CHAPTER 13 STRATEGY, BALANCED SCORECARD, AND STRATEGIC PROFITABILITY ANALYSIS

WHAT IS THE OVERALL OBJECTIVE? TO BE PROFITABLE, IN FACT, MORE PROFITABLE THAN COMPETITORS

DEVELOP A STRATEGY A STRATEGY IS A PLAN FOR EXCELLING. IT IS ESTABLISHING THE TYPE OF BUSINESS WE ARE GOING TO STRIVE TO BE

RETAIL EXAMPLE COSTCO NORDSTRUMS THESE COMPANIES DIFFERENTIATE THEMSELVES FROM THE COMPETITION ONE BY PRODUCT (SERVICE) THE OTHER BY COST

DIFFERENTIATION NORSTRUMS IS AN UPSCALE STORE THAT RARELY REDUCES THE PRICE OF ITS MERCHANDISE BUT OFFERS SERVICE TO ITS CUSTOMERS AND A PLEASANT ENVIRONMENT FOR SHOPPING. COSTCO IS A WAREHOUSE RETAILER THAT IS BASIC IN APPEARANCE, OFFERS LITTLE ASSISTANCE, AND LETS CUSTOMERS WAIT IN LINE TO COMPLETE THEIR TRANSACTIONS.

WHICH IS BETTER NEITHER!!!!! THEY EACH HAVE A DELIBERATE STRATEGY FOR THE KIND OF RETAILER THEY WANT TO BE. THEY SERVICE DIFFERENT MARKETS.

KNOW WHAT YOU ARE SOME BUSINESSES TRY TO BE LOW COST IN AN UPSCALE LOCATION. THE PROBLEM IS THAT THE CUSTOMER EXPECTS UPSCALE SERVICE AND PRODUCT AND MAY BE DISAPPOINTED. LOW COST CUSTOMERS WILL NOT EVEN ENTER BECAUSE THEY EXPECT HIGH PRICES.

DECIDE WHAT YOU WANT TO BE AND BE WHAT YOU WANT TO BE SEARS HAD GREAT SUCCESS IN THE CLOTHING MARKET UNTIL THEY DECIDED TO BECOME A “FASHION” STORE. THEY FAILED AS A FASHION STORE AND THEIR REGULAR CUSTOMERS LEFT TO OTHER MIDDLE QUALITY STORES.

BALANCED SCORECARD A SET OF MEASURES, FINANCIAL AND NON-FINANCIAL, DESIGNED TO IMPLEMENT THE ORGANIZATION’S STRATEGY.

NORTRUM EXAMPLE SOME FINANCIAL MEASURES MAY BE: –SALES PER CUSTOMER –MARKUP PERCENTAGE –AVERAGE INVENTORY SOME NON-FINANCIAL MEASURES MAY BE: –NUMBER OF CUSTOMER COMPLAINTS –PERCENTAGE OF SALES RESULTING IN A RETURN –CUSTOMER SATISFACTION SURVEYS

COSTCO EXAMPLE SOME FINANCIAL MEASURES MAY BE: –INVENTORY TURNOVER –AVERAGE SALE PER CUSTOMER SOME NON-FINANCIAL MEASURES MAY BE: –AVERAGE TIME IN CHECK-OUT LINE –MEMBERSHIP RENEWAL RATE

FORD MOTOR EXAMPLE IN THE LATE 1940s FORD MOTOR CO. BECAME OBSESSED WITH THE “BOTTOM LINE”, I.E., EVERYTHING WAS DRIVEN BY FINANCIAL INFORMATION THE QUALITY OF THEIR AUTOMOBILES DECLINED AND THEY LOST A SIGNIFICANT PROPORTION OF THEIR MARKET

A GOOD SCORECARD MOST IMPORTANTLY, IT SHOULD RELATE TO THE COMPANY’S STRATEGY IT SHOULD BE COMMUNICATED CLEARLY TO THOSE BEING MEASURED THERE SHOULD BE NO MORE MEASURES THAN NEEDED IRRELEVANT MEASURES SHOULD BE EXCLUDED, e.g., “INNOVATIVE” TECHNIQUES IN EDUCATION

CAUTIONS DON’T PLACE TOO MUCH EMPHASIS ON QUANTITATIVE MEASURES DON’T PLACE TOO MUCH EMPHASIS ON FINANCIAL MEASURES DON’T TRY TO EQUATE EACH MEASURE AS BEING EQUAL DON’T USE MEASURES WHERE THERE IS NO CAUSE AND EFFECT

BENCHMARKING SETTING A SCORE FOR EACH VARIABLE IN OUR BALANCED SCORECARD AGAINST WHICH WE COMPARE OUR SCORES OVER TIME.

AN EXAMPLE: AN ACADEMIC ACCOUNTING DEPARTMENT FIRST, WE NEED TO SET OUR STRATEGY WE WANT TO SUPPLY STUDENTS TO THE MAJOR CPA FIRMS AT A LOW COST TO THE DEPARTMENT

BALANCED SCORECARD THE PERCENTAGE OF STUDENTS HIRED BY THE FIVE LARGEST CPA FIRMS IN THE AREA THE PERCENTAGE OF STUDENTS WHO PASS THE CPA EXAM THE AVERAGE COST TO THE STATE PER GRADUATE

BENCHMARKS WE COULD USE - INTERNAL NUMBERS HISTORICALLY, 60% OF OUR STUDENTS GO WITH THE TOP FIVE FIRMS HISTORICALLY, 70% OF OUR STUDENTS PASS THE CPA EXAM WITHIN THREE SITTINGS OUR COST PER STUDENT ENROLLMENT IS $140

BENCHMARKS WE COULD USE - EXTERNAL NUMBERS OTHER CPA ORIENTED SCHOOLS PLACE 70% OF THEIR STUDENTS WITH THE TOP FIVE FIRMS OTHER CPA ORIENTED SCHOOLS HAVE A 65% PASS RATE ON THE CPA EXAM OTHER CPA ORIENTED SCHOOLS HAVE A COST OF $145 PER ENROLLMENT

WHAT BENCHMARK TO SET TO ENCOURAGE A MOVE TO IMPROVEMENT, WE MIGHT SET EXTERNAL PLACEMENT RATE, 70%, AS THE BENCHMARK INTERNAL CPA EXAM PASS, 70%, RATE AS THE BENCHMARK INTERNAL COST PER ENROLLMENT, $140, AS THE BENCHMARK

CONTINUOUS IMPROVEMENT WE MIGHT SET THE BENCHMARK AT A “LITTLE BETTER” LEVEL TO ESTABLISH A SHORT-TERM GOAL TO WHICH WE ARE STRIVING