Strategic Performance Measurement System : Supermarket

1 Analysis of supermarkets industry in Australia

During the recent past, the supermarket industry has gone through some major challenges such as intense competition through the expansion of multinational chains to local cities, suppliers, customers, government regulations and most importantly the information technology (Mellado & Sánchez, 2005) and online marketing (Palmer & Markus, 2000). “The Supermarkets and Grocery Stores industry is one of the most fiercely competitive industries in Australia (IBIS World, 2017, p. 1)”. In order to cope with the challenges many supermarket resort to performance measurement systems.

2 Selection of strategic performance measurement system

However, initiatives such as business process reengineering, total quality management and employee empowerment do not have the integration of internal critical success factors and external key attributes (Kaplan & Norton, 1993). Unlike traditional performance measurement systems which only focus on financial measures, Balanced Scorecard focuses on further additional perspectives enabling the business to manage the competing and overlapping objectives which in otherwise be neglected. Furthermore, the traditional measurement systems rely on the outcome of the set of historical actions, whereas Balance Scorecard translate the mission into strategies and then to a measurement of performance, leading the organization to align mission with the performance.

The Balanced Scorecard can be described as a preferred system of strategic performance measurement for the supermarket chain due to its cascading top-down approach stemming from organizational mission and strategy, forward-looking approach than measure of historical performance, integration of internal and external measurements and draw the attention and the focus of the business to the critical success factors (Kaplan & Norton, 1993). Further, Balance Scorecard is one of the most famous tried and tested model in different industry settings and in different cultures and have proven that its benefits can overweigh the cost associated with the implementation of this multidimensional performance measurement system.

3 Development of a Balanced Scorecard for the Supermarket Chain

The development of a Balanced Scorecard can take seven distinctive and interrelated steps (Langfield-Smith, Thorne, Smith, & Hilton, 2015).

Step 01: Articulation of the Vision, Objectives and Strategic Priorities

Since the supermarket chain is a medium sized and operated currently in a suburban area, their main focus is to be penetrate the business into the city centre and then to the other states. For the expansion of the supermarket chain, the business should capitalise on its key competencies and deliver a service valued by the customers. The competition of the retail industry is very intense in Australia.

The industry is highly concentrated around four major branded supermarkets whose total market share is 80% (Mudditt, 2017). The arrival of the 2 discount operators ALDI and Costco have shifted the pricing strategy of leading brands such as Coles and Woolworths to a cut prices (Mudditt, 2017) and this rivalry is amplified with the arrival of Germany based discount supermarket chain which holds 8.9% of the market (IBIS World, 2017). The price cuts together with private label product ranges of the key players in the industry intensified the competition. Thus, expanding business in this context needs meticulous sculpturing of vision and translating that to actionable strategies. According to IBIS world (2017), online shopping will increase the demand within the retail industry.

Vision Statement

Is to be the most sought after customer orientated supermarket in Australia for its value for money superior shopping experience.

Objective

Achieve 40 % growth in sales within 5 years

Achieve 15% increase in return on investment within 5 years

Achieve 10% increase in market share within 5 years

Strategic Priorities

In order to retain and capture new segments of the market through not only providing low cost goods but also enhancing the customer choices by introducing wide variety quality products. In this regard the introduction of private label product ranges could stimulate the price competition within the suppliers. According to IBIS World, 2017 more than 25% of the total supermaket revenues are generated from private label product ranges. In order to succeed in the introduction of private label product ranges the supermarket has to make alliances and integrations with the suppliers, which could not only differentiates the products but also reduces the costs.

The front end of the business process could assist in realising the objectives by delivering a service that is perceived as valued by the customer. Service quality could be achieved through the multidimensional service quality model[1] introduced by Parasuraman, Zeithaml, & Berry (1991). In reserch carried out on the supermarkets it was revealed that customer satifaction and loyalty are positively related to empathy, tangibility, responsiveness and assurance (Kitapci, Dortyol, Yaman, & Gulm, 2013).  In this light the below strategic priorities were selected;

·         Product differentiation

·         Cost and supplier efficiency

·         Service quality

Step: 02 Strategic Map

Upon the identification of the objectives and strategic priorities, the next step in devising a Balanced Scorecard is the formulation of specific objectives. In this regard, the strategic map is developed linking the vision to specific, measurable, attainable and time bounded objectives. In the development of the strategy map, the multidimensional service quality model was employed as it is proven to have a positive effect on the customer satisfaction and loyalty as stated by Kitapci, Dortyol, Yaman, & Gulm (2013).

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[1] Service quality model developed by Parasuraman, Zeithaml, & Berry (1991) has 5 dimensions;

(1) “Tangibles - Physical facilities, equipment and appearance of personnel.

(2) Reliability - Ability to perform the promised service dependably and accurately.

(3) Responsiveness - Willingness to help customers and provide prompt service.

(4) Assurance (including competence, courtesy, credibility and security) - Knowledge and courtesy of employees and their ability to inspire trust and confidence.

(5) Empathy (including access, communication, understanding the customer) - Caring and individualized attention that the firm provides to its customers (Shahin, 2010).”

Figure 1: Strategy Map

Figure 1 illustrates that the objective of increase in revenue by 40% in the next 5 years could be achieved through the customer satisfaction under the Customer Perspective and this together with the customer loyalty could assist the achievement of the objective of increase the market share. On the other hand to attain the objective of increase in return on investment by 15% in 5 years, the profitability is linked to the profitability under the financial perspective, which intern is further cascaded down to customer satisfaction and internal processes and facilities tangibility.

Step 03: Operationalization of Balanced Scorecard

Based on the above strategy map lead and lag indicators were developed in order to measure the future performance of the supermarket chain.

Table 1: Balanced Scorecard

Objectives	Performance Measures
	Lag Indicators	Lead Indicators
Financial ·  Increase profitability	·  Return on investment (ROI) ·  Profitability of each supermarket outlet	·  Average sale growth per month, per outlet ·  Asset utilization per outlet ·  Average overhead cost per supermarket per month ·  Value of average wastage and customer returns per month
Customer ·  Increase customer satisfaction ·  Enhance customer empathy ·  Improve customer responsiveness	·  Customer satisfaction survey ·  Market share ·  Number of new customers who obtained loyal cards	·  Number of customer complains ·  Number of customer refunds ·  Average monthly expenditure on advertising and promotions ·  Number of new products offered ·  Number of promotional campaigns introduced ·  Average customer waiting time in a queue ·  Number of self-service checkouts introduced ·  Percentage of loyalty cardholders coming daily
Internal Business Process ·  Improve tangibility (physical facilities and processes) ·  Increase service reliability ·  Product differentiation	·  Total overhead cost per supermarket outlet  ·  Cost of maintenance of IT and other equipment ·  Number of new private label products introduced	·  Number of breakdowns of self-service checkouts and cash registers ·  Number of times the goods are coded erroneously ·  Average capacity utilization of each outlet ·  Average cost of maintenance of equipment and infrastructure
Learning & Growth ·  Enhance service assurance ·  Develop employee skills ·  Improve employee satisfaction	·  Employee satisfaction survey ·  Number of training and development programs ·  Employee turnover	·  Training and development provided to staff ·  Number of employee appreciation programs conduced per outlet ·  Number of grievances lodged by the employees on the working conditions ·  Number of customers served per employee

In the review of industry information it was noted that the German discount chain - ALDI, being one of the major players driving the retail prices down does not have self-service checkouts in any of the outlets in Australia (Evans, 2016; Evans, 2017; Groom, 2016; Brook, 2017). Thus, in order to minimise the costs as a means of enhancing profits, the supermarket chain could invest on self-service checkouts. This could be addressed under the business process perspective.

On the other hand the supermarket chain could enhance its return on investment by focusing on asset utilization under the financial perspective by streamlining an effective operation processes and capitalising on the cost reduction through the use of technology. The use of information technology make the processes more efficient but also it will reduce the employee related costs and the management could focus more on the small number of employees they have and enhance the quality of the service delivered through these employee.  

References

IBIS World. (2017, October). Supermarkets and Grocery Stores in Australia: Market Research Report. Retrieved from IBIS World: https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/food-retailing/supermarkets-grocery-stores.html

Kitapci, O., Dortyol, I. T., Yaman, Z., & Gulm, M. (2013). The paths from service quality dimensions to customer loyalty: An application on supermarket customers. Management Research Review, 36(3), 239-255.

Langfield-Smith, K., Thorne, H., Smith, D., & Hilton, R. (2015). Management Accounting. Australia: McGraw-Hill Education.

Mellado, V., & Sánchez, M. (2005). Implementing the Balanced Scorecard: a Supermarket Chain´s Experience. Research Gate, 2-13.

Mudditt, J. (2017, March 24). Retail World. Retrieved from Rtail world magazine: https://www.retailworldmagazine.com.au/spotlight-australias-supermarkets-grocery-industry/

Palmer, J., & Markus, L. (2000). The Performance Impacts of Quick Response and Strategic Alignment in Specialty Retailing. Informations Systems Research, 11(3), 241 - 259.

Parasuraman, A., Zeithaml, V., & Berry, L. (1991). Refinement and reassessment of the SERVQUAL scale. Journal of Retailing, 67, 420-450.

Shahin, A. (2010). SERVQUAL and model of service quality gaps: A framework for determining and prioritizing critical factors in delivering quality services. In P. Sarathy, Service quality – An introduction (Vol. 1, pp. 117-131). Andhra Pradesh: ICFAI University Press.