Executive Summary
This paper considers the development of a Balanced Scorecard (BSC) and Strategic Map (SM) for Next Plc with a purpose of achieving its vision and strategy comprehensively. Next Plc is the clothing and footwear of the new generation. This is the UK clothing for women, men and children mainly of classical style. The company is one of the most famous in all world markets, where shoes and clothing are sold. It sells only high quality clothes and shoes, so the price of the products is above average. However, high quality makes all the products of this company popular and salable.
The BSC is a unique monitoring method and an effective tool for both current and long-term strategy management of the company. It allows to associate the process of strategy implementation at various levels with the budgeting process and, ultimately, to form all resources for the implementation of the company’s strategy. SM describes logic strategy clearly showing the most important internal processes that create value, and defining intangible assets required to support them. BSC converts objectives of SM into indicators and specific tasks. However, the goals and objectives cannot be achieved only by defining them – the organization must run a set of programs using which all planned indicators should be received.
Executive Summary 2
Introduction .4
Company Background 4
Vision 4
Strategy ..5
Balanced Scorecard .5
Financial Perspective .5
Customer Perspective 7
Internal Process Perspective ..8
Innovation and Learning Perspective 9
Strategy Map..10
Recommendations .10
Evaluation of the Use of Balanced Scorecard .11
References ..13
Introduction
Based on the individually developed performance, subsequent comparisons between planned and actual data, managers receive information that enables them to make an assessment of the strategy effectiveness in the four main areas covered by the BSC: financial, customer, innovation and learning and internal perspectives. SM displays key objectives to ensure successful implementation of the strategy. The main function of SM is a causal mapping purposes in the implementation of the strategy. Strategy conversion into visual maps is one of the most powerful management tools. The main advantage of this tool is the image on one sheet of all the targets on key prospects as a single mechanism for implementing the strategy.
Company Background
Next brand story originates from 1964, when J Hepworth & Son, Gentleman’s Tailors Company was founded in English town of Leeds. The vast majority of Next stores is in the UK and Ireland, there are about 500, and nearly 200 stores were opened in countries around the world. To promote the brand, Next Plc became the first who engaged the supermodels to participate in the advertising and marketing campaigns. Naomi Campbell, Uma Thurman, Claudia Schiffer, Kylie Minogue, Linda Evangelista, etc. collaborated with the trademark. Today, Next brand is one of the most famous in the world. The company employs 54,507 people and has a team of professional designers, whose handwriting is immutable elegance and consistency of style.
Vision
Next Plc’s vision is to be the best clothing retailer in the United Kingdom exceeding customers’ expectations and improving customers’ service (Next Plc, 2014). The company depends on its fundamental business as a source for advance expansion. Additionally the management is marketing orientated, so consumers are the highest importance and must be satisfied as regularly as possible talking about clothes as of services. The stores should be easy to get to attract new consumers whose purpose was to purchase in different places rather than at Next.
Strategy
Delivering long term returns to shareholders should be achieved via enlightening and elaborating company’s product assortments, success in which is defined by sales performance. In order to expand selling space the company will evaluate new stores according to financial criteria before the investment is made and success is defined by attained revenue impact and return on capital against assessed objectives. The other strategy component is in handling gross and net margins over effective product sourcing, stock management and cost control. Next Plc is going to sustain its financial power over a proficient balance sheet and safe financing structure.
Balanced Scorecard
The balanced scorecard (BSC) was developed by Kaplan and Norton (1992) as a means for organizations to measure their performance from a wider perspective than the traditional financial measures. Traditional financial results in efficiency provide information about company’s past outcomes, but are not appropriate for predicting future operation or for implementing and monitoring the company’s strategic plan. The BSC is a performance measurement tool that originated in the business worlds and considers not only financial measures, but also customer, business process, and learning measures. (Kaplan & Norton, 1996).
Financial Perspective
The main question is: How do we look to shareholders? Thus, whatever we have proven the importance of market-oriented companies and improvement of internal processes, the owner is always primarily be interested in indicators of financial return on investment. Therefore, BSC should start from (in classification) and end with (final evaluation) the financial performance. The main objectives and their measurements are shown below:
As of now, Next Plc reached profit growth of 11.8% to £695m. According to the statistics in the beginning of the year the company overtook its largest competitor Marks & Spencer and got market share of 12.5%. Its Current ratio has the value of 1.76, so as the amount of current assets is higher compared to current liabilities, the Next must be able to repay its short-term debt. However, the rate of 2 is considered as the most appropriate, because the solvency will be approved. If the value of Return on Investment Capital exceeds 100%, the profitability of the business is proved, and if less than this value, it means that investment will not be returned fully. Next’s level of ROI is 46.33%, the company should concentrate its efforts on increase of investments. Due to high level of debt company’s ROE is very high (193.43%), it should decrease it at least to 130%.
Generally, Next indicators over the last year are extremely impressive. Not only because the company has provided excellent growth in the share price by 61%, it is also far ahead of FTSE 100 whose wide index rose by only 1% over the same period. This happened after an extremely difficult period for the UK retail sector. In addition to triple coverage, Next has a very good track record with respect to dividend payments, as the company pays dividends not just in the last five years, but increases them every year. Thus, with rapidly rising dividends opportunity to pay a significantly larger share of the profits in the form of dividends and stability in relation to payments in a difficult economic situation, Next’s stocks remain very attractive. Although their relatively low yield stops them from being able to bring in huge profits, however, they remain very attractive for investors seeking income.
Customer Perspective
How do customers understand us? The main focuses of attention are: the ability of the company to satisfy customers, the company’s ability to retain the customer, the ability to attract a new customer, customer profitability, market volume, market share in the target segment, etc.
Next is one of the most trained UK retailers to benefit from the boom in online shopping. Strong investment in online unit helped Next to increase online sales by 12% in 2013, well ahead of growth of 1.2% in stores and helping to increase the Group’s turnover by 5% during the period. Signs of growing consumer confidence look hopefully for Next and its competitors. GfK consumer confidence index in the UK showed that the level reached in January 2014 -7, which is the highest figure in the last six years. The company knows that the product itself should bring consumer positive emotions, speaking of quality and price to increase customer loyalty in the long run.
In 2008, Next acquired Lipsy for £17million, a hip women’s partywear label which designs and sells its own branded younger women’s fashion clothing through retail, internet and wholesale channels, in an effort to appeal to younger women consumers. This particular acquisition was very important for the company after facing criticism for some time for failing to keep in touch with “Heat generation” shoppers who fall in the 16 to 34 age spectrum.
Next is well proven by retaining sales growth, even when the broader macroeconomic issues during the last five years have limited purchasing power of the population. Moreover, the combination of extensive development and promotion of the brand; popularity of fashion lines and above the success of its online destinations profit helped achieve double-digit annual growth during each of the last four years.
Internal Process Perspective
How do we stand out among competitors? Internal business process objectives are the processes in which the company should concentrate its efforts to outclass. The question of most critical needs for satisfying customers and shareholders rises.
A huge quantity of clothes retailers are in the UK market, approximately more than 25,000 combined with additional outlets make them over 45,000. Next’s biggest competitors are Marks and Spencer Group plc, Arcadia Group Limited and Debenhams plc. The main advantage of Next Plc is its adult fashion wear for consumers from 20 to 40 years old (target group), which is traded under its own label. Considering the fact that some of its rivals have problems with satisfaction of such segment, the company succeeded it very well in the past, selling its fashionable goods at reasonable prices. Its consumers associate with the Next label – respectable quality of the apparel used and worthy experience. In addition it has developed distribution channel system, which consists of over 700 stores in the UK and Erie, Next Directory and Next International.
Innovation and Learning Perspective
Learning and growth metrics examines the question of how the firm must learn, improve, and innovate to meet its objectives. Much of this perspective is employee-centered.
Next’s employees are vital to retaining business objectives. The company has established policies for recruitment, training and development of staff and is obliged to achieving superiority in the areas of health, safety, welfare and protection of employees and their working environment. Also the company has a policy of ensuring personnel with financial and other materials about the business and confirms that its proposals and opinions are taken into account. Number of employees increased in 2013 in comparison with 2012 by 2.4%.
Strategy Map
Recommendations
Today Next plc is an extremely successful company, as presented by both its financial attainments and its innovative position on new features of apparel, such as online shopping. Company’s principal strength is obviously in its flexibility, which is essential in the ever altering clothing retail market. Next has an enviable track record in business community, passing unscathed through the economic and credit crisis, while competitors in the clothing trade worked not very well. The company not only woke up once and noticed that buyers use this newfangled Internet thingy for more and more of their purchases, and Next was one of the pioneers in the multichannel retailing and Next Directory now occupies a decent market share.
Despite the fact that company shows the leading position in the market, there should be no limitations to increase it till next fiscal year to at least 15%. Considering the company’s upcoming successes it has appeared to accomplish growing its sales notwithstanding the latest economic recession. Next’s adaptive approach besides its severe position on corporate responsibility puts future sales progress as a robust possibility. Nevertheless it is also defined that Next runs in a very tempestuous market. Consequently the best recommendation implied is to produce a more exclusive appeal for its clothing lines to ensure its future successes. Also the company should concentrate its efforts on increase of investments and decrease of debt.
Evaluation of the Use of Balanced Scorecard
It was figured out that BSC focuses on non-financial performance indicators of the company, giving the opportunity to evaluate such a seemingly hard-measurable aspect of the degree of customer loyalty, or the innovative potential of the company.
The difference of the BSC to other control systems is the following:
- BSC – controls not only financial performance but also non-financial.
- BSC – a system of governance through indicators, not a system of measurement indicators.
- BSC – runs the company, combining all processes into one.
- BSC – is a management system, not only for executives but for all employees.
Benefits of using the BSC are:
- There is the connection between core aims and values with company’s strategy
- The strategic management is in real-time. The system allows to link the budget and strategy and using the information and analysis systems continuously conductstrategic learning.
- Ensures alignment of employees to company’s strategic vision
- Simplifies strategic aim by creating a visual summary
Challenges that Next Plc faces when using them are:
- The principle of shared responsibility for the result isn’t implemented
- Some indicators are not measurable e.g. innovative part of the organization.
Therefore, BSC, like any other management tool, must be adjusted as the company develops and changes in the external environment. Environment, where the company operates, as a rule, is very dynamic, which leads to an adjustment of the strategic objectives. And this in turn requires constant updating of indicators to achieve those objectives. However, in most cases this does not happen, making BSC at best, unworkable, or simply harmful.
Strategic map is visual model of integration goals of the organization in the four components of BSC. It is an illustration of cause and effect relationship between the client and the desired results, financial components, on the one hand, and the outstanding results obtained in the basic internal processes – production management, customer management, innovation and social and legislative processes. These critical processes create consumer proposal and provide its target customers, which also contributes to the achievement of performance goals of the financial component. In addition, SM of Next Plc identifies specific opportunities of intangible assets of an organization – the human, information and organizational capital that are necessary for solving the inner component.
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