How and why the existing balanced score card could be improved to produce a fuller picture of Tesco's overall performance and how it

might be utilised to improve future business performance.

Introduction.

This assignment aims at exploring the key performance indicators of Tesco and propose new ones as a complement to the existing measurements of performance, based on the

Tesco's balance scorecard.

Regarding this, the assignment will be presented with a critical view, indicating strengths and flaws of the ideas contemplated in this report in order to define the most appropriate performance's indicators of the balanced scorecard’s categories.

This revision of performance indicators will be made in response to the Tesco's concern

about the profits drop due to the challenges that retail industry faces in Europe (BBC, 2013). For this reason, it will be explored new ways to improve the indicators, explaining how and why the proposed indicators will benefit the company.

Then, the assignment will end with conclusions and final thoughts about the indicators

suggested to measure the business performance. Lastly, as it is a critical reflection, it is noteworthy that the assignment has a limited scope

and there will be highlighted the most significant indicators to apply in Tesco. However, it is important to mention that there are more possible ways to measure the complete

performance of a big company like Tesco. 1. Tesco.

Tesco is an international Bri tish retail group, which, has operations in more than 4.000

stores across 14 countries and provide employment to almost 500.000 people, being the “largest private sector employer” in the UK (Marr, 2016).

In this regard, when Tesco was founded, it just focused on drink and food. Now, it offers a wider range of products, which, include health, clothing, Internet, electronics, insurance,

financial services, among others (Marr, 2016). In the light of the multiple sectors Tesco is currently involved, it is fundamental to have precise indicators of performance and the currently Tesco preferred financial technique is the balanced scorecard.

In fact, Tesco (2014).clearly states that “we use our balanced scorecard – the Steering

Wheel – to manage and measure our business performance. Through its five segments – Community, Operations, People, Finance and Customer – we are able to measure our non-financial performance through our key performance indicators (KPIs) to give us a

more balanced view than using financial data alone”.

2. Balanced Scorecard.

Specifically, the balanced scorecard was created in 1992 by Kaplan and Norton with the

idea of providing a general measurement to determine the performance of a company (The Economist, 2008). Before, performance measurements were mostly focused in

financial performance and therefore, it only favoured improvements in the financial area, but Tesco prefers to consider all factors involved in the business. Indeed, if a wider view is

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taken and organisational factors are measured from other perspectives, then it is possible to achieve other goals than purely financial ones (The Economist, 2008).

To conceptualise this term, McLaney and Atrill (2014: 711), remarked that balanced scorecard is a “framework for translating the aims and objectives of a business into a

series of key performance measures and targets“.

Following this, the next paragraphs will explain how Tesco utilise the balanced scorecard to achieve its indicators of performance. 3. How did Tesco utilise balanced scorecard?

The Tesco's balanced scorecard, called Tesco's Steering Wheel, was an adaptation of the

original Kaplan and Norton balanced scorecard, which include the following categories:

Figure 1. Tesco Steering Wheel (Tesco, 2016).

3.1. Customer. It is related to how well we provide customers with what they expect and

need.

3.2. People. Which, refers to how people feel about working in Tesco.

3.3. Finance. It considers the administration of costs and efficient operations to meet

stakeholder expectations.

3.4. Operations. It is associated with our working environment and productivity.

3.5. Community. It is connected to our activities at a local level and our role as a

community member.

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Having considered the elements on the Tesco balanced scorecard, it is relevant to note

the differences it has compared to the original Norton and Kaplan’s balanced scorecard.

Figure 2. The balanced scorecard links performance to measure (Kaplan and Norton,

1992: 72). 4.1. Customer perspective, which, refers to the costumer's perception of the company.

4.2. Internal perspective, which, seeks to determine the internal strengths.

4.3. Innovation and learning perspective, which, remarks the areas to improve in a

company. 4.4. Financial perspective, which, refers to how the organisation perceives shareholders.

As have been shown, both balanced scorecards differ. Tesco customised the categories to

measure the factors that were not taken into account in the original balanced scorecard of 1972. In this regard, Tesco's balanced scorecard incorporates a fifth category called

community, which, is an appropriate decision in the modern corporative world because a corporate ethical behaviour and commitment in the societal economic development is expected today (Johnson et al, 2014: 128).

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Moreover, Tesco's balanced scorecard also focus on stakeholders in its peoples' category instead of a general category called “internal perspective” and finally, the name of the

“innovation and learning perspective” was simplified to operations. 5. The necessity to measure performance with new indicators.

As has been mentioned, Tesco presented continual losses with “23.5% drop in profits

during the first half of its financial year”, falling 67% in Europe and 7.4% in Asia, excluding China (BBC, 2013). Meanwhile, one of the Tesco's rival, Sainsbury's had a 2% growth in the same period (BBC, 2013).

Consequently, it is required to improve the current balanced scorecard to provide a

complete picture of Tesco's performance. 6. How and why the abandoned Tesco balanced scorecard could have been

improved?

Due to the fact that profits have been falling, new indicators might improve future business performance and these indicators for Tesco's balanced scorecard perspectives are presented as follows:

6.1. The big six.

Tesco (2015) began to utilise new indicators, considered more precise than the former steering wheel, to simplify processes and it is summarised in six categories.

Grow sales.

Deliver profit. Improve operating cash flow. Customers recommend us and come back time and again.

Colleagues recommend us as a great place to work and shop. We build trusted partnerships.

As a consequence, the big six comprises diverse factors to analyse, even if it mainly focuses on financial elements as it has three aspects to describe the financial performance

and not one as the steering wheel.

On the other hand, community and operations do not have their previous importance, even if they are kept as a part of the big six aspects, such as: we build trusted partnerships or improve operating cash flow.

6.2. Balanced scorecard analysis.

To improve the former balanced scorecard, Tesco’s CEO focused on keeping the indicators that matter the most to measure the service to costumers. In practical terms, it

was suggested to consider more financial and costumer’s aspects to bring down prices, increase availability and incorporate more staff/colleagues because “happy costumers”

makes Tesco more competitive (Tesco, 2015). Nevertheless, it will be proposed some other indicators to improve the performance’s

measurements at Tesco..

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6.2.1. Customer.

In order to achieve a higher customer satisfaction, which, is one of the main objectives of Tesco due to the central importance customers have for the business (Tesco, 2015) and considering that according to the survey executed by Market Force Information, Tesco was

penultimate in availability of products and availability to find items (Davidson, 2015); it is recommended to take into account the following indicators focused on availability of items:

Best selling products. As one of the focal points of Tesco is improving the

availability of products, finding out what are the best selling products will allow

managers to decide what products should be immediately replaced. This way, the huge majority of Tesco's customers will find the items they are looking for, directly

impacting in their satisfaction.

Average resolution time. “It is the time it takes to acknowledge a customer's

issue” and it is fundamental to serve costumers and solve their complaints in the fastest way possible (Stanford University, 2014) to keep a high satisfaction and

good service. In particular, this indicator is measured from the exact moment an incident is

recorded until the time, in which, the customer is aware that the problem was solved (Stanford University, 2014) and this attention would generate more satisfaction in

costumers as they feel they are heard and served by Tesco. 6.2.2. People.

As the CEO also highlighted that people who work at Tesco are one of the company’s

centre of attention, the previous balanced scorecard could be improved by incorporating a measurement of the Internal perception of managerial staff and Work-life balance,

because these indicators will complement the other basic indicators used by Tesco,

showing internal points of views and ideas to improve the business.

Internal perception of managerial staff. Consulting the employees about

managers' performance, makes the organisation more trustworthy. As a matter of fact, by asking the opinions of employees, it is shown that the company is not

asking what it wants to hear, but asking what it needs to be heard (Folkman, 2013).

Concerning this, making a survey like Google does, managers would be rated on a |five-point scale, from "needs improvement" to "superb", including what could be done do in a different way to impact on the company (Lebowitz, 2015). This would

increase the managerial standards and performance, additionally, there will be new ideas for Tesco, as managers would be forced to innovate, look for solutions and

examine the workplace culture and work environment constantly.

Work-life balance. When a high percentage of workers possess a good work-life

balance, they are more productive (Friedman, 2009: 5). Undoubtedly, workers that are satisfied in all life spheres are more productive and satisfied at work (Friedman,

2009: 5) and this would lead to an increase in sales and a better attention to customers, which, is important considering that Tesco was the worst evaluated company in cashier courtesy according to Davidson (2015).

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Furthermore, it is an easy measurable indicator because it will be obtained just by counting the hours worked by employees and avoiding overwork to make sure the

Tesco staff can have a balanced life. 6.2.3. Operations.

As the availability of items and reducing costs is a major concern for Tesco, indicators like Stock replacement time and Expenditure on research and development, will increase

the customer satisfaction and raise sales. Moreover, improving this aspect of the Tesco Steering Wheel, will unveil important figures related to productivity.

Stock replacement time. Managing stocks and inventories effectively will reduce

costs and increase sales (Victoria State Government, 2015). Indeed, this indicator will determine how fast is Tesco at replacing the stocks available and it is quickly measurable by taking into account the time a product is out of stock and the time it

is replaced.

Expenditure on research and development. Regarding this aspect, process

simplification was mentioned as a priority in Tesco report (Tesco, 2016b) and investing in research and development, at least, in a think tank to provide managers

with new ideas, will increase chances of reducing costs, raise revenues, determine competitive advantages, among other benefits.

6.2.4. Finance.

Tesco's finances were the biggest concern for changing the manner the performance of Tesco was measured. In effect, after leaving behind the steering wheel, the Tesco's CEO

remarked the importance of the financial aspect, adding 3 new aspects just to measure financial performance to facilitate the decision-making process for managers.

In this manner, it is suggested two more indicators used by PriceWaterhouseCooper (2007).

Actual and expected return on stores, because Tesco was having financial

problems in certain regions of the world and it would be advisable to start

measuring profits in every store, being very specific analysing the financial information for each store to identify the best locations to sell and where to open or

close stores. Additionally, this comparison between the actual revenue and the projected revenue

of stores will show the discrepancies between these two numbers and it will help Tesco identify how stores are performing and how accurate are their projections.

Best seller stores. Similar to the above-mentioned indicator, determining the best

seller stores would also identify the best located stores to invest and the less

privileged store to strengthen them or in the worst scenario, close them.

This indicator will help Tesco to save costs and avoid investing in areas, in which, Tesco has too much competence, while it can focus on areas more likely to make profits. 6.2.5. Community.

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As the role of Tesco in the community is very important for the corporative image of Tesco,

being a socially responsible corporation means a good reputation and trust in the organisation. Therefore, it is fundamental to show how beneficial Tesco is for the community.

People’s perception and Tesco’s reputation. The company’s reputation matter

more now than it used to be decades ago because it enhances the credibility, influence and the perception that the company cares about its “social contract with consumers, shareholders, regulators, and taxpayers” (Bonini et al, 2009).

For this reason, making surveys to customers to measure what they think and how

they evaluate the service and prestige of Tesco would benefit the organisational performance.

Disabled people working for Tesco. Reputation's factors are changing (Bonini et

al, 2009) and utilising a heterodox indicator like this one would show that Tesco do

care about people and that jobs at Tesco are offered without discrimination.

Finally, showing this indicator to the communities would raise the ethical value of

Tesco and benefit its reputation to attract costumer, candidates and shareholders. Conclusions.

The assignment has discussed what Tesco is, the concept of balanced scorecard and

especially, how Tesco utilise balance scorecard to determine the performance indicators it utilises. Later, it was examined how and why Tesco can add alternatives indicators of

performance to its former balanced scorecard. Particularly, it was proposed to add to each of the balanced scorecard's categories two

indicators in order to obtain new and important figures that would allow Tesco to have more resources at facing the current competitive retail context.

In detail, the aforementioned indicators are the following: 1. Customer.

Best selling products.

Average resolution time. 2. People.

Internal perception of managerial staff.

Work-life balance. 3. Operations.

Stock replacement time. Expenditure on research and development. 4. Finance.

Actual and expected return on stores. Best seller stores. 5. Community.

People’s perception and Tesco’s reputation. Disable people working for Tesco.

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They focus on factors that are fundamental for Tesco to regain a good market portion and some of them, are innovative because they measure and evaluate how Tesco is perceived

internally and externally. Besides, these indicators update the performance measurements presented in the

steering wheel and provide an opportunity to confront the competition given that they directly take under consideration specific facts, which, Tesco affirm to have problems. For instance, Stock replacement time would help at resolving the availability problems in

Tesco and controlling this time would permit managers to increase the costumer’s satisfaction and finally, make sales growth.

As a final reflection, the proposed indicators are just the beginning as there are more

possible indicators and, in fact, the indicators should be regularly revised in order to make sure they response to the external and internal business’ conditions.

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List of references.

BBC (2013) Tesco blames drop in half-year profits on Europe. On line at:

http://www.bbc.com/news/business-24361465 [Accessed: 03 June 2016]. Bonini, S. Court, D. & Marchi, A. (2009) Rebuilding corporate reputations.

McKinsey&Company. On line at: http://www.mckinsey.com/global-themes/leadership/rebuilding-corporate-reputations

[Accessed: 10 June 2016]. Davidson, L. (2015) Tesco is Britain's least favourite grocer. The Telegraph. On line at:

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11661958/Tesco-is-Britains-least-favourite-grocer.html [Accessed: 10 June 2016].

Folkman, J. (2013) Seven Ways To Increase Employee Satisfaction Without Giving A Raise. Forbes. On line at: http://www.forbes.com/sites/joefolkman/2013/11/27/seven-ways-

to-increase-employee-satisfaction-without-giving-a-raise/#5723eaef52ba [Accessed: 10 June 2016].

Friedman, S (2009) Be a Better Leader, Have a Richer Life , in Harvard Business Review (eds) The Essential Guide to Leadership: Harvard Business School Publishing.

Johnson, G. Whittington, R. Scholes, K. Angwin, D. & Regnér, P. (2014) Exploring

Strategy: Text & Cases. 10th edition. Harlow, England: Pearson Higher Education. Kaplan, R. & Norton, D. (1992) The Balanced Scorecard-Measures that Drives

Performance. Harvard Business Review. On line at: file:///C:/Users/hf/Downloads/balanced-scorecard%20(1).pdf [Accessed: 05 June 2016].

Kaplan, R. (2010) Conceptual Foundations of the Balanced Scorecard. Harvard Business School, Working Paper 10-074. On line at:

http://www.hbs.edu/faculty/Publication%20Files/10-074.pdf [Accessed: 03 June 2016].

Lebowitz, S. (2015) Here's how performance reviews work at Google. Business Insider.

On line at: http://www.businessinsider.com/how-google-performance-reviews-work-2015-6

[Accessed: 10 June 2016].

Marr, B. (2016) Delivering Success: How Tesco is Managing, Measuring and Maximising its Performance. Advance Performance Institute. On line at: http://www.ap-

institute.com/perfomance-management-case-studies/delivering-success-tesco.aspx [Accessed: 03 June 2016].

McLaney, E. & Atrill, P. (2014) Accounting and Finance: An Introduction. 7th edition. Harlow, UK: Pearson.

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PriceWaterhouseCooper (2007) Guide to key performance indicators Communicating the measures that matter. On line at:https://www.pwc.com/gx/en/audit-services/corporate-

reporting/assets/pdfs/uk_kpi_guide.pdf [Accessed: 10 June 2016]. Stanford University (2014) Measuring Response and Resolution Times in Remedy. On line

at: https://uit.stanford.edu/service/helpdesk/support/sla [Accessed: 10 June 2016].

Tesco (2014) KPI Performance. On line at: https://www.tescoplc.com/assets/files/cms/resources/kpi_consolidated.pdf [Accessed:

Tesco (2015) The Big 6. Our Tesco. On line at: https://www.ourtesco.ie/2015/06/03/the-big-6/ [Accessed: 03 June 2016].

Tesco (2016) How We Communicate Together. Our Tesco. On line at: https://www.ourtesco.com/how-we-communicate-together/ [Accessed: 03 June 2016].

03 June 2016].

Tesco (2016b) Strategic Report. On line at: https://www.tescoplc.com/media/264195/strategic-report-2016.pdf [Accessed: 07 June 2016].

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UK: Pearson.

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Appendices.

Appendix 1.

Source: Summary financial statements (Tesco, 2016b: 37).

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Appendix 2.

Source: Groups results 2015/16 (Tesco, 2016b: 14).

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Appendix 3.

Source: Greenhouse gas emissions (Tesco, 2016b: 23).