Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Posted: August 27th, 2021

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

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Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Until recently, performance measures of a company have been based on evaluation of financial accounting. In this case, organizations incorporate qualitative and quantitative criteria and short-term and long-term goals when implementing evaluation performance for the company (Johansson & Carr, 2018). Thus, the most preferred approach to attain this is the balanced scored card.

A balanced scorecard can evaluate employee performance on different quantitative factors by utilizing the existing qualitative and available financial information. Quantitative measures emphasize the previous results, primarily as provided in the financial statements (Johansson & Carr, 2018; Kaplan & Norton, 1993). However, qualitative measures seek to address the current outcomes on employee activities to evaluate them to help influence the company’s financial performance in the future (Carey & Knowles, 2020; Motacki & Burke, 2011). As such, the subsequent discussion examines the balanced scored for Limpers Limited. Limpers Limited is a sales company operating in a competitive environment. Recently, the management team wanted to evaluate the quality of different strategies undertaken by the firm. Hence, the subsequent section seeks to discuss the generic strategies the company uses, understand what comprises reengineering, and understand the four perspectives of the balanced scorecard. The paper further aims to analyze the changes in operating income to evaluate strategy and identify the unused capacity.

The Generic Strategies the Company is using.

Generic strategies for a company refers to the general approaches utilized by the company to position itself in the industry. In the case of Limpers Limited, the company has been using various notable strategies. Some of these are implementing cost-cutting measures to increase its price competitiveness. Other methods include differentiation and best value approaches. Although these strategies have helped the company remain effective, additional procedures are needed to improve its operational efficiency. Thus, these strategies are explained in the balanced scorecard.

What Comprises Reengineering

Reengineering encompasses the examination and redesigning of processes and related workflows of a business for an organization. Notably, business processes refer to a set of work activities that employees perform for achieving their goals (Wang, National Research Council Canada, & International Conference on Flexible Automation and Intelligent Manufacturing, 2004; Martin, 2002). Hence, reengineering is performed to enhance flexibility, responsiveness, efficiency, and effectiveness in the company operations.

The Four Perspectives of Balanced Scorecard

Next is a general description of perspectives and illustration of Limpers Limited’s measures to achieve its strategy. These perspectives are discussed as follows.

Financial Perspective

This perspective aims to evaluate the profitability of the strategy and the creation of the shareholder’s value. The main strategic objective for Limpers Limited is to reduce costs concerning competitors and increase its sales performance. Therefore, the financial perspective focuses on evaluating the income attained from cost reduction and increased sales.

Customer Perspective

The perspective seeks to identify targeted customers. It also identifies market segments besides understanding different measures undertaken by the company within the respective components (Nejati & Nejati, 2009). Limpers Limited uses market share and performance measures as ascertained from communication networks to monitor its customers. Thus, this also helps to establish new customers and satisfaction ratings for their customers.

Internal-Business-Process Perspective

This perspective focuses on internal operations that target creating customer value, thus enhancing financial performance. According to Limpers Limited, this perspective is determined through benchmarking with its competitors based on published financial information, current market prices, customer and supplier feedback, utilization of financial analysts and experts from the industry (Carey & Knowles, 2020). The perspective is explained in three primary processes that include innovation, operational and post-sales processes. Through innovation, Limpers Limited can create products and services and improve customer services by invoking innovations in the market (Iqbal, 2019). Equally, the operational process ensures that the company can produce and deliver customer-focused products. Finally, post-sales–service processes enhance evaluation of aftersales performance, thus improving existing activities.

Learning and Growth Perspective

The perspective seeks to identify organizational capabilities that should be acquired to realize internalprocesses that are superior. Thus, this enhances the creation of customer and shareholder value (Iqbal, 2019). Thus, the Learning and growth perspective for Limpers Limited is realized through information system capabilities, employee capability, and motivation capabilities.

Analysis of Changes in Operating Income

Table 1 below shows changes in operating income to evaluate strategy for Limpers Limited in 2020.

Table 1: Limpers Limited – Balanced Score Card

Strategic Objectives Measures Initiatives Target Performance Actual Performance
Financial Perspective Increase shareholder valueGrow income Income from the growth of revenue Income from production gains   Cost management and utilization of unused capacityBuilding a strong relationship with customers $ 2, 800,0001,689,000     7.1%   $3,000,0001,980,000     8.1%  
Customer Perspective Increase the market shareIncrease satisfaction for the customer Market share across communication platforms, new customers, and customer ratings Identify the future customer needsIdentify new customersIncrease sales focus 7%       2%     93% of customers give high ratings 7.8%       2.1%     85% gave high ratings
Internal Business Process Perspective Improve product deliveryMeet specific delivery dates and quality Improve the process for service customersReengineer order delivery processes   90%       87% 92%       88%
Learning and Growth Perspective Empower the workforceEnhance system information capability Empower line workers to manage the processEnsure manufacturing processes produce real-time feedback Have coaching team of supervisorsImprove offline and online data collection. 93%       84% 94%       83%

As indicated in Table 1, the firm surpassed its target performance by realizing financial perspectives from 7.1% to 8.1%, a 1% increase. Customer base strategies, which included identifying future needs of the customer and new customers, also supposed the target by 0.8% and 0.1%, respectively. However, the strategy to increase customer sales focus fell under the mark. The internal business process perspective strategies significantly surpassed the target performance. Equally, from the learning and growth perspective, the firm sought to empower 93% of its workforce and enhance understanding of the system by 84%. The second strategy fell below the target performance with only 83% capability enhancement achieved in the information system.

Some unused capacity includes underutilized employee skills and experience. The company can manage this through target allocation of duties and responsibilities based on employee specialization, thus enhancing their performance.

References

Carey, M., & Knowles, C. (2020). Accounting: A smart approach.

Iqbal, A. (2019). Undefined. Bushra Arshad.

Johansson, H. J., & Carr, D. K. (2018, April 2). Business process Reengineering. Bain. https://www.bain.com/insights/management-tools-business-process-reengineering/

Jönsson, S. A., & Mouritsen, J. (2005). Accounting in Scandinavia: The Northern Lights. Copenhagen Business School Press.

Kaplan, R. S., & Norton, D. P. (1993, September 1). Putting the balanced scorecard to work. Harvard Business Review. https://hbr.org/1993/09/putting-the-balanced-scorecard-to-work

Martin, J. R. (2002). Who is accounting for the cost of capacity? MAAW Accounting Archive. https://maaw.info/ArticleSummaries/ArtSumBrauschTaylor97.htm

Motacki, K., & Burke, K. (2011). Nursing delegation and management of patient care. Mosby.

Nejati, M., & Nejati, M. (2009). Global business and management research: An International Journal Vol.1 No. 2. Universal-Publishers.

Wang, L., National Research Council Canada, & International Conference on Flexible Automation and Intelligent Manufacturing. (2004). Proceedings of the 14th International Conference on flexible automation and intelligent manufacturing. Vol. 2. Intelligent manufacturing. NRC Research Press.

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