This study explores the use of the Balanced Scorecard (BSC) technique in management accounting. It discusses the effectiveness of the BSC system and its application in Tesco. The study also examines the advantages and disadvantages of the balanced scorecard technique.
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Running head: MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE Management accounting through BSC technique Name of the student: Name of the University: Author’s Note:
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1MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE Executive summary ThestudyidentifiesthetechniqueadoptedthroughtheBSCsystem.Thismeasures performancewhichhelpsinformulatingstrategyforthefurtherimprovementinthe performance. The study identifies various techniques undertaken by this method and also explains the BSC system in 4 different dimensions. The study also undertakes an example of Tesco for the better evaluation of this method. However, the study includes the identification of the BSC technique that are being followed by the company and strategies which are being made by the company for the improvement in their performance. This explains the strategies intothe4dimensionsthatarebeingformulatedbythecompanythroughcreating communication with other departments and makes the organisation a better working place. This study identifies the advantages and the disadvantages of the BSC to identify the effectiveness of this technique.
2MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE Table of Contents Introduction................................................................................................................................3 Evaluation of the balanced score card system and its effectiveness..........................................3 Balanced score card in relation to the Tesco..............................................................................7 Advantages and disadvantages of balance scorecard technique..............................................10 Conclusion................................................................................................................................10 References................................................................................................................................12
3MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE Introduction Balanced score card is strategic management tool where the organizational strategies are being evaluated depending on the achievement measurement. This also helps in choosing rightstrategysothattheorganizationcanreachthegoaleasily.Thisevaluatesthe performance which helps the organization to identify their successive implementation of the strategy. This evaluates the strategies with reference to the performance measurements. As this judges the effectiveness of the strategies this includes certain activities to improve the performance further. This has been used in many companies in recent times to evaluate their performance into the 4 segments such as: customer, financial, learning and growth, internal businessprocess.Howeverforthebetterunderstandingofthistechniquethereport undertakesadetailedBSCanalysisontheTesco.Furthertheanalysisincludesthe performance analysis of the Tesco through the evaluation of the effective ness of their strategy. This includes the identification of the company’s strategy that has provided idea on the strategic effectiveness and the benefit achieved through using the Balanced score card into the organization. Evaluation of the balanced score card system and its effectiveness The balanced score card system is a strategic management process which helps the strategic management accounting to produce cost efficiency into the business process. This method of evaluating performance has been developed by the Kaplan and Norton in the year 1996 (Al-Hosaini & Sofian, 2015). The balanced score card is a technique of identifying the required strategy for achieving cost efficiency through evaluating the performance of the company.This helps the management accounting system to develop strategy through which costs are calculated based on the activities and cost efficiency is achieved. The balanced score card technique has been popular among all the sector of the business. However, this has been mostly adopted by the big concerns to evaluated their performance at every level and
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4MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE periodically.The balance score card system is applied to understand the performance depending on the score that has produced in each segment of the BSC, then strategies have been formulated and actions have taken (Hansen & Schaltegger, 2016). The balanced score card undertakes four dimensions such as financial prospective, customers prospective, the learning and growth prospective, the business process prospective. This communicates with the different departments of the organization to achieve best possible strategy available for gaining success. Following are the dimensions depending on which the strategic formulation has been done and performance has been evaluated: Customer prospective: In this segment the balanced score card measures the customer’s acquisition. The achievement has been evaluated through understanding the customer retention rate and the customer acquisition. The balance score card identifies the market share achieved through selling product or service (Al-Hosaini, 2015). However, the balance score card measures the company’s performance in acquiring the customer and evaluates the marketing and sales strategy for the further development requirement. Depending on the score achieved into this segment marketing and selling strategy have been formulated which helps the company to grow in this dimension. This indicates towards the requirement of the formulation of the strategy through identifying the loopholes. This evaluates the customer’s satisfaction for identifying the strategies that are required (Muda et al., 2018). Finance prospective: The balance score card evaluates the financial strategies through identifying the financial performance of the company. The model identifies the financial growth and the growth prospective in future depending on the performance score achieved into this segment (Nurcahyo,Pustiwari&Gabriel,2018).However,companiesadoptthismethodto
5MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE understand the financial strength and depending on the score that the company has achieved in this segment further strategies are being initiated or rectified. Through evaluating the finance prospective, the BSC helps in identifying the strategies that are required to formulate while achieving the cost efficiency. This measures the shareholder’s satisfaction through identifying the return on investment. Depending on the target which includes revenue growth, cost reduction and assets reduction the initiatives are undertaken and performances are evaluated (Martello, Watson & Fischer, 2016). Business process: The balance score card evaluates the internal and external business process. This examines the internal business process to understand the area of cost efficiency into the production process. The internal business process such as: operational and management process that are being evaluated. This evaluates the business process through identifying the effectiveness of the strategies that are made by the company management. Following this method the company achieves sustainability in to the competitive environment (Hansen & Schaltegger, 2016). This measures the effectiveness of the strategy through understanding the performance of the company in reducing cost and enhancing profit for the organization. Through measuring the internals business process this identifies efficiency into the business activities. With the performance analysis into the internal business process this identifies that, whether the business running smoothly and efficiently. The internal business strategies are being evaluated depending on the effectiveness of those strategies into the performance evaluation.This measures the initiatives that are being taken to develop the organization’s internal business process. This evaluates the production process through evaluating the cost efficiency earned into the product production and identifies the strategies that are formulated to generate the customer satisfaction. This typically measures the innovation, operation and the post sales service process that are initiated by the company to generate customer
6MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE satisfaction and bringing profitability into the sale process (Cooper, D. J., Ezzamel & Qu, 2017). Learning and growth: In this dimension the BSC communicates with the changes and the adoption of the changes by the organization and the organizational people. This identifies the company’s growth through the learning new business techniques. This recognises that whether the organization is positive towards the adoption of the new business techniques, technology or new trend and also evaluates the company’s initiative to develop skill into the employees. In this segment the balanced score card identifies the company’s performance through learning new business techniques. In this segment the balance score measures the company’s adoption toward the new business trend and delivering this to the organization’s people. This measures whether everyone has the access towards attaining the training program through which company performance can be enhanced and employees can become knowledgeable towards maintain customers’ requirement. In this dimension the balanced score card measures the employee’s capability and employee motivational faction into the organization and measures the employees satisfaction, employees retention, employees’ productivity and time to market (Massingham, Massingham & Dumay, 2019). The balance score card communities with the different business process with in different business department to understand the company’s performance in different business segment (Terziev, 2017). However, the method identifies the development through evaluating the initiatives that are taken to meet the target set by the management. This helps them to evaluatetheirstrategythroughcommunicatingwiththedifferentdepartmentsofthe organization. The balance score card initially was formulated to analyse performance of the company, however the method has now being used for the development of the strategy
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7MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE through creating communication with other department and this helps the management to understand the requirement of the other department and the dimensions (Zerfass, Verčič & Volk, 2017). Balanced score card in relation to the Tesco However, for the better evaluation of this method the study undertakes a real life company example named Tesco. The company has undertaken tis strategic model to gain advantage over their performance evaluation. The company has adopted the balanced score card technique in the year 1991 to drive their strategy and operations. Tesco’s adoption of the balanced score card technique led the company into develop the famous Tesco Steering wheel. The company has divided this in 4 quadrants. Such as: customer, people, operation and financials. The steering wheel originated from the company’s core process and the business objective. This involves the creation of the value for the customer to earn their constant loyalty. Unlike traditional balanced score card model the company has added fifth dimension model in their Steering wheel in the year 2007. This has been named as the community.Thisdimensionidentifiestheemployeesbehaviourthroughwhichthe employee’s encouragement has been done. This is done to become excellent citizen and improve their community. The TSW dimension helps in ensuring the employees of the companyworkstowardsdeliveringdistinctiveandunswervingbuyingexperienceto consumer in each and every store (Karkuzashvili, 2016). The concept of the TWS came in the year 1990 with relation to the balance score card when the company realised to evaluate their strategy in relation to the company’s performance. With following the BSC technique the company does not believe in having one leader in the organization rather they believes in having thousands of leaders who can make the organizational strategy effective through taking initiatives and execute strategy for enhancing the performance.
8MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE Tesco find this TWS technique to communicate with the different departments especially with the employees of the organization (Mason & WRLC, 2016). The technique helps in identifying the strategy which is required for the company to meet with the changes in demand and the choices. Depending on the performances all Tesco stores receives monthly updates on the Steering wheel, summaries of the metric of the five arc, so that the employees canunderstandtheirperformancebythemselvesonlyandgetsafeedbackontheir performance.Tescomakesthisscorecardmoreeffectivethroughprovidingasmall description or suggestion of the important strategic key elements so that all the employees can peruse this in their routine function. However, with the identification of the score in each department the TWS formulates 5 strategies depending in their growth prospective (Core Purpose and Values, 2019). Such as: 1.To achieve success in the international market. 2.To increase the core UK business 3.To achieve equal business strength in the non-food business segment. 4.Develop retailing services. 5.Place the community at the centre of the operation. Along with that the company’s strategic objectives for the coming two year are mentioned in the BSC chart (Herdongazette.com, 2019). These objectives have been formulatedbased on increasingand maintainingtheimportantthrust areasof the company. Further the company makes their balanced score card in the following format with the identification of the following business strategy into their different dimensions: Financials: 1.Increase group salary by more than 10 %. 2.Reducing the start-up loses and making the US operations profitable.
9MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE 3.Increasing international sales by more than 25% 4.Improve the return on capital employed at 15% 5.Improve the UK market share by 1 %. Customers: 1.Focus on the customer having to spend less in the UK. 2.Provide customers with the health choices. 3.Developing customer’s choice. 4.Improve range of cloths and apparels. 5.Developing better range and quality into the general merchandise. 6.Increase the product range for generating availability among the customers. 7.Initiative to make FFA a global fashion brand. Process: 1.Increase health and safety process. 2.Improve capabilities and skill of the organizational people. 3.Improve process for the product and service safety. 4.Improve controls over the fraud and the compliances into the organization. 5.Reducing misconduct into the management. People: 1.Creating 20000 new jobs in each year in the global market place. 2.Rewarding employees to motivate and support their development. 3.Developing leaders into the organization in each level of the organization 4.Improve diversity into the organization and business process. 5.Objective to improve employees’ retention up to 94%.
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10MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE Advantages and disadvantages of balance scorecard technique Advantage: Provides a clear picture of performance: The balanced score card measures the performance and provides a clear pic of the achievement that the company has achieved till the time. This helps in identifying the required strategy for the further development. Clear picture of plan and action: the technique also works as the strategy formation tool, where the company formulates an action plan through making rectification or further development of the strategy which helps in meeting goal. Makes goals achievable: through identifying the loopholes and the formulation of the strategies the process makes the goal achievable. Disadvantages: Expensive and time consuming: the process is an expensive to undertake as this involves strategic management team. This is also a time consuming as this involves long term strategic planning and performance evaluation. Due to which this involves cost. Require data meaning: BSC claims that this process requires information from the managers and that will also require them to log and monitor the team. It also involves managers to create plan action through measuring performance. Which makes thing tedious. This makes the managers’ performance affected and also the information can be inaccurate. Conclusion The study identifies the balance score method for the evaluation of the performance of a company. In recent times the balance score card not only identifies the performance score but also formulates strategy for the further development. The study identifies the technique of the balance score card and the effectiveness of the technique in the organization. Further, 4
11MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE dimension has been explained to understand the effectiveness of the technique and the identification of the requirement for setting a communication with the different departments. This provides idea on the Tesco’s performance evaluation process and identifies the strategy that the company follows into their Balance score card chart. At the end this can be concluded that the BSC technique identifies the loopholes through performance evaluation and makesstrategy through establishing communication with other departmentof the organization. This helps in bringing effectiveness into this technique.
12MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE References Al-Hosaini, F. F., & Sofian, S. (2015). A review of balanced scorecard framework in higher educationinstitution(HEIs).InternationalReviewofManagementand Marketing,5(1), 26-35. Al-Hosaini, F. F., & Sofian, S. (2015). A review of balanced scorecard framework in higher educationinstitution(HEIs).InternationalReviewofManagementand Marketing,5(1), 26-35. Cooper, D. J., Ezzamel, M., & Qu, S. Q. (2017). Popularizing a management accounting idea: The case of the balanced scorecard.Contemporary Accounting Research,34(2), 991- 1025. CorePurposeandValues.(2019).CorePurposeandValues.Retrievedfrom https://www.tescoplc.com/about-us/core-purpose-and-values/ Hansen, E. G., & Schaltegger, S. (2016). The sustainability balanced scorecard: A systematic review of architectures.Journal of Business Ethics,133(2), 193-221. Hansen, E. G., & Schaltegger, S. (2016). The sustainability balanced scorecard: A systematic review of architectures.Journal of Business Ethics,133(2), 193-221. Herdongazette.com, H. (2019). Valuation Metrics in Focus For Tesco PLC (LSE:TSCO), Canadian Pacific Railway Limited (TSX:CP) | Herdon Gazette. Retrieved from https://herdongazette.com/valuation-metrics-in-focus-for-tesco-plc-lsetsco-canadian- pacific-railway-limited-tsxcp/357303/ Karkuzashvili, N. (2016). Communication strategy–one of the major barriers for successful strategy execution in the organizations of emerging countries.Причорноморські економічні студії, (1), 14-18.
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13MANAGEMENT ACCOUNTING THROUGH BSC TECHNIQUE Martello, M., Watson, J. G., & Fischer, M. J. (2016). Implementing a balanced scorecard in a not-for-profitorganization.JournalofBusiness&EconomicsResearch (Online),14(3), 61. Mason, R. B., & WRLC, C. (2016). Prepared by: Lead researcher: WJ Sewell, D Litt et Phil Research team: P Venter, CPUT. Massingham, R., Massingham, P. R., & Dumay, J. (2019). Improving integrated reporting: a newlearningandgrowthperspectiveforthebalancedscorecard.Journalof Intellectual Capital,20(1), 60-82. Muda, I., Roosmawati, F., Siregar, H. S., Manurung, H., & Banuas, T. (2018, January). Performance Measurement Analysis of Palm Cooperative Cooperation with Using BalancedScorecard.InIOPConferenceSeries:MaterialsScienceand Engineering(Vol. 288, No. 1, p. 012081). IOP Publishing. Nurcahyo, R., Pustiwari, S., & Gabriel, D. S. (2018). Developing a strategy map based on sustainabilitybalancedscorecardframeworkformanufacturingindustryin Indonesia.International Journal of Engineering & Technology,7(2.34), 48-51. Terziev, V., Kuzdova, B. V., Latyshev, O., & Georgiev, M. (2017). Opportunities of application of the balanced scorecard in management and control.Proceedings of ADVED, 9-11. Zerfass, A., Verčič, D., & Volk, S. C. (2017). Communication evaluation and measurement: Skills,practicesandutilizationinEuropeanorganizations.Corporate Communications: An International Journal,22(1), 2-18.