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Using the Balanced Scorecard to Improve Retail Operations

Contributor: George Thomas
Posted: 04/06/2011
George Thomas
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How one of the world's largest retailers uses the Balanced Scorecard. An inteview with George Thomas, Leader, Property division at Tescos.

Tesco is a global grocery and general merchandising retailer headquartered in the UK. It is the third-largest retailer in the world measured by revenues and the second-largest measured by profits. It has stores in 14 countries across Asia, Europe and North America and is the grocery market leader in the UK (where it has a market share of around 30%).

The property team is at the heart of this ongoing expansion. The operations in property cover all aspects from buying, building to maintaining our stores. George Thomas, Property Leader, drives and supports change initiatives within this function, aiming to improve the operating model. At the heart of their activities is Tesco's "steering wheel", a balanced scorecard approach, which measures their success.

PEX Network: How are you using the Balanced Scorecard to drive performance in your area of the business?
G.Thomas: The fundamental principle of any measurement system is to highlight the areas of improvement. If you cannot measure, you cannot control or improve your operations. Hence the steering wheel is an important tool to gauge performance and to steer our business in the right direction. Through proper governance, systems and structure to support in place, this can be a huge value-add to any business.At Tesco, we use the Steering Wheel, which was built having the principles of a successful and balanced scorecard.
This was very quickly and effectively rolled to all departments and is an intergral part of the management strategy at all middle / senior levels. For instance, our stores will have a visual display of the steering wheel, and key measures behind it would be updated every week for our staff to work in a common direction. Within my role, we use our Steering Wheel as part of the property leadership meeting agenda to ensure the focus is at the top level. Any underperforming measures then are brought to the meetings with a proper action plan and timelines, which we support and ensure is completed as committed.
This also is complimented by a visible and effective communication plan for the steering wheel, which includes the display of the wheel, the summary and actions, and the change projects initiated to keep the measures performing as desired.
PEX Network: Why are you using it? Do you think it's particularly useful in a Retail environment?
G.Thomas: The Steering Wheel helps everyone understand what the strategy means for them where they work, and why it is important. It is a visual way of measuring our performance, of seeing how we are doing and where we need to focus.
This is reviewed every month and is linked to the corporate steering wheel. In a dynamic environment like retail, it is essential that we manage the business in a balanced way. For example, We cannot think about reducing our procurement costs, whilst reducing the quality of stores we offer our customers to shop in. Hence such a scorecard makes it even more important for us to ensure the ideas and solutions we hunt for are innovative and do not have negative consequences (which in turn will lead to lost sales in the long term).
Also specifically to Property, we have to ensure our focus is distributed across all areas i.e Customer, Community, Operations, People and Finance . If we were a small organisation of constructors, the focus on all areas would have not been important. Here we are a team that is an integral part of the retail business, hence there has to be a lot of focus on all aspects of our customer proposition.
PEX Network: In practice, what does the scorecard look like? What kinds of metrics do you use?
G.Thomas: The scorecard has five segments (Customer, Community, Operations, People and Finance), and each segment can have multiple objectives. We have a number of measures that support these objectives. These objectives and measures are reviewed every year to ensure they are aligned to our core strategy.
For example, in property one of the objectives would be to ensure our customers love our developments. To support that objective, the measures in property would be focussing on various aspects like customer feedback we get and the internal measures audits we do to align ourselves to the customer’s requirements.
Examples of other measures are community initiatives, our footage targets, build cost, time taken to develop etc.
PEX Network: What are the limitations to what the Balanced Scorecard can tell you?
G.Thomas: A balanced scorecard like the Steering Wheel should be used to get a sense of where the problem is, and act on it fast. One should spend more time on the actions, and lesser time on the analysis (especially in proactive or lead measures). Hence, in areas where the measurement is not perfect or the data collection is tedious, faster routes (like sampling) should be taken and decisions on performance should be made soon.
Another limitation is unlike financial metrics, it becomes more difficult to measure things like customer experience, training effectiveness etc. Such measures should be given due consideration and some tolerances must be given when judging them. By due consideration, I mean that we should not completely rely on what the data says and should use our judgement
PEX Network: How do you keep the Balanced Scorecard from becoming just "another report" that management wants? (i.e. how do you keep it relevant?)
G.Thomas: There's a few critical components to this. First, you need to make sure it is linked to the corporate strategy. Then, you need to ensure it is well communicated and updated for everyone to be engaged. Ownership has to be top down but the objectives and measures should be a part of an individual’s objectives. Finally, weightings must be given to critical measures to ensure they get more focus when underperforming.

Thank you, for your interest in Using the Balanced Scorecard to Improve Retail Operations.
George Thomas
Contributor: George Thomas