Tesco's balanced scorecard framework and financial performance measures

TESCO BSC

Tesco Balanced Scorecard

FINANCIAL PERSPECTIVE

MEASURES

MEASURES

Growth

Market share

More stores, more locations

Sales volume

Online sales volume

Profitability

ROCE measures

Variety

Product channels

Costs/profit margins

Affordability

Price comparisons

Security

Debt reduction

INTERNAL Business PERSPECTIVE

LEARNING/INNVATION PERSPECTIVE

MEASURES

MEASURES

Integrity

Cultural consistency

Development

Training expenditures

Middle-management promotion levels

Consistency

Staff retention

Reporting regularity

Diversification

Changes in department outputs

Explanation and Justification of Proposed Measures

From the financial perspective, the company has set itself goals of continued and even stronger growth, and profitability is also specifically mentioned by the CEO in his review of the company's 2011 annual report (Tesco, 2012). Likewise, the specific measures listed for these goals -- market share, sales volume, ROCE measures, and profit margins -- are all referenced by the CEO in his assessment of the company's current position, its future desires, and its real future outlook, and they are also generally associated with financial performance and strength (Tesco, 2012; Quiry et al., 2011). Reducing debt will add to financial security during a time of continue global economic uncertainty. Moving to the customer perspective, the CEO again specifically identifies store growth and the newer online sales department as measures for the company's access to customers (Tesco, 2012). Variety and affordability are not specifically cited by the CEO as goals, however these are widely recognized in the retail sector as important aspects of business success and would especially be so for a company retailing such basic and common goods as Tesco (Walters & Hanrahan, 2000). Increasing product channels are mention as a specific action that the company is engaged in, however, making it an effective measure for the goal of variety, and price comparisons in different regions for various products is a clear and obvious measure for determining relative/competitive affordability.

From the internal business perspective, the goals of integrity and consistency are both widely recognized as important values for both ethical and pragmatic reasons, with close control over the integrity of an organization and the consistency of its operations leading to higher quality and better levels of legal and ethical compliance as well as creating greater cost efficiencies and promoting stronger and more sustainable development (Crane & Matten, 2007). Consistency in culture is the primary means of generating integrity, and can be measured in a number of direct and indirect ways, and the labor turnover rate/staff retention level is one of the most direct measures of the degree to which an organization can "stay the course" (Crane & Matten, 2007). The regularity of reporting at higher levels of the organization in terms of timeframe and detail will also serve as a useful measure of overall consistency. In terms of learning and innovation, ongoing development of personnel can be measured directly through the resources devoted to training programs, and indirectly through the degree to which middle managers are developed to the point that they can be promoted. Changes in levels of department output can also be used to demonstrate if new ideas or changing structures in the organization are occurring that contribute to diversification (Quiry et al., 2011).

Managing Risk

The Balanced Scorecard is a very effective tool for setting strategic goals, as it allows for (requires, in actuality) an assessment of the company's current position and its future desires and sets out a clear and concrete map of how overall strategic objectives can be broken down, and how these smaller goals can be met through concrete and measurable actions. While this certainly has some relationship with the management of risk in an organization, as success and strategic achievements are themselves evidence of having avoided or diverted risk, this is an indirect means of addressing and managing risk. The Balanced Scorecard manages risks in the same way that a good offensive strategy provides defense -- quite efficiently if everything goes according to the plan, and not at all if the plan fails, in other words. For this reason it is important for organizations such as Tesco to develop and implement other planning and control systems in order to truly address the unknowns and the potential risks that exist for any business venture no matter how strong their strategic plan is.

For a retailer such as Tesco, control of the distribution system is a key means of minimizing risk, as distribution fluctuations and interruptions are one of the biggest risks retailers face (Walters & Hanrahan, 2000). Careful monitoring of distribution schedules and costs, in addition to the real acquisition of distribution elements, will provide more direct risk management than the strategies developed from the perspectives of the balanced scorecard.