Financial Accounting & Reporting | Assignment

FINANCIAL
ACCOUNTING &
REPORTING
ASSIGNMENT

1
By student name
Professor
University
Date: 18 May 2018.
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Executive Summary
This report has been prepared on the topic of balanced scorecard. The report studies the benefits
of this approach in comparison to traditional methods of performance. The report also includes a
brief description about the client, i.e. its nature of business, key priority areas and the suitability
or unsuitability of the balanced scorecard approach. In the end a conclusion is drawn on the
possible benefits that would follow to the company if it chooses to implement the balanced
scorecard. A specimen balanced scorecard is also presented as a part of the report which focuses
on all the four perspectives from the point of view of the client.
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Contents
Introduction
Description of the firm’s client – Woolworths Group 4
Description of BSC and its features 5
Difference between BSC and Traditional Performance Measurement systems 8
Suitability for the Firm’s Client 11
Conclusion 15
References 16
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Description of the firm’s client – Woolworths Group
The company selected for the purpose of this assignment is Woolworth’s group. It is engaged in
the business of retailing and is listed on the Australian Stock Exchange. In terms of revenue, it is
the second largest company in the country. The main operations of the entity is the chain of
supermarkets, hotel business, home improvements, general merchandise and liquor business.
Having founded on the 22nd of September, 1924, it also happens to be one of the oldest
corporate houses in Australia. The company is headquartered at south Wales and employees a
whopping 202000 number of employees. The customer base of the company is quite impressive
as it caters to around 28 million customers across the lengths and breadths of the nation. Not only
has the company grabbed a big market size in the Australian market, but has impressive market
presence in New Zealand as well. The company is highly committed towards meeting the needs
and desires of the customers. This is evident from the fact that the customer satisfaction level
was at 78 %. The company also believes in keeping a youthful employee mix. And therefore it
has employed around 77000 young employees. This orientation toward the youth provides a
vibrant working environment to the business. Woolworths believes in setting a five key priority
index. The first priority is obviously “Customer and store-led culture and team”. The second one
focuses on “Generating sustainable performance in Food”. “Evolving our Drinks business”
comes thereafter, followed by the fourth priority which is “Empowering our portfolio
businesses”. The last priority is that of “Becoming a lean retailer through end-to-end process and
systems excellence”. It isn't just financial results that Woolworths is concerned about. It pays
back to the society as well. As a part of its corporate governance practices, the entity has
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launched a Corporate Responsibility Strategy 2020 that gives stress on the issue of setting targets
under the basic pillars of Prosperity, Planet and People.
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Description of BSC and its features
The Balanced Scorecard provides an organization with a framework within which it needs to
align all its elements and activities, so that the overall corporate objectives and strategic goals
can be achieved. The balanced scorecard is pervasive to all the levels of the organization, i.e. it
considers every vital activity or task. It serves as a link between the objectives to be achieved,
the performance measures and the initiates that the Organisation takes for excellent performance.
The scorecard provides an overall organizational performance view. Not only does it take into
consideration the financial parameters, but it links those financial parameters with other key
performance indicators like perspective of the customers, the growth direction of the entity, the
internal business processes, creativity, improvisation and innovation. The main idea behind
Balanced Scorecard is to identify a few financial and non-financial objectives, which are
connected to strategy. It then devises plans to meet the strategies. After the plan is developed,
measures are looked into and targets are set. Thereafter the actual implementation begins,
whereby pragmatic shape is given to the developed plan. The achieved performance is then
compared against the set targets and the deviations are identified. This regular monitor of
performance and detection of deviations helps to determine failure or success. Only when the
performance is at par with the targets, after allowing a threshold for deviation can strategic
initiatives or projects be considered. Key Performance Indicators serves as the input to a
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Balanced Scorecard. A KPI gives the report as to whether the organization is performing well or
not. It reduces the complicated organizational performance into small number of tasks. These
tasks then become easily understandable and the organizational staffs ensure prompt and quick
action on matters related to these performance index ("What is a Balanced Scorecard? A short
and simple guide for 2018.” 2015).
The ‘balance’ that a Balanced Scorecard intends to achieve, revolves around four core areas,
which are termed as perspectives, namely Financial, Customer, Learning & Growth and
Internal Business Processes. These perspectives follow a traditional approach and the entity has
full flexibility in placing the level of emphasis on each one of them. The four perspectives are
briefly described below:
1. Financial Perspective – the prime objective of this perspective is on how the organization is
performing financially. It normally considers the revenue that is generated and how well do
they fair against the set profit targets. It also looks into the ability of inability of the entity to
stick to its budgets and the savings in cost that the company has managed to achieve. The
management seems to place utmost emphasis on this perspective because it is generally
believed that good financial performance is outcome of performance better in all the other
aspects. In short the question that this perspective tries to answer is “how do the shareholders
perceive us?”
2. Customer Perspective – this perspective revolves around providing immense level of
satisfaction to the customers, expanding the customer base and maintaining customer
patronage towards the products or services of the entity. Performance targets under this
perspective are set in accordance with the needs and desires of the customers and the forces
of the market. It usually covers the ability to identify and attract potential customers, the
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growth with respect to customer base, capturing the market share and the branding
objectives. The key performance areas in this perspective is measured in terms of customer
satisfaction, service levels, net promoter scores, market share and brand awareness. This
perspective tries to find an answer to the question “How do our customers see us?”
3. Internal Business Process Perspective – This perspective has a direct connection with the
customer perspective, in the sense that it focuses on those activities and processes that are
needed to achieve very high standards of customer satisfaction. The management here
identifies processes which are incidental to push performance towards meeting the hopes and
aspirations of the customers and also see how well these fit in the overall organizational
goals. It is mainly concerned about the processes that make the product or service available
to the market. The question that this perspective wishes to answer is “what should we be best
at?” Typical example measures and KPIs include process improvements, quality
optimization and capacity utilization.
4. Learning and Growth Perspective –this perspective emphasizes on the intangible assets of
the organization and its growth. The three pillars of this perspective are human capital,
information capital and organizational capital. Learning refers to the skills and talents of the
people who will be formulating the strategy and also people who will be involved in the task
of implementing those strategic decisions. It can be achieved when the employees are highly
productive and are given ample opportunities of personal development and growth. The
contribution of information technology, particularly, data bases and networking cannot be
neglected while assessing the growth direction of the organization. Organizational capital
means the corporate culture, the kind of leadership and motivation given to the employees,
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and also on team spirit and knowledge management. The question under this perspective is
“How can we improve and create value?” (Intrafocus.com, 2014).
To conclude the above discussion it becomes very evident that the balanced scorecard is a useful
tool for the management to evaluate the performance of an organization. The main advantage of
this tool is that instead of focusing on a single criterion of performance evaluation, it places
equal weightage on all the four perspectives of performance. In fact these four perspectives
cover within their ambit all the factors of performance that one can even think of. This
necessarily implies that if the business is successful, it is doing well in almost all the core
business areas.
Difference between BSC and Traditional Performance Measurement systems
Over the years the traditional system of performance evaluation has faced several criticism
because of it’s over emphasis on financial factors alone (Dichev, 2017). This overdependence on
short term financial goals leads the company into over investing in short term profit generating
areas and completely overlooking the long term value creation opportunities, especially in assets
which are intangible. These intellectual assets are drivers of future growth and neglecting them
would lead to corporate death. For example; short term profits can be increased by cost reduction
but at the same time there may arise a situation of loss of quality and expertise or may even
result in loss of customers. These factors put together may have fatal consequences. Balanced
scorecard approach differs from the traditional measurement system because it places equal
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importance on financial as well as non-financial parameters. This loophole made the
management take loss making decisions and the task of cost allocation was also done poorly.
Under the traditional system strategic planning is done by considering and analytically reviewing
historical data and events whereas on the other hand, BSC approach believes in starting from the
scratch. No or almost negligible consideration is given to past plans and data. New plans are
devised as if the company has come into existence for the very first time. This promotes
innovative thinking and the planning is done in accordance with the changes that has taken place
in the business environment. Considering the dynamics of the business world, the traditional
system of performance evaluation failed miserably. It failed to tap the changes and respond
creatively to them. The traditional system followed a procedure where the results were first
achieved and then they were compared with the objectives of profit making. The above
mentioned points depict that balanced scorecard differs from the traditional strategies. If gives an
organization to set the correct path for achieving the objectives and then taking steps to achieve
the same. Traditional performance measures are often not in sync with the overall organizational
strategy. Strategy is nothing but the long term goal of the entity, i.e. the place where the
management wants to see the entity in. since the Traditional performance systems focused only
on achievement of short-term performances and that too from financial aspect only, it also failed
to establish a firm linkage between the long-term and short-term goals and actions. Organizations
should understand the need to measure performance in ways that not shows the past
performances, but also gives a way to improve the future results.
One of the most striking features of today's business environment is the intense level of
competition. To frame a proper response to the intense rivalry, firms have to be flexible and
adaptable (Belton, 2017). Only then would the firm be in a position to gain competitive
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advantage and eventually become successful. Along with sound financial performance, the entity
must also fare well in other critical areas such as the quality of the product or the service
provided, after sales service, flexibility in the organizational structure, relationships with the
customers, suppliers, creditors and technological know-how. Therefore, modern organization
need to spend handsome amounts in intangible assets that generate long term value like
Customer relationship, development of human capital and employee as a whole. Therefore, it
becomes important to measure these assets as they indicate towards the organizational
performance. Unfortunately, traditional performance systems do not pay consideration towards
the measurement of such intellectual assets. As a result, the long term development perspective
of the firm is forgone at the expense of short term financial results ("Comparing Balanced
Scorecard (BSC) with Traditional Performance Measurement", 2012).
A study of the above comparison makes it very clear that focussing only on financial-measures is
a futile task because a singular performance metric would definitely fail in assessing the overall
organization's performance. The system of evaluation should be such which links performance
to long term strategy, and includes within its scope both financial and non-financial measures.
Among the available options, balance score card appears to be one such evaluation tool.
Suitability for the Firm’s Client
Though, Woolworths doing quite well in the domestic market, it needs to adapt to the ever
changing business environment for its survival well as for attaining sustainability. The managers
need to ask the questions addressed in the balance scorecard to ensure the maximum level of
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productivity and performance. Besides adding the above mentioned four critical and important
perspectives of balanced scorecard, companies have also added other perspectives as well like
such as health and safety of employees, corporate social responsibility and environmental
performance to their focus areas. BSC would be equally suitable to each and every organisation.
The magnitude of their contribution towards the organizational success cannot be overlooked.
Having said that, it is to be borne in mind that there isn't a particular balance scorecard that suits
the interests of all the organizations (Chron, 2017). It has to be formulated in the light of the
given situation. Since Woolworths is engaged in the retailing industry, the significance of non-
financial factors multiples manifold. Customer is the king here and to meet their aspirations even
internal processes are to be fine-tuned. Newer way of doing things has to be thought of along
with creative branding strategies. A look into the four perspective of BSC, particularly from the
point of view of Woolworths would help us assess the suitability of adopting this approach.
Financial Perspective. : Balance scorecard would help the company to determine the sales target
that it wishes to achieve. It would also assign a quantifiable amount to the growth direction, say
20 percent, or 2 points etc. In attempt to achieve these figures, the company would generate
profits and maximize shareholders wealth.
Customer Perspective: This part of the balanced scorecard would necessarily revolve around
customer satisfaction, after sales services and market penetration. The objectives set under this
category can be measured by studying customer feedbacks, frequency and amount of sales
return. The strengths and weaknesses of the sales and distribution channel also comes under the
ambit of this aspect (Boccia & Leonardi, 2016).
Internal Operations Perspective: Woolworths would wish to increase the efficiency of its
machineries so that the overall number of defects is reduced to a minimum. The cost of rework
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or repairing (if covered by warranty) would also be reduced. This can be achieved by developing
newer and innovative ways of doing things.
Learning and Growth Perspective: the main area of concern here would be to reduce the
employee turnover and increase their satisfaction and productivity levels. Spending appropriately
on research and development programmes and training programs for employees would ensure
the achievement of objectives set from this perspective (Sharma, 2012).
The above mentioned factors would definitely help Woolworths to align its day to day activities
with the overall strategy. Thus, the BSC approach is highly recommended. Not only would it
identify key areas of performance, it would also determine the measures to be taken to achieve
those. It will present the deliverables in a highly simplified manner which leaves no room for
ambiguity. Adopting the BSC approach would bring the following benefits to Woolworths:
● Better Strategic Planning
● Improved Strategy Communication & Execution
● Better Alignment of Projects and Initiatives
● Better Management Information
● Improved Performance Reporting
● Better Organisational Alignment
● Better Process Alignment
Given the benefits that follows from a balanced scorecard method, it would not be wrong to say
that with some changes and modification, this approach is suitable to all the entities, irrespective
of the nature, size or objective ("The 7 Key Benefits of Using a Balanced Scorecard", 2015).
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The key is all these aspects need not be seen in isolation but as an integrated goal that aims to
support each other. The best way in which the same can be achieved is to map these goals
against the respective strategies to achieve them one on one (Alexander, 2016). Traditional
methods of performance evaluation would not be of any good to an entity like Woolworths or
any other entity for that matter. Relying on traditional methods would only take the company
towards negative growth and loss of revenue. Therefore Woolworths should definitely adopt a
balanced scorecard approach so that it is able to carve a niche for itself among the competitors.
Conclusion
From the above discussion and analysis, comparison of the Balanced scorecard approach with
the traditional approach, and the checking it suitability for one of the telecommunication giants
in Australia, it can be concluded that BSC is one of the best approaches present today which is
meet almost all the criteria’s of performance management and help the company in achieving
strategic and operational excellence. To summarize, a balanced scorecard may seem confusing at
first, but over a period of time, the organization understands that it isn't that complicated after all.
It is a way of looking at the big picture and it actually provides a balanced approach towards the
achievement of strategic goals.
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References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Balanced Scorecards: Characteristics, Requisites and Precautions. (2011). Retrieved from
http://www.yourarticlelibrary.com/accounting/performance-measurement/balanced-scorecards-
characteristics-requisites-and-precautions/53091
Balanced Scorecard: Traditional Performance Measurement | Bartleby. (2010). Retrieved from
https://www.bartleby.com/essay/Balanced-Scorecard-Traditional-Performance-Measurement-
FKY6GSXHKUEZ
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd
Boccia, F. & Leonardi, R., 2016. The Challenge of the Digital Economy: Markets, Taxation and
Appropriate Economic Models. s.l.:Springer.
Comparing Balanced Scorecard (BSC) with Traditional Performance Measurement. (2012). Retrieved
from http://vaishaksuvarna-bizzscribes.blogspot.in/2012/12/comparing-balanced-scorecardbsc-
with.html
Chron, 2017. five-common-features-internal-control-system-business. [Online]
Available at: http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
[Accessed 07 december 2017].
Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), pp. 617-632.
Intrafocus.com. (2014). [Online] Available at:
https://www.intrafocus.com/wpcontent/uploads/2014/06/What-is-a-Balanced-Scorecard-Intrafocus.pdf
[Accessed 18 May 2018].
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Sharma, G. (2012). Balanced Scorecard. Presentation.
The 7 Key Benefits of Using a Balanced Scorecard. (2015). Retrieved from
https://www.bernardmarr.com/default.asp?contentID=972
What is a Balanced Scorecard? A short and simple guide for 2018. (2015). Retrieved from
https://balancedscorecards.com/balanced-scorecard/#learn-overview
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