Balanced Scorecard - JRM

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Balanced Scorecard - JRM

  1. 1. Balanced Scorecard Design and Implementation (SAP) December 18, 2008 Jay R Modi
  2. 2. Table of Contents Executive Summary.....................................................................................................................................5 The final report is written like a ‘blog’ with the purpose of making sure that reader gets more interest with every page. The report consists of the whole process of how we have learned to design and implement the scorecard by using different tools or guides. It begins with explaining the evolution of the Morning Nourishment Cereal Company’s Balanced Scorecard and the detailed explanation of all the steps used from first assignment to the last assignment. This part also explains the difference in the way we did the similar assignment but after a period of time and with extra experience. It also focuses attention on the final design of assigned perspective. ...............................................................................5 The second part of report is performance evaluation of financial perspective which includes explaining the rise and fall in the various measures used to support the financial objective. In order to make this more interactive graphs from balanced scorecard are used with all the actual figures derived during the live simulation. The next part is related to the actions our company would like to take in coming quarter based on the results available i.e. recommendation and conclusions. Although the recommendations are given for all the measures in performance evaluation of the financial perspective but the overall recommendations is included in this part. The report also includes the brief explanation of lessons learned from the project and the way it helped me individually. This was one of the parts which I liked the most to write.........................................................................................................................................5 Evolution of Scorecard and final design for Financial Perspective...............................................................6 Phase I: Learning the basic concepts.......................................................................................................6 Step 1: Calculating Ratio Analysis........................................................................................................6 Step 2: Assessment of Ratios...............................................................................................................6 Phase II: Actual Start-up of Company......................................................................................................6 Step 3: Vision statement and Objectives.............................................................................................6 Step 4: SWOT Analysis and Porter’s Five Forces..................................................................................6 Step 5: Framing of Strategy and Product mix.......................................................................................7 Step 6: Alignment of Product decision with Strategies........................................................................7 Phase III: Designing of Scorecard Components........................................................................................7 Step 7: Defining the Perspectives, Strategies, Objectives and Measures.............................................7 15
  3. 3. Step 8: Releasing the Query and Creating Measures...........................................................................7 Step 9: Designing of InfoCube..............................................................................................................7 Step 10: Creating Measure Catalog......................................................................................................8 Phase IV: Scorecard Implementation Process..........................................................................................8 Phase V: Loading data to InfoCube..........................................................................................................8 Step 11: Creating Data Source.............................................................................................................8 Step 12: Creating Transformation........................................................................................................9 Step 13: Creating Data Transfer Process..............................................................................................9 Step 14: Creating a Query....................................................................................................................9 Step 15: Loading data in Measures......................................................................................................9 MNC Company’s Performance Evaluation based on Financial Perspective.................................................9 Returns on Investment..........................................................................................................................11 Current Ratio.........................................................................................................................................12 Quick Ratio............................................................................................................................................13 Debt-Equity Ratio...................................................................................................................................14 Debt Ratio..............................................................................................................................................15 Revenue Growth Ratio...........................................................................................................................16 Recommendation: For our company the best recommendation to improve revenue growth ratio is by reducing the fluctuation in number of products offered as adding or dropping any product in between the year leads to affect the sales and margin........................................................................................16 Returns on Assets (ROA)........................................................................................................................17 Asset Turnover.......................................................................................................................................18 Conclusions and Recommendations for coming Quarter..........................................................................19 Individual Lessons Learned from the Project.............................................................................................20 Implementation Process of Balanced Scorecard........................................................................................22 Step #1: Strategy set-up in Strategy Management Design.....................................................................22 15
  4. 4. Step #2: Creating of perspective in Strategy Management Design........................................................22 Step #3: Creating of Objectives in Strategy Management Design .........................................................22 Step #4: Creating of Measures in Measure Catalog...............................................................................24 Step #6: Naming the Scorecard and assigning it to the hierarchy..........................................................25 Step #7: Assigning and Setting the value fields to scorecard ................................................................25 Step #8: Assigning and setting the strategies to scorecard....................................................................25 Step #9: Assigning and setting strategies to perspective.......................................................................26 Step #10: Assigning and setting objectives to perspectives...................................................................26 Step #11: Assigning and setting measures to objectives.......................................................................26 Step #12: Setting-up the owner tab, status tab, value field tab, formula tab and graphics tab for measures...............................................................................................................................................26 Displaying the Scorecard ERP448 09......................................................................................................28 Displaying Overview Screen for Scorecard ERP448 09...........................................................................28 The above screen is the overview screen for Scorecard ERP448 09 where we can only see the details of financial perspective because scorecard ERP448 09 is assigned to financial perspective. The selected date / period is 09/2008 and breakdown is Objective / Measure. In order to get the better view we can also select the tab for analysis, cause-effect chain, drilldown and scorecard comparison which facilitates different functions......................................................................................................29 Displaying the Analysis screen...............................................................................................................29 Final Design of BSC....................................................................................................................................29 Step #1: Creating Data Source...............................................................................................................29 Step #2: Creating Transformation..........................................................................................................30 Step #3: DTP Confirmation.....................................................................................................................31 15
  5. 5. Executive Summary The final report is written like a ‘blog’ with the purpose of making sure that reader gets more interest with every page. The report consists of the whole process of how we have learned to design and implement the scorecard by using different tools or guides. It begins with explaining the evolution of the Morning Nourishment Cereal Company’s Balanced Scorecard and the detailed explanation of all the steps used from first assignment to the last assignment. This part also explains the difference in the way we did the similar assignment but after a period of time and with extra experience. It also focuses attention on the final design of assigned perspective. The second part of report is performance evaluation of financial perspective which includes explaining the rise and fall in the various measures used to support the financial objective. In order to make this more interactive graphs from balanced scorecard are used with all the actual figures derived during the live simulation. The next part is related to the actions our company would like to take in coming quarter based on the results available i.e. recommendation and conclusions. Although the recommendations are given for all the measures in performance evaluation of the financial perspective but the overall recommendations is included in this part. The report also includes the brief explanation of lessons learned from the project and the way it helped me individually. This was one of the parts which I liked the most to write. The final part of the report is appendix where the steps used in evolution of scorecard design are explained with the help of screen shots. It includes the design and implementation process of balance scorecard. The peer evaluation is also attached at the end where brief explanation of team members’ work is given with individual scores. 15
  6. 6. Evolution of Scorecard and final design for Financial Perspective Designing and implementing the scorecard is not everyone’s cup of tea as it requires you to complete different phases from time to time. In general most of the company takes 6-9 months to design and implement a Balanced Scorecard but I managed to complete my scorecard in less than four months with other tasks on hand. I would like to discuss all the phases which I followed from the beginning till end to design and implement the scorecard. Phase I: Learning the basic concepts Step 1: Calculating Ratio Analysis It was just the beginning of the semester when we were given our first assignment of the course. I was excited as the assignment was related to one of my favorite subjects accounting, we’re asked to calculate the ratio analysis from the financial statements of company Z01D. Although I was aware about most of the concepts of calculating ratios, but still to refresh the memory it was a good assignment. Step 2: Assessment of Ratios This was our first team assignment where we were asked to correct the calculation based on the mistakes made in assignment one and than make comments on the result of this ratios. To make everything easy, I made graphs of all the ratios and sent it to the team with every member assigned with their respective ratios. Another task involved in this assignment was to determine the corporate and business strategies used by the company Z01D based on their financial statement. This gave us a good idea on how to determine different types of strategies. At this point we’re clue less that we are going to create our own BSC where we’ll need to use this strategies and ratios. Phase II: Actual Start-up of Company Step 3: Vision statement and Objectives This was in our assignment #3 where we’re supposed to create our own cereal company. In the beginning it looked similar to what I’ve learnt in one of my course in the past (BUS426). It started with determining the vision statement and objectives of the company. My team was smart enough to come out with company name and logo at this early stage. Step 4: SWOT Analysis and Porter’s Five Forces In this step we’re asked to make a SWOT analysis of our company. Although it is difficult to make a SWOT analysis without any data but we use the case study as our base for framing this. The next was Porter’s Five Forces; similarly we used the case study as a reference to design this. 15
  7. 7. Step 5: Framing of Strategy and Product mix This time we’re framing the corporate and business strategies of our company as a part of assignment #3. It was quite easy as we had experience in doing this previously and even we had slides as our reference. This step also included proposing product mix based on the number of products we want to produce for the live simulation, setting of price, deciding advertising budget and BOM. Step 6: Alignment of Product decision with Strategies This was the final step of this phase where we have aligned the product decisions with strategies based on creating by considering our competitors possible actions, our target customers expected behaviors, and our current financial situations. The criteria used for this includes; product mix, product quantity and quality, pricing and marketing investment. Phase III: Designing of Scorecard Components Step 7: Defining the Perspectives, Strategies, Objectives and Measures At this point we’re learning on how to frame a scorecard and strategy map. In take home exam #1, I was supposed to create a scorecard of my company and design a strategy map. This was the first time I was doing something like this so it took several hours to complete. To make this test easy some of the reference papers were used from the reading section which consists of articles by Nortan and Kaplan. Step 8: Releasing the Query and Creating Measures This was the first step when we started creating the scorecard in SAP system. It was all easy with the help of the slides given to follow the steps. We’re also concerned to learn creating a query by using BW 7.0 and releasing the query to make it usable for BSC. In order to finalize the company’s scorecard, assignment #4 was given where all the team members were asked to review the scorecard submitted during the take home test and submit only one scorecard and strategy map. Step 9: Designing of InfoCube In assignment #5, we’re asked to design the InfoCube based on the selected perspective. I was working on Financial Perspective while other team members were concerned with their assigned perspective. The reason for creating an InfoCube is to load a flat file in Data Source later on. As I have learnt this in one of my other course, so it was an easy task for me. 15
  8. 8. Step 10: Creating Measure Catalog For my financial perspective, I was supposed to create a measure catalog in SAP system by using the measures which was designed in step 7. This did not take much time and I managed to create 10 measures supporting the objectives of financial perspective in less than half hour of time. Phase IV: Scorecard Implementation Process This was one of my favorite phases where I implemented my scorecard from paper to SAP system. It was in take home exam #2 when I implemented the BSC by following an implementation process. • Strategy set-up in Strategy Management Design • Creating of perspective in Strategy Management Design • Creating of Objectives in Strategy Management Design • Creating of Measures in Measure Catalog • Scorecard Design in Strategy Management Design • Naming the Scorecard and assigning it to the hierarchy • Assigning and Setting the value fields to scorecard • Assigning and setting the strategies to scorecard • Assigning and setting strategies to perspective • Assigning and setting objectives to perspectives • Assigning and setting measures to objectives • Setting-up the owner tab, status tab, value field tab, formula tab and graphics tab for measures Phase V: Loading data to InfoCube Step 11: Creating Data Source This step involves creating the data source where different tabs will be updates. In extraction tab direct access will be allowed and a CSV file will be loaded, in proposal tab we can see the data load example, in the fields tabs we’ve to update the data type based on the fields we use and in preview tab we can see the actual data loaded. For whole of this process it is necessary that the file to be loaded should in the desktop and in the format which is accepted by the system. 15
  9. 9. Step 12: Creating Transformation After creating the data source, the next step is to create a transformation where data will be transformed from the loaded file to the InfoObjects of InfoCube. The transformation is mapped by drag and drop of the fields from the left to right and when this process gets over, it will be activated. Step 13: Creating Data Transfer Process In order to successfully transfer the data from loaded file to InfoCube, DTP will be used where extraction mode will be selected as full and file will be loaded from desktop, it will be than executed. All the green lights suggest successful transformation of data. To check whether data is transferred or not, InfoCube will be used. Step 14: Creating a Query After completing the DTP, a query should be created by using Business Analyzer where all the key figures will be placed in row while calendar quarter in columns. Before saving the query it is necessary to provide the external access to the query which can be done by using the properties tab. The InfoCube to be used for the query should be the same InfoCube where data was loaded while creating transformation and DTP. Once the report is ready, this step can be said as completed successfully. Step 15: Loading data in Measures In this step, a query created in the previous step will be used to load the InfoCube data in the measures to be used for financial perspective. This can be done by using ‘measures and benchmark’ screen. In order to successfully display the data, system may require you to change the settings in BSC design screen; it may require changing the date and re-assigning the measures to objectives. Once this step is completed, the BSC is ready to be used with all the value fields fully loaded. MNC Company’s Performance Evaluation based on Financial Perspective The performance of Morning Nourishment Cereal Company can be accessed based on the company’s ability to accomplish the objectives of different perspectives representing company’s business and corporate strategies. In order to understand financial performance of the company, Jay Modi, Company’s CFO has done the complete evaluation of company’s financial perspective from quarter Q2 to Q6. The business strategies used to explain evaluate the financial performance includes; ‘Improve Financial Performance’ and ‘Business Agility’ 15
  10. 10. Net Margin Overall Objective (Q2-Q6): Our Company has selected this measure to support the objective ‘Increase Profitability’. The main objective of our company for net margin was to make sure that we achieve 30% for all the quarters. Overall Outcome (Q2-Q6): Based on our objective, we managed to maintain the net margin of over 30% in most of the quarters. The system has generated the status as ‘good’ with an average score as 78.40 from Q2-Q6 Overall Assessment (Q2-Q6): In the Q1, the sales process was not controlled by our team but still we managed to achieve the net margin of 39.70%, so we thought that selecting net margin as a measure to achieve our objective of increasing profitability will be a wise decision. But in Q2, we failed to accomplish that objective. Although we had a net margin of 6.3% but it fall down drastically. Our management team was determined to give their best in Q3 and we had a net margin of 54.90% (a growth of 769.36% as compared to Q2). We’re aware about the fact that it is very difficult to maintain the margin of over 50% for all the quarter so we decided that as far as our company achieves 30% of net margin in any quarter, it will be considered as best performance. For Q4, Q5 and Q6 we achieved net margin of 37.80%, 43% and 29.30% respectively. The reason for net margin below 30% in Q6 is because our company went out of stock in day 53rd of Q6 Recommendation: To achieve higher net margin, it is recommended to offer unique products in terms of those products which are not offered by the competitors and than charge the highest market price by following, ‘skim the cream’ pricing strategy. 15
  11. 11. Returns on Investment Overall Objective (Q2-Q6): This was another measure used to support the objective ‘Increased Profitability’. Our main focus was to check that we achieve at least 10% ROI for all the quarters as lower than that would lead to lower investment in advertising for the coming quarters. Overall Outcome (Q2-Q6): The overall outcome for ROI is not satisfactory as except Q3 and Q5 we failed to achieve our objective of 10% ROI which lead to status as ‘Medium’ and an average score of 52 from Q2-Q6 Overall Assessment (Q2-Q6): When we achieved 6.68% of ROI in Q1 without any control over pricing and advertising during the quarter, we believed that if we give some extra effort it will be easy to generate a growth from quarter to quarter. But in reality that doesn’t happened. For Q2; we had ROI as only 1.44% which was due a mistake by our operational team to enter the correct BOM. We were suppose to produce Original muesli but ended up producing Nuts muesli and we sold 2, 50,000 boxes at euro 1.50 each which was below cost. In Q3, we managed to achieve 10.83% but again in Q4 the result was in vein as we secured only 6.15% because our company dropped one of the products Strawberry muesli. This rise and fall result continued from Q1 to Q6 due to one or the other reason. Still our company is looking for some strategy which can fetch us the ROI of over 10% for all the quarter. Recommendation: To achieve the stabilized ROI or to reduce the fluctuations in this ratio, it necessary that a company should invest only in those products that it thinks will be available throughout the year. In short, dropping or introducing a new product in between the quarter affects the ROI severely. 15
  12. 12. Current Ratio Overall Objective (Q2-Q6): In order to measure the objective ‘Improve Liquidity’ our company used Current Ratio. We always strived to make our current ratio as 1:1 but we could achieve this only in last quarter. Overall Outcome (Q2-Q6): The overall outcome of current ratio is satisfactory because in most of the quarters we managed to match the plan ratio with the target one. We achieved our goal of making current ratio 1:1 only in Q6 when it was 1.01:1. The system has generated the status as ‘very good’ with its average score as 83.8 from Q2-Q6 Overall Assessment (Q2-Q6): Our Company’s performance in terms of current ratio was not good for Q2, Q3 and Q4 because we always strived to reach the desired current ratio of 1:1 but we could not reach that target. The main reason was due to a bank loan of € 14 million from Waizen bank which was considered as current liability. Although we regularly paid the bank loan at the end of every quarter but the amount was too large and it took us more than 4 quarters to repay half of the loan. On the other hand, if we look at current asset, cash amount and bills receivable kept increasing quarter to quarter which helped us to reach the company’s best current ratio in Q5 which was 0.91 as against the planned ratio of 0.80; even in the final quarter we’re lucky to reach 1.01:1 as we paid our bills to good extent. Recommendation: The best way to improve this ratio is by generating more of cash amount and regular payment of outstanding bills. If this ratio fluctuated, it is difficult to stabilize it for next couple of quarters. 15
  13. 13. Quick Ratio Overall Objective (Q2-Q6): Another measure used to support the objective ‘Improved Liquidity’ was quick ratio which gives more accurate result than current ratio in terms of measuring liquidity as it doesn’t consider stock or inventory. Our aim was to see that we reach the ideal quick ratio of 1:1 by the end of final quarter as due to heavy loan it was difficult to achieve that very early. Overall Outcome (Q2-Q6): The final outcome was at the end of Q6 was impressive. Although the status generated by system was ‘Good’ with average score of 69.20 from Q2 to Q6, we’re satisfied to achieve our goal. Overall Assessment (Q2-Q6): When we compare the current ratio with quick ratio for all the quarters, there is not much difference as never had very high inventory in any quarter. Our management team knew that higher the inventory, higher will be the difference between both the liquidity ratios, so we successfully managed to reduce a big gap between the two. For most of the quarter we had good score because our actual ratio was close to what we have planned at the beginning of each quarter. The ratio kept growing from quarter to quarter and finally the most satisfactory result was in quarter Q6 when we achieved this ratio slightly over one. Recommendation: Quick ratio helps to answer the question that if all the sales disappear in next quarter, than will my company is able to pay its obligations. So it is recommended to focus high on generating more of current assets to achieve an ideal quick ratio. 15
  14. 14. Debt-Equity Ratio Overall Objective (Q2-Q6): This ratio was short-listed by our company to measure the effectiveness for one of our objectives, ‘Enhance Solvency’. From the beginning our main objective for this ratio was to make this below 100% as early as we can. Overall Outcome (Q2-Q6): The overall outcome was really impressive as after every quarter we’re getting close to achieve our objective and we achieved that in Q5 when ratio was below 100 percentages. The system has generated the status as ‘very good’ with an average score of 83.80 from Q2-Q6 Overall Assessment (Q2-Q6): From Q2-Q4 our ratio was over one which means most of our assets were financed with debt which was not a good sign, so we regularly kept paying to vendors for the materials we purchased and saw our ratio falling continuously. In the Q5 and Q6 we had our ratio below 100% which means most of our assets were financed through equity which is really a good sign for the company. Another good thing was that our management team always planned this ratio in such a way that we can achieve it easily, as result we had a score close to 100 for last three quarters. Recommendation: It is always recommended to secure funding through equity than through debt as higher the equity higher will be the company’s debt-equity ratio and vice versa. 15
  15. 15. Debt Ratio Overall Objective (Q2-Q6): Another measure used to support the objective, ‘Enhance Solvency’ is debt ratio. Our objective for this ratio since Q2 was to bring it below 50% which was quiet difficult because of higher debt. Overall Outcome (Q2-Q6): Like debt-equity ratio, even the outcomes for this ratio was also excellent as we achieved our objective in quarter fifth itself. The result generated by system was ‘very good’ with an average score of 80.20 from Q2-Q6 Overall Assessment (Q2-Q6): Our Company was smart enough to understand that lower the percentage of this ratio, the less leverage a company is using and stronger its equity position and higher the ratio, the more risk that company is considered to have taken. In the Q1, we started with 74% which kept decreasing continuously with increase in assets in terms of bills receivables and cash amount. In Q5, we’re happy to achieve our target of bringing this ratio below 50%; for Q6, it was 45% which was further reduced and our dependency on leverage was reduced. Recommendation: The only recommendation for our company relating to this ratio is to continue to increase the amount of total assets as it will lead to fall in debt ratio. This can also be done by issuing more shares and paying the debt out of the cash generated. 15
  16. 16. Revenue Growth Ratio Overall Objective (Q2-Q6): This ratio was used to measure the objective, ‘Improve Revenue Growth’. Our basic objective for this measure was to make sure that this ratio remains positive throughout all the quarters as other ratios are completely dependent on company’s sales volume. Overall Outcome (Q2-Q6): The overall result of this ratio was not very good as the result varied from quarter to quarter. The status generated by the system was ‘Medium’ with an average score of 52 from Q2-Q6 Overall Assessment (Q2-Q6): The performance of this ratio was very fluctuating throughout the year as it was over 51% in Q2 than it went down to 2.17% in Q3 because of system downtime at day 32 of quarter. In Q4 it further went low to -9.05% as we dropped on of our product, again in Q5 we’re lucky to achieve a growth of over 57% but everything went in vein as for Q6 the performance was again horrible to -47.36%, this time it was due to the reason that we could not produce our product because of capacity constraints and we also went out of stock on day 53rd of the quarter. Recommendation: For our company the best recommendation to improve revenue growth ratio is by reducing the fluctuation in number of products offered as adding or dropping any product in between the year leads to affect the sales and margin. 15
  17. 17. Returns on Assets (ROA) Overall Objective (Q2-Q6): One of our objective was ‘Better Asset Utilization’ and to support this objective, we have measure Returns on Asset. Our aim for this measure was to continuously grow this ratio from one quarter to another. Overall Outcome (Q2-Q6): The overall performance was tremendous as we always had growth for this ratio. The system has generated the status of ‘very good’ with an average score of 97 from Q2-Q6 Overall Assessment (Q2-Q6): All the companies had the same amount of assets at the beginning of the year but than it depend upon the company to generate earnings from the invested capital on these assets. Our company took advantage by reducing the market leverage. Since Q2 we saw growth and it kept growing quarter after quarter. It was 6.75% in Q2, than it went up to 16.08% in Q4 and than in Q6 the result was doubled to over 33%. When we compare the actual values with planned values, the actual values always out performed and because of that we had a score of 100 for the last four quarters. Recommendation: To further increase the ROA it is recommended that our company should fully utilize the capacity of plant and machinery as higher the asset utilization rate, higher will be the returns from these assets and vice versa. 15
  18. 18. Asset Turnover Overall Objective (Q2-Q6): Another measure used to support the objective, ‘Better Asset Utilization’ was asset turnover ratio. Our aim for this measure was to keep this ratio as moderate which means neither too high nor too low as extremeness in this case may create more risk. Overall Outcome (Q2-Q6): The overall outcome for this ratio was satisfactory as it kept fluctuating throughout the year. The system has generated the status of ‘good’ with an average score of 71.4 from Q2-Q6 Overall Assessment (Q2-Q6): Generally it has been seen that companies with low profit margins tend to have high asset turnover and those with high profit margins have low asset turnover as it indicates the pricing strategy of the company. Although the pricing strategy of our company was aggressive and we always set the price above market but it did not helped as this ratio kept fluctuating for all the quarters. The reason was improper planning by management team in terms of determining this ratio well in advance. In Q2 we started with 0.17 than went as high as 0.24 in Q5 and than again came down to 0.12 in Q6, the main reason for such a low ratio in Q6 was because of charging a mark-up of over 170% to maintain the inventory. Recommendation: For our company we would like to lower this ratio because higher the profit margin, lower will be the asset turnover. We always enjoyed the market leadership by charging the higher price and we will continue to follow the same strategy which will help us to monitor this ratio. 15
  19. 19. Conclusions and Recommendations for coming Quarter Stability in product offerings: Morning Nourishment Cereal Company was successful to win all the quarters throughout the year but it always faced problems with fluctuations in the number of products it offered. Initially we started by offering four products i.e. Strawberry (.500 kg), Nuts (1 kg and .500kg), and Raisin (.500 kg) in quarter 1 and than continued till Q3; but than in Q4, we dropped strawberry (.500kg) because the material price was rising and it was generating very less margin but our company policy was to continue with only those products which can fetch as high as 150% of margin at any given time so we did not had any other option. It was in Q6 when again we failed to produce our main product Nuts (1 kg) because of capacity constraints and the result was low revenue and margin with tough competition with ‘Muesli Express’. Therefore it is always recommended that a company should neither add nor drop any product in between the year as these decisions can confuse the customer and widely affect the company’s financial condition. Better Understanding of Inventory Management: Many companies think that higher inventory is always a wrong decision but that is myth if you will ask me. I totally understand that it is always risky to keep high inventory as a company can suffer a loss if the material price falls down in next quarter but it is always recommended to monitor the market news. In my company we ended up with double the product cost in Q6 when we compared with competitors cost and ultimately they managed to eat higher margin. From Q2 to Q5 the inventory price was continuously falling and the management team my company assumed that even in Q6 the price will further fall so why to stock the materials, but our bad luck that the material price rose like a demon and we’re left with no other option than to pay the price. Always maintain low Debts: When the simulation / quarter is in progress, it is difficult to remember that whenever we make purchase order, we have to make payment to vendor and similarly whenever we make profit, we have to pay the bank loan. This was another policy our company always followed as higher debt leads to affect various ratios including current ratio, debt ratio and debt-equity ratio. Another problem is low credit rating which further leads to payment of high interest amount to bank. So it is always recommended that regular payment of bank loan and vendor dues is the key to improve credit rating and other ratios. Business Strategy should revolve around advertising and pricing strategy: It is necessary that a company should focus design its operational strategies which focuses on Advertising and Pricing strategy. Apart from the physical product this two are closely related to the customers as price is what customers pay for the product and advertising is what company does to influence customer for paying a specified price. In most of the simulations I found that not all the company believes in advertising their product and consider it as expense but in reality advertising is an ‘investment’. From my experience, I can say that if you will advertise, its 100% that you will be able to fetch double the amount invested in less than a month, so it is always recommended that from the Q1 itself, a company should advertise aggressively and set the aggressive price.’ You know that first impression is best impression’ 15
  20. 20. Individual Lessons Learned from the Project Team Management: This project gave me an opportunity to manage 7 team members which was really a good experience. Although I was not explicitly known as a leader but most of the team members of management and operational teams were aware that I’m the most active person and is capable of taking quick and correct decisions. Team Productivity: Team productivity to me means the percentage of team members working efficiently and effectively in a team. As usual, it is not possible that everyone in your team gives their 100% and same was the case with my team with couple of team members. But I learnt that in order to get anything out of this people, the only way is to assign them what they are capable of and what they can accomplish within the time frame which additional task can be assigned to other members who are willing to give their 100% Issues Management: As far as my experience, a team cannot be said a cooperative unless there are ‘NO’ issues. Every team faces several issues and we’re one such team where we had little confrontation when one of the team members failed to accomplish his assigned task. With all my experience, I was ready to tackle this problem where I threatened that guy of getting low in team evaluation and on the other hand I kept helping him by motivating that guy by saying, ‘’don’t worry mate, if you don’t know what to do, just follow what I say and you will be fine’ and this always worked. Risk Management: In my team most of the members were good at completing the assigned task but were not many were good at taking quick decisions. For example; when one of our product was not selling well in Q3, I decided that we’ll discontinue that product from next quarter and that was a risky decision as our competitors were offering an average of 5 products and we’re left with only 3 products with two of them in different sizes (Nuts 1 kg and 500 gm) Planning in Advance: Planning is the base for achieving the objective and getting at the top; I was aware about this and never started any of my without planning. For example; before any simulation starts, I make sure that we are following ‘make to stock’ policy and prices are set as indicated by management team. Although everything went on well but one decision which I took still makes me un-happy and it was due to bad planning. It was in Q5 when the prices of all the materials were the lowest of the year and we did not recognized that and than in Q6 the material price rose like ‘Eiffel Tower’ due to which we ended up setting our price double than our competitors who stocked high quantity of materials in Q5. If with better planning we would have stocked some of the materials in Q5 itself than the result might have been different. 15
  21. 21. Change Management: Although we did not had any major changes throughout the project but we’re ready for any change. For example; we saw that one of the operational team member of Uber Grains was not available when the company needed his help, so I thought even the same situation can happen with any other team also. To overcome this I discussed with Ms. Lin Zhu that if anything like that happens with our company than she was willing to move to operational team for additional help. BSC Design and Implementation: This was one of the best experiences I had during the project. Learning to design BSC and implementing it is an achievement in itself. I even helped other colleagues in the class on how to design and implement BSC. For example; I received calls at 1:00 am from colleagues and I was happy to answer them. Training: In order to train others it is necessary that you should know that concept at first place. I was happy to train my operational team members on how to use WebEx Wimba software for virtual meeting. Even we did not used this most of the times but training someone of what you know is a good experience. Never Give-up Policy: It was in Q6 when the stock price of my company was the lowest when compared with competitors. One of the team member of competitors asked me, ‘’Jai why are you looking very angry? Is it because of low sales of your company or because we are selling well than your company?’’ I calmly said that although we are not the top company at this time but wait for the result and you will see no difference in result as we have at the end of every quarter. I was right because as usual our company was the market leader. 15
  22. 22. Appendix: Implementation Process of Balanced Scorecard BSC implementation depends not only on selecting measures that are relevant, manageable, and important but also on how leadership, supervisors, and employees gain knowledge about the status of the BSC metrics. The implementation of Balanced Scorecard takes place in different phases. Step #1: Strategy set-up in Strategy Management Design In order to make rational decision about organizational activities and not least set target for Strategy Definition those activities, an enterprise should develop a clear idea about what the organization is trying to achieve. Therefore creation on strategic destination statement helps to find out what the organization is likely to look like at a certain point of time. Step #2: Creating of perspective in Strategy Management Design The financial perspective contains those Perspective Definition objectives relating to the most important activities in terms of how the organization wish customers, suppliers, employees, government, stakeholders and general public to perceive the company and how it will ultimately translate into financial results and economic value. Step #3: Creating of Objectives in Strategy Management Design Once the strategic destination has been established the next step is for the same group to agree on the most important strategic objectives (outcomes) required for the destination to be achieved. The best way to do this is to focus on the actions directly within the scope of the team building the balanced scorecard. The screen shot displays all the objectives that are placed under financial perspective. Most of the objectives support the ‘enhance financial performance’ strategy while objective 15
  23. 23. better asset utilization focuses on ‘better operational efficiency’ strategy. Objectives can be created in strategy design under strategy management design. Process to create an Objective Technical Name Definition The above screen shot is an example of creating an objective. It displays technical name, medium and long text and definition of the objective Increase Profitability. In the similar way, all the other objectives; improve liquidity, enhance solvency, improve revenue growth and better asset utilization are created with their respective technical name and definition. 15
  24. 24. Step #4: Creating of Measures in Measure Catalog Our company has followed an elaborate process for identifying and describing measures selected to inform management about the organizations progress towards achievement of its goals The screen shot displays all the measures which are created to support the objectives under financial perspective. All the measures are created in measure group ERP448 Team1 Financial Perspective under measure catalog ‘ERP448 Fall 2008 Project Workplace’ The screen shot is an example of creating measures in measure catalog. It displays technical name, description, formula and definition of the selected measure. The above screen displays the details for measure Current Ratio. In the same way the details for other measures like quick ratio, ROI, ROA, asset turnover, debt ratio, debt-equity ratio, revenue growth ratio and net margin ratio is available in measure group ERP448 Team1 Financial Perspective under measure catalog ‘ERP448 Fall 2008 Project Workplace’ 15
  25. 25. Step #5: Scorecard Design in Strategy Management Design While designing the scorecard the system ask for technical name, long text, short text and user name. The screen at the right displays the owner of scorecard is ERP448 09 Step #6: Naming the Scorecard and assigning it to the hierarchy After the scorecard is created it is necessary that it should be named to the right person so that it will be easy to identify the owner of that scorecard. For Financial perspective, the scorecard is named as E448_09_PR. It is also necessary that the scorecard is assigned to the correct hierarchy so scorecard named as E448_09_PR is assigned to hierarchy ERP448 Team 1 Project Workspace. Step #7: Assigning and Setting the value fields to scorecard Setting the Value fields is very important part of scorecard as it lets the user know that on what basis or criteria the result is displayed. It also helps to know that the result is good or bad and measures to be taken if there’s a deviation. Some common Selected value fields value fields used are actual value which will be the values of current quarter, plan values which will be planned to be achieved based on actual value, score which is determined by the system, trend which tells about the deviation in result by comparing the actual and plan value, assessment which is determined by the system and target value is the average value of industry as a whole. The screen on the right side is used to select the required value field from among the available options. Step #8: Assigning and setting the strategies to scorecard The next step is to assign the strategies to scorecard. To do this, we have to select our defined strategy from the available list. The easiest way to find the strategy is by its technical name. After selecting the strategy it is necessary to define the start date for that strategy. It is always recommended that all the strategies, perspective, objectives and measures must have a same start date so score will work very easily. In the screen at the right side, we can see how the start date can be entered and move further to next step by clicking on continue. 15
  26. 26. Step #9: Assigning and setting strategies to perspective Like most of the companies, Morning Nourishment Cereal Company also uses the four perspectives to measure the overall performance of the company. In the right side we can see the procedure of how the perspectives are assigned to respective strategy. Once the perspective is assigned to the strategy, it can be activated by assigning the objectives to it. Step #10: Assigning and setting objectives to perspectives Setting and assigning of objectives is an easy task as at the time of creating these objectives the system will ask for assigning objectives to respective perspective. Therefore, as we can see in the above screen, if we right click on in the Available Objectives financial perspective, it will populate only objectives belonging to that perspective. Step #11: Assigning and setting measures to objectives Assigning and setting of measures is the final step to complete the scorecard design. The process is little difficult as compared to the process of assigning objectives. It includes selecting your measure from among the various measures. The best way to do this is by finding the measure with technical name. After the measures are assigned they need to be activated which can be done by defining its characteristics. Step #12: Setting-up the owner tab, status tab, value field tab, formula tab and graphics tab for measures. After setting the measures, the next step consists of defining the characteristics of measures. It includes defining of owner Displaying Graphics tab which is ERP448 09, its status which will be system generated, value field which will be actual and plan value based on quarter, graphic which will be time series and value comparison graphics. In the right side we can see that graphics are assigned for measure Net Margin. In the same way all the other details will be inputted. If all these characteristics are 15
  27. 27. not updated than measures will be shown as red color i.e. not activated, therefore, it is necessary to update all the details. The screen at the right displays the value field for measure Net Margin which is selected as actual and Displaying Value fields tab plan value based on quarter. We can change the period based on our requirement and even the values can be selected from a list. However, at Morning Nourishment Cereal Company, while implementing the process of balanced scorecard a set of well-defined criteria was taken into consideration which is discussed below. A clear sense of direction: The Balanced Scorecard is an efficient tool for clearly defining long-term strategic goals in the form of corporate and business strategies that can be translated on the form of short-term activities. A profound understanding of business model: Identifying strategic objectives within the financial perspective of the scorecard and linking them in an expression of cause-and-effect relationships forces management team to apply system thinking and develop a holistic strategy covering all the financial aspects of the business. An ability to focus and prioritize: Focusing on a clearly defined corporate and business strategy will help our company to reduce the risk of loosing the sight of what they are trying to achieve. Organizational agility: Our Company is also focused to regularly check the balanced scorecard that whether it is doing what was actually planned and if there are any deviations, an immediate action will be taken to correct the same by replacing or modifying the measure. 15
  28. 28. Displaying the Scorecard ERP448 09 The above screen is the complete scorecard for ERP448 09; it displays all the three strategies, four perspectives below each strategy, objectives under financial perspective and measures under each of the objectives. The objectives highlighted in green are delegated to strategy ‘improve financial performance’ while objective in blue is delegated to strategy ‘better asset utilization’. As the complete scorecard has green color which represents that there’s no error or warnings and scorecard is activated and ready to use. Displaying Overview Screen for Scorecard ERP448 09 15
  29. 29. The above screen is the overview screen for Scorecard ERP448 09 where we can only see the details of financial perspective because scorecard ERP448 09 is assigned to financial perspective. The selected date / period is 09/2008 and breakdown is Objective / Measure. In order to get the better view we can also select the tab for analysis, cause-effect chain, drilldown and scorecard comparison which facilitates different functions. Displaying the Analysis screen The above screen shows that there are two strategies i.e. improve financial performance and maximize Value Fields operational efficiency where the financial perspective is used. The screen displays only the information relating to financial perspective i.e. only objectives and measures for financial perspective. As the actual and plan value does not have any data source, it shows BW key figure does not exist. When the data source will be assigned, all the value fields will be used to review the financial performance. The scorecard is flexible enough to display details based on Cause- Effect chain, to drilldown the information and to be compared with other scorecard. All these functions are useful once the value fields are active. Final Design of BSC Step #1: Creating Data Source General information tab The general information tab requires entering the short, medium and long description for the data source. It also provides the additional information like, name of the person who last changed the data source, and the time when these changes are made. 15
  30. 30. Extraction tab This is the tab from where actual data will be loaded to the SAP system. In the option ‘Name of the File’ the system allows you to browse the file from desktop. The data format will be selected as CSV because the flat file to be loaded is also in the similar format, and finally in data separator, the sign will be changed to ‘,’ as it will better support the CSV flat file. Preview tab In this tab we can see the actual data loaded but it will be in the format which we have selected in ‘Extraction Tab’. All the headings will be in columns with detailed content or information in rows. We can also select the number field type in field screen based on which it will be displayed, it also facilitates the user to change the number of decimal points we are looking at and it can also be changed in fields tab. Step #2: Creating Transformation This process gives a ‘feel good’ feeling to the user because it’s like playing a video game where we have to carry something from the left end to its home at the right end. Similarly, in transformation also we require to connect the nodes from left side which is a ‘Data Source’ to the similar InfoObjects in the right side which is ‘InfoCube’. The main purpose is to transform the loaded data in data source to InfoCube. 15
  31. 31. Step #3: DTP Confirmation This step is like a final ball of baseball game which requires the player to hit a home run, if he gets, its his luck and if can’t better try in next game. Similarly, this step required the user that he should get all the green buttons which means NO error or even no warnings, if he gets the entire green button than it means data is successfully loaded in the InfoCube. 15
  32. 32. References: • Articles by David P. Norton and Robert S. Kaplan – o What is strategy? o Balanced Scorecard, o Transforming the BSC from performance measurement to strategic management, o Putting scorecard to work, o Having trouble with scorecard? o Can bad things happen to good scorecards? o EVA and Strategy • Slides by Dr. Lea – o Measure Builder o BSC Development o SEM Configuration o BW Queries Part I and Part II • WeSpy Consulting reports o Financial Statements (Q2-Q6) o Sales report, market report, material and prices report (Q2-Q6) • Slides by Mayur Raicar – Loading a flat file to InfoCube • Slides by Dr. Yu – Creating a InfoCube (ERP345) • http://images.google.com/images?hl=en&q=strategy+map&btnG=Search+Images&gbv=2 • http://en.wikipedia.org/wiki/Balanced_scorecard • http://www.investopedia.com/university/ratios/ 15
  33. 33. Peer Evaluation Form Ravi CRITERIA Jay Modi Lin Zhu Marty Kofsky Kothari Assignment tasks carried out by each Compiling of Completion Completion Completion of member (what does each member the final of assigned of assigned assigned task do to complete this assignment). report task task Quality of contribution to group 24 25 23 20 effort (0 % – 25 %) Willingness to carry fair share of the 25 25 15 15 group effort (0 % – 15 %) Willingness to cooperate with others 15 25 15 15 (0 % – 15 %) Quantity of contribution to group 15 15 15 10 effort (0 % – 15 %) Dependability (0 % – 15 %) 15 15 13 12 Attending all team meetings on time 15 15 15 13 (0 % – 15 %) Total Score (100 %) 99 100 96 85 Lin Zhu: She is one of the best person to work with. She possesses technical as well as accounting skills which always helped the team. Marty Kofsky: Always completes the assigned task on time and can also give good ideas. Ravi Kothari: He has shown a good interest and involvement for the final assignment. He can be the best team member if continues to work with the same zeal for all the team assignment. 15

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