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Tuesday, July 15, 2008

 

Developing a Store Scorecard That Works

Attaining success in retailing would not be so much of a challenge with the use of a balanced store scorecard. This tool allows retail companies to be able to integrate the principles of a Balanced Scorecard into their business strategies.

Retailing is commonly defined as the sale of goods and other merchandise from a fixed location, such as a department store or small business lots, where consumers make their purchases. Purchasers from retailers can be private individuals and businesses or corporate accounts.

Usually, the price technique employed by retailers is cost-plus pricing. This is done by adding to the retailer's cost to a particular mark-up amount or percentage. Another commonly used technique is the suggested retail pricing, which involves using the price suggested by the manufacturer. To increase the efficiency of retail sales, many companies have adopted the principles of the Balanced Scorecard to achieve success in their business operations.

The BSC management approach was pioneered by David Norton and Robert Kaplan, Harvard Business School graduates. This concept seeks to strike a balance between a company's business activities and the company's performance in terms of achieving strategic goals over a certain period of time. In the context of retailing, it can be used to measure employee performance, operational efficiency, and customer satisfaction. By using numbers or numerical data, like sales figures, the BSC arranges data in such a way that managers are able to detect changes in business results, including very minor changes that could cause a significant impact in the future. Unlike other performance evaluation systems, the BSC does not only focus on traditional financial metrics, but it also takes into account other business perspectives, including the financial perspective, internal business processes perspective, innovation and learning perspective, and the customer perspective. The financial perspective is obtained through the use of financial indicators that determine progress. This perspective is that which many shareholders are most concerned of. Internal business processes perspective, on the other hand, takes into account processes, like production, sales, and logistics, and relate them to the criteria of efficiency, quality, and cost reduction. The innovation and learning perspective, meanwhile, measures anything that is important to employee development and retention as well as skills improvement. Lastly, customer perspective seeks to gain a positive customer perception of one's business.

The first step in the adoption of the BSC approach in a business organization is to create a model for a scorecard. This requires the development of a common goal that could serve as a basis for achieving success in all departmental endeavors. Moreover, key factors that are important for organizational success need to be identified. These critical success factors need to be integrated into performance evaluation systems to make all employees more aware of them. Then, the concept of BSC and a detailed explanation of how the company intends to achieve a balanced success need to be cascaded to every member of the organization. With a store scorecard, the principles of the Balanced Scorecard will be easier understood by all members of the organization regardless of their respective departments.

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