The performance of a business is usually determined by how investors, managers, and workers interpret and integrate the vision, mission, and objectives of their organizations with their skills, resources, and experiences. There are various ways of measuring the performance of businesses, and the use of a balanced scorecard has become an important tool for examining the short-term measures established to achieve the goals of an organization (Person 38). This discussion examines the use of a balanced scorecard to determine the feasibility of opening a shoe boutique in Geneva.
Definition of a Balanced Scorecard
This is a business analysis technique that is designed to convert a company’s mission statement and overall business strategy into specific, quantifiable goals; moreover, it monitors an organization’s performance in terms of achieving these goals (Rouse par. 2). This technique combines various factors that drive the mission and vision of companies and examines their effectiveness in directing an organization to achieve its objectives. It is called a balanced scorecard because it uses an organization’s past performance to explain its present position and predict its future.
It, therefore, explores the three generations of an organization and gives investors and managers a clear picture of its intangible aspects and their roles in determining the success and benefits of their investments. Robert Kaplan and David Norton explain that a balanced scorecard is a comprehensive methodology that analyzes an organization’s overall performance in four ways, based on the fact that analyzing performance through financial returns provides limited information about the past performance of a company (Rouse par. 3).
Scorecard: Charlotte Olympia Shoe Store
Charlotte Olympia store is an active company that aims at producing different sizes of shoes for women. The main markets targeted include African and Middle East countries. This company got SIA certifications to manufacture and sell Charlotte Olympia branded shoes. A unique aspect of this brand is that it is comfortable, convenient, and can be used for daily activities including businesses, tours as well as at home. The company has planned to sell shoes of all sizes, with an exclusive display of sizes 5 to 11 in the first five months. This means that it will outsource its operations through Charlotte Olympia Manufacturing Company.
It will therefore function as the company’s main shoe distributor in Geneva. The company brings shoes of high quality in the stated regions where the price of branded shoes is equivalent to their mediocre value. Charlotte Olympia store is easily accessible and willing to expand its operations into new markets after successfully controlling considerable markets in the Middle East and African countries.
The main objective of this company is to increase the volume of the shoes sold in the Middle East and African countries and to get a 2% market share in Geneva and Switzerland within its first year of operation. This plan was established after conducting research and realizing that about half a million pairs of shoes are imported annually and sold to women in Geneva. There is, therefore, a ready market for the products of this company. The figure below presents the four perspectives of a balanced scorecard, as discussed by Robert Kaplan and David Norton.
|Financial|| ||18.9% margin of safety, |
Number of customers, Volume/month in mT, 33% revenue growth
|Customer|| ||Product price €620, |
Delivery time 3 days,
Laboratory certifications with SGS report
Number of re-orders
|Internal Process||Always have enough cash or line of credit to finance the business||Capital availability, Credit line availability|
|HR & Learning||Incentive sellers and contacts with high commissions and benefits, trained traders||33% Commission paid or benefits value, |
60% Traders trained after the launch of every new product
This aspect encourages managers to identify few relevant high-level financial measures that can be used to improve the value of capital invested in a business. This means that the company should look to shareholders and ensure that they get value for the money they invest in an operation. The company aims to have a huge profit margin by ensuring that it fills the gap created by poor-quality shoe manufacturers. An analysis of the cost of sales reveals that this company will purchase shoes from the manufacturer at $760.
The company will sell a pair at $865, and this means that it will achieve a break-even of $105. This also means that the company should sell the shoes at a higher price to make sure that the breakpoint comes faster. The company plans to achieve a profit of $1395; therefore, it has to set a higher price for the shoes to make it exit a trade at a profitable position. This will give a revenue growth rate of 33% per year for the first three years.
The company, however, plans to achieve a higher rate over the first three years by expanding its market to other regions apart from Geneva, Switzerland, and the Middle East. The company aims at raising the margin of safety by setting a high sales target that will accommodate a drop in sales. It has set to sell more than half a million shoes every year, which means that the sales will be higher and the margin of safety will be 18.9%. In addition, the costs of operating will be minimized if sales are high and this can be achieved by maintaining a high number of customers. The company has set a profit target of €1000, and this means that it knows how it is going to attract customers to ensure that this threshold is met. Most Geneva women are either working or at home, but with investments in various sectors. In addition, fashion is an important aspect of their lives, which means that there are higher chances that they will be quick to buy these shoes (Kaplan and Norton 87).
Moreover, the company’s financial position will be safeguarded and it will increase its margin of safety. Consequently, the company’s revenue will increase because there will be a high demand for its shoes. The management has no doubt about the demand for comfortable and convenient ladies’ shoes, and that is why it has predicted a high stock turnover that will multiply the revenue generated. Managers have set targets that will ensure that shareholders get high dividends by focusing on women’s shoes that sell faster compared to their counterparts. In addition, they have realized the need to sell quality shoes because they know that most people are ready to pay high prices to get high-quality products.
The high prices of the shoes offered by this company will therefore not deter potential clients from visiting its stores. This means that the gap created by poor-quality goods will be filled by the introduction of Charlotte Olympia shoes. There is therefore no doubt that the financial targets set by this company will be achieved because it has employed a strategic pricing mechanism that will make sure that the shoes will be affordable to most people. The financial objectives of this company may, however, not be realized easily because the population is fragmented. Not every targeted population can afford to buy these shoes because their prices are very high. Eventually, the sales targets may not be achieved and this will lower the margin of safety because of low stock turnover and expose this company to losses (Niven 100).
The competitive position of this company is at stake because of the high prices of its shoes. It is necessary to explain that even though shoes are a basic need, there are various choices available in the market and consumers will buy those that can be accommodated by their budgets. This company has set the price for a pair of shoes at €620.
The shoes are of high quality, and thus this price is appropriate for them, but not every person can afford to buy them. This means that the company did not study and put into consideration the financial positions of its targeted clients before deciding on the price of its shoes. There are therefore high chances that this company will not compete with those that offer cheap shoes.
Sometimes, consumers ignore the quality of products and focus on their affordability; therefore, they cannot spend a lot of money buying shoes, yet they have other basic needs, like clothes and food (Person 41). The high prices of Charlotte Olympia shoes will make this company edge out of the market and even stop its operations because its competitors have focused on producing or selling cheap shoes that can be afforded by most people.
Customers perceive this company as expensive and established to serve the rich in society; therefore, those that cannot afford to buy its products will not be attracted to it. It is necessary to explain that most low-income earners do not consider the quality of products and will buy cheap ones regardless of their qualities. The delivery of products to clients is also another important aspect that determines their perception of a company.
Most companies are usually located in places where they have huge markets to ensure that there is minimal time wasted in transporting finished products to clients. This company does not produce perishable goods, and shoes can last for many years. Nevertheless, the need to ensure that shoes are delivered to clients before they are out of fashion has pushed this company to focus on the areas that have large markets (Kaplan and Norton 121). These are up-markets and cities that have clients that can afford to buy its products.
It is necessary to explain that this company does not manufacture its shoes and relies on suppliers. This means that these shoes take a long time before they are delivered to consumers. The long chain of distributing shoes from manufacturers to the company, and then to distributors before reaching at clients’ doorsteps means that there are high chances of lateness. Some clients prefer to have customized shoes, and thus there is no likelihood that they will get their shoes on time.
This company will not persuade consumers that it will deliver shoes on time because the long supply chain is not effective in ensuring that punctuality is observed. Moreover, ladies’ shoes are delicate products because of the high fashion turnover. Women do not like wearing a specific shoe brand for a long time. This means that this company must identify the ways of improving the quality of its shoes and maintain a reputable brand name. It is, however, not easy to produce high-quality shoes without changing their brand names. This company has been certified to produce quality shoes, but this does not mean that it can now relax and lessen its quality control standards.
Investing in global business activities is not an easy venture because it requires huge capital and other resources. Multinational organizations must have adequate and reliable sources of income to ensure they manage the challenges of international trade. Charlotte Olympia store plans to invest in international markets and thus it must ensure that it has adequate funds to manage the challenges that are associated with this level of business activity. Global inflation and other economic challenges, like political instability and unstable currencies, affect the operations of multinational organizations (Niven 109). This company plans to generate high profits by selling expensive ladies’ shoes; therefore, it must have a lot of capital to buy them from suppliers.
Managers must make sure that investors inject adequate capital that will be used to maintain a constant supply of shoes to the company’s outlets (Kaplan and Norton 166). This company can increase its stock by making arrangements with its suppliers and getting goods on credit. This is an effective strategy that is less expensive compared to acquiring goods on cash. In addition, it will help it to have money that can be used when disasters strike. Moreover, the fashion and trends of ladies’ shoes keep changing, and thus this company can make arrangements to buy goods that are in demand and return those that have a very low stock turnover.
This will help it to eliminate dead stock and offer the latest shoe brands to clients. Women are known to make impulse buying every time they go shopping, and thus this company should ensure that it stocks its stores with the latest trends to maximize this budgeting weakness.
It is important to explain that the availability of adequate funds in this company will help it to market its shoes through various channels, including radio, television, and the Internet. Mobile advertisement options can also be explored if investors decide to invest in digital advertisements (Rohm 31). In addition, the money can be used to conduct research and identify the ways of improving the quality of its shoes.
Lastly, the availability of huge capital in this company can be used to purchase shoes from suppliers in large quantities. This will enable the company to benefit from the scales of buying and reduce its operating costs. As a result, it can reduce the prices of its shoes to ensure that it sells many pairs at low prices and make high profits. Affordable shoe prices will attract a large number of customers and achieve a high rate of stock turnover. Moreover, this will shape the image of this company and attract more clients because they will perceive it to be offering cheap prices. It can therefore increase the price of its shoes gradually, without consumers realizing it and this will make the company generate high profits. This stage enables to identify weaknesses in the shoe market and excel in offering products that fill the gaps.
Growth and Learning
This process enables the company to identify the measures that will ensure that it continues to improve, create value, and innovate its products. It is necessary to explain that a company that continually innovates its products wins the hearts and minds of many clients because this is a sure way of showing them that the managers know what they are doing (Rohm 50).
Charlotte Olympia store has created a new line of offering shoes that has never been explored by other companies. The biggest challenge is, however, whether this company can keep improving the quality of its existing shoes and create new ones or it will remain stagnant at its initial innovation. In addition, the company must offer incentives that will enable the clients to identify its unique aspects, and this will be its selling point.
There is no doubt that most clients will pay attention to how this company introduces and markets its new products, and this means that it has to invest heavily in research so that it can understand the present and future expectations of its customers.
It is necessary to explain that this company must learn how its clients change and behave in different circumstances; for instance, the type of shoes they prefer during different seasons and how this affects their lifestyle (Kaplan and Norton 187). Managers should explore the possibilities of offering incentives that will ensure that customers do not only benefit from buying quality shoes, but also enjoy other benefits, like huge discounts for purchasing more than two pairs of shoes. In addition, it should train its distributors who need to play an important role in researching the tastes of customers.
The company should pay attention to the time taken to develop a new generation of products. This will boost innovation and improve the quality of the existing ones to ensure that there are varieties. In addition, it must know the time taken for a product life cycle to mature so that the clients do not wait for too long to get new products. There is a need to eliminate a gap in transitioning from one design to another because this may offer competitors chances to steal some clients from this company (Rohm 71). Lastly, there is a need for this company to plan appropriately on how to market its shoes to ensure it has a sustainable competitive advantage. This means that the marketing strategies adopted should be appropriate and scheduled within a reasonable period. For instance, most ladies’ shoes are usually in high demand a few weeks before and during holidays.
A balanced scorecard is a useful tool that enables investors, managers, employees, and clients to understand various positions of a company. This technique will help Charlotte Olympia store to identify its strengths and align them with its mission to ensure that it uses its resources to offer quality products to consumers. There is a need for managers to integrate various aspects that guide this company with consumers’ tastes and use modern technology to satisfy the needs of the shoe market.
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Person, Ron. Balanced Scorecards and Operational Dashboards with Microsoft Excel. New York: Wiley, 2013. Print.
Rohm, Howard. The Institute Way: Simplify Strategic Planning and Management with the Balanced Scorecard. New York: The Institute Press, 2013. Print.
Rouse, Margaret. Balanced Scorecard Methodology. SearchCIO. 2010. Web.