Accounting for Decision Makers at HMV Group Plc

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Introduction

The accounting concept is a key concept in both measuring performances as well as a tool for decision-making (Epstein 2008, p. 5). In this work, we analyze how accounting has made it easy for HMV Group Plc to formulate policies key to bringing the company to its present state. Alongside the concept of financial accounting is a very important tool called the balanced scorecard (Niven 2006, p. 3). The balanced scorecard is a strategic system for management and planning used to help organizations focus on core business while disregarding activities that are not core. It helps businesses to organize their activities in a way that makes the realization of the company’s mission and vision possible (Brown 2007, p. 11). The balanced scorecard contains the activities to guide the organization and the criteria for measuring actual performance against expected performance.

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Restructuring is one of the most important concepts. This majorly takes the form of a review of strategies the company uses. Most companies develop strategic plans aimed at directing the company towards the right path and this helps the company to achieve its goals within the period it has set and within its resource limits. These strategic plans come from an analysis of financial accounting results (Wiedmann 2009, p. 43). These results reflect the current position of the company. With the knowledge of the current position, it becomes possible to draw the path that the company will follow. It also helps to predict and forecast the future position of the company.

Background Information

HMV stands for His Masters Voice. It is a British company operating majorly in many countries specializing in-retailer music, film entertainment, games and book. It operates through two brands HMV and Waterstone. The business is organized into four main divisions to facilitate the market presentation and internal logistics. These are HMV UK and Ireland, HMV International, HMV life and lastly Waterstone’s. The HMV International covers Canada, Hong Kong and Singapore. The company has a wide range of products but they can be grouped into four namely visuals, music, games and books. Visual is the group leading product with over 45% of the total group’s sales (HMV Group 2011, p. 1).

HMV group produces half-year results in October, which is then followed by full-year results in April. Interim management statements, which are composed, of the latest trading updates are produced in January and September and pre-close trading updates are announced after the end of each financial year. For the financial results for the period ended 30 April, the HMV group had a total sales decline of 7.4%. It had a profit before tax of £28.7m (HMV Group 2011, par.1). HMV Group is majorly comprised of Fopp entertainment brands and Waterstone’s for books. It operates in up to seven territories with over 700 stores that endeavor to provide a wide range of competitive products with key emphasis on excellent service, value for money and a great motivating shopping environment. HMV products are market leaders in the dynamic and highly competitive market it operates in. Currently, the group has a medium-term strategy that was presented to stakeholders following a three-year transformation plan starting in March 2007. The strategy focuses on increasing sales through new products as well as placing the group strategically in the market (HMV Group 2011, par.2).

In 2006, the company rolled out a strategic plan that mapped the expectation of the company. The plan among other things emphasized increasing sales and driving for cash and continuing to reduce costs to increase profitability. It also emphasized the need to expand the range of products especially digital products as well as increasing activities in high-growth markets of live performances and ticketing. Due to numerous debts and in an effort to cut down operational costs HMV group sold Waterstones to pay its debts and also to increase its capital base.HMV boasts of good customer loyalty and advanced technology, which has helped the group to remain competitive in a fiercely competitive market. Their main competitors include, for instance, Amazon.com. The presence of downloadable music and books and online ads has adversely affected the growth of the company but despite that, the management has been keen to look for other avenues to bring in revenue. A good example, in this case, is a live performance (HMV Group 2011, par. 3).

Financial Information

The company in its latest financial statements expressed clearly that it had a difficult year composed of a very challenging economic environment and economic uncertainties. For the period of 53 weeks ended 30 April 2011, the company recorded sales of 1,868.3 million pounds a decline of about 7% from the sales of 2010 (HMV Group Website, announcement of financial results, 2011). Profits before tax for the period were 0.2 million pounds. Overall music and the visual market continued to decline this is because of stiff competition from other operators who have joined the market. The decline was about 10% in volume. However, digital music continued to grow which earnings per share resulted in an overall music decrease of 5%. Adjusted was 3.8 p.a which marked a decrease of 67% as compared to last year. The directors did not recommend payment of final divided and therefore the interim dividend of 0.9 per share paid was taken to represent the total divided this compares to last year’s dividend which was a total of 7.4 per share (HMV Group 2011, par.3).

Application of Balanced Score Card in HMV Group Inc

The balanced scorecard card links performance measures by analyzing business strategies from four perspectives namely financials, customer, innovation and internal business processes (Kaplan & Norton 2005, p. 83). The four perspectives support the company’s goal in order for the management to move in the right direction. Within each of the four perspectives, we have four parameters namely Goals, measures targets and initiatives (Niven 2005, p. 52). Many companies have incorporated a balanced scorecard as an integral performance and management too.HMV group has not been an exemption towards that end especially after reviewing its strategic goal to include, to name but just a few, offer a wide range of products and be a market leader with innovative products and providing an excellent shopping experience. We analyze the HMV scorecard along with the four perspectives.

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How the Company Looks at Shareholders

This is the perspective that looks to increase the value of shareholders. The main idea is how the shareholders view the company shareholders will view the company in lines of profitability and value creation in terms of shares (Nair 2004, p. 67). The items in this category will, for instance, be reduced loan portfolio by 20%, to grow our account deposit by 40% and to control the budget and reduce it by 10% and finally to reduce operational cost by 20%. In the cases of a loan, performance measures would be loan book size, company’s cash at bank, budget allocation and operational costs respectively. The incentives in both cases will be adopting low-cost models setting up budget committees and a financial department.

International Business Perspective

This is the perspective that analyses or gives direction as to how a company needs to position itself in order to excel. In terms of international perspective, this is where the company will outline exactly what it has to excel in it has to remain competitive (Smith 2010, p. 77). In this regard, the company will have items like Economies of Scale, Efficiency, Marketing and procedures. The targets in each case would be to increase economies of scale, improve efficiency improve on marketing outreach and simplify procedures respectively. The performance measures would be a 5% decrease in redundancies, 98% efficiency, 68% market cover and a 3-step procedure. Initiatives would be the Acquisition of programs, new marketing campaigns in a reduction in cycle time.

Innovation and Learning

In terms of innovation and learning, we could have objectives like new ideas, new technologies, hiring the best and improving training (Hannabarger, Buchman & Economy 2007, p. 10). The measure of the target in each case would be 5 new ideas per year, 2 new technologies per year, 5% increase in employee qualification per year and 10% increase in training hours. The initiative, in this case, would be recruitment, service training and staff optimization analysis. For instance, the group may have a target in the balanced scorecard as each employee to come up with five new ideas each year. The parameter for measurement would be five ideas and the key component would be ideas (Clarke 2004, p. 36).

Perspective from the Customers

From the customer perspective, the targets, for instance, can be to acquire more customers, to have the best products, to increase market share and improve the brand image (Gupta & Tyagi 2008, p. 96). The performance measures would be 20% more customers per year, one best product annually, 10% increase in market share, 10 brand awareness campaigns each year. The initiatives, in this case, will include customer reward programs, Expanding to Africa and extensive promotion as well as promotion and marketing budget. In an example we would have like to gain 20% more customers by the close of the year in that case customer is the item and the target would be gaining 20 & more customers. The initiative, in this case, would be increasing the marketing budget to actualize the target

Evaluation of the Performance of the Company

HMV Group Plc turnaround Plan from 2006

The company has a clear turnaround plan, which is contained in its strategic plan. The company had focused to protect and concentrate on core business, grow more revenue through new channels and products and finally achieve cost efficiency. Its target was to obtain 25% of the online entertainment market by 2010. Waterstones targeted to obtain 15% of the online books market by 2010. overall the group targeted in the turnaround plan to be a market leader in all of its international territories. Although the strategic plan of turnaround was keenly drafted, it did not take into account global competition and other, market pitfalls like global recession and change in international market laws. But a keen look at the financial indicators that the turnaround plan is yet to be actualized with critics emphasizing that it will never. One of the key indicators to this effect is that profit and sales turnover are still way below the projected ones. HMV has been severely affected by the increasing growth of music downloads and the operation of music sites which pose stiff competition to its products. These include iTunes and online sellers like Amazon and Play.com.

The firm had planned to achieve an annual cost savings of about 40 million pounds by 2010. It intended to do t6his by simplifying its supply chain to obtain cost savings in terms of distribution channels. It also planes d to cut costs by selling some of the shops. The plan is way below what was projected because the profits have declined and the group is heavily in debt. In spite of this, the group still believes in the good times ahead. The Company was forced to sell Waterstone’s to A&NN Capital Fund Management for 53 million pounds in May to settle its bank debts. Given that the company did not pay final dividends to shareholders we can conclude that the turnaround has not been simple. Despite the challenges the management has faced they are still optimistic that the company will get back to profitability as they had projected in the strategic plan (HMV Group 2011; Kourdi 2007, p. 49-57).

The Company’s Strengths and Weaknesses in the Current Economic Climate

The company’s strengths are that it operates in a market where customers have goodwill. It has a good image in the eyes of the customers. The company boasts of loyalty from its customers. To this end, the company has managed to identify key markets where it has loyal customers. The other strength of the company is its dedicated management and staff in general. Even in the event where the performance is below the expected, they have remained focused and innovative to come up with innovative and competitive ideas (Khan & Jain 2007, p. 21).

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The company’s strongest weakness is however the numerous debts it has found itself in of late. The company was forced to sell Waterstone’s to pay part of these debts. The other strong weakness is its inability to position itself strategically in order to avert the consequences of the stiff competition it faces some of those competitors are supermarkets and online merchandisers like Amazon.com (Lindemann & Reiser 2000, p. 113).

Comment on Disposal of Watersones’s Companies

HMV is in dire need of cash sold Waterstone’s to a Russian Waterstone’s that is a 296-store chain, was sold for 53 million pounds with the company aiming to secure an immediate future. The proceeds from the sale were expected to pay a portion of debt and buy some time as the company endeavors to position itself strategically in the market. Some saw the sale of the company as a start of an end to the group with critics saying that the strategic plan which brought about many structural changes in the group in an effort to make it relevant to the market is to blame for the group’s continued performance. The company has a bright future if it can use the proceeds to clear parts of the debts and use the rest of the proceeds to develop a new approach to the market that will close down the key competitors. Through the disposal of Waterstone’s the company has been able to secure a future for continuing with the business (HMV Group 2011; Chandra 2009, p. 87).

Some Key Objectives, Measures, Targets and Initiatives by the Top Management of HMV Group Plc

The company’s management has a target of employing high technology to place to close the competition gap. It seeks to achieve this by embracing technology, which will open doors to more online shoppers such that customers will be able to order and pay for some of its key products online. High technology will also bring into place cost-cutting implications as well as having innovative and competitive first-class products. The management also seeks to broaden the entertainment base by coming up with more products that appeal to various customer needs. Some of the initiatives of the management have been simplifying the chain and overall cost-cutting measures (Baker & Powell 2005, p. 94).

The management has been pivotal in cutting the group’s costs as it looks to increase its profitability. Cost-cutting measures for example have been undertaken where the firm has reduced its supply chain. Besides this move, the cutting cost has also had an implication when it comes to customer satisfaction. This is because the customers now get the products of their choice easily and without much struggle. The management has also put in place good customer relationship management thus keeping customers key to the strategic plan. The management has also been keen on making significant growth in the entertainment market of digital, music and ticketing to overcome the reduction in core physical format retail markets. The management has been pivotal in the introduction of HMV live, HMV tickets and 7 digital. The other parameter to measure management performance is the success in which they have been able to combine HMV stores, HMV.com and HMV tickets the formula has opened the door for new revenue opportunities. Despite a decline in sales and overall profitability the management has been positive and dedicated to turning around the events (Lee 2007, p. 116; Gibson 2008, p. 74).

Conclusion

From the discussion and analysis of the financial performance of HMV Group Plc and the adoption of the balanced scorecard in its strategies, the company is heading in the right direction. Using a balanced scorecard, the company will be able to formulate strategies that are well balanced to tackle all the aspects of competition. The effectiveness of this management is evident in the most recent financial results of the company (Shim & Siegel 2008, p. 119). The balanced scorecard tool is essential for international businesses since it will ensure that the organizations view the market from all perspectives. With the increase in competition and complexity of the business environment in the global markets, the adoption of a balanced scorecard is a necessity to organizations who wish to gain a competitive advantage (Gill & Chatto, 1999, p. 43).

List of References

Baker, H & Powell, G 2005, Understanding financial management: A practical guide, Wiley-Blackwell, Oxford.

Brown, M 2007, Beyond the balanced scorecard: Improving business intelligence with analytics, Productivity Press, New Delhi.

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Chandra, P 2009, Financial management, McGraw-Hill Education, New York.

Clarke, T 2004, Theories of corporate governance: The philosophical foundations of corporate governance, Routledge, London.

Epstein, L 2008, Reading financial reports for dummies, Prentice-Hall, New Jersey.

Gibson, HC 2008, Financial reporting and analysis, Cengage Learning, New Jersey.

Gill, OJ & Chatton, M 1999, Understanding financial statements: A primer of useful information, Cengage Learning, New Jersey.

Gupta, P & Tyagi, R 2008, A complete and balanced service scorecard: Creating value through sustained performance improvement, FT Press, New Jersey.

Hannabarger, C, Buchman, R & Economy, P 2007, Balanced scorecard strategy for dummies, FT Press, New Jersey. Web.

Kaplan, R & Norton, D 2005, The balanced scorecard: Translating strategy into action, Harvard Business Press, London.

Key Ratios, HMV Group Plc, Web.

Khan, J & Jain, M 2007, Financial management, Tata McGraw-Hill Education, New Delhi.

Kourdi, J 2009, Business strategy: A guide to taking your business forward, Bloomberg Press, Munich.

Lee, T A 2007, Financial reporting and corporate governance, John Wiley and Sons, London.

Lindermann, C & Reiser, M 2000, Performance Evaluation: Origins and directions, Springer, New Jersey.

Nair, M 2004, Essentials of the balanced scorecard, John Wiley and Sons, London.

Niven, P 2006, Balanced scorecard step-by-step: Maximizing performance and maintaining results, John Wiley and Son, London.

Niven, R 2005, Balanced scorecard diagnostics: Maintaining maximum performance, John Wiley and Sons, London.

Shim, J & Siegel, J 2008, Financial management, Barron’s Educational Series, New York.

Smith, R 2010, Business process management and the balanced scorecard: Using processes as strategic drivers, John Wiley and Sons, London.

Wiedemann, L 2009, Introduction in financial management, Wiedemann, New York.

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