Balanced Scorecards Strategy For Caffe Nero

Introduction

The aim of this essay is to design a strategy and two balanced scorecards for a coffee shop company called Caffé Nero to compliment their mission statement. This will be done after conducting extensive secondary research to gain a clear insight into what a balanced scorecard involves as well as looking into how Caffé Nero operates. This will hopefully provide knowledge of potential benefits and difficulties to consider when attempting to successfully implement scorecards for both Headquarter and Store Levels for Caffé Nero. In addition to this, for each scorecard, a strategy map is used to demonstrate how each key performance indicator (KPI) contributes to the overall vision of the company. Finally both levels are then assessed on its contributions to Café Nero’s strategy and a conclusion is drawn on the main points outlined throughout the essay.

What is the Balanced Scorecard?

Kaplan introduced the balanced scorecard in 1992 with the aim to translate strategy into action, he stated,

“The balanced scorecard translates an organisation’s mission into a comprehensive set of performance measures that provides the framework for implementing its strategy.” (Kaplan & Norton, 1996: p88).

Having understood an organisation’s vision and strategy, the balanced scorecard aids to develop creative objectives to help measure performance. These objectives can be split into four main perspectives: Financial, Customer, Internal Business Process and Learning and Growth all of which link together to form a strategy map.

Implementation of the Balanced Scorecard – Benefits and difficulties

Bourne & Bourne (2007) presents reasons to why once implemented the balanced scorecard can fail. It is beneficial for Caffé Nero to be conscious of potential problems that may arise in the near future when implementing their balanced scorecards. Looking at the difficulties and problems portrayed by theorists and other organisation’s experiences should present Caffé Nero with a competitive advantage. The opportunity of being able to use other organisations failures and theorist’s advice to overcome the issues presented is valuable. It is particularly important as large amounts of time and money from the company are being invested into this performance management tool.

One potential problem is the complexity of the system, resulting in unachieved objectives which will affect the overall vision and strategy of Caffé Nero. Organisations are faced with de-motivated staff as they steer away from the main objectives that are originally assigned. Although, this is a common problem for the majority of companies when introducing the scorecards, Caffé Nero is aware of this problem and can therefore take this into consideration throughout the design stage. In particular consideration would be beneficial, in terms of the strategy map when linking the objectives together, so that they are easy to follow and comprehensive for the whole company. As for overcoming the complexity issue, Caffé Nero can focus on their employees with training, conferences, group and one to one meetings to ensure that every employee within the organisation fully understands what a balanced scorecard is. Their objectives and how they are being measured as well as how each perspective interlinks in achieving Caffé Nero’s strategy.

Drury (2004) suggests another difficulty with the scorecard, he identifies that the assumptions of the cause and effect relationships are being excessively vague as well as lacking empirical support. Further research has concluded that is it difficult to link non financial data with future financial performance if at all. Caffé Nero needs to consider this, as their main objective is to achieve future revenue growth both within the UK and internationally. So perhaps with measures and objectives that are assigned, should be more focused around revenue and financial aspects where possible.

An additional difficulty concerning the perspectives shown within the management tool is that it does not factor in other aspects of the business to incorporate customers, employees, suppliers and other environment perspectives. Although Caffé Nero is not restricted to adding additional perspectives, it could complicate the scorecard further making it difficult to achieve all objectives assigned and some may overlap with existing objectives.

Traditionally, when implementing a scorecard the assumption is, the decisions sit with the senior management throughout the design stage as they fully understand the ins and outs of the organisation. Although this may be the case, it is not always in the best interest of the organisation to design a scorecard that only looks at all levels of the business from a top heavy approach. To overcome this Caffé Nero can be smart and ensure that all functional representatives of their hierarchy from store-level to headquarter level are included within the design. This in turn will show teamwork in working together to understand where each individual fits in to the overall strategy in order to meet the company’s objectives.

Although the scorecard demonstrates various difficulties that Caffé Nero should be aware of. Not all is bad; the on-going popularity of the balanced scorecard from other organisations makes it extremely hard to not notice some of the benefits of this management tool.

One important trait of the scorecard is its use of effectively combining all the separate elements of the company into one simple model, with help from the strategy map. The tool is also able to help employees and the company to understand how everything interlinks and contributes to the overall strategy. For example, looking at how employees from Caffé Nero store-level are able to contribute and work with headquarters objectives by improving customer service at store-level in aid to reduce customer complaints for headquarter level at the other end. This management tool is also enabling managers to consider all objectives and measures together as a whole by looking at the bigger picture. Therefore Caffé Nero can take advantage of these benefits and make necessary improvements to the costs of the company with cost reductions at headquarter level.

Lynch (2009) comments that the real benefit of the scorecard is the linkage between strategy and implementation. Most theorists argue that the main goal of the majority of organisations is a form of shareholder value added. Caffé Nero should consider this when implementing both scorecards. By looking into both quantitative and qualitative measures within the strategy, they should hopefully determine the expectations of their shareholders within performance measures in their strategy and scorecards to achieve growth in shareholder value.

Caffé Nero Strategy

Grant (2008) outlines various strategies an organisation can adopt when trying to achieve growth. Having viewed this, Caffé Nero is more geared towards a business strategy, as it concerns the company with competing within a particular coffee shop market. To prosper within this market it is important to concentrate on establishing a competitive advantage over rivals.

To support this Caffé Nero should base their strategy around product differentiation, by providing customers with quality ranges of espresso that is exclusive to Caffé Nero stores, will only contribute to concreting a competitive advantage for the company. It also works on shielding Caffé Nero from their prices being levelled down to the bottom part of the price spectrum, due to potential competitive price wars of the same product between their competitors. This is an important strategy to implement as due to the increase of popularity of coffee shops it is likely for these price wars to occur. As a result, Caffé Nero can look to improve further, with the quality of their products as well as launching new products in the future as part of their strategy. This can be achieved with product innovation to cater to larger consumer base within the market, hopefully contributing to the growth in both revenue and size within the UK and internationally.

Café Nero is well known for its acquisition of Aroma which increased the amount of sites they owned to 106 by 2002; this made them the largest independent owned coffee shop. The company now has 400 stores operating in various locations within the UK, Turkey and the Middle East. Caffé Nero should now look towards the future of the company, by expanding the number of sites owned. Therefore it is important that part of the strategy should reflect in achieving expansion both internationally and UK based. Caffé Nero will incorporate this in the scorecard within the financial perspective at headquarter level, as Kaplan and Norton (1996) states that the designing of the strategy of the company is combined with the process of the balanced scorecard.

However Caffé Nero may be faced with great difficulty with trying to implement their strategy due to the diversity of locations they operate in. As it is harder to standardise a scorecard for all site levels throughout the business internationally, as culture and expectations of customers and employees may be different throughout locations. This can be said the same about different locations within the UK. For example London’s objectives may incorporate a faster pace of service to compliment their busy, on the go customers in comparison to another site in a quieter location that may prefer much more of a mellow approach, at a slower pace and friendlier atmosphere where everyone is a community. Caffé Nero tries to incorporate all of these elements within the overall strategy.

Balanced Scorecard & Strategy Map

The following models demonstrate Caffé Nero’s scorecards for both headquarter level and store-level. As well as strategy maps to illustrate how each objective will link together. It is important to note that although the scorecards produced are for the same company, they may differ in objectives for each level, to incorporate all personnel throughout the company. Objectives of headquarter level will focus more on the overall performance of the company, in terms of how they can grow in revenue, size and customers. The model will also focus on innovating products and retention rates of employees and customers. Where as, with the store-level objectives will be more centred around individual stores in terms of customer service, delivery times and empowering and motivating staff with training and incentive programmes. Once the following scorecards have been implemented for Caffé Nero, it is then important to ensure that everyone throughout the company understands the balanced scorecard and where they are contributing to achieving Caffé Nero’s vision. As well as considering how all of the objectives from each level will interlink between the two scorecards. This can be done through training centres, conferences and meetings.

Figure 1: Balance Scorecard at Headquarter level

Figure 2: Balance Scorecard at Store-level

Scorecard Evaluation

Having designed both scorecards (Figure 1 and 2) an evaluation will be conducted to explore both the similarities and differences presented within each models. Additional to this, supporting evidence will add weight to justify reasons for selecting objectives and indicator to contribute to Caffé Nero’s overall strategy.

Financial Perspective

The first objective shown in the financial perspective (figure 1 & 2) is revenue growth this relates to achieving an increase in growth in some form or another. To drive revenue growth Caffé Nero objectives concentrate on diversifying into new markets internationally and within UK. As well as branching out into new customer markets and increasing the number of stores owned by Caffé Nero. Each of these objectives chosen all tie in with Caffé Nero’s overall strategy of expansion of the business in the near future.

The key performance indicators incorporated into this perspective help to measure each objective for the company. The main similar measure here is (F1 & F4) percentage of increase in revenue growth in the overall company and individual store-level (F5). To achieve these objectives they would have to be based upon implementing bonus and incentive schemes for employees so that they are motivated to achieve targets set. They would also need to target larger segments of new customer markets by advertising in new locations such as near to universities to appeal to students or offices to appeal to the working customers. However a drawback of this measure is due to the population suffering from the effects of the recession and the economy resulting to a decrease in disposal income. Meaning growth in revenue for Caffé Nero will be delicate as new potential customers may not be as opened to trying new coffee shops then their norm as well as lifestyle changes that will affect the amount of revenue that each store generates. This is why a mark up % was not included in aid to limit other problems such as the affect on shareholder value, as incorporating percentages would put further pressure on the company in case they were unable to achieve resulting to shareholders expectations to decline.

Another important objective within the financial section is (F6) improve operational efficiency, which is reducing wastage costs for the business. It is important to achieve this objective as it saves the company money and better for the environment. This can be done by providing more awareness of how to reduce wastage i.e. not leaving taps of water on just for the convenience element for coffee shops. Being aware of waste problems presents benefits as in turn this will maintain the companies overall brand image, which links in will the customer perspective (C3 figure 1) of maintaining brand image.

Customer Perspective

It is important to measure this objective (C3), as it involves the public with collating feedback and results in reference to how the general public perceive Caffé Nero as a company. This objective also gives the company an opportunity with participating in charity and environmental work that will help several organisations as well as portraying a better image for the company. This is with the intention to increase in revenue and customer satisfaction, as customers like to be involved in supporting good causes. This is why it was important to incorporate this within the headquarter scorecard.

Figure 2 also looks at customer retention (C5), customer satisfaction (C6) and customer profitability (C4) as main objectives to achieve. Each of these objectives link with each other, for example if the customers are satisfied with the service and products offered by staff then they are likely to come back time after time. Creating customer loyal will result in increasing customer retention rates hopefully leading to customer profitability. Therefore ensuring customers are provided with great customer service and high standards of quality products will cement this relationship with customers and employees. Where the employees are concerned this is incorporated into the internal process and learning and growth perspectives.

It is significant to note that both levels differ in objectives as the store-level is more involved with direct customer improvement as they adopt a more personal approach with more of a face to face relationship. Therefore objectives will be focused around the service element. In comparison to the headquarters that will look more to indirectly improving service by site quality, reducing complaints and activities involving improving brand image. However one similarity between them is that they are measured by customer feedback in one form or another.

Internal Business Processes Perspective

The first objective presented in figure 1 is (IP1) innovating products involved, this objective is important for businesses to maintain as their strategy and brand image pride themselves on producing unique high quality products in espresso and food. Therefore it is important for Caffé Nero to innovate new products in order to compete within such a popular market. To measure this objective Caffé Nero will look at increase in sales from new products in order to measure if they are successful or not. For that reason employee should be aware of the new products that are available by offering them at pay out areas in order to advertise new products, which links into objective (IP4) developing internal product knowledge. This will be achieved by daily staff meeting and work booklets to test staffs knowledge. Again, this perspective demonstrates some similarities between figures 1 & 2. Objectives are set to improve on delivery times for customers (IP2 & IP5), this is aid of achieving high quality of service to link to customer satisfaction (C6), retention (IP3) and profitability (C4). If customers are dissatisfied they will go elsewhere which will affect growth in revenue (F1). To measure delivery times, focus as obtain comparing where Caffé Nero are in terms of the market, as customers will have a certain level of expectations. However if Caffé Nero are able to excel over this, it will create customer satisfaction which in theory will lead to more business from that customer. Also by ensuring there is a balanced customer to employee ratio in each site helps to improve delivery and customer service for customers as waiting times will decrease.

Learning and Growth Perspective

This area focuses on employees in terms of creating objectives to maintain training, in aid of retaining employee loyalty (LG1), improving both job and employee satisfaction (LG2), increasing employees capabilities in skills (LG4) as well as motivating and empowering employees (LG5). In theory these objectives should participate to maintaining a customer centric focus (LG3).

Within this perspective, there are many differences between the scorecards as store-level focus on individual needs of employees to drive employee satisfaction. In comparison to headquarters which looks at overall achieving programmes to assist employee satisfaction, presenting a common objective in both scorecards. To measure these objectives appraisal and one to one meetings are used to assess their performance and how to improve in growth in revenue for the business. Each level is assessed by individual employees at store-level and individuals stores for headquarter level.

Olve (2003) looked into how incentive and reward programmes can be aligned with scorecards in order to promote realization of intended strategy. This has been incorporated into the learning and growth stage of the scorecards. In aid to attract employee’s attention, to perform well at store level, contributing to the overall objective of increasing revenue growth for the company.

Although there are many differences between the models as each scorecard targets a different audience, it is important to note that they both interlink to together to achieve Café Nero’s objectives. As store-level focuses on direct customer service it is important that they get it right to achieve sales, retention as well as maintain a happy working environment for staff as getting these objective help to achieve objectives set for headquarter level. In terms of employee retention, training programmes, customer profitability and satisfaction as well as product innovation

Conclusion

To summarise the main points of this essay, it is essential to consider the information available in order to successfully design and implement a scorecard for a company. As statics show that 70% of balanced scorecards fail due to lack of research within their own individual company and the scorecard.

The second point was to fully understand what Caffé Nero wanted to achieve in regards to their strategy, as it is vital to not incorporate everything as this will only present more problems then benefits.

Thirdly, when designing the scorecards for Caffé Nero, it was crucial to ensure that they were easy to follow for all members of the organisation, as every objective interlinks and filters up the model in a form of a chain. If one objective is not met then this will affect the rest of the model creating a cause and affect relationship throughout the scorecard. For example consequences may lead to losing customers due to bad customer service, lack of high quality products and product knowledge due to limited training.

As to measurements within the scorecards Caffé Nero tried to be realistic so that they are able achieve their strategy as unrealistic measurements can disadvantage a business, as the costs of implementing balanced scorecards is a large investment to make as large amounts of money and time is needed. It is also important that Caffé Nero adopted a ‘trial and error’ approach so they could keep reviewing their scorecards to ensure they were aligned with their strategy. Overall a balanced scorecard is an affective management tool to translate strategy into a vision.

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