The balanced scorecard is a system of strategic management and planning, which is widely used in different companies all over the world to adjust business performance to the strategy and vision of such organizations. It also helps improve external and internal communications, as well as monitor performance of an organization against its strategic goals. The balanced scorecard retains traditional financial measures, which describe past events. It suggests that the company can be viewed from three perspectives, such as developing metrics, collecting data, and analyzing it relative to each of these perspectives (Kaplan & Norton, 2004).
The management of the Nordstrom Company could decide to use both of the techniques to measure the performance of the business. Each of these methods has its own advantages, and by combining them together the management gets:
- The goal of the Balanced Score Card is to help the organization reach strategic goals and pursue strategic mission, while the total quality management (TQM) is aimed at ensuring high return on investments.
- Increased market share.
- Increased customer base.
- Reduced future costs.
- More productive workforce, thus ensuring lower loss of materials.
Analysis of Key Strategies
Focusing on the information presented in the company’s 2009 annual report, describe three key strategies, which can be used to support Nordstrom’s goals and objectives. These three strategies include, but are not limited to, increased customer base that leads to increased sales, increased revenue earnings, as well as reduced operational expenses that makes it possible to minimize costs for the business, and boost employee motivation to improve productivity.
The strategy of increasing the clientele base of the company is absolutely important, since it leads to more customers for the business. Such increment can be made possible through acquisition of new clients, while retaining the existing ones. Such a customer strategy is effective when the company takes a more pragmatic approach to offering the best quality shoe products. This can be coupled with the best after-sale services provided to the customers. As a result, this will act as a bait to attract and retain the existing customers for the company.
The cost reduction measure calls for the most appropriate pricing strategy to be employed by the Nordstrom Company. In every business, the focus is on revenue maximization, but the cost element must be maintained at its lowest levels, and since the Nordstrom Company is a profit-making venture, its core objective should be profit maximization and cost minimization. Therefore, the pricing strategy should be one that outweighs the costs involved. In an attempt to price its products, the expected sales revenue should be such that caters for the operational expenses of the business, while leaving out some money as a surplus for the company (Kaplan & Norton, 2004). However, it is also important to note that the prices for the shoe products should not be more than what the competitors in this fashion industry charge. This is due to the fact that higher prices compel customers to buy products from other business enterprises.
Review of Nordstrom Company’s Scorecard
Indeed, this section of the annual report represents a balanced scorecard. This is evidenced from the customer strategy, which has been employed by the management of the Nordstrom Company. This strategy is aimed at increasing the customer base for the company. The increased number of customers leads to more sales revenue earnings for the business. This is further supported by the fact that the net earnings of the company increased by 9.9% in 2009, which is a significant increase, as compared to the previous year (“Nordstrom Inc. Annual Report”, 2009, p.2). However, a decline in sales performance was witnessed in both the company’s retail and store business (“Nordstrom Inc. Annual Report”, 2009, p.2). This could be attributed to higher operational costs and expenses, which the management of the company needed to give a closer look.
It can also be argued that the management of the Nordstrom Company made use of a combined business technique to measure the performance of the business. As a result of this sound business approach, the company was capable of realizing a higher profit, in comparison to the previous performance of the company. This supports the realization of a higher return on a business investment, which is a core advantage of the balanced scorecard approach. In addition, this section of the report has provided a detailed comparison of the past performance of the company, especially sales per square foot, gross profit, inventory turnover, and cash flow operations (“Nordstrom Inc. Annual Report”, 2009, p.2). Moreover, this section of the Nordstrom Company report has incorporated the elements of customer, financial, internal business process, and growth and learning, which are some of the core components of a balanced scorecard.
The Nordstrom Company ought to include various additional measures in each of its balanced scorecard sections, as outlined in the following paragraphs. Under the financial section, the company could include ratio analysis and a proper accounting information system to compare both the present and past performance. Some of the ratios that can be utilized in comparing the past and present performance of the company include the profitability ratios and efficiency ratios (Pandey, 2008).
From the above excellent management and accounting information system, Nordstrom will be able to streamline its strategic planning processes. Furthermore, such tools will ensure that the company’s management command a management control of all its operations, decisions, and financial accountability. Moreover, proper management and accounting information system will ensure that the management gain operational control and transactional decision-informed processing. Coupled with proper auditing tools, the above management and accounting information system is also necessary to be incorporated into the internal business process of the company.
Focusing on the customers, forecasting tools and consumer data base should be enhanced to keep records of clients. This would help in focusing on the customer trends, which is a crucial component of the balanced scorecard. Finally, employee incentive programs and educational facilities should be enhanced to facilitate learning and growth in the company. This would help in comparing the achievements made over the years, since training and education strategies are necessary for improving productivity of the workforce (Kaplan & Norton, 2004).
Analysis of Causal Link
In essence, ratio analysis and accounting and management information systems cause proper management of revenue, as well as evaluating the profitability/efficiency performance of the company. In addition, the auditing tools and management information system cause fraud detection and minimal misappropriation of the company’s resources. Finally, the employee incentive programs and educational facilities lead to improved productivity among the workforce (Kaplan & Norton, 2004).
The Internal Business Process and Learning and Growth Sections
The decline in performance could be as a result of high costs associated with the implementation of the incentive programs and training facilities. In addition, this could come as a result of employee resistance to adopt the new strategies. In order to avoid this unfortunate scenario, the company should introduce new strategies in a piece-meal fashion to avoid employee resistance. As a result, such gradual introduction will also help in cost reduction (Kaplan & Norton, 2004).
Executive Summary of the Presented Data
Based on the financial data provided, the company presented a significant performance in its net earnings, since the revenues rose from $401 in 2008 to $441 in 2009. The net earnings could be interpreted to include the revenue realized after deducting interest expenses, income taxes, depreciation, and amortization from the company’s profits. The increment realized on the net earnings showed that the company employed appropriate strategies, which are aimed at revenue maximization and cost reduction. This was well supported by the fact that the company’s gross profit as a percentage of net sales also increased from 34.5% in 2008 to 35.5% in 2009. Moreover, the cash flow realized from the operation of the business was also on the rise, since it increased from $848 in 2008 to $1,251 in 2009 (“Nordstrom Inc. Annual Report”, 2009, p.23). This can be interpreted to mean that the company is financially stable and can easily finance its business operations.
However, a decrease was realized in the sales percentage of the same store, which was represented by -4.2% and -9.0% for the years 2009 and 2008, respectively (“Nordstrom Inc. Annual Report”, 2009, p.23). Such poor performance could be as a result of the 2008/2009 economic slowdown and inappropriate revenue management system. Therefore, the Nordstrom Company should ensure that its revenue management system uses a querying tool, which is aimed at probing the operational and cost elements of the company, thus servicing the system with efficiently and sufficiently collected raw information for analysis. In addition, the management and accounting system should also use the analysis tool in probing the operational and cost components of the company’s supply chain, thereby enabling the management to develop an appropriate modeling tool in a bid to provide a proven solution to the areas of concern. The solution that the system will develop will underpin the decision processes in the organization.