Analysis Of A Balanced Scorecard In Dell

Dell is a computer vendor operating online but utilising a retail presence. Their strategy involves specialising in giving the users a choice in what software and specifications they want on their computer. Their target customers are mainly home and business users as they specialise in business laptops as well as home media laptops. Their market segment is the computer vendor market. This segment is occupied by companies such as HP, Lenovo and Acer. In terms of market position, Dell is ranked around third in the PC vendor market with a market share of 10.5%. Competitors Lenovo and HP currently lead Dell in the market with 15.7% and 15.5% respectively (Gartner, 2012).

Customers

Appendix A. is the customer section of the scorecard

Dell wants to become the biggest vendor of computers in the market and the only way they’re going to achieve that is by increasing their market share. Offering discounts would increase their sales and pricing their products more competitively would a similar effect; however this would adversely affect their per unit profit.

On-time deliveries relates directly to the customers experience when ordering with Dell. If their computer arrives a week later than expected, they’ll leave Dell negative feedback which will affect their customer service reputation, so it’s vital that they improve their delivery system as much as possible. Although it’s motivational, offering cash incentives for staff increases the staff expenditure for the year.

I chose the number of customer returns to measure the quality of their products because well made products won’t result in excessive customer returns. Improved staff training will result in less errors and better product reliability. The only faults in the products would be coming from the specific components, which can be replaced.

The number of customer complaints relates to the quality of their customer service. This measure can also be used in conjunction with product launches to find faults in these products. There are limitations on how much they can improve their customer service. Staff retraining (whether it’s in customer service or in sales) costs a lot of time and money which could affect their financial statements.

Financial

Appendix B. is the financial section of the scorecard

I chose sales growth by segment because it links in with Dell’s overall plan to take advantage of potential sales in different segments by enabling us to find out where specific sales patterns are occurring. An improvement of 10% seems a bit high but that takes into consideration the anticipation for Windows 8 as well as Dells plans to introduce new touch screen devices.

Residual income is the difference between the company’s profits and the charge for the use of capital within the business. It represents a good measure of the profitability of the company because it takes the cost of capital into account, something which gross profit margin wouldn’t do.

Inventory turnover is the rate at which inventory is sold and replaced over time. The target for this figure should be high because Dell specialises in using Just in Time production techniques to minimise their inventory holding, selling it more quickly. A limitation is that production could yield a higher error rate. This could result in more customer returns which would reflect negatively on their customer service.

I chose return on invested capital as the performance measure for capital utilisation because it calculates the level of profit their investments generate. It also takes long term debts into account which gives us a better idea of how the profits cover those long term debts.

Learning and Growth

Appendix C. is the learning and growth section of the scorecard

If Dell spends more money on their staff training then the staff will feel more invested than if they were trained for a short period of time. This would link in with their objective of making sure the employees are well trained and professional in their jobs. The only problem with implementing this is that it could easily run up the cost which could adversely affect their financial performance.

In order to measure job satisfaction, Dell can use employee turnover which would give them a target to work towards (reducing employee turnover). By offering incentives such as bonuses or perks of the job they can reduce employee turnover however that runs the risk of increasing the cost of their employee wage and salaries budget.

Customer surveys would be useful for finding out what new features are desired, what’s wrong with the old products or product pricing. Surveys are cheap and cost effective, however they need to offer an incentive otherwise people won’t do the survey.

Changes to the market mean that Dell need to introduce new available technologies. Reviews and ratings are a suitable measure for this because of their critical nature. However they have to increase the R&D budget in order to find out what technologies are practical.

Internal Business Processes

Appendix D. is the internal business process section of the scorecard

Creditor days is a useful measure of improving credit terms with their suppliers since it shows us how long they have to pay them. The target to increase this amount was chosen because Dell is experiencing a low point in sales (during the last month or two). So improved credit terms can help them while they’re experiencing this difficulty. The problem with increasing creditor days is that doing this over a long term will result in working capital problems for them.

By measuring the CO2 emissions, Dell can find out how well they’re doing in their global emission reductions. Utilising renewable energy sources can help towards this and improve their reputation. The only limitation is that the transition to renewable energy is a slow process which is contrary to the usual short term-ism of objectives.

Energy efficiency is a good measure for how energy efficient the businesses operations are and using a survey to find out how to improve the business’ operations isn’t going to pose a problem.

In order to measure the level of recycled products, the rate at which they recycle and reuse (Dell, 2012) products is a useful tool for this purpose. With a 100% rate they can improve their environmental impact and appeal to more ‘green’-conscious customers.

Critical Analysis of the Balanced Scorecard

Benefits

The balanced scorecard doesn’t solely focus on short term goals in the business; it’s used to measure the success of a business in achieving long term objectives. This is good because it gives them a long term goal to work towards, taking into account all the other aspects of the business.

As stated by Kaplan and Norton (1992) “the scorecard puts strategy and vision, not control, at the center. It establishes goals but assumes that people will adopt whatever behaviors and take whatever actions are necessary to arrive at those goals. The measures are designed to pull people toward the overall vision”. It measures performance as a whole instead of measuring performance on a departmental level. This is better than traditional management tools because it highlights what parts of the business are linked with each other. If one side is performing badly then all sides (and their goals) will suffer.

Difficulties

Nørreklit argues: “During the planning stage the measure variables may be benchmarked against those of the competition, but the scorecard does not presuppose any continuous observation of competitors’ actions and results or the monitoring of technological developments, which means that the focus of the model is static rather than dynamic” (Nørreklit, H. 2000). This poses a problem to Dell as they’re in a highly technological sector where they have to stay on top of new developments, so having a strategic model which is too static is counterproductive.

The model also focuses on external commitment with employees. Nørreklit states that: “the employees will try to reach good results in the areas measured, but this will be to the detriment of other elements which may be important, too. It should be noted, however, that this problem is even greater if, as has traditionally been the case, only financial measures are used”. (Nørreklit, H. 2000). If the employees are focused on meeting the targets set out by the measures, they’ll become too goal orientated and won’t see the bigger picture of an objective.

Conclusion

The Balanced scorecard is an effective tool for setting strategic goals and finding out how we can measure their achievement. The problem with the static nature of the table is fairly significant however I believe that this can be rectified by keeping track of technological changes and monitoring competitor’s strategies. This can be done by studying their product releases or by looking at their expansion into other territories.

The scorecard has its advantages in the sense that it avoids the typical short term goals that most managers aspire to achieve. With a focus on long term goals it allows the business to predict future changes to the market, changes that they’ll have to adapt to.

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References

Bowhill, B. (2008) Business Planning and Control: Integrating Accounting, Strategy and People. Chichester: John Wiley & Sons Ltd.

Dell. (2012). Dell’s Commitment to Zero Waste. .Available : http://content.dell.com/us/en/corp/d/corp-comm/cr-earth-reduce-reuse-recycle.aspx. Last accessed 09th Nov 2012.

Forbes. (2012). DELL INC (NASDAQ:DELL) Ratios and Returns. Available: http://finapps.forbes.com/finapps/jsp/finance/compinfo/Ratios.jsp?tkr=DELL. Last accessed 09th Nov 2012.

Gartner. (2012). Gartner Says Worldwide PC Shipments Declined 8 Percent in Third Quarter of 2012 as the Market Prepares for the Launch of Windows 8 . Available: http://www.gartner.com/it/page.jsp?id=2194017. Last accessed 09th Nov 2012.

Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard-measures that drive performance. Harvard business review, 70 (1), 71-79.

Norreklit, H. (2000). The balance on the balanced scorecard a critical analysis of some of its assumptions. Management accounting research. 11 (1), 65-88.