ACC20014 Management Decision Making

Strengths 1. Reputation (there remain some loyal customers) 2. Number of locations and facilities 3. Footprint providing repeat business 4. Corporate Structure	Weaknesses 1. Poor and disorganised management 2. Inexperienced staff & reliance on key personnel (potentially) 3. Lack of knowledge of products, product location and procedures – internal 4. Poor / unsalable product line
Opportunities 1. Reach out to the market with a new, strongly marketed appearance 2. Relocating stores 3. Review product line 4. Returns from sales of land – cash flow	Threats 1. Competitors – Oligopoly 2. Proportion of market share 3. Low competitor prices 4. Competitor buying power – economies of scale

2.2 Strengths

• Reputation – Although revenue is poor indications are that there remains measureable loyalty from customers where the business has performed well.
• Locations and facilities – Assuming fully owned a significant number of locations are valuable assets, potentially providing cash flow should any be sold (for example land).
• Footprint – Already established business locations providing opportunity for repeat business.
• Corporate structure – Strength in a professional corporate structure enabling executive management guidance.

2.3 Weaknesses

• Poor and disorganised management – ‘Floor managers and top management did not know how to deal with their employees or with customers’.
• Inexperienced staff – Largely untrained with no willingness to assist customers, poor ability to perform their role.
• Lack of knowledge of products and procedures – Employees largely unable to offer advice or recommendations.
• Poor and unsaleable product line – This leads to redundant inventories.

2.4 Opportunities

• Reach out – Approach the market with a new, strongly visible appearance. Revamp the old to attract new business.
• Relocating stores – Poorly situated stores are preventing sales opportunities due to inconvenient access.
• Review product line – Buying trips overseas to research and invest in the most wanted and up to date products.
• Returns from sales of land – cash flow opportunity to boost operational activities.

2.5 Threats

• Low competitor prices – Can adversely dampen the impact of a new face with new products.
• Competitor buying power – Larger chains have greater buying power, therefore better pricing.
• Competitors – Oligopoly where bigger retailers collude and set pricing and dominate.
• Proportion of market share – All the above factors can threaten market share.

2.6 Summary of the SWOT

Strong opportunity exists in critical assessment of the internal functions and processes of The Business, as well as product line and buying power, store location and marketing approach.

A Balanced Scorecard approach is advised to address several business functions that are currently poorly performing to increase sales to the projected A$5m in five years, increase market share and return on sales. This approach will offer Mr Clarkson, a focus on key performance indicators with a balanced view of subsequent strategy for measurement and management towards the vision and mission of The Business.

3 ‘The Business’

3.1 Vision

By 2023, we will become Australia’s most dynamic home improvement and outdoor living products and appliances provider. We will engage experienced and knowledgeable staff, striving to be the outlet of choice across Australia and New Zealand.

We will open an additional four stores across Australia and one in New Zealand. Here, ‘The Business’ makes the difficult, easy.

We work hard every day, so you don’t have to.

3.2 Mission Statement

The Business is committed to operating a sustainable company that grows by working closely with the community and environment in which they live, while remaining economically viable.

Our teams are committed to providing a shopping experience that rates, second to none. We will accomplish this by having staff that work as a team, with integrity, respect, innovation and a willingness to achieve the set goals.

We engage with the communities in which we operate and live, while actively contributing to causes and organisations that directly benefit these communities.

Great effort will be given to lessening our environmental footprint, which are both real and measurable as well as ensuring our suppliers operate both sustainably and ethically. This will result in a better and more efficient use of resources. We will encourage and educate our staff and customers about environmentally friendly alternatives, and utilise the principles of "reduce, re-use and recycle" waste management.

Our team is our greatest asset and we will train them to actively and consciously contribute to the business. We recognise these contributions by rewarding employees for their efforts and provide a fun, satisfying and safe workplace.

These values will guarantee sustainability as we grow and earn the right to serve our customers tomorrow and into the future.

3.3 Overall Business Strategy

BDG recommends The Business engage simple yet effective strategies to achieve the goals set by senior management. The primary focus, Mr Clarkson, is driving performance for the growth and development of the business (Kaplan & Norton 1993, pp.66) to lay down the essential framework for achieving the financial goals.

Research into new, and a review of existing product viability, leads to active cost leadership with its own problems (Hill & Gareth 2008, pp.114) to in turn produce the revenue growth needed to satisfy set targets. Price skimming, in the first instance will be used to shift redundant, ineffective and inappropriate stock, making way for new exclusive products. Price skimming here will ensure a fast return of incurred cost and in establishing a reputation as the supplier of choice for innovative products. Effective marketing is mandatory to tie these strategies together to catapult them into fruition.

Additionally, attention will be drawn to the introduction of new technologies to not only compete with industry rivals, but to become the leader in innovation and presentation of new products to the market. Product differentiation (Hill & Gareth 2008, pp.114-115) pertains to specific partnerships with selected suppliers with the aim of establishing sole supplier relationship. This is a powerful and effective tactic in becoming a market leader in expertise and supply to customers for selected products.

The Business will embark on research into the potential acquisition of viable, choice, smaller businesses to boost market share. Success of this strategy relies on small businesses owners themselves, identifying an opportunity in partnering with an organisation with potential high return. An ‘Earn-Out’ agreement with the principals would bring to The Business product, local market and relationships otherwise difficult to obtain. Furthermore, an earn-out agreement would tie the individuals, their skills and knowledge to The Company for an extended period where reward is applied only after the short-term success of The Business is realised. Along with these acquisitions, comes the bonus of industry specific talent, to be embraced and nurtured, supporting greater retention of valuable employees; a strategy critical to the success of The Business.

4 Balanced Scorecard Drivers and Objectives

4.1 Financial

The Business’ main goals are profitability through product differentiation and cost reduction which have three main drivers;

Revenue Growth by increasing new products and through product differentiation (Product development and range) as well as increasing markets with new store locations and customers via the internet and loyalty programs. Changing to a more profitable product and service mix will aid revenue growth.

Cost Reduction by reducing product, services and administration costs plus increased buying power through implementing economies of scale.

Asset Utilisation as we consider location of old and new stores. Liaising with supplier as to account and availability of stock, increased orders from new location and discounts for economies of scale.

4.2 Customers

Customers are The Business’ main consideration – no customer equals no ‘The Business’.

Retaining loyalexisting customers by offering diversification in product line lines with special deals. These will increase returned earnings through higher customer satisfaction and loyalty programs.

New markets consideration in both with Australia and New Zealand to expand market share through acquisition of smaller players in the market.

Reputation is important to The Business and making the public aware of environmental efforts and community involvement will be key initiatives.

4.3 Internal Processes

The Business wants to improve in every aspect of it operations and give consideration to all stakeholders; from suppliers & staff to operations and its customers.

Enhanced consumer relations by increasing service efficiency and quality through technology and development of new customer resolution services.

Enhanced supplier relations expansion will allow economies of scale in fostering better relationships with long term suppliers and leading to better supply and quality with diversification in The Business’ product line.

Enhanced operations for inbound and outbound logistics will also be improved with technology upgrades. Increasing efficiency and reporting with allowing for faster response times for all stakeholders assists in this objective.

4.4 Learning and Growth

The Business is focused in the advancement and opportunities given to their employees. To this end, The Business hopes to have the best possible staff and be an employer of choice within the industry.

Enhanced Employee Capabilities with training and information programs that increase employee skills and knowledge allowing employees to reach their goals. By attracting new employees with greater skills and qualities, The Business’ current staff will benefit.

Employee Motivation results in better employee performance and therefore customer satisfaction. The Business intends to maintain this through the use of bonuses and career advancement opportunities.

Alignment with Objectives as it is of great importance that the goals of all employees are aligned with those of The Business, so the organisational strategies are common objectives. This will be enhanced through staff bonuses and stock options.

5 Balanced Scorecard Measures

5.1 Financial

Revenue Growth

• Increase number of products
• % of revenues for product development
• % of revenues for branding
• % of revenues for new product promotions
• Overall increase to product line

Attract new customers and expansion of locations and markets;

• % of revenues for new store locations
• % of revenues upgrades to current locations
• % of revenues for new stores New Zealand
• Increase revenue through the introduction of loyalty cards

Change to more profitable product line and mix;

• % of revenues for development of new suppliers
• % of revenues for development of product line
• Gross profit margins increased due to product differentiation

Cost Reduction

• Reduce product/ service cost
• Reduce selling and general administration cost
• % reduction in per unit cost through investment in R&D and technology advancement

Asset Utilization

• Improve asset utilization
• ROI
• Residual income
• Economic value-add

5.2 Customers

Existing Markets

Increase loyalty;

• Customer and loyalty surveys
• Increase customer loyalty cards and gift cards
• Increase website accounts and offers

Increase satisfaction;

• Customer and loyalty surveys
• Reduce number of complaints per year
• Increase time customer is in store through engagement

Increase sense of community;

• Increase website presence and customer participation
• Increase community involvement through sports clubs and other organisations
• Increase internet exposure through face book and other internet mediums

Increase customer profitability;

• Increase market share
• Increase sale to new customer base
• Increase sale per store and department

New Markets

Increase market share;

• Increase sale to new customer base
• Increase sale per store and department
• Increase sale per new store
• Increase sale from web presence and online store

Reputation

Environmental efforts;

• Reduce water consumption
• Implementing Leadership in Energy and Environmental Design (LEED)in design of new stores and old store redevelopment
• Consideration to environmentally friendly packaging and products (no plastic bags)

Create customer loyalty;

• Web site presence
• Community involvement

5.3 Internal Processes

Enhanced Consumer Relations

Increased service efficiency and quality;

• Average number of customers served each day
• Number and time of complaint resolution per day
• % of loyalty card users per day

Improve complaint resolution service;

• % of complaint per day answered
• Number of complaints per day
• Mapping of recurring complaint regarding staff and products
• Reduction of poor products
• Increased training for problem staff

Enhanced Supplier Relationships

Increase long term relationships;

• Number of suppliers
• Average length of supply contracts
• Implement incentive and penalties for supply of product
• Decrease process times

Enhanced Operations

Decrease process cost and time;

• Average time of processing
• Increase monitoring of stock control through technology
• Average cost of processing

Increase process efficiency and quality;

• Ware house upgrades and processing
• Technology upgrade throughout operation

5.4 Learning and Growth

Enhanced Employee Capabilities

Improved quality of training;

• Average number hours of training per week
• Survey of employees regarding training methods and scope
• Experience of trainers and best practise methods

Attract and retain quality employees;

• Revenue per employee
• Number of extra hours per employee
• Customer satisfaction survey rate

Enhanced Employee Motivation

Increase then maintain level of motivation;

• Employee satisfaction survey
• Career opportunities
• Average bonus and rewards per employee
• Stock options

Alignment of Objectives

Alignment of employee’s objectives with overall strategy;

• Stock options
• Departmental committees and meetings per month
• Average cost of processing

6 Effectiveness of the Balanced Scorecard in achieving the overall strategy

Traditionally, management’s role within business is focused on goals and objectives set by senior management or owners, and normally revolved around increased sales and profits. Arguably, businesses held this position because of the views of such people as Friedman (1982), who considered, the only role of business was to optimise profits for shareholders (Common Sense Capitalism 2012). Simplifying management role as Key Performance Indicators (KPI) relied on financial measurements and could easily measure lag indicators (past financial position), lead indicators (future direction), and where something had gone wrong financially from studying profit and loss or balance sheets (Deegan 2014, pp. 167-203). However, society’s expectations on business have gone beyond just economic success to include legal, ethical and discretionary expectations placed on them. Society now scrutinises the approach businesses take in generating profits and the impact those activities have in the long-term, on interest groups (stakeholders) and the environment (Carroll 1999, pp. 268-295). Because, society’s expectations have changed, so too, have the parameters that a business uses to formulate visions and strategies.

The modern manager uses many tools to gauge their businesses performance and the performance of groups and individuals within the business. BDG has used the BSC in this report in conjunction with the tools listed below;

Budgeting – Financial reports will be reviewed for past performance and will be the impetus for developing improved short-term and long-term financial plans & objectives that can be monitored.

Key Performance Indicators – Specific KPIs will be established and communicated for senior management, department heads and individuals, to make complex strategic goals more meaningful and understandable to everyone within the business.

Benchmark – Use best practice performance measures typically developed by industry associations or research companies like IBIS and government agencies.

Customer Relationship Management (CRM) – Companies want satisfied customers who return regularly. CRM measures track the interactions and relationships with existing and potential customers.

Personal Performance Appraisals – Progressive PPA’s will be­­­­ conducted by managers, peers & stakeholders to assess individual, team and organisational performance.

BDG uses the balanced score card because it is a top down management tool designed to cater for various levels within an organisation. Starting with the overall corp­­­­­­­­­­oration, then divisions, next the segments within the divisions and finally, to individuals within those segments (Eldenburg et al 2017, p. 636).

BDG has endeavoured to ensure there are common threads across all levels, while reinforcing strategic goals. As corporate, divisional and individual strategies and measures are implemented, they should become increasingly specific to the end user (Eldenburg et al 2017, p. 636).

According to McShane et al. (2016, p. 144) one-fifth of employees in Australia and in New Zealand are disengaged or have low engagement leading to poor Organisational Behaviour (OB). OB is an attempt to understand how people within the organisation think, feel and perform their duties (McShane et al. 2016, p. 3). The above methods will give all members of The Business, autonomy as to decisions affecting them, creating an environment that keeps employees engaged. This not only motivates employees but also gives them an opportunity to voice their opinion reducing disharmony and increasing mutual collaboration (Aguinis 2013, p. 7).

Effective communication and collaboration leads to coordinated actives within organisations (McShane et al. 2016, p.4). It is for these reasons and the flexibility in the BSC that have made it a popular tool among business, not for profit and government organisations (Murby Gould 2005, p. 3).

Organisations traditionally used the four functions of management: planning, organizing, leading, and controlling (POLC), giving individuals and teams a logical pattern to follow in accomplishing goals (Schermerhorn et al, 2014, p. 181). Without this, organisations can become chaotic, lacking direction and function, which can threaten their existence. This type of management focuses on a diagnostic approach to pre-set targets linked to organisational strategies. The results measured around the key performance metrics give a measured outcome against the pre-set targets, management then provide feedback to achieve goals (Eldenburg et al 2017, p. 641).

BDG believes there are two problems here. Firstly, management can assume they wield the only power within an organisation, secondly, it assumes that the intended strategy is correct. Both assumptions are fraught with danger; firstly, because power is the capacity of a person, team or organisation to influence others, and lies within anyone that controls something of value (McShane et al. 2016, p. 324). Secondly, because strategies are assumed correct, alternative strategies are not explored (Eldenburg et al 2017, p. 641).

For these reasons, BDG uses Simons’ second lever of control (interactive) where feedback on the performance metrics, result in a review of the intended strategy (Eldenburg et al 2017, p. 642). This encourages teamwork, communication and collaboration because organisation without teamwork, find tasks and goals difficult to attain and workplace environments become negative and disruptive (Long 2016). A BSC is only as efficient as the measures used and gathered. BDG’s BSC has attempted to involve everyone within The Business.

7 Effectiveness of the Balanced Scorecard in promoting goal congruence

As a competitor in today’s business environm­­­­­­ent, management of The Business are aiming to improve staff productivity and retain quality, high-performing employees.

The objective of the BSC and associated reward system is to attract and retain these high performers. Self-motivated high achievers are looking for positions that offer high reward and self-satisfaction. The Business wants to attract and retain these high achievers, reducing staff turnover. Retaining skills and knowledge also improves workplace culture, reinforces organisational structure and ultimately results in reducing costs and increasing organisational and stakeholder returns.

Careful design of remuneration packages will encourage management and staff to make decisions in line with the organisational strategic objectives and assist in overcoming ‘Agency Theory’, which sees employees making decisions targeting their own objectives (Etinosa 2016). As individuals and groups realise their own goals are being achieved by accomplishing organisational aims, goal congruence is achieved.

In discussing the effectiveness of the BSC in promoting goal congruence, we discuss The Business’ structure in terms of its managers and subordinates.

Where the goals of managers align with those of the organisation but where the goals of the subordinates do not and are at odds with organisational goals, performance is compromised. In the event managers and subordinates are not aligned with the organisational objectives then BSC losses will occur as will pressure on other resources (Etinosa 2016). The objective therefore, is to align the goals of managers and subordinates with the strategic goals of the organisation or at least be in a position such that they perceive their goals as achieved as a direct result of achieving The Business’ goals. Logically the closer managers and subordinates are aligned with our strategic goals, the better chance there is of optimising performance and profit.

Realising goal congruence, defeats Agency Theory and provides managers with psychological and monetary incentives to achieve the KPI’s identified in the BSC.

The reward system to be developed will distribute both monetary and non-monetary incentives. Reward will not be tied directly to normal remuneration and will be distinctly separated. Detailed within the employment package, reward will be clearly identified as pay-at-risk Inc. (2009). A failure to do so may cause a situation where staff expect to be rewarded even when targets are not achieved, undermining the intent and compromising future organisational objectives.

Critical for managers in attaining organisational strategic goals, is in maintaining goal congruence, Yamoah (2014, p. 82) which, ensures sound coordination and motivation of employees. Identified in studies of organisational performance is a lack of this goal congruence within organisations at the lower levels where, at the higher levels much greater goal congruence exists (Butterfield 1997, Witts 1998). A united and focused organisation has significantly higher probabilities for success and for delivering to the stakeholders the expected returns.

The Business has established clearly defined goals, within the BSC and reward system. Agreements with staff will be established signifying their understanding and support of organisations goals, and their understanding of how they are linked to BSC KPIs.

Verifiable and acknowledged evidence of achievement and a communications process with regularly scheduled reviews of goals, KPI’s and degrees of achievement, will be used to keep employees aligned and committed.

To determine which reward system, how it links back to the BSC and how personnel are involved, we draw distinction between performance appraisal and a systematic review of an employee’s strengths and weaknesses. Clear delineation between the two must be established. Performance management is continuous and ongoing, measuring and developing staff and team performance and aligning this performance with organisational goals (Aguinis 2013, pp. 2-19).

Many factors contribute to performance management, many or which directly link to the rewards system and The Business’ BSC. Of primary importance, performance management and the reward system establishes a clearer understanding of organisational goals, result in improved employee competence, reduces the frequency and likelihood of misconduct and encourages employees to voice opinion (Aguinis 2013, p. 7).

Using the BSC, The Business seeks measurable improvement in individual motivation, commitment and their intent to remain in the employ of The Business.

Problems occur where there is a failure in communicating the strategic direction of The Business or in poor implementation of the BSC. This leads to lower self-motivation & productivity and increased staff turnover. Furthermore, potentially, increases in negative customer reviews, negative impact on reputation and wasted time, reworks, and financial losses further exacerbate the problem (Aguinis 2013, p. 8).

Linking strategic goals to performance and reward optimises the opportunity for success. Even when strategic goals aren’t reached it affords an opportunity to review and reinforce the organisation’s strategic objectives.

Regardless of the reward system under which employees fall, the system should be congruent with the culture and goals of the organisation.

8 Conclusion

Mr. Clarkson, The Business’ BSC has clearly indicated problem areas within the business. The owners and shareholders have raised concerns regarding the economic result. However, The Business has a very strong balance sheet and turnover figures. What the BSC has shown is the most pressing area of concern for The Business, should be in the areas of Learning and Growth in conjunction with Organisational Behaviour (OB) and its theories.

The BSC is a top down management tool and by starting at the bottom, result will be seen at the top. By increasing staff training and the implementation of new technology, customer’s satisfaction will increase and so will sales and profit margins.

The Business will require your strong leadership and management to implement changes needed as training and technology upgrades are not inexpensive and can be time consuming. However, a well-trained team of employees will result in a sustainable future for The Business. BDG is a firm believer in Helen Keller’s thought on team work “alone we can do so little together we can do so much.” We pledge our expertise and assistance in achieving the best results.

9 References

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