Haglund Department Store is located in the downtown area ofa small city. While the store had been profitable for many years, it is facingincreasing competition from large national chains that have set up stores onthe outskirts of the city. Recently the downtown area has been undergoingrevitalization, and the owners of Haglund Department Store are somewhatoptimistic that profitability can be restored.
In an attempt to accelerate the return to profitability,management of Haglund Department Store is in the process of designing abalanced scorecard for the company. Management believes the company shouldfocus on two key problems. First, customers are taking longer and longer to paythe bills they incur using the department store’s charge card, and the companyhas far more bad debts than are normal for the industry. If this problem weresolved, the company would have more cash to make much needed renovations.Investigation has revealed that much of the problem with late payments andunpaid bills results from customers disputing incorrect charges on their bills.These incorrect charges usually occur because salesclerks incorrectly enterdata on the charge account slip. Second, the company has been incurring largelosses on unsold seasonal apparel. Such items are ordinarily resold at a lossto discount stores that specialize in such distress items.
The meeting in which the balanced scorecard approach wasdiscussed was disorganized and ineffectively led—possibly because no one otherthan one of the vice presidents had read anything about how to build a balancedscorecard. Nevertheless, a number of potential performance measures weresuggested by various managers. These potential performance measures are:
a. Percentage of charge account bills containing errors.
b. Percentage of salesclerks trained to correctly enter dataon charge account slips.
c. Average age of accounts receivables.
d. Profit per employee.
e. Customer satisfaction with accuracy of charge accountbills from monthly customer survey.
f. Total sales revenue.
g. Sales per employee.
h. Travel expenses for buyers for trips to fashion shows.
i. Unsold inventory at the end of the season as a percentageof total cost of sales.
j. Courtesy shown by junior staff members to senior staffmembers based on surveys of senior staff.
k. Percentage of suppliers making just-in-time deliveries.
l. Sales per square foot of floor space.
m. Written-off accounts receivable (bad debts) as apercentage of sales.
n. Quality of food in the staff cafeteria based on staffsurveys.
o. Percentage of employees who have attended the city’scultural diversity workshop.
p. Total profit.
Required:
1. As someone with more knowledge of the balanced scorecardthan almost anyone else in the company, you have been asked to build anintegrated balanced scorecard. In your scorecard, use only performance measureslisted previously. You do not have to use all of the performance measuressuggested by the managers, but you should build a balanced scorecard thatreveals a strategy for dealing with the problems with accounts receivable andwith unsold merchandise. Construct the balanced scorecard following the formatused in Exhibit 10–5. Do not be concerned with whether a specific performancemeasure falls within the learning and growth, internal business process,customer, or financial perspective. However, use arrows to show the causallinks between performance measures within your balanced scorecard and explainwhether the performance measures should show increases or decreases.
2. Assume the company adopts your balanced scorecard. Afteroperating for a year, some performance measures show improvements, but notothers. What should management do next?
3. a. Suppose customers express greater satisfaction withthe accuracy of their charge account bills but the performance measures for theaverage age of accounts receivable and for bad debts do not improve. Explainwhy this might happen.
b. Suppose the performance measures for the average age ofaccounts receivable, bad debts, and unsold inventory improve, but total profitsdo not. Explain why this might happen. Assume in your answer that theexplanation lies within the company