Balanced Scorecard Program Lia Torre Terri Leofsky Tory Kindlick Yoftahe Zewdu Iyolo Mabila Rachel Katz

Company Overview Nation’s largest bookstore As of January 31, 2009 operated 778 bookstores and 1 website. Employs 37,000 full and part time employees Each store features 60,000-200,000 unique titles BN.com does 10% of total sales Annual 2008 Sales $5.1 Billion (Yufi)

Company History Current company chairman, Leonard Riggio, started as a clerk at the NYU bookstore. Started his own competing book store in 1965 In the 1970s acquired the declining flagship Barnes & Noble trade name and flagship bookstore in Manhattan. Within a few years, Mr. Riggio transformed the Fifth Avenue store into "The World’s Largest Bookstore," with 150,000 textbook and trade titles.  (Yufi) Leonard Riggio, the company's chairman, began his bookselling career while attending New York University in the early 1960s.  Working as a clerk in the university bookstore, he became convinced that he could do a better job serving students, and he opened a competing store of his own.  With a small investment, Mr. Riggio established the Student Book Exchange (SBX) in Manhattan's Greenwich Village in 1965.  The store quickly became one of New York’s finest bookstores, known for its knowledgeable staff, wide selection and great service. By the 1970s, Mr. Riggio’s thriving business, which included six other college bookstores, acquired the flagship Barnes & Noble trade name and flagship bookstore in Manhattan, which had fallen into decline. Within a few years, Mr. Riggio transformed the Fifth Avenue store into "The World’s Largest Bookstore," with 150,000 textbook and trade titles.   Mr. Riggio’s commitment to students continues today through Barnes & Noble College Booksellers, a wholly owned subsidiary of Barnes & Noble that operates more than 600 college bookstores on college and university campuses in 50 states, serving nearly 4 million students and more than 250,000 faculty. Source: Barnesandnobelinc.com

Barnes & Noble operations consist of: Company Operations Barnes & Noble operations consist of: retail bookselling college bookstore management online retailing book publishing (Yufi)

Company Mission Our mission is to operate the best specialty retail business in America, regardless of the product we sell.  Because the product we sell is books, our aspirations must be consistent with the promise and the ideals of the volumes which line our shelves.  To say that our mission exists independent of the product we sell is to demean the importance and the distinction of being booksellers. As booksellers we are determined to be the very best in our business, regardless of the size, pedigree or inclinations of our competitors. We will continue to bring our industry nuances of style and approaches to bookselling which are consistent with our evolving aspirations. Above all, we expect to be a credit to the communities we serve, a valuable resource to our customers, and a place where our dedicated booksellers can grow and prosper. Toward this end we will not only listen to our customers and Booksellers but embrace the idea that the Company is at their service. (Yufi)

Competitive Landscape 1) Amazon.com, Inc. 2) Books-A-Million, Inc. 3) Borders Group, Inc. Industries Where Barnes & Noble, Inc. Competes: Music, Video, Book & Entertainment Retail Nonresidential construction Media Clay, Ceramic, And Refractory Minerals Publishing Retail (Yufi) Hoovers.com

Competitive Landscape

Competitive Landscape

Competitive Landscape

The Balanced Scorecard Financial Perspective Goals Measures How do we look to owner’s? In which activities must we excel? Customer Perspective Goals Measures Operations Perspective Goals Measures How do customers see us? (Yufi) How can we continue to improve? Innovation Perspective Goals Measures

Customer Perspective Goals: Objectives: 1) Satisfy Customer Needs 2) Maintain Brand Awareness Among Customers Objectives: Increase Customer Loyalty/Retention Maintain strong sense of Customers’ changing needs Add value and convenience for customers Increase perception as community store (Lia)

Customer Perspective Objective #1: Increase Customer Retention/Loyalty Measure: Increase in returning customers online and in retail locations Target: 80% of customers are repeat / 20% increase in loyalty program sign ups Initiatives: Provide excellent customer service and an outstanding customer experience either online, at retail locations or through the service center. Give customers free access to loyalty program during certain times Nook Hotline (Lia) 40% of hardcover best sellers, 20% discount on all hardcover best sellers, 10% on everything else, periodic specials. $25.00 annual fee, non refundable after 30 days.

Customer Perspective Objective #2: Maintain strong sense of Customers’ changing needs Measure: Number of online surveys filled out Target: 1,000 surveys completed per country Initiatives: Incentives customers to provide insight as to how B&N can be of better service Customers who fill out online survey get 10% off their next purchase (Lia) Annual Report – page 7

Customer Perspective Objective #3: Add value and convenience for customers Measure: Increase number of visitors to website Target: Increase number of visitors from 365 Million to 450 million Initiatives: Drive customers to website using affiliate marketing tactics, giving customers free shipping on their online orders, presenting in-store customers with coupons valid on internet purchases only, offering customers special information only available on the web (info about in store events, coupons) In-store kiosks (Lia) Annual Report – page 7

Customer Perspective Objective #4: Increase perception as community store Measure: More people participating in B&N programs Target: 5% of B&N customers to participate Initiatives: In-store book clubs, online book club blog, test prep courses, Local college affiliation (sell university clothing and books), open mic night poetry reading (Lia)

Financial Perspective Fiscal Year Jan 31-Jan 31 (Recently shifted year to end April 31) No debt on the balance sheet $282 million cash on hand Comparable sales down 5.4% Net Income of $76 million Leonard Riggio owns 1/3 of company’s share 16

Financial Perspective Goal: 1) Financial Stability Objectives: Maintain Real Estate Strategy Increase Department Same Store Sales Increase B&N.com Financials Increase EVA 17

Financial Perspective Objective: Continue to exit small stores in the malls and sign shorter leases than competitors Measure: Sales per total square feet year over year Target: Restore sales per square foot to 2007 levels Initiatives: Continue Real Estate Strategy, Continue to relocate stores at end of terms to higher potential locations As stated in the Annual Report for 2008, B&N has a real estate strategy to first exit the declining small store businesses in the mall (B. Dalton stores), and to sign shorter leases than those of their competitors. Additionally they plan to relocate stores at the end of their term to accommodate the ever-changing landscape of retail development. This strategy has shown that their long-range lease obligations are declining as a percentage of sales and that their sales per square foot lead the industry. The numbers for Borders which are from their Annual Report prove that Barnes and Noble lead the industry in sales per square feet. The numbers have dropped in 2008 from previous years. Our target for Barnes and Noble is for them to restore their sales per square back to 2007 levels. Our suggestion for them to achieve this is to continue their real estate strategy mentioned above and to continue to relocate their store at the end of their term to higher potential locations. By following through this strategy we are hopeful they will achieve this goal. 18

Financial Perspective Objective: Continue to increase sales by department (return to 2007 levels) Measure: OBY department sales increase; particularly the children’s department Target: Increase category by 5% year over year Initiatives: Increase promotional activities within the children’s department; Direct mail & Online e-mail by interest, Increase awareness of book blogs and online book clubs As shown above OBY sales in 2008 have dropped 5.4% from 2007. OBY represents “Open both years”. These are stores that have been open for 2 years in a row, so you are able to compare the same number of stores and get a more accurate feel of sales. If you look at all store sales year over year the results will be misleading as more and different stores may be open in one year vs. another. The annual report states that the children’s department has notably increased and that children’s book sales are a harbinger for the future of Barnes and Noble. Our recommendation is to monitor OBY sales by category. This will allow the company to see which departments are thriving and which departments are not. They can use this data to improve the categories that are decreasing and grow the departments that are increasing. We believe that Barnes and Noble should increase their promotional activities within their children’s department since that is the notable thriving department. Additionally we recommend that B&N sends out mailings specialized to their customers ‘ interest. Our last recommendation to B&N is that they increase the awareness of the online book club and blog. The book club and blog really bring their customers together and increase bonding amongst their readers. 19

Financial Perspective Objective: Increase B&N.com Financials Measure: Increase B&N.com sales Target: Increase sales by 3% Initiatives: Advertise within the store, Increase online ONLY promotions, Start a book blog on Starbucks.com Barnes and Noble.com is obviously an important factor is Barnes and Noble’s overall success as a company. In 2008 sales from B&N.com decreased. Barnes and Noble.com receive over 365 million visits annually. Our target is for B&N.com sales to increase by 3%. Our initiatives are for Barnes and Noble to increase their advertising of B&N.com throughout the store. We also recommend that they increase their online ONLY promotions. They would send out these promotions through e-mail and they would not be valid in the store. Our third recommendation is that Barnes and Noble places a link on the Starbucks website. Here they could create book blogs and online book clubs specific to Starbucks customers. 20

Financial Perspective Objective: Maximize Shareholder Value Measure: Increase EVA Target: Bring EVA to a positive Initiatives: Increase Profits Control Expenses Control Capital Increase Accounts Payable For the past 3 years Barnes and Noble has had no long term debt. Additionally, the EVA for the past three years has been negative. It was lowest in 2008. Our target for B&N to achieve maximizing shareholder value is to bring EVA to a positive. Our recommendations on how to achieve this are to increase profit, and to control expenses and capital. We also recommend that Barnes and Noble tries to increase their accounts payable. If they are able to negotiate long terms on their bills they will increase their liabilities which will in turn decreases the investment charge. If they decrease their investment charge and increase their operating income their EVA will improve. 21

Financial Perspective 22

Internal Operations Goals: Increase efficiency of operations to decrease costs Innovate to improve effectiveness of meeting the needs of our customers Objectives: Improve employee productivity Improve inventory management Reduce order-to-delivery time for B&N.com orders Develop customer focused process innovations The next perspective is internal operations. Our internal operations goals include: increase efficiency of operations to decrease costs and innovate to improve the effectiveness of meeting the needs of our customers. The following objectives will be used to obtain these goals: Improve employee productivity Improve inventory management Reduce order-to-delivery time for B&N.com orders Develop customer focused process innovations

Our initiatives for obtaining this goal are: Internal Operations Objective #1: Improve employee productivity Measure: Annual sales/number of employees Target: Increase by 10% year over year Initiatives: Motivate employees to perform at a higher level of productivity through incentive programs. Provide employee effectiveness training. Install in-store kiosks. Our first internal operations objective is to improve employee productivity. Our measure for this objective is annual sales divided by number of employees. Based on current annual sales/employees information found at Hoovers.com B&N earns sales of 138,427.02 per employee per year. Amazon the industry leader earns 925,898.72 per employee per year. Since it is clearly not feasible to bypass amazon.com in employee productivity (at least for now). We feel increasing by 10% is an obtainable goal and will still keep them significantly ahead of the other competitors whose annual sales/employee were less than B&N. Our initiatives for obtaining this goal are: Motivate employees to perform at a higher level of productivity through incentive programs, such as # of sales competitions or “employee of the month” competitions. Also, just treating you employees well in general helps motivate them to do a better job. B&N should continue to reward their employees such as overtime for holidays, and 401K contributions. These added perks go a long way. Provide employee effectiveness training. Train staff on how to do a good job. Install in-store kiosk. Self-serve kiosks will help decrease staff needed to assist customers, thus increasing the amount of work that can be done by the same number or less staff members. This increases overall productivity.

Our initiatives to attain this include: Internal Operations Objective #2: Improve inventory management Measure: Inventory turnover Target: Increase to 6% Initiatives: Continued improvement of supply chain system to reduce inventories. Better utilization of customer data to predict needed inventory levels. Our second internal operations objective is to improve inventory management. Our measure here is inventory turnover. Inventory turnover = (sales/inventory). The current industry median is 5.4. B&N current inventory turnover is 2.8. Amazon.com’s current inventory turnover is 11.5. Books-a-million’s current inventory turnover is 1.7. Borders’ current inventory turnover is 2.4. Since B&N already has better inventory turnover than all of its competitors with the exception of Amazon.com. Our target is to increase the turnover to 6%, so that B&N is above the industry median. Our initiatives to attain this include: Continued improvement of supply chain system to reduce inventories. B&N needs to finish their current process of integrating the in-store Bookmaster system with B&N.com. This consolidated system will give customers the same experience across channels and also make it easier for B&N to manage their inventory. Better utilization of customer data to predict needed inventory levels. B&N should focus on analysis of their customer data to better predict inventory levels. Consolidation of the inventory system will make this process much easier.

Internal Operations Objective #3: Reduce order-to-delivery cycle time for B&N.com orders Measure: Average order-to-delivery time Target: Decrease delivery times by 15% in first year Initiative: Leverage relationships with shipping vendors to get a higher level of service. Monitor online ordering process for bottlenecks. The next objective is to reduce the order-to-delivery cycle time for B&N.com orders. Improving the customer experience for online orders promotes ordering through B&N.com decreasing the cost of selling for B&N. Our measure for this objective is average order-to-delivery time. Our target is to decrease delivery time by 15% in the first year. Initiatives to help us obtain this goal include leveraging relationships with shipping vendors to get a higher level of service and monitoring the online ordering process for bottlenecks. With 477 million in B&N.com sales for 2008, B&N sells and ships a lot of items. They should leverage this business with shipping vendors to get better prices and service to help get items to their customers quicker. B&N should also monitor their online ordering process for bottlenecks to ensure operations are as efficient as possible.

Internal Operations Objective #4: Develop customer-focused process innovations Measure: Number of innovations Target: Two innovations in first 5 years of implementation Initiatives: Install in-store kiosks for finding books in the store. Develop mobile applications for android devices. Our fourth and final internal operations objective is to develop customer-focused process innovations. The measure for this objective will be the number of innovations. Our initial target will be two innovations in the first five years of implementation. The initiatives we would like to use to meet this target are: 1. To install in-store kiosks. These kiosks would help individuals find specific books in-store or browse categories to find books they may be interested in. This is a strategy Borders uses to give customers a consistent experience from the web to the store. This will help B&N reach customers in-store without them always having to rely on a sales associate. This also helps decrease selling costs. If customer’s can find their own books via an in-store kiosk instead of asking a sales associate, less sales associates will be needed at any given time, thus decreasing the cost of sales in-store. 2. Our second initiative is to develop mobile applications for google android smart phone devices. Barnes and Noble already has mobile applications for the blackberry and iphone/ipod touch devices. As google android devices gain popularity, B&N should develop applications to meet these customer’s needs, as well. These applications should have ereader and inventory searching functionality. Again, allowing customers to search for their favorite books on their google android cellphone will not only be convenient for the customer, but will also decrease selling costs. Since the in-store kiosk initiative will require a significant hardware and software investment and the mobile application development will require significant staff hours, we have decided two innovations in the first 5 years is a reasonable goal given that they will be costly endeavors initially. And now, I will hand it over to Iyolo who will talk about Innovation and Learning at B&N.

Innovation and Learning Goals: Grow through innovation, mergers, acquisitions, and global expansion Grow internally through employee empowerment Objectives: Increase market share through innovation. Expand global presence by penetrating international markets. Growth through mergers and acquisitions. Employee Growth. (Iyolo)

Innovation & Learning Objective #1: Expand global presence by penetrating international markets Measure: Derive 5 % of overall revenue from international sales over a five-year period Target: Acquisition of bookselling companies with global reach Initiative: Apply best practices used in the US and adapt those to local markets Leverage technological progresses such as digital or print-on-demand technology; Thus cutting down the need to ship books since they are manufactured close to the customer on a just-in-time basis.

Innovation & Learning Objective #2: Increase Market share through innovation Measure: Number of new customers acquired as % of overall market share Target: 10% increase in Market share over a 5 year period Initiative: Promotion of the Nook. Book Clubs. Promotion of Children’s section. Accept Borders coupons. On July 20, B&N launched an online store for digital books with 700,000 titles — including best sellers and classics — reportedly more than twice what Amazon can offer. Clearly, the selection of titles is vast. while B&N has announced that they too will be offering a touch-screen book reader, using B&N's electronic bookshop does not confine a user to their device alone. While they won't be compatible with Kindles or Sony readers, they will work with the iPhone and iPod touch, Blackberry, and most MAC and Microsoft Corp Windows laptop and desktop computers. So here is the battleground: If B&N can convince sufficient numbers of customers that either their system or an open e-book system which can work with many devices, they could cut Amazon's attempt to own the e-book category off at the pass.

Innovation & Learning Objective #3: Growth Through Mergers and Acquisitions Measure: Continue company growth through advancement of acquisitions Target: Turn B&N College Booksellers library into ebooks and increase annual earnings by 30-35% Initiatives: Advance ebook software make the nook appealing to a new market segment Increase market share for e-textbooks

Innovation & Learning Objective #4: Grow internally through employee empowerment Measure: Increase employee retention Target: Return employee growth rate to positive figure Initiatives: 980 work schedule Increase worker salary above industry standard Increase management standards Incentivize employees based on merit Employee networking events Barnes and Noble lost 2,775 employees between 2008 and 2009. This number is alarming, despite the fact that our country is amidst a recession that has caused massive layoffs. Their top competitor, Amazon, increased their employee base by 35.5% in the same time period. This shows that B&N needs to take some initiatives to keep their employees. By doing so, they will avoid the hiring, firing, and training costs that come with high employee turnover rates. The following ideas could return the employee growth rate to a positive figure if implemented into B&N. 980 work schedule—This idea is for the corporate employees. If the workers are asked to work a standard 40 hr work week, the company would change this requirement to a an 80 hr two week requirement. This gives the employees the option of working extra time each day, and can result in having every other Friday off. A long weekend every other week is an enticing idea. Increase worker salary above industry standard--According to Glassdoor.com, the average salary for the bookstore workers are below average. If B&N were to increase their average worker salary to above the industry standard, they would not lose employees who are unhappy with their paychecks. An increase in salary would also allow B&N to hold their workers to higher standards than their competitors, thus creating a better environment within the stores. Increase Mgt Standards—An increase in management standards and expectations will create more suitable leaders for the B&N stores. Good management yields good and happy employees. Incentivize Employees Based on Merit—If management were to reward individuals based on their performance, it would set a higher work standard throughout, and also show employees why a certain individual is being promoted or rewarded with higher pay. Employee Networking Events—A great way to incentivize employees is to have people from corporate offices come speak to the B&N bookseller employees. B&N takes pride on promoting loyal and competent workers up through the ranks of their company. It shows that hard work pays off in the long run, and is inexpensive for the company 2009 Employees 1-yr Employee Growth Employee Retention Barnes and Noble 37,000 (7.5%) (2,775) Amazon 20,700 35.5% 7348 Books-a-million 5,300 6% 318 Borders 25,600 (13.2%) (3,379)

BSC Perspective Mission Goals Objective Link Our mission is to operate the best specialty retail business in America, regardless of the product we sell.  Because the product we sell is books, our aspirations must be consistent with the promise and the ideals of the volumes which line our shelves.  To say that our mission exists independent of the product we sell is to demean the importance and the distinction of being booksellers. Maintain Real Estate Strategy Increase Department Same Store Sales Increase B&N.com Financials Increase EVA Industry Leader in Book Retailing Financial Increase market share through innovation Expand global presence by penetrating international markets Growth through mergers and acquisitions Grow internally through employee empowerment Learning and Growth Increase Customer Loyalty/Retention Maintain strong sense of Customers’ changing needs Add value and convenience for customers Increase perception as community store Customer The chart above shows linkage examples amongst our perspectives. This is one of our linkages (brown squares): Our financial goal is to increase department same store sales and increase B&N.com financials. A focus on our department same store sales is the children’s department. We also plan to promote the children’s section as an initiative to increasing our market share through innovation. Additionally if we increase our market share then in turn our B&N.com financials will increase. Also if we reduce our order to delivery time for B&N.com orders then our customer loyalty will increase and our financials. In order for our department store sales and B&N.com financials to increase our customer loyalty and retention must increase. Our customer loyalty and retention won’t increase unless we have a strong sense of customer changing needs and an added value and convenience for customers. Maintain Community Store Concept Improve employee productivity Improve inventory management Reduce order-to-delivery time for B&N.com orders Develop customer focused process innovations Internal Operations

The Future of Barnes and Noble “However, being the best at what we do, and having the best financial metrics, will not alone see us through these troubled times. If anything, we have to be even more diligent with expense controls (lower sales mean lower productivity,) inventory management, and capital expenditures. No, we will not be making Draconian cuts in capital spending as we are committed to having our stores in good repair and condition, our systems ever improving, and to making appropriate investments to secure a better future. On the other hand, new store openings will be curtailed greatly, and discretionary expenditures will be cut to the bone. Finally, unlike some of our competitors, we will not drop our contributions to the 401K plan, not stop overtime pay for holidays, and will not change the composition of our excellent benefits package. “ – Leonard Riggio From Hoovers: As book sales continue to sag, Barnes & Noble is looking to explore other revenue streams, including those of the digital sort. The company, which exited the digital book market in 2006, plans to launch an e-bookstore in 2009. To that end, Barnes & Noble acquired electronic bookseller Fictionwise for nearly $16 million in March 2009. It also penned an agreement with Google for users to download free literary works in the public domain. Joining the likes of Amazon.com and Sony, Barnes & Noble developed its own digital-book reader, called the Nook. The device, which was launched just in time for the 2009 shopping season, features a 6-inch color screen made by E-Ink and allows users to share titles. In another strategic move, the bookseller reunited in October 2009 with its sister company, formerly privately held Barnes & Noble College Booksellers. The two companies had operated independently since Barnes & Noble went public in 1993. The company paid $596 million for the 624-store college bookstore chain to increase its cash flow by purchasing a business that is less vulnerable to economic cycles than its own. Barnes & Noble also gained entry to the small but growing market for electronic textbooks through the purchase. Also on the digital front, BN.com has announced plans to sell subscriptions to more than 1,000 digital and print magazine titles at up to 90% off newsstand cover prices. BN.com is partnering with Zinio, a provider of digital publishing products, to fulfill digital magazine sales. To stimulate growth in these digital markets, Barnes & Noble is looking to cut its losses in brick-and-mortar operations. In early 2009 the company divested its majority interest in seasonal kiosk retailer Calendar Club. Since 1989 the bookseller has been winding down its small-format B. Dalton chain. To date, more than 900 B. Dalton stores have been shutdown with the last of the locations slated to close in early 2010. In 2009, Barnes & Noble had hoped to open as many as 35 superstores, but the company has scaled back and has 15 slated (that will replace existing neighborhood outlets). It also plans to shutter just as many stores that year. Aiming to trim its costs as the US recession deepens, Barnes & Noble consolidated its publishing operations in 2009. As part of the consolidation, the company moved its in-house publishing under its Sterling Publishing division. Sterling, which was acquired in 2002, is a leading publisher of general trade books, non-fiction, and illustrated works, offering more than 5,000 titles. All told, Barnes & Noble still controls about 20% of the consumer book market and expects its publishing business to grow to 10% of its revenues by 2010. In addition to the how-to books, Barnes & Noble courts self-published authors through a stake in publishing portal iUniverse. The online publishing firm offers author support, copy-editing, design, and distribution services. Amid the decline in book sales and the economic slowdown, the company's biggest rival, Borders, has been struggling and is entertaining offers. Barnes & Noble has not ruled out a possible bid for the company. Chairman Leonard Riggio controls about a third of the company's shares. Yucaipa, an operator of grocery chains and the investment arm of billionaire chairman Ron Burkle, holds about a 20% stake.

References http://news.cnet.com/Borders,-Barnes--Noble-take-separate-paths-to-profits/2100-1017_3-245231.html http://img213.imageshack.us/i/bm071230couponaq4.jpg/ 2008 Barnes and Noble Annual Report 2008 Borders Annual Report 2007 Borders Annual Report Hoovers.com Yahoo.com Barnes and Noble Memorandum. Oct. 29, 2008. Leonard Riggio. Available online: http://online.wsj.com/article_email/SB122573187867493603-lMyQjAxMDI5MjI1OTcyMzkxWj.html