How to use a balanced scorecard
30.06.2011 22936

How to use a balanced scorecard

The crisis forced the entire business community to change, and shoe companies were no exception. The question is how to change in order to achieve your goals. One way is to build Bsc-balanced scorecard system, reflecting the current situation of the company and the percentage of plans, as well as motivating staff by linking salaries to indicators. In this case, the owner will be able to understand why he pays the salary, and the employee, in turn, will know what he gets it for and how to earn it. The leading consultant of Fashion Consulting Group Galina Kravchenko talks about the features of building a balanced scorecard system.


Galina Kravchenko - Development Director of Fashion Consulting Group, representative of the online trend bureau in Russia and the CIS countries. 

What it is?

The term Balanced ScoreCard (BSC) has several translations into Russian, of which the “balanced scorecard" (CCP) is the most appropriate.

A balanced scorecard combines traditional financial dimensions of companies with non-financial ones. This approach provides managers with more objective information about the processes they manage.

Historically, the appearance of the term Balanced ScoreCard is associated with the publication of R. Kaplan's article “Balanced ScoreCard - Dimensions that Control Performance”, published in 1992, in which four universal business projections were presented. Harward Business Review magazine, in its 75 anniversary issue, included BSC in the 15 list of the most important management concepts that were first published on its pages in the history of the magazine.

The central element of this system is the development of key performance indicators, or key performance indicator (KPI). KPI - an indicator by which the effectiveness and efficiency of the organization of work in the company is evaluated. For example, the number of people entering a shoe store is not yet a KPI. Performance Indicator is the number of people who make shoe purchases in a store.

Benefits of Using a Balanced Scorecard (MTP)

MTP allows you to:

- see the full picture of the business;

- prevent critical situations and conflicts;

- facilitate interaction at all levels and organizations;

- provide an understanding of the strategy by all participants;

- Establish strategic feedback and training;

- convert a huge amount of data obtained from many information systems of the enterprise into information that is understandable.

For reference, it can be noted that, according to Western statistics, the enterprises implementing this system, the efficiency increases by 15-25%.

It is important that the head of the company that introduced KPI does not receive a formal profit and loss statement, but a profitability and profitability management system in which all profit and loss statement indicators will be taken into account in their own way, using more correct algorithms. That is, management will see all sources of growth and decrease in profits. For example, profits will be considered in terms of shoe lines or brands.

What indicators are important for company management

Today, the most commonly used system of key performance indicators - KPI (English key performance indicators). When using the KPI system, the manager can see on just one page a system of indicators testifying to the development and condition of his company. Balance forms, of course, no one cancels, but they must be reconfigured. These forms are the same for everyone - builders, oil workers, sellers, industrialists. For managers of shoe enterprises, it is important that the company has developed a system that is suitable specifically for the shoe business.

Let us consider in more detail the key performance indicators for the main business units.

Sales figures

The entire sales process is divided into several stages: interaction with customers, receipt of orders, shipment, receipt of payment for the shipped goods. Based on these processes, the following key indicators can be distinguished:

- the amount of revenue;

- sales in pairs;

- revenue / sales for assortment groups;

- customer debt;

- volume of shipments completed;

- the actual implementation of the sales plan (fact / sales plan);

- the amount of overdue receivables (comparison of actual overdue receivables with the established standard).

It would be reasonable to supplement this list with indicators related to development (for example, take into account the number of invoices issued to new customers). The indicators should also be tied to a motivation system. In most companies that have a customer base, sellers are not looking for new customers. Therefore, it will be logical to pay one bonus for regular customers, and to encourage managers with a higher premium for attracting a new client. To do this, add the appropriate line to the sales budget and track the number of new accounts.

In the final report, management simply needs to include one or two indicators from this list, for example, the actual implementation of the sales plan and the amount of overdue payables.

One or two development indicators are sufficient: the number of new accounts and the volume of revenue for new customers.

The latter indicator can be calculated as the ratio of revenue for new customers to revenue for existing customers. Thus, it is easy to track trends and the pace of change in customer mass.

Marketing performance

The current assessment of marketing activities can be carried out according to several parameters:

- customer satisfaction;

- the relative quality of the goods;

- relative quality of services;

- customer willingness to purchase;

- understanding of the goods of the company by buyers.

A special place is taken by indicators of the effectiveness of advertising.
Many advertisers consider the methodology for evaluating the effectiveness of imperfect. I must say that sometimes such judgments lead to the fact that marketing costs are considered ineffective, and therefore inappropriate. In the current work, it is necessary to use indicators such as:

- change in the flow of visitors (people);

- change in the flow of customers (people);

- change in sales (pairs)%;

- the effect of communications in revenue (rubles) = revenue from the type of advertising (rubles) - costs for the type of advertising (rubles);

- the effect of communications in profit (rubles) = revenue from the type of advertising (rubles) - the costs of the type of advertising (rubles).

Evaluate these indicators is possible only when building a monitoring system at points of sale.

For reporting, management should provide the following KPIs:

- market share;

- sales dynamics;

-% conversion (ratio of customers to the total number of visitors to the store);

- growth in sales of new brands;

- income per client / buyer;

- marketing costs per client / buyer.

Procurement Performance Indicators

In turn, the procurement department must change the approach to assortment management. In the previous issue, we examined in detail how to implement a category management system. The method is based on empowering the category manager with the powers of a mini-commercial director, so that, like any owner of a trading company, he strives for more profit. In this case, he will be interested in buying liquid goods, not having surpluses, so that sellers are able to sell them, so that the cost of goods is minimal, and the margin is the maximum possible.

Therefore, the performance indicators of the procurement service of a shoe company are performance indicators for each category of shoe assortment:

- gross profit / marginal profit (rubles);

- the actual coefficient of trade margins for the season, taking into account the reduction in prices and balances;

- revenue (rubles);

- sales (pcs.);

- the norm of the turnover ratio TK.

Performance of production and service units

Production units today more and more resemble service structures. If the marketing and sales departments are directly involved in sales, then production and logistics perform service functions in relation to them, that is, they provide the planned level of sales. Therefore, service units are required to work so that the seller (and ultimately the company's client) is satisfied with the quality of the services provided to him. Therefore, service divisions should first of all be evaluated using quality indicators:

- timely delivery;

- lack of downtime;

- implementation of plans;

- compliance with standards;

- customer satisfaction.

For typical types of production and service, a grid of standards should be developed. The simplest example of a service unit in a company is a logistics service. There are various delivery channels, transportation is carried out at different distances and by different modes of transport. Delivery time, costs and profits depend on this. The normative profitability grid will show what the costs and revenues will be for the selected method of delivery by a certain type of transport to a specific distance.

Plan and fact

To assess the effectiveness of the company, you need not just to monitor the dynamics of key indicators, but to compare the actual values ​​with the planned. It is convenient and clear to do this with the help of diagrams with color highlighting: indicators for which the actual value is better than the planned value are colored in green, and for which worse - in red.

At the same time, you need to plan the indicators not based on the achieved level (on the principle of “sales for the previous period plus 30%”), but taking into account trends in the market.

So far, the forecasts for the development of the shoe market are not very comforting. At 2009, experts are talking about increasing sales throughout the market from 5 to 8%. Therefore, a larger increase in sales in shoe companies can be justified either by an increase in the number of outlets (for wholesale companies: customers), or by a detailed and reliable analysis of all areas of the company’s activities, which guarantee a more optimistic development.

How often should indicators be planned

Traditionally, the frequency of planning depends on the stage of development of the company (a more mature company needs longer planning periods). Unfortunately, the current economic situation is making adjustments, so shoe companies are advised to make changes for each season.

Not only finance

When developing key performance indicators for a company, it is important to consider not only financial indicators (profit, revenue, productivity), but also others, such as customer satisfaction, customer loyalty, and staff turnover. Within the framework of the BSC concept, company performance is evaluated in four coordinates:

- finance;

- internal business processes;

- customers;

- staff (training and development).

It is the balance of KPI in all areas of activity that will help achieve commercial goals. There are examples when units are given conflicting tasks. For example, the logistics division to reduce storage space, and the procurement division to get maximum discounts on goods. As a result, suppliers bring a cost-effective large batch of goods to the warehouse, and the warehouse is not able to handle the delivery.

In such cases, it is the balanced scorecard that helps to coordinate the results of the work of structural units through the coordination of processes.

In practice, many enterprises do not use the entire BSC system, but only those parts that characterize the key areas of activity of this enterprise. Some companies, on the contrary, introduce additional coordinates in addition to four coordinates.

How to implement KPI

Preparation and transition to management based on key performance indicators will consist of several stages:

1. Identification of key processes of the company (for example: sales - production - project management - technology).

2. Highlighting priorities in the development of the company. The development of specific goals for each process, if necessary, you need to adjust the organizational structure.

3. Specification of goals by branches and management levels.

4. Identification of key performance indicators in each target area, at each level, in each organizational unit.

5. Collection by the financial service of actual targets and their comparison with the targets. To get an objective picture, you can never entrust the measurement of an indicator to a manager who is responsible for the corresponding direction of activity. For example, it is unacceptable for the head of the sales department to be responsible for increasing customer loyalty and at the same time be engaged in evaluating loyalty.

6. Once key performance indicators are identified, it is necessary to establish the frequency of measurement and data analysis. Some of the indicators will be analyzed every month, some - once a season, and some, perhaps weekly.

7. Approval of the operating budget and development budget, determination of planned values ​​of key indicators.

It is important to remember that the KPI system will safely exist only if it is accepted and shared by all people working in the company. That is, the company’s staff loves their work, bosses are able to set tasks, KPI is collective and explains the meaning of the work, employees have resources adequate to their goals, employees have KPIs specific to their work, evaluating not only the result, but also the process.

The crisis forced the entire business community to change, and shoe companies were no exception. The question is how to change in order to achieve your goals. One way is to build a BSC system ...
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