Faculty 3, the Department of Economics ICourse: Bachelor of International Business                                        ...
CONTENTEXECUTIVE SUMMARY ....................................................................................................
EXECUTIVE SUMMARYIn our today’s world filled with rapid change and tremendous new opportunities no company’s future issecu...
2. The Balanced Scorecard at HeidelbergHeidelberg was founded in 1850 and is a company focusing on the development and pro...
3. The main advantages of the system and its key differences to the common practicesBy implementing the BSC already at the...
instance, many firms often have more than 10 KPIs for evaluating their financial success and only 5 to assesseach non-fina...
financial crisis started and the corporation was heavily affected. As a result, their stock prices fell to a troughof abou...
5. Internal and external reportingHeidelberg uses both forms of reporting for its BSC: external and internal. On the one h...
BIBLIOGRAPHYBooks   1. Ehrmann, H. (2007), Kompakt-Training Balanced Scorecard, 4th edition, Kiehl. – 224 pp.   2. Grauman...
Online Resources   11. Balanced Scorecard Institute (2011). Available at: http://www.balancedscorecard.org/. Last accessed...
ANNEXAppendix 1: Balanced Scorecard 2004-2010Source: Heidelberger Druckmaschinen AG (2011), “Balanced Scorecard”. Availabl...
Appendix 2: Systems of Key Performance Indicators – Status QuoSource: Weber, J., Sandt, J. (2001), Erfolg durch Kennzahlen...
Appendix 3: Heidelberger Druckmaschinen Chart (01.01.1998 – till now)Source: Wallstreet: online (2011), “Heidelberger Druc...
Appendix 4: Five-year Overview (2000-2005)Source: Heidelberger Druckmaschinen AG (2011), The Figures: Consolidated Financi...
Appendix 5: Five-year Overview (2004-2009)Source: Heidelberger Druckmaschinen AG (2011), Annual Report 2008 / 2009 [Online...
Appendix 6: Five-year Overview (2005-2010)Source: Heidelberger Druckmaschinen AG (2011), Annual Report 2009 / 2010 [Online...
Appendix 7: Net Sales, Cash Flow and Net Profit for Q1-Q3 2010/2011                                     Year              ...
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The Balanced Scorecard at Heidelberger Druckmaschinen AG by Vanessa Günther, Alina Sachapow, Nadja Scheibler, Hanna Tresselt

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The Balanced Scorecard at Heidelberger Druckmaschinen AG by Vanessa Günther, Alina Sachapow, Nadja Scheibler, Hanna Tresselt

  1. 1. Faculty 3, the Department of Economics ICourse: Bachelor of International Business Management Accounting Summer Semester 2011 Innovative Controlling Tools: The Balanced Scorecard at Heidelberger Druckmaschinen AGWritten by: Vanessa Günther Alina Sachapow Nadja Scheibler Hanna TresseltBerlin, 30.05.2011
  2. 2. CONTENTEXECUTIVE SUMMARY ............................................................................................................31. Introduction ..................................................................................................................................32. The Balanced Scorecard at Heidelberg ......................................................................................43. The main advantages of the system and its key differences to the common practices ..............54. Costs and benefits of the system vivid in Heidelberg’s case ....................................................65. Internal and external reporting ....................................................................................................86. Conclusion ....................................................................................................................................8BIBLIOGRAPHY ...........................................................................................................................9ANNEX ..........................................................................................................................................11
  3. 3. EXECUTIVE SUMMARYIn our today’s world filled with rapid change and tremendous new opportunities no company’s future issecure unless it advances innovation in all aspects of its production process including managementaccounting. Thus, the focus of this paper is on unique features, benefits and costs of one innovativecontrolling tool – the balanced scorecard – as experienced by Heidelberger Druckmaschinen AG.Heidelberger Druckmaschinen AG is a very innovative company that not only employs the balancedscorecard but also constantly improves it. Although it has incurred considerable installation and running costsand is still more dependent on cyclical fluctuations than targeted, it definitely benefits from the shorterprocesses, more accurate strategic and situational overview as well as the ability to meet customers’ needsand expectations and to adapt faster to certain cyclical movements. Moreover, the corporation is able to keepa position ahead of competition, successfully following its strategies. This is clearly a competitive advantageand the benefits gained from the company’s BSC-approach.1. IntroductionInnovation is an essential element for international companies to persist and operate successfully in a fastchanging business world. Enterprises that want to stay alive should constantly promote innovative practicesin all aspects of production. This definitely includes management accounting, which is an indispensable partof any production process. Thus, the aim of this paper is to evaluate one of the today’s most innovativecontrolling tools – the balanced scorecard (the BSC).The balanced scorecard was introduced in an article of the Harvard Business Review 1992, written by RobertS. Kaplan and David P. Norton.1 It goes without saying that a lot of time has passed since then. However,even today not so many companies use this instrument in their day-to-day business. One of the brightestGerman examples of an enterprise that probably employs this technique to its fullest advantage isHeidelberger Druckmaschinen AG (later referred to as Heidelberg).Hence, this report will examine how Heidelberg’s unique system differs from the common practices. It willfurther discuss the main costs and benefits of the system and will scrutinise the main ways the companyreports its good and bad experience internally and externally. To deal with the above-mentioned problems thepaper will draw on various pieces of scientific literature such as books and journals as well as the company’sinformation and scholarly articles found online.1 See Schmeisser / Clausen / Popp / Ennemann / Drewicke (2011), p. 194. ~3~
  4. 4. 2. The Balanced Scorecard at HeidelbergHeidelberg was founded in 1850 and is a company focusing on the development and production of precisionprinting presses, equipment and supporting software. Currently they have production sites in seven differentcountries and over 250 sales offices worldwide that cover the needs of over 200.000 customers. Thecompany’s workforce consisted of 16.496 employees in the financial year 2009/10 and was able to earnrevenues amounting to €2.306 million.2In fact, the enterprise introduced their first BSC already in 1995 as a part of a Total Quality Managementprogramme. The programme aimed at implementing not only this new controlling tool but also SMARTObjectives and action plans in order to improve the strategic planning within the company. 3 Thus, this movewas comparatively crucial for the organisation and was aimed at setting worldwide standards in thedevelopment and production of high quality printing equipment with the key objective of profiting from thecompany’s worldwide reputation and competitive advantage. It further wanted to sell a well-adapted andbroadly diversified range of products (well-suited to fit a various number of target groups) in the industrialcountries and in the emerging markets in order to further grow its market share.4As a matter of fact, Heidelberg’s BSC follows the traditional scheme and encompasses the following fourperspectives: financial, customer-related, internal business processes as well as learning and growth. All thefour areas are interconnected and depend on one another. Thus, the financial aspect aims at evaluating thecompany’s strategy and its profitability, increasing its value and share prices, making Heidelberg lessdependent on economic fluctuations. The customer-related perspective specifies the targeted segments interms of customers and markets and assesses how successful the enterprise is in them. Heidelberg’spreferences in this sphere are to become the partner of choice, help to enhance effectiveness and add value toprint communication and production processes. The organisation- and process-related projection concentrateson internal business processes that should assist the company to realise its strategy and to refine its value bybecoming more customer-centric and functionally integrated as well as by providing tailored solutions.Finally, the employees-related and innovation aspect specifies the firm’s goals concerning its performancepotential and internal capabilities. They should be utilised by the company in order to be more successful andflexible in today’s highly competitive markets. This includes life-long learning, customer orientation,integrated culture as well as loyal, energetic and creative workforce.5 The balanced scorecard underconsideration was implemented for the period of seven years from 2004 till 2010 (see Appendix 1).2 See Heidelberger Druckmaschinen AG – Heidelberg (2011), http://www.heidelberg.com/www/html/en/startPage.Accessed 23.05.2011.3 See Forum Balanced Scorecard (2010), http://www.scorecard.de/bsc-einfuhrung/anwender-berichte. Accessed 24.05.2011.4 See Heidelberger Druckmaschinen AG – Heidelberg (2011), http://www.heidelberg.com/www/html/en/startPage.Accessed 24.05.2011.5 See Horngren / Datar / Foster (2009), pp. 493-494 and Appendix 1. ~4~
  5. 5. 3. The main advantages of the system and its key differences to the common practicesBy implementing the BSC already at the end of 1995 Heidelberg was one of the first enterprises to make use ofthis tool. The company’s approach to the BSC is also innovative in a sense that they use it in a very progressiveway. Being able to learn from the past, they constantly improve their BSC (an example might be theirintroduction of BSC for 2004-2010 after the crisis of 2000). As a part of this ongoing learning process they alsoimprove their guidelines when implementing a new BSC. This includes top-down execution, making managersresponsible, adapting planning and controlling instruments, connecting rewarding system, starting with 60-80%solutions and improving later on. All in all, they try to allow certain flexibility as well as to avoid conventionalpractices, software solutions, and strictly interconnected key performance indicators (KPIs).6 Moreover, since2006 Heidelberg has been stating and communicating the firm’s environmental and sustainability goals by usingthe BSC.7 Further, its experts as well as professionals from other organisations are now offering workshops andseminars that are aimed at helping their customers with a successful implementation of their own BSCs.8However, the company is very innovative not only because of being one of the first to employ the idea of theBSC and constantly improving it. It is also one of a few in Germany that apply the instrument in their business.In fact, not many German organisations use the BSC. For example, the empirical study conducted byWissenschaftliche Hochschule für Unternehmensführung in 2000 argues that only 7% of German enterprises ofvarious economic sectors apply the scheme (see Appendix 2).9 Brabänder/Hilcher’s study of 2001 found out thatonly around 16% of the companies they interviewed had already implemented the model and were using it.10Indeed, most firms nowadays still prefer to have a classical system of KPIs to evaluate their effectiveness andperformance. Although a lot of researchers identify the BSC with the classical KPI system and the former usesthe latter for its main aspects, the two models are not 100% identical and have a number of differences.Firstly, through the interdependence of the KPIs employed in any particular BSC, the latter enables a betterinformation gathering and evaluation.11 Moreover, the BSC allows for flexibility and is very helpful inunderstanding and realising the company’s strategy while the classical model of KPIs has a focus onmonetary planning and control and has a fixed scheme for each enterprise that decides to apply it. 12Thus, the BSC has a number of advantages over KPIs. Firstly, it is not limited to certain economic sectors orcompanies’ sizes. Secondly, empirical studies show that in most enterprises that use the classical KPI modelfinancial indicators usually overweigh non-financial ones, when evaluating the company’s effectiveness. For6 See Forum Balanced Scorecard (2010), http://www.scorecard.de/bsc-einfuhrung/anwender-berichte. Accessed 25.05.2011.7 See Heidelberger Druckmaschinen AG – Heidelberg (2011), http://www.heidelberg.com/www/html/en/startPage.Accessed 15.05.2011.8 See Management Circle (2009), http://www.ecg-consulting.com/pdf/Seminare2010/BSC%20in%20der%20IT-Master-2009-11-09.pdf. Accessed 24.05.2011.9 See Weber / Sandt (2001), p. 22.10 See Schmeisser / Clausen / Popp / Ennemann / Drewicke (2011), p. 33.11 See Weber / Sandt (2001), p. 19.12 See Horvath / Kaufmann (1999), p. 359. ~5~
  6. 6. instance, many firms often have more than 10 KPIs for evaluating their financial success and only 5 to assesseach non-financial aspect.13 Arguably, they do not have a rounded picture of their market position. Hence, theBSC is better at balancing short-term and long-term development plans, financial and non-financial perspectivesof the company as well as external and internal performance indicators. It unites three different approaches –value-, market- and resource- based – and is founded on numeric as well as non-numeric information.14Another argument in favour of the BSC is that it focuses the organisation on a set of important indicators bylimiting the number of possible goals to 20 KPIs per a BSC.15 In fact, Heidelberg opts for having only 15goals in its BSC of 2004-2010. The aims are almost equally divided among the four key projections and thecompany employs three main KPIs for their assessment: return on investment, customer satisfaction andpersonnel motivation indices.16 Heidelberg is furthermore able to combine its controlling instrument withother techniques and individual indicators that measure performance.174. Costs and benefits of the system vivid in Heidelberg’s caseIt goes without saying that any technique should be weighted in terms of the costs and benefits of itsimplementation and usage. Thus, this chapter will look into the main advantages and expenses Heidelberg’sBSC has provided or put the company into. As far as costs are concerned, one should not forget thatHeidelberg introduced the BSC of 1995 top-down in all departments. Worldwide workforce consisting ofabout 1.000 managers and employees were involved in its development process. Additionally, the enterprisewas supported by PA Consulting, Frankfurt and an internal international group of advisors. All theseparticipants definitely put Heidelberg to expense, as did software licensing, installation, testing, evaluation,maintenance and upgrading later on.18As far as benefits are concerned, the BSC has constantly given the company a good overview of its currentsituation and has simultaneously highlighted its main objectives. Heidelberg has known exactly what theyhad to focus on and improve regarding their financial independence of cyclical fluctuations, organisationalstructure and customer service. They have always been able to react and change more quickly than most oftheir rivals and have, therefore, managed to stay ahead of competition.For example, after the introduction of the Total Quality Management measures in 1995, Heidelberg’s stockprice started to rise from about €40 and reached its peak of €70 in May 2000. Unfortunately, in 2000 the13 See Weber / Sandt (2001), pp. 12-13.14 See Schmeisser / Clausen / Popp / Ennemann / Drewicke (2011), pp. 31-32.15 See Horvath / Kaufmann (1999), p. 359.16 See Forum Balanced Scorecard (2010), http://www.scorecard.de/bsc-einfuhrung/anwender-berichte. Accessed 25.05.2011.17 See Horvath / Kaufmann (1999), p. 359.18 See Forum Balanced Scorecard (2010), http://www.scorecard.de/bsc-einfuhrung/anwender-berichte. Accessed 25.05.2011. ~6~
  7. 7. financial crisis started and the corporation was heavily affected. As a result, their stock prices fell to a troughof about €15 in February 2003 (see Appendix 3). Their net profit decreased from €283 million in the financialyear 2000/2001 to €-695 million in 2003/2004 (see Appendix 4).Heidelberg learnt a lot from this lesson and as a consequence introduced new measures including their new BSCwith the goals and strategies for period 2004-2010 (see Appendix 1). Already one year later they had a net profitof €59 million (see Appendix 5). Furthermore, from February 2003 onwards the company continuouslyrecovered, as far as its stock price is concerned, and reached a mid-term high of €40 in 2006 (see Appendix 3).Although the recovery was quite successful, Heidelberg did not manage to reach its goal of beingindependent of any economic cycles. As before, the company was severely impacted by the recent financialcrisis. The stock fell to a historical low of €3 (see Appendix 3), indicating that the sought benefits had notbeen achieved. Having a net profit of €263 million in 2006/2007, the company had a net loss of €249million in 2008/2009 (see Appendix 5).Again Heidelberg reacted quickly with several cost cutting measures. This led to a reduction in costs ofmore than €100 million. Additionally, they started to observe more accurately the developments of keyfigures as sales, profit margins, EBIT and free cash flow. They also lowered the break-even point of salesto €2,5 billion. Furthermore, Heidelberg restructured its organisation by introducing three divisions:Heidelberg Equipment, Heidelberg Services and Heidelberg Financial Services. This aimed at shorteningplanning time, enabling an easier adaptation to any changes in the marketplace.19 Despite the incurred hugelosses, Heidelberg has managed to lower its negative profit to €-78 million during the first three quarters ofthe current financial year20 (see Appendix 7).It is conspicuous that Heidelberg has managed to keep its competitive advantages of being a high qualityproducer and the sole supplier that offers comprehensive and high standard services from maintenance toconsulting, the one that can recover faster and show positive figures already after a relatively short periodof time. This is clearly an improvement in the area of management and organisation. Moreover, they havecut the reaction time, enhanced the speed of processes and their decision-making. Persuading the existingand potential customers by an outstanding service offering, expertise and technological lead is also part oftheir success that helps them to keep up with the challenge. The BSC of 2004-2010 is one of the reasonswhy Heidelberg is able to successfully keep their leading position ahead of competition and reactimmediately to any changes in the economy.19 See Heidelberger Druckmaschinen AG (2011). Accessed 15.05.2011.20 Compare: It was €-229 million last year (see Appendix 6). ~7~
  8. 8. 5. Internal and external reportingHeidelberg uses both forms of reporting for its BSC: external and internal. On the one hand, the companygives information about their unique system in its annual and sustainability reports. On the other hand, theenterprise uses the BSC to agree on and communicate essential aims and project results, responsibilities andappointments inside the business. BSCs are pinned up on the walls of offices and factories and are visible foreverybody. Employees’ discussions are held regularly to define and answer the main questions for eachworker, including their contribution, forms and results of evaluation, ways to learn and improve.21Moreover, a constant expansion and support of networks within the company assures a better communicationand a more effective cooperation of the company’s workforce. Keeping in mind that the BSC is not a tool topatronise employees, but a means to strengthen competences in the lower levels, Heidelberg uses the tool fordecentralisation purposes. Consequently, the enterprise’s units and subsidiaries scattered worldwide have thepossibility to decide by themselves what standards are needed in their BSCs and how to achieve them.226. ConclusionFrom the above discussion it is obvious that Heidelberg is a very innovative company not only employing theBSC-tool but also constantly improving it. This is one of the reasons why it still manages to keep a positionahead of competition, successfully following its goals and strategies. Although it is still more dependent oncyclical fluctuations than could be wished for, it definitely benefits from its shorter processes, more accuratestrategic and situational overview as well as its ability to meet customers’ needs and expectations and toadapt faster to certain cyclical movements. This is clearly a competitive advantage and the benefits gainedfrom the BSC-implementation.21 See Fischer (1999), http://www.manager-magazin.de/magazin/artikel/0,2828,43028,00.html. Accessed 23.05.2011.22 See loc. cit.. ~8~
  9. 9. BIBLIOGRAPHYBooks 1. Ehrmann, H. (2007), Kompakt-Training Balanced Scorecard, 4th edition, Kiehl. – 224 pp. 2. Graumann, M. (2011), Controlling, DW-Verlag. – 831 pp. 3. Horngren, Ch. T., Datar, S. M., Foster, G. (2009), Cost Accounting: a Managerial Emphasis, 13th edition, international edition, Pearson Prentice Hall. – 896 pp. 4. Horvath, P., Kaufmann, L (1999), “Beschleunigung und Ausgewogenheit im strategischen Managementprozeß – Strategieumsetzung mit Balanced Scorecard”, in: Hahn, D. / Taylor, B (eds), Strategische Unternehmensplanung – Strategische Unternehmensführung – Stand und Entwicklungstendenzen, 8th edition, Physica-Verlag, 1999. – pp. 354-369. 5. Hungenberg, H. (2011), Strategisches Management in Unternehmen: Ziele, Prozesse, Verfahren, Gabler Verlag. – 500 pp. 6. Schmeisser, W., Clausen, L., Popp, R., Ennemann, C., Drewicke, O. (2011), Controlling and Berlin Balanced Scorecard Approach, Odenbourg Wissenschaftsverlag GmbH. – 286 pp. 7. Weber, J., Sandt, J. (2001), Erfolg durch Kennzahlen: Neue empirische Erkenntnisse, Vallendar. – 36 pp.Journals 8. Fischer, O. (1999), “Balanced Scorecard: Alles auf eine Karte“, in: Manager Magazin [Online], 19 November. Available at: http://www.manager-magazin.de/magazin/artikel/0,2828,43028,00.html. Last accessed 25.05.2011.The Company’s Resources 9. Heidelberger Druckmaschinen AG – Heidelberg (2011). Available at: http://www.heidelberg.com/www/html/en/startPage. 10. Heidelberger Druckmaschinen AG (2008), “Heidelberg Predicts Difficult Market Conditions and Adopts Comprehensive Package of Measures to Enhance the Cost Structure” [Online], 7 October. Available at: http://www.heidelberg.com/www/html/en/content/articles/press_lounge/company/general/080710_m easures. Accessed 15.05.2011. ~9~
  10. 10. Online Resources 11. Balanced Scorecard Institute (2011). Available at: http://www.balancedscorecard.org/. Last accessed 25.05.2011. 12. Forum Balanced Scorecard (2010), “Anwender-Berichte” [Online]. Available at: http://www.scorecard.de/bsc-einfuhrung/anwender-berichte. Last accessed 25.05.2011. 13. Management Circle (2009), “Balanced Scorecard in der IT: So setzen Sie Ihre IT-Ziele mit konkreten Kennzahlen um!” [Online], 9 November. Available at: http://www.ecg- consulting.com/pdf/Seminare2010/BSC%20in%20der%20IT-Master-2009-11-09.pdf. Last accessed 25.05.2011. 14. Reference for Business (2011), “Balanced Scorecard”, in: Encyclopedia of Business, 2nd edition [Online]. Available at: http://www.referenceforbusiness.com/encyclopedia/Assem-Braz/Balanced- Scorecard.html. Last accessed 25.05.2011. 15. Wallstreet: online (2011), “Heidelberger Druckmaschinen Chart” [Online]. Available at: http://www.wallstreet-online.de/aktien/heidelberger-druckmaschinen- aktie/chart#t:3m||s:lines||a:abs||v:week. Last accessed 25.05.2011. 16. YahooFinance.com (2011), “Standard Chart: Heidelberger Druckm (GER)” [Online], 25 May. Available at: http://de.finance.yahoo.com/q/bc?s=HDD.DE&t=my&l=on&z=l&q=l&c=. Last accessed 25.05.2011. ~ 10 ~
  11. 11. ANNEXAppendix 1: Balanced Scorecard 2004-2010Source: Heidelberger Druckmaschinen AG (2011), “Balanced Scorecard”. Available at:http://www.heidelberg.com/www/binaries/bin/files/dotcom/en/about_us/balanced_scorecard_en.pdf.Accessed 15.05.2011. ~ 11 ~
  12. 12. Appendix 2: Systems of Key Performance Indicators – Status QuoSource: Weber, J., Sandt, J. (2001), Erfolg durch Kennzahlen: Neue empirische Erkenntnisse. – p. 22. ~ 12 ~
  13. 13. Appendix 3: Heidelberger Druckmaschinen Chart (01.01.1998 – till now)Source: Wallstreet: online (2011), “Heidelberger Druckmaschinen Chart” [Online]. Available at:http://www.wallstreet-online.de/aktien/heidelberger-druckmaschinen-aktie/chart#t:3m||s:lines||a:abs||v:week.Accessed 25.05.2011 [16:27]. ~ 13 ~
  14. 14. Appendix 4: Five-year Overview (2000-2005)Source: Heidelberger Druckmaschinen AG (2011), The Figures: Consolidated Financial Statements [Online].Available at: http://www.heidelberg.com/wwwbinaries/bin/files/dotcom/en/investor_relations/reports/2004-05/annual_report_0405.pdf. Accessed 25.05.2011. ~ 14 ~
  15. 15. Appendix 5: Five-year Overview (2004-2009)Source: Heidelberger Druckmaschinen AG (2011), Annual Report 2008 / 2009 [Online]. Available at:http://www.heidelberg.com/www/html/en/binaries/files/investor_relations/reports/2008-09/090609_fs_0809_report_b94lu2_pdf. Accessed 20.05.2011. ~ 15 ~
  16. 16. Appendix 6: Five-year Overview (2005-2010)Source: Heidelberger Druckmaschinen AG (2011), Annual Report 2009 / 2010 [Online]. Available at:http://www.heidelberg.com/www/html/en/binaries/files/investor_relations/reports/2009-10/100630_annual_report_pdf. Accessed 20.05.2011. ~ 16 ~
  17. 17. Appendix 7: Net Sales, Cash Flow and Net Profit for Q1-Q3 2010/2011 Year Q1-Q3 2010/2011 Net Sales in millions 1883 Cash Flow in millions 26 Net Profit in millions -78Source: Heidelberger Druckmaschinen AG (2011), Q3 Interim Financial Report 2010 / 2011 [Online].Available at: http://www.heidelberg.com/www/html/en/binaries/files/investor_relations/reports/2010-11/110209_q3_1011_report_pdf. Accessed 20.05.2011. ~ 17 ~

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