Next Plc’s Balanced Scorecard

Introduction

The current report designs and develops a balanced scorecard for Next Plc. Next Plc is a designer, manufacturer, and distributor of clothing, home furniture, and other accessories (Next PLC 2014). The bulk of this firm’s operations are based in the UK and Ireland. The company operates more than 500 stores in this region. Coupled with the 200 outlets the company has in more than 40 countries, the following balanced scorecard will be very assistive to the directors.

Wongrassamee, Gardiner, and Simmons (2003) provide a working definition of a balanced scorecard. Wongrassamee et al. (2003) view this concept as a framework with both financial and non-financial measures. The measures are aimed at helping the company to implement a number of key success indicators. The factors make up what is regarded as the firm’s strategic vision. Consequently, a balanced scorecard helps in the communication and implementation of an organisation’s strategic plan.

NEXT Plc’s Vision and Strategies

As already indicated, the balanced scorecard facilitates the implementation of the organisation’s strategies. As such, it can be used to review Next Plc’s vision and strategic plan. One of the company’s visions is to become the retailer of choice for fashion conscious men and women. Such clients expect style, quality, and distinction from their clothing companies (Atkinson 2006: 1444). In efforts to realise this vision, Next Plc offers a wide collection of exclusive and highly coordinated clothes for men, children, and women. In addition, the organisation has numerous distribution outlets that facilitate the actualisation of this objective.

The other key vision of Next Plc involves achieving long term returns for the shareholders. The returns are realised through a number of ways. One of them involves sustaining growth in earnings per share. Another strategy is the issuance of cash dividends to the investors. The strategies implemented by Next Plc to achieve this objective include the expansion and improvement of its range of products (Next PLC 2014). The success of this model can be measured through performance in sales.

Other strategies of the company include:

  • Increasing and utilising the retail selling space in a profitable manner. Appraisal of new stores ensures that they meet the financial criteria before any investments are made. Return on investment and achieved profits determine the success of this strategy.
  • Administration of net and gross margins. The objective is achieved through efficient regulation of costs and stock. It can also be realised through product sourcing.
  • Next Plc also uses various approaches to achieve and sustain financial strength. The strategies include the establishment of secure financing models. Another policy is the effective administration of the balance sheet.
  • The company creates cash surplus for the investors. The excess cash is returned to these stakeholders through dividends and such other processes.
  • In essence, Next Plc targets to increase profits by growing the number of customers in its ‘Directory’. In addition, the management aims at increasing the amount of money spent by customers in the UK and in other parts of the world. The objective is achieved through online sales (Next PLC 2014).

Next Plc’s Balanced Scorecard

According to Hwang and Rau (2007), a balanced scorecard should be regarded as a tool for strategic management. It links the company’s strategy to key performance indices. It also seeks to strike a balance between the firm’s short and long term objectives. The tool highlights the relationship between internal and external performance perspectives. It is also used in financial and non-financial measures. The relationship between objective and subjective outlooks of the company, as well as the leading and lagging indicators, is made apparent by this tool.

Next Plc’s balanced scorecard reflects the perspectives mentioned above. However, it will focus more on four of them than on the rest. The four include financial, customer, internal business, and learning and growth viewpoints (Atkinson 2006: 1449). Financial perspective entails how the company views shareholders in its bid to achieve financial success. The customer element involves the way the organisation presents itself to the customers as it seeks to achieve its vision. Internal business processes takes into consideration the areas within the company that require improvement in order for the customers and shareholders to be satisfied. Finally, learning and growth reviews how the firm sustains its ability to change and improve operations.

Next Plc’s Balanced Scorecard: Internal Business Processes Perspective.

OBJECTIVES KEY PERFORMANCE
INDICATORS
TARGET
PERFORMANCE LEVEL
SUMMARY ACTION PLAN
Skills and Competencies Employee Productivity Increase employee productivity by 4% annually
  • Annual employee refresher courses.
  • Continuous training on improved production techniques.
Efficiency Processes Redundancy Redundancy reduction by 20% annually
  • Biannual reviews of processes.
  • Introduction of up-to-date processes.
  • Benchmarking with competitors in the industry (Marks and Spencer).
Project Performance Project performance index 40% improvement annually
  • Supervisors training on time management.
  • Advanced project planning.
  • Sufficient allocation of funds to projects
Systems optimisation Process or machine downtime level Reduce downtime by 50% annually
  • Investing in new machines, and systems, and equipments

Next Plc’s Balanced Scorecard: Customer Perspective.

OBJECTIVES KEY PERFORMANCE
INDICATORS
TARGET
PERFORMANCE LEVEL
SUMMARY ACTION PLAN
Real customer satisfaction Customers’ feedback Increase positive feedback by 10% quarterly.
  • Quality home ware and clothing products.
  • Timely services.
  • Customising products
Positive social impact Community surveys Increase positive feedback by 10% biannually.
  • Corporate social responsibility initiatives.
  • Advertising.
  • Hiring from local communities.
  • Buying raw materials and other inputs locally where available.
Market penetration Market share and retail outlets A 10% growth in market share by 2015, up from 7.5% in 2014.
  • Growing the number of Next Directory’s customers.
  • Advertising to increase customer spending.
  • Online marketing, ordering, and payment options.
  • Increasing retail selling space in a profitable manner through the establishment of more outlets and franchises.
Customer loyalty and retention Customer loyalty Retain at least 80% of new and old customers annually
  • Product incentives
  • Loyalty programs

Next Plc’s Balanced Scorecard: Learning and Growth Perspective.

OBJECTIVES KEY PERFORMANCE
INDICATORS
TARGET
PERFORMANCE LEVEL
SUMMARY ACTION PLAN
Development of new opportunities Product portfolio Introduction of at least 1 new product annually
  • Opportunity searching or generating initiatives.
  • New idea generation initiatives, such as brainstorming
Investment in new opportunities and future development Successful ventures Success rate of 60% for new ventures annually.
  • Increased investment in the research, design, and development department
Personnel development Output per employee Increase by 10% annually
  • Funding personnel development initiatives, such as training.
  • Promoting new talent
Development of improved production capacity Overall organisational productivity Increase productivity by 12% annually
  • Developing new production systems.
  • Upgrading production equipment and investing in new technologies.
  • Designing and building advanced production facilities and equipments

Next Plc’s Balanced Scorecard: Financial Perspective.

OBJECTIVES KEY PERFORMANCE
INDICATORS
TARGET PERFORMANCE LEVEL SUMMARY ACTION PLAN
Increasing profitability Return on capital employed (ROCE) Increase ROCE by at least 8% by 2015
  • Increase unit sales through retail outlets, online sales, and franchises.
  • Costs control.
  • Product sourcing
Minimising costs Gross margins Increase gross margins by 5% in 2015, up from 33.2% in 2014
  • Minimising production and other operational costs.
  • Sourcing for low cost but high quality materials.
  • Enhancing the efficiency of production facilities and equipment.
  • Efficient and effective management of supply chain systems.
  • Stock management.
Increase market share, position, and growth Percentage market share growth Grow market share by 3%, up from 7.5% in 2013
  • More sales through the various outlets, especially Next’s Directory.
  • Enhanced product awareness through advertising and public relations.
  • Vigorous product offers and promotions
Capital adequacy Earnings per share Increase earnings per share by at least 10% annually
  • Efficient capital generation and management

Strategy Map

Strategy Map

Recommendations

Next Plc can be regarded as a company that is performing relatively well, especially considering its financial operations in 2013 and 2014. However, the firm’s balanced scorecard indicates that the management should embark on vigorous activities if its goals are to be realised.

One of the recommendations made to the management of Next Plc is that emphasis should be put on high potential areas. For instance, sales are realised through the retail stores based in the UK and in other parts of the world. They are also achieved through the company’s Directory. It is apparent that the Directory generates a substantial amount of sales. In 2014, the figure stood at 3,699,000 customers or 26.70% in terms of net operating margin (Next PLC 2014). Consequently, the company can increase sales by availing the Next Directory to other markets outside the UK. The directory is an opportunity that can be exploited by the organisation, especially in gaining market prominence outside the local region.

The apparel and accessories industry is very competitive, especially considering the population that constitutes Next Plc’s customer base. The company focuses more on people aged between 20-40 years. The population segment is very fashion conscious (Next PLC 2014). As a result, the organisation has a hard time dealing with competitors like Marks and Spencer.

Next Plc’s management needs to invest more in brand awareness campaigns. It also needs to put more effort in quality assurance to ensure the market share is not lost to rivals. In addition, research and design of new products and production methods is crucial to the growth of the company. In essence, these activities would sustain the relevance of the company in the industry.

The strategies highlighted in Next Plc’s balanced scorecard address the issue of market penetration and generation of profits. However, the strategies are very demanding in terms of financial and other resources. In spite of this, they are a sure way for the realisation of Next Plc’s goals and objectives in the apparel and accessories industry.

Discussion

The balanced scorecard is a very effective model of strategic management, especially considering the relationship between the various perspectives it helps to highlight. The four perspectives are closely linked, with innovation and learning acting as the driving force behind the success of internal processes (Medori and Steeple 2000). Consequently, the internal processes help the company to meet the needs of the customers and the shareholders.

In line with this thinking, one can argue that the balanced scorecard can be used to address the various deficiencies associated with conventional performance measurement systems (Hwang and Rau 2007: 226). For instance, using the scorecard, a ‘balanced’ organisational assessment is attainable. The reason is that the views of the key stakeholders are addressed (Kaplan and Norton 1992: 78).

In the case of Next Plc, financial and non-financial indicators take into consideration employees’ morale, quality of service, and customer satisfaction. As such, the balanced scorecard is efficient in assessing the progress of the organisation. Ideally, the tool provides a more comprehensive coverage of the organisation compared to the use of financial or non-financial performance measurement systems only.

The adoption of this approach makes it easy to identify and map out organisational priorities in Next Plc. The highlighted goals and measures, together with the relationship between trade-offs and cause-and-effect factors, point directly to the company’s priorities. Ultimately, the efficiency of the balanced scorecard as a powerful link between operations and strategy becomes evident.

One of the key strengths of the strategy is the ability to bring together varying elements of the company’s competitive agenda (Silk 1998: 39). Next Plc’s balanced scorecard helps the company to be customer-oriented. In addition, it shortens response time and improves the quality of products (VanVeen-Dirks and Wijn 2002: 418). In addition, long term management objectives are taken care of. The tool places emphasis on teamwork and on the reduction of durations associated with the launch of new products.

Medori and Steeple (2000) argue that scorecards guard against sub-optimisation of resources. They force managers to take into account crucial operational measures. Managers are alerted when improvements are being made in one aspect of the organisation at the expense of others.

Next Plc’s scorecard will put the vision and strategy of the company at the centre of its operations. The approach is unlike traditional measurement systems, which exhibit control biasness. For instance, conventional systems specify particular actions that employees are supposed to perform. Measures are then put in place to determine whether the workers are performing or not. As such, the behaviour of employees is highly controlled (Simons 2000: 117). On the contrary, the balanced scorecard illustrates how the employees will arrive at given actions without making any specifications (Rasila, Alho, and Nenonen 2010: 286). Consequently, the managers are made aware of the end results without necessarily being instructed on how to realise them (Brown 1994: 9). At times, these assumptions motivate managers to do their best. As a result, the performance assessment system becomes a motivating and a measuring mechanism.

Limitations of the Scorecard

The scorecard has various limitations. For instance, if due caution is not exercised, the managers risk implementing the system as a series of independent and uncoordinated measures (Letza 1996: 73). The risk occurs if the demands of the key groups making up the scorecard are addressed separately. It makes the system lose the ‘balance’ aspect.

Another criticism levelled against this perspective is its failure to adhere to the stakeholder’s approach to performance management (Neely 1999: 212). The system fails to effectively address the issues concerning the contributions made by the community, the suppliers, and the employees. It is skewed in favour of the shareholder.

According to Self (2004), the scorecard claims to support interactive control and double loop learning. However, this claim is disputable considering the top-down hierarchical approach associated with the system. As a result, the model is unsuitable for a highly dynamic market (Wongrassamee et al. 2003: 26). Consequently, the adoption of this framework raises a number of issues. The system can be regarded as a blue print that can be used to manage performance. The managers do not need to strictly adhere to its provisions.

Conclusion

The implementation of a balanced scorecard by Next Plc is tied to the success of the management team. The system provides the managers with a picture of how the various organisational perspectives can be manipulated to achieve competitiveness in the market. The model establishes the link between the vision of the company and associated strategies. As a result, it helps in the management of performance.

References

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Kaplan, R. S., and Norton, D. P. (1992). ‘The balanced scorecard –measures that drive performance’. Harvard Business Review 70 (1) 71-79.

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Next PLC. (2014). Business overview. Web.

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Simons, R. (2000). Performance measurement and control systems for implementing strategy: text and cases, Upper Saddle River, NJ: Prentice-Hall.

VanVeen-Dirks, P., and Wijn, M. (2002) ‘Strategic control: meshing critical success factors with the balanced scorecard’. Long Range Planning, 35 (1), 407-427.

Wongrassamee, S., Gardiner, P., and Simmons, J. (2003). ‘Performance measurement tools: the balanced scorecard and the EFQM excellence model’. Measuring Business Excellence 7 (1) 12-29.