a financial analysis, an analyst must be aware of the financial accounting methodologies employed by the company. These are often discussed in the notes to the financial statements”. (By Jason P. Browning, eHow Contributor.) It is because traditional financial accounting system only can estimate matters happened in the past, but cannot evaluate forward-looking investment enterprise, therefore, should use change the department sight for a group of architecture from four aspect performance index to assess the performance of the department. So, the perfect performance management system of Balanced Scorecard (BSC) is work out by the Robert Kaplan & David Norton in 1992.
2.0 Balanced Scorecard Defined
A Balanced Scorecard is a performance management tool used by executives and managers to manage the execution of organizational activities and to monitor the results of actions. Fundamentally a balanced scorecard provides a summary level view of organizational performance at a quick glance and includes key performance indicators (KPIs) across four main areas or perspectives: Financial Perspective: KPIs for productivity, revenue, growth, usage, and overall shareholder value. Customer Perspective: KPIs for customer acquisition, customer satisfaction rates, market share, and overall brand strength. Internal Process Perspective: KPIs for resource usage, inventory turnover rates, order fulfillment, and quality control. Learning/Growth Perspective: KPIs for employee retention, employee satisfaction, and employee education, training, and development.
“The balanced scorecard concept was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a framework for managing and measurement organizational performance. The concept added strategic non-financial performance measures to traditional financial metrics to provide executives and managers a more ‘balanced’ and ‘holistic’ view of organizational performance.
Over time the balanced scorecard has evolved from its early use as a simple performance measurement tool to a complete strategic planning and management system. The latest version of the balanced scorecard transforms an organization’s strategic plan from a passive document into the active actions the organization needs to perform on a daily basis. Additionally, it provides a framework that not only provides performance measurements, but helps planners identify what should be performed and what should be measured”. (By Balanced Scorecard Institute Strategy Management Group)
2.1 The purpose of Balanced Scorecard (BSC):
“The balanced scorecard is a strategic planning methodology used by corporate executives to balance financial concerns (stockholders), customer concerns, process concerns and innovation concerns during day-to-day operations. Since each of these four concerns feed the top level strategic vision of a corporation, this balance is required to ensure that daily operations are aligned with the long-term strategic vision of the corporation”. (By Dwight Chestnut, eHow Contributor. The purpose of a balanced scorecard)
2.2 The benefits of adopting Balanced Scorecard (BSC):
The BSC method for breaking the finance as the only index of measuring tools and did the balance of various aspects. Compared with traditional performance measure system, the benefits of adopting BSC is the BSC can provide strong support for the strategic management of the enterprise. With the continuous development of global economic integration, strategic management is more important in terms of sustainable development of enterprises. The benefit of Balanced Scorecard is can improve the efficiency of enterprise overall management. The four elements involved in Balanced scorecard, are key factors in the success of the enterprise for the future development, through the balanced scorecard report provided by the management, will seemingly unrelated elements organically unifies in together, it can greatly saves the time of enterprise managers, enhance the whole efficiency of company governance, and build a strong basement for the future success of the enterprise.
The challenges of implementing Balanced Scorecard (BSC) in practice: More difficult to establish the index system. Breakthrough of the balanced scorecard to the traditional performance evaluation system is that it has introduced the non-financial indicators, overcome the limitations of single rely on financial index evaluation. However, this brings up another problem, namely how to create a non-financial indicators system, how to establish a standard non-financial indicators and how to evaluate non-financial indicators. Creation of financial indicators is relatively easy, while the other three aspects indicators are more difficult to collect, need to enterprise long-term exploration and summary. Some indexes of quantitative work is difficult to implement.
Especially for some abstract non-financial indicators of quantitative work is very difficult, such as customer index of the degree of customer satisfaction and customer retention how to quantify, another example of employee learning and development indicators and employee job satisfaction how to quantify. It also makes the evaluation of enterprise performance, inevitable with subjective factors
3.0 Main body
3.1 Tesco Company background
The company of Tesco was established in 1919 by Mr Jack Cohen in a booth stall in the marketplace. "Tesco" as a brand for the first time in 1929 in London YiJiWei appearance (Edgware) street. After that, Tesco is become stronger; catch hold of the advantageous opportunity, as a leader of trend in many areas.
When most people said their strategic planning and management system called balanced scorecard (Wizards and Chau, 2008), Tesco called the Steering wheel (Tesco 2009). This organization tool center business on core target delivery (Tesco, 2009).The only difference is that there are five perspectives instead of four, the fifth point is community (Tesco, 2009). Senior management personnel's wage is created by KPIs, with bonuses established on a descending scale according to the level of success on the steering wheel (Editors of Strategic Direction 2009)..But the balanced scorecard is seems to be a great success for Tesco as it is the UK's largest retailer. Four perspectives and specific measures
The financial perspective and specific measures: “The Financial Perspective covers the financial objectives of an organization and allows managers to track the financial success of a company for example how wealth is created for shareholders”. (Advanced Performance Institute 2010) The Financial perspective measures whether a company's strategy, implementation, and execution are contributing to bottom-line improvement (Valiris et al. 2005).
“For the sake of Tesco to achieve its target profits in 2009 it decided to charge elevated prices in its Irish stores at the beginning of the year (Cullen 2009). In order to Tesco to meet its profit targets for 2009 it had to make up to 100 employees redundant at its Irish headquarters in Dún Laoghaire (Cullen 2009). In 2008, Tesco had a profit margin of 9.3 per cent in Ireland, while its profits were €248 million and 2009 profits were projected to rise to €255 million (Cullen 2009). Tesco have reduced their costs in order to increase sales revenue. These figures may look great to the shareholders in times of economic downturn but for Tesco to cut their prices they more than likely put pressure on their suppliers (especially Irish suppliers) to reduce their prices.
This in effect can put some suppliers out of business. Tesco have also reduced their direct expenses by cutting employee hours and introducing self service scan tills into most of their stores. This may have benefited Tesco’s bottom line but it has made its employees threaten strike action”. Customer perspective and the specific measure:
“In the customer perspective of the Balanced Scorecard, managers identify the customer and market segments in which the business unit will compete and the measures of the business unit’s performance in these targeted segments”. (Kaplan and Nortan 1996, p26). It will be very hard to some companies put into affect but for Tesco it is easier as they have a value clubcard, which capacitates them to identify what their customers demand. Base on Liptrot (2005) Tesco attracts 15 million customers per week. Tesco implementing the ‘Steering Wheel’ and they appealed to all segments of the market replacing concentrate on specific segments (Liptrot 2005). Tesco wanted to gain customer satisfaction and in order to do this; they decided to cater for all incomes. And they offer three distinct ranges of own-brand products to satisfy all their customer needs (Tesco 2009).
Internal Business Process Perspective:
In the internal business process perspective, managers identify the important internal processes that the business must succeed in, in order to implement its strategy (Drury 2004). Innovation: In Tesco, the product development manager is Seaneed O’ Neill (bbc news 2002). “He is constantly on the lookout for the latest trends regarding the food market so that it can be developed into a new line in Tesco. The latest range that Tesco have delved into is the healthy eating market with its finest range. The design and development of these new products can be timely for the organization as they have to source suppliers and conduct market research. The company then has to measure the payback period of the new product and the sales from the new product (Drury 2004)”.
Learning & Growth Perspective:
Tesco hired employees from many different backgrounds and all employees have the opportunity and the company synchronous development. Most companies cannot measure learning and growth, but the result of Tesco is different, because it is periodically measure the employee's performance. Through the annual appraisal application training to employees to improve their knowledge and skills (Thetimes100 2010).However, it has been pointed out that the training is not the only point the Tesco focus on. Base on Tesco (2009), is a tailor to staff training. They treat employees like they treat their customers as persons with their own specific requirements. Tesco (2009) of off the job training and development program is called the "options" which is a accommodate program, according to staff needs, it can last for 6 months to 2 years (Tesco, 2009).The project aims to develop a wide range of skills, leadership abilities and operation skills through the process of work experience off the job, and aims to provide clear feedback and education.