Solution
Executive Summary
In this report, an exploration of the rationale of Tesco transitioning from Steering Wheel which is developed from the Balanced Scorecard model to Big 6 KPIs has been provided. A critical review of the balanced scorecard, Tesco steering wheel and big 6 KPIs has been generated. This is with their strengths and weaknesses evidenced eventually establishing the most appropriate performance indicators. Further, the need for improving the KPIs has been presented to be safe from the evident profits drop. These approaches have been identified to include improved communication, clearly presenting the KPIs visually and ensuring all stakeholders inclusion in the KPIs development. Also, capturing the concept of COVID-19 pandemic and delivery issues has been evidenced to be a priority and need to be captured in the organisation KPIs. This represent the best practice which can be applied in other competing organisations in the Grocery retail sector.
Table of Contents
2.0 Balanced Scorecard and KPI 3
2.2 Key Performance Indicators (KPIs) 4
3.0 Tesco Performance Measurement Strategy and Rationale for Change. 5
3.2 Tesco Corporate Steering Wheel 5
3.3 Reasons for Changing the Approach. 7
3.4 Application of the New Strategy. 8
4.0 Conclusions and Recommendations. 9
Appendix 1: Balanced Scorecard. 16
Appendix 2: Strengths and Weaknesses of Balanced scorecard. 16
Appendix 3: Key Performance Indicators Examples 17
Appendix 4: Tesco Performance in last 5 years. 17
Appendix 5: Tesco Steering Wheel 19
Appendix 6: Summary of Tesco Steering Wheel 20
Appendix 7: The Objectives and Key Results Process 21
1.0 Introduction
In the modern business environment characterised by an intense competition and challenges, performance measurement is critical in both private and public sector. According to Mangestika et al. (2021) performance measurement assists in sourcing, analysing and evaluating information on employees performance, departments and organisations. Adopting the definition of Taouab and Issor (2019) the performance measurement is a process used to quantify the efficiency and effectiveness of past practices by acquiring, collating, sorting, analysis, interpreting and disseminating relevant data. There exist financial and non-financial performance measurement approaches. As noted in Bone (2017), while the financial performance measurement tools were popular prior to 1980s, non-financial measures including services, delivery, clients satisfaction are more popular today. The most popular frameworks adopted today include Balanced Scorecard (Quesado et al., 2018), Performance Prism (Helia et al., 2021), performance management matrix (Stanciu et al., 2019) among others. Based on this background, this report evaluates the Tesco case study which has been using Steering balanced scorecard over the years in measuring and managing the organisation performance (Tesco, 2021). After reporting 23.5% fall in their half year profits, Tesco transitioned to using Big 6 KPIs strategy. Also, a discussion on rationale for switching the approaches have been provided and best practice of utilising the new strategy or improvement for best future business performance.
2.0 Balanced Scorecard and KPI
2.1 Balanced Scorecard
According to Marcu (2017), the balanced scorecard was developed by Robert Kaplan and David Norton in 1992. The rationale for developing this tool was informed by the fact that before 1980s, traditional accounting systems were popular which involved use of financial data for performance measurement. According to Vu (2016) the financial data only provided results on past actions and not helpful in offering guidance to management for future performance improvement or prediction of organisation future. As illustrated in appendix 1, the balanced scorecard integrates the financial and non-financial measures to provide the management with a balanced view of organisational performance and information for achievement of goals and making informed decisions. According to Hasan and Chyi (2017) the effectiveness of balanced scorecard is informed by its capacity of translation of an organisation vision and strategy in coherently set performance measures. This is in customer perspective, internal business perspective, learning and growth perspective and financial perspective (see appendix 1). Further, as evidenced in appendix 2, balanced scorecard is effective in complementing traditional financial measures with perspectives of clients, internal business process and learning and growth (Agyeman et al., 2017). It is these strategies which are adopted for continuous process by management and employees in an organisation growth. Despite of the strengths evidenced in appendix 2, there are evident weaknesses on application of this strategy. These challenges include time intensive, costly and lacking an external focus. According to Krylov (2019) the balanced scorecard is based on the theory of enterprise differing from other evaluation systems enabling the management in checking their business strategy if non-statistically but formally.
2.2 Key Performance Indicators (KPIs)
Adopting the definition of Bhatti et al. (2014) which explores on the use of Key Performance Indicators (KPIs) in context of industry, they are physical values applied for measuring, comparing and managing the entire organisational performance. They include quality, costs, financial, flexibility, employees satisfaction, customer satisfaction, safety, community and learning and growth (see appendix 3). As evidenced in Domínguez et al. (2019) these KPIs are applied by most of organisations to measure and manage their performance. Hence, the KPIs are identified as having positive implication on the overall performance of organisations. These positive implications are identified by Velimirović et al. (2011) to be since KPIs include both the financial and non-financial measures which organisations adopt in revealing their success in accomplishment of sustainable goals. Nevertheless, for the weaknesses of KPIs, they include the necessity for having an appropriately defined and standardised process in the organisation for performance measurement. In supporting this, Banu (2018) which had evaluated on the performance indicators for innovation noted on the need for organisations to establish meaningful KPIs for measuring their performance. As a result, the process is successfully implemented to the organisation maximum benefit.
3.0 Tesco Performance Measurement Strategy and Rationale for Change
3.1 Background of Tesco
In UK, Grocery retail sector is identified as a dynamic and fast-growing. According to statistics in Statista (2021), it is evident that in 2020, the workforce in this sector were more than 5 million people representing approximately 12% of the entire UK workforce. As evidenced in Tesco (2020), in terms of overall sales, they have consistently grown from 2017 to 2019. In 2020 and 2021, the performance lowered as a result of the COVID-19 pandemic with a significant percentage. In 2013 which is the year the organisation revaluated its performance measurement approach, BBC (2013) indicate that the organisation had reported 23.5% drop in profits in the first half of its financial year. Despite of this, today, Reuters (2007) identify Tesco as the world’s third largest retailer in terms of profits with approximately 6,500 stores and more than 500,000 employees. Hence, for the purpose of maintaining this momentum, it is instrumental for the organisation to be best positioned in communicating their strategy and executing it effectively. Specifically, in the current COVID-19 pandemic, OECD (2020) evidence that competition has increased in the grocery industry with new organisations, customers and types of products changing particularly due to the expansion of e-commerce.
3.2 Tesco Corporate Steering Wheel
As evidenced in Tesco (2019), the Tesco core vision is to be the most highly valued business by customers served, communities in which they operate, loyal and committed employees, and shareholders. In order for Tesco to attain organisation growth and vision, they have initiated a total of 3 strategic priorities which include;
- Regain competitiveness in their main UK business environment
- Protect and strengthen balance sheet
- Rebuild trust and transparency
For the organisation success in achieving these strategic objectives, they have elaborate goals for ensuring delivery of long-term sustainable growth, a balanced scorecard identified as Steering Wheel. As illustrated in appendix 5, the tool had been in use for more than 20 years which is applied in setting appropriate targets for every objective in each segment and using Key Performance Indicators (KPIs) in tracking and measuring their performance (Fatricia, 2017). Nevertheless, as evidenced in Marcu (2017) and appendix 1 balanced scorecard, the steering wheel is substantially different from the Kaplan and Norton developed in 1992. While the 1992 balanced scorecard is inclusive of financial, customer, learning and growth and internal business operations, the steering wheel as illustrated in appendix 5 include the perspective of people, finance, customers, operations and community.
According to Ievdokymov and Zavalii (2020), for the balanced scorecard, the finance perspective include sales, expenditures and incomes applied in understanding the financial performance. The financial metrics also entail the financial rations, budget variances and income targets. As evidenced in WSJ (2015) one of the Tesco core strategic priority is protecting and strengthening their balance sheet. This is based on the assumption that operating a strong balance sheet is an indicator of provision of a capability for enhancing quality of customers experience. This has been achieved by lowering capital expenditure by being more disciplined in capital investment and lowering their overall indebtedness. Hence, as shown in appendix 5, the Tesco steering wheel 6 key performance indicators include 3 for financial performance including sales, operating profits and cash flow.
Further, in line with Kaplan and Norton Balanced Scorecard, the customer perspective is inclusive of four factors including quality-level, performance scope, services and costs incurred (Fariz, 2019). As a result, Tesco had been budgeting approximately £1 billion in form of commitment for improving services, drive of an impeccable pace for improving their services, range, costs and availability. To achieve this, Guardian (2019) evidence Tesco to have engaged approximately 9000 individuals in their customer-facing job functions and requesting individuals working in office to take more time in the stores. Specifically, as a consequence of COVID-19 pandemic, Racounter (2020) evidence that Tesco has ended up reviewing their products to 18% of the overall product lines with an intention of increasing their customers experience and eventually increasing the scope of product availability.
Owing to the increased technology and digital capabilities, customers are similarly changing their shopping strategies. As a consequence of prevalence of COVID-19 pandemic, McKinsey & Company (2020) identify customers preference as purchasing grocery items from home as opposed to visiting stores. Similar to the Kaplan Balanced scorecard where customer perspective entail gauging the clients satisfaction with the quality, price, availability of products and services, their feedback on satisfaction is critical (Koumpouros, 2013). Similarly, for Tesco organisation, using the steering wheel imply adopting best practice in improving their customers experiences. In the past, they had invested in online shopping channels, tesco.com, Tesco direct, telecoms, Tesco personal finance and dunnhumby. Through an appropriate consumer research, they are in a position of providing their clients with similar convenience irrespective of their shopping locations.
A critical component of the Tesco steering wheel is the role of community and environmental performance in their business success. Hence, apart from adopting the other four perspective of balanced scorecard, Tesco have the community and environment as the 5th segment of steering wheel (Direction, 2009). Despite of multiple entities lowering their spend in this area, Tesco has awareness of a long-term successful based on the health and natural environment. Since 2016, Tesco loss was linked to failure of appropriately managing their biodiversity where it led to Guardian (2015) noting on the need for investing in key environments impact such as climate, forestation, marine, farmland and fresh waters and developing relevant approaches for reducing impact of biodiversity. As a great employer in their community operations, they ensure provision of young populations with opportunities for skills development and leveraging on appropriate experiences, great jobs and existing opportunities.
3.3 Reasons for Changing the Approach
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