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Objectives of a Balance Scorecard
Shareholder Value or Financial Perspective: Market share
The company plans to establish subsidiaries in Norway and Sweden at an estimated cost that ranges from $400 -$420 Million in 2011. It intends to execute the right plans, as well as the capability to promote the double digit growth in China. In 2011, the Coca Cola market in China should have been completely elaborate as compared to year 2006. Secondly, come up with a cash flow with potential annual synergies of $350 million. The synergies phase in over 4 years include (2011-35%, 2012-70%, 2013-90% and fully realize in 2014). Thirdly, invest adequately and ensure that the return on capital employed at the end of the year is 27% against the cost of capital of 16%. This will translate to a benefit of over $150 million from the returns in the specific accounting period.
Revenues and Costs
The company plans to increase prices of products in order to cover the high escalating prices of raw materials. The increase in prices will increase the sales by 20% in 2011. Revenues will increase as compared to the previous sales revenue. Also, implement new and specific strategies of minimizing costs by 20%. This will be done by hedging to prevent against exposures of the foreign exchange. The company will consider changing or outsourcing new suppliers so as to reduce the average unit costs. The costs are estimated to reduce to $10 per unit against the current cost of $15 per unit before the year end. Finally, increase in the number of units produced per period. The number of units sold stands at $1000 units, but the company intends to increase sales to up to $2000 units by the year 2012.
The company targets to come up a with single service and differentiated products with an aim of increasing customer experience, as well as promoting affordability by the end of the of 2011. This will translate to a profit of $80 million from the increased sales. Secondly, increase and implement a strong production capacity that enables the mass production. For example, in Mexico, sell $125,000 million units in May only, the largest projected sale ever for the company. Finally, initiatean appropriateprice mix that will lead to 8% increase in the volume growth by the end of the year. The price mix will lead to high quality in the products of the company and this will be instrumental in ensuring high customer retention rate in the year 2012.
In order for the company to compete effectively, it will establish branches and outlets of selling goods. The aim of this is to increase the sales, so as to get an edge over the competitors by the year end. Secondly, the company will innovate and come up with new selling and promotional strategies that the competitors have not yet thought of (Sinha, 2006). The strategies will be aimed at increasing the sales in the market and ensuring the competitors products are limited by the year end. Thirdly, acquire a new type of technology before the year end, so as to produce high quality goods as compared to the competitors. Finally, the company intends to invent a new business strategy, namely low cost strategy. The strategy will aim at producing goods that are cheap compared to the competitors hence making customers prefer the company’s goods rather than the competitors’ ones.
Customer Value Perspective:
Customer Retention or Turnover
The company targets to achieve high retention rate of customers by the end of the 3rd of the accounting period as compared to the 2nd quarter of 2011. This will be done through addressing customer complaints and offering warranties and guarantees. Also, the company will endeavor to offer reasonable lead time to customers and implement new policies to effect to that (Kaplan, 2010).
The company targets to increase the customer’s satisfaction from the current level to an estimated higher level by the end of the year through offering personal services, producing high quality goods, as well as offering personal services.
The company targets to increase the value given to the customer as compared to other previous periods. The customer value will be added to customers by offering them reasonable credit terms, as well as after sales services. This will provide the additional benefits to customers.
Process or Internal Operations Perspective:
Measure of Process Performance
The company targets to enhance the level of performance by regulating the number of defects and number of items reworked. Policies will be put in place to minimize the number of hours that the machine is idle. These moves will serve to enhance high performance and reduce the wastage (Figge, Hahn, Schaltegger, & Wagner, 2002).
Productivity or Productivity Improvement
The company targets to achieve high productivity before the year end by measuring the average output per employee in an effort to introduce means that improve productivity per employee. The company will increase the production capacity as well as introduce proper controls around the production area. These strategies will increase the general productivity of the company.
The company plans to initiate the right executive plan in the running of the activities of the company. The company will use the appropriate product mix to ensure operations are made easier in the company. The company will use the appropriate controls in the relevant areas so as to ensure the efficient handling of operations.
Learning and Growth (Employee) Perspective:
The company targets to increase the employee satisfaction by increasing salaries, according to the productivity of each employee. Also, the company will offer motivational talks, incentives and development channels targeted in increasing employee satisfaction. Lastly, implement a laissez faire system of leadership targeted to make employees the part of the organization.
Employee Turnover or Retention
The company targets to increase the employee retention for the next three accounting periods by offering benefits like medical schemes that cover both employees and their families.
Level of Organizational Capability
The company plans to achieve a relevant organizational structure that highlights the flow of activities from the executive managers to the employees in the lowest rank. The organizational structure will enhance smooth communication between the departments. Therefore, team building will be possible with possible benefits of the team work.
Nature of Organizational Culture or Climate
The company plans to establish policies targeted to establishing ethical guidelines and standards in the work place. This will be possible through the use of HR department. The company’s culture will affect how the employees respond to the relevant issues affecting them.
The company targets to come up with the latest technology in an endeavor to increase the production capacity, as well as efficiency of the company.
The balanced score card has been instrumental in ensuring that the company is able to align its objectives with its vision. The vision of the company simply states where the company wants to be within a given time frame (Niven, 2006). Therefore, the long-term success of the company will be determined by the competencies and capabilities it has endeavored to develop. Furthermore, the vision provides a skeleton of the company’s projections and long term plans that the company wishes to achieve. In developing the balanced scorecard, it is imperative to consider the future of the company. For instance, companies are always aiming to increase their market share up to a certain level. If the company happens to achieve the target, it projects for another level to be achieved within a specified period. Therefore, the balanced scorecard is an instrumental tool for organizational appraisal.
The mission of a company usually states the goals and the general standard the company wishes to uphold in providing in providing services to its customers. Therefore, in developing a balanced scorecard, quality of products being given to customers should be considered. The mission states that customer value should be given the first priority. Furthermore, the good customer relations are always considered imperative for a business aiming to be successful. The balanced scorecard embraces the mission of the company by having objectives aligned, according to the customer value perspective (Kaplan, 2010). Offering quality goods and personal services are some of the company’s goals that are included in the balanced score card.
The company’s values are shaped by the cultural background of the company. These values are mostly shaped by the ethical guidelines and standards of the company. It is worth mentioning that the balanced scorecard is a non financial performance measure. Therefore, it contains some attributes that other statements do not have. Values enable an individual to incorporate the related objectives in the balanced scorecard by establishing the level of organizational capability (Figge, Hahn, Schaltegger, & Wagner, 2002). The balanced scorecard borrows a lot from the values of a company in regard to the objectives to be included. Furthermore, the nature of organizational norms and technological innovations form part of the company’s norms. Hence, coming up with objectives to be incorporated in the balanced scorecard is hugely influenced by the company’s values.
In constructing an effective balanced scorecard, one of the most essential elements is the SWOT analysis which entails analyzing the company’s environment - both internal and external. The external environment highlights the areas of threats and opportunities which face the organization (Niven, 2006). The internal environment analyzes the weaknesses and strengths endowed in the company. Therefore, in developing a balanced scorecard, it is imperative for an individual to first conduct a SWOT analysis. A company using obsolete technology in itself is a weakness. Hence, in developing a balanced scorecard, the major focus should be on improving the level of technology. Also, if the company is faced with major threats from the competitors, it is essential for the company to include in the balanced scorecard, the strategies and tactics to be employed in coping with the competition.
Strengths in a company are shown by a large production capacity, able to maintain customer satisfaction and able to ensure that the employees are satisfied. In the balanced scorecard, a company will highlight the objectives that the company wishes to achieve in order to either enhance the weaknesses or increase the strengths of the company. On the other hand, a company that is faced with many opportunities from the external environment may choose to include in the balanced scorecard the objectives of utilizing the opportunities. Therefore, it is imperative to consider the SWOT analysis before developing a balanced scorecard (Sinha, 2006).
Balanced Scorecard and Its Overall Importance as a Strategic Management Tool
The balanced scorecard is a tool for an organization to identify the priorities, plans, budgeting policies and conflicting interests in the company. The balanced scorecard as a strategic management tool serves the following roles in a company;
- Translating the Vision
A company is able to achieve its long-term goals when the workers and the top management are able to understand the company’s vision. Therefore, before any implementation process, an organization needs to be completely sure about the purpose for its existence. The organization should also be to identify its business definition and be able to identify where it wants to see itself after a specific period of time. The managers should create an agreement of the business strategy to use with the overall organization’s vision (Sinha, 2006). Therefore, a balanced scorecard clarifies the company’s strategic objectives and helps align them, according to the company’s vision.
2. Communicating and Linking
Most of the times, communication of the strategies and vision is usually not sufficient. The specific objectives and measures must be evaluated so as to show the congruence. The long-term goals have to be evaluated and translated into departmental goals so as to facilitate execution when the time is due (Kaplan, 2010). Therefore, communicating the goals to each and every employee of an organization is imperative. If all employees are able to understand the information about the company’s objectives, then business unit targets, corporate targets and departmental objectives will be achieved. Therefore, only the balanced scorecard can effectively and efficiently communicate the company’s strategies to the employees.
Balanced scorecard is also instrumental in resource allocation process. It is worth noting that objectives are important in deciding the allocation of resources to various processes, activities and departments. Strategies that do not correspond to the level of allocation in a company do not amount to any productivity. Hence, the balanced scorecard aims at integrating between the budgeting exercise and strategic planning.