testing strategy with multiple performance measures evidence from a balanced scorecard at store24...
TRANSCRIPT
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Testing Strategy with Multiple Performance Measures
Evidence from a Balanced Scorecard at Store24
Presented ByBRIJESH SEHGAL J.K.YADAV SAJISEBASTIAN VIJAY KUMAR SANJEEV KUMAR SANJAY KUMARS.P. SINGH
8/2/2010
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Agenda
• Introduction • Objective• Process• Analysis• Results• Conclusion• References/Credentials• Q&A8/2/2010
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Introduction
What the study is about?
Who did the study?
Why ?
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What the study is about?
Store24, a privately held convenience store retailer in New England, the 4th largest in the region. Whose primary product categories include cigarettes, beverages, snacks, prepared foods, and lottery tickets. It operates in a mature environment with competition from convenience stores, gasoline retailers, and drug stores. During FYs 1998 and 1999, Store24 formulated a strategy aimed at increasing sales and margins. To achieve this, Store24 changed its strategy to creating entertaining in-store atmospheres that would differentiate its stores from those of competitors. To implement the same Store24 used BSC & Strategy Map, but the strategy was unsuccessful .
This study is a follow up research to analyze the failure of above strategy focusing on following points:
investigate the role of the balanced scorecard in generating useful information for testing and validating an organization's strategy.
Testing and validation of assumption underlying BSC.
Finding the gap through statistical tests of the hypotheses underlying the firm's balanced scorecard and strategy map
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Who did the study?Name Designation/Organisation Paper PublishDennis Campbell associate professor in the Accounting and
Management unit at Harvard Business School
Srikant M. Datar Arthur Lowes Dickinson Professor of Accounting at Harvard Business School
V.G. Narayanan the Thomas D. Casserly, Jr. Professor of Business Administration at Harvard Business School
Susan L. Kulp Assistant Professor of Accountancy “Organizational Control Mechanisms: The Next Phase of Procurement Efficiency," Interfaces, May-June 2006
“Manufacturer Benefits from Information Integration with Retail Customers," Management Science, April 2004
“Supply-Chain Coordination: How Companies Leverage Information Flows to Generate Value," The Practice of Supply Chain Management: Where Theory and Application Converge, 2003
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Why?Understand to what extent do balanced
scorecards (BSC) provide useful information for testing and validating an organization's strategy?
Understanding the role of balance scorecard in the potential learning and feedback
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Objectives
• to explore whether, when, and how information about problems with strategy of Store24 was captured in Store24’s balanced scorecard.
• Find evidence that performance measurement of BSC provide useful and timely information for testing the efficacy of an organization's strategy.
• To stimulate new theories about the role of multidimensional performance measurement systems in the strategic feedback and learning processes of organizations
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Process Strategy Balance Scorecard (BSC)
Performance Measurement System
Strategy Map Hypotheses Underlying the
BSC8/2/2010
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Strategy of Store24
Traditional Strategy cleanliness, efficiency, freshness
Differentiation Strategy Greater Loyalty “end-caps”- contained high margin product Fun & Entertainment
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Balanced Scorecard Performance Measurement System
Performance measures were organized around the four traditional balanced scorecard perspectives – financial– customer – internal– learning & growth
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Balance Scorecard Financial Perspective Sales Revenue
MarginControllable ContributionEBIT
Customer Perspective Transaction Volume In-store Comment Card
Process Perspective Audit Score
Learning & Growth Perspective Managerial SkillCrew Skill
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Parameter Measurement Level Frequency
Return on Capital Deployed
EBITDA divided by value of equipment and leaseholds Corporate Quarterly
G&A Overhead Average G&A cost per store Corporate Quarterly
EBITDA Controllable contribution less rental or lease cost Store Quarterly
Controllable Contribution
Gross profit less utilities and labor expense Store Quarterly
Gross Profit Growth Growth in gross profit from same quarter in prior year Store Quarterly
Sales Growth Growth in sales from same quarter in prior year Store Quarterly
Inventory Turnover Days inventory for general merchandise and cigarettes Store Quarterly
Loyalty - Recommend Store24
% would recommend Store24 and % will visit Store24 soon based on telephone survey Corporate Quarterly
Primary Convenience Store
% stating Store24 as their primary convenience store based on telephone survey Corporate Quarterly
Enjoyable Experience
% viewing Store24 as fun and/or entertaining place to shop based on telephone survey Corporate Quarterly
Concept Development Net gross profit $ from new concepts Corporate Quarterly
Operational Excellence
Walk-through audit and mystery shopper ratings of compliance with basic operating standards Store Quarterly
Ban Boredom
Walk-through audit and mystery shopper ratings of compliance with Ban Boredom implementation standards Store Quarterly
Manager Skills Skill rating of store managers Store Every 6-months
Crew Skills Average Skill rating of non-management store employees Store
Every 6-months
Manager Tenure Number of years manager has been with Store24 Store Quarterly
Crew Tenure
Averge number of years with Store24 for non-management store employees Store Quarterly
Employee Satisfaction Gallup survey of employee satisfaction on 5-point scale Corporate
Every 6-months
Information System Use
Regional manager evaluation of store utilization of front and back-office technology Regional
Every 6-months
Fina
ncia
l Pe
rspe
ctive
Fina
ncia
l Pe
rspe
ctive
Cust
omer
Pe
rspe
ctive
Cu
stom
er
Pers
pecti
ve
Inte
rnal
Pe
rspe
ctive
In
tern
al
Pers
pecti
ve
Lear
ning
& G
row
th
Pers
pecti
ve
Lear
ning
& G
row
th
Pers
pecti
ve
Balance Scorecard of Store24
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EBITDA
ROI
Contribution
Gross Profit
Increase Sales Fin
an
cia
l P
ersp
ecti
ve
Asset Utilization
Cu
sto
me
r
Pe
rsp
ecti
ve
En
joy
ab
le
Exp
erie
nce
Inte
re
sti
ng
Pro
mo
tio
n
Qu
ali
ty
, V
alu
e,
Cle
an
lin
ess,
Se
lecti
on
Frie
nd
ly
Inte
ra
cti
on
Differentiators Basic Requirement
Inte
rn
al
Pe
rsp
ecti
ve
Differentiation in-store
Experience
Create Fun, entertaining in-store atmospheres
Increase Customer Value
Enhance the Customer experience with flawless operation
Ban Boredome Walk-Through Audits
Net Gross Profit From New Concepts
Walk-Through Audits
Mystery Shoppers
Le
arn
ing
&
Gro
wth
Pe
rsp
ecti
ve
Competencies
Required competencies are build on capable employees
Technology
Focus on technology is on information system use
Climate for Action
Ability to implement relies heavily on employee satisfaction
Strategy Map
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Hypotheses Underlying the BSC & Strategy Map
Explicit
Implicit
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Explicit Hypotheses H1: Ceteris Paribus strategy inputs are positively related to
financial performance.
H2: Ceteris Paribus strategy inputs are positively related to strategy-specific customer outcomes.
H3: Ceteris Paribus strategy-specific customer outcomes are positively related to financial performance.
H4: Ceteris Paribus measures of employee capabilities are positively related to measures of strategy inputs.
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Implicit HypothesesH5: Ceteris Paribus the impact of increases in
strategy inputs on strategy-specific customer outcomes is positively related to the level of employee capabilities.
H6: Ceteris Paribus the impact of increases in strategy-specific customer outcomes on financial performance is positively related to the level of employee capabilities.
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Summary of Hypotheses Underlying the Scorecard and Strategy Map
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Financial Performance
Strategy-Specific Customer Outcomes
Strategy Input
Employee Capabilities
Financial Perspective
Customer Perspective
Internal Perspective
Learning & Growth Perspective
H1
H2
H3
H4
H5
H6
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Analysis
Financial PerformanceNon Financial Performance
Measure of Strategy Inputs Measure of Basic Operational Compliance Measure of Strategy –Specific Customer
Outcomes Employee Capability
Customers Performance Measure
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Strategy-Specific Input Measure
Q1 FY99 Q2 FY99 Q3 FY99 Q4 FY99119%
120%
121%
122%
123%
124%
125%
Wal
k T
hro
ugh
Au
dit
Sco
re
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Strategy-Specific Customer Outcome Measure
Q1 FY99 Q2 FY99 Q3 FY99 Q4 FY995.5
5.6
5.7
5.8
5.9
6
6.1
6.2
En
joya
ble
Exp
erie
nce
Rat
-in
g
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RESULT
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Result• These results highlight that the hypothesized link in the scorecard between internal implementation of the
action plans related to the new strategy and financial performance does not exist (H1). However, it is unclear whether the strategy was poorly formulated or poorly implemented.
• although the strategy was well implemented, the strategy formulation may have been flawed.
• suggest problems with the fit of the differentiation strategy with Store24’s employee capabilities. Crew skills determine the magnitude of the relationship between strategy outcomes and financial performance, but the relationship is only greater than zero for high levels of crew skills
• information in the scorecard reveals that the primary role of employee capabilities is not necessarily in ensuring store-level execution of the strategy (e.g. H4), but rather in ensuring that even if executed well at the local level, the differentiation strategy ultimately translated into the desired financial outcomes.
• Tables 3-5 offering evidence that formal analysis of the data generated by Store24's balanced scorecard provides timely information about strategic problems relative to the firm's quarterly strategy review process.
• the operating standards which Store24 executives eventually abandoned were not, while those they retained were, drivers of financial performance.
Overall, these results provide evidence that Store24 executives learned about the underlying drivers of store performance despite a lack of reliance on formal statistical analysis of the assumed relationships underlying their scorecard.
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Conclusion
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Q & A
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