Testing Strategy with Multiple
Performance Measures
Evidence from a Balanced
Scorecard at Store24
BRIJESH SEHGAL
VIJAY KUMAR
S.P. SINGH
8/2/2010
Presented By
J.K.YADAV
SANJEEV KUMAR
SAJISEBASTIAN
SANJAY KUMAR
1
Agenda
•
•
•
•
•
•
•
•
Introduction
Objective
Process
Analysis
Results
Conclusion
References/Credentials
Q&A
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Introduction
What the study is about?
Who did the study?
Why ?
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What the study is about?
Store24, a privately held convenience store retailer in New England, the 4th largest in the
region. Whose primary product categories include cigarettes, beverages, snacks, prepared
foods, and lottery tickets. It operates in a mature environment with competition from
convenience stores, gasoline retailers, and drug stores. During FYs 1998 and 1999, Store24
formulated a strategy aimed at increasing sales and margins. To achieve this, Store24
changed its strategy to creating entertaining in-store atmospheres that would differentiate its
stores from those of competitors. To implement the same Store24 used BSC & Strategy Map,
but the strategy was unsuccessful .
This study is a follow up research to analyze the failure of above strategy focusing on
following points:
 investigate the role of the balanced scorecard in generating useful information for testing
and validating an organization's strategy.
 Testing and validation of assumption underlying BSC.
 Finding the gap through statistical tests of the hypotheses underlying the firm's balanced
scorecard and strategy map
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Who did the study?
Name
Designation/Organisation
Dennis Campbell
associate professor in the Accounting and
Management unit at Harvard Business School
Srikant M. Datar
Arthur Lowes Dickinson Professor of
Accounting at Harvard Business School
V.G. Narayanan
the Thomas D. Casserly, Jr. Professor of
Business Administration at Harvard Business
School
Susan L. Kulp
Assistant Professor of Accountancy
Paper Publish
“Organizational Control Mechanisms: The Next
Phase of Procurement Efficiency," Interfaces, MayJune 2006
“Manufacturer Benefits from Information Integration
with Retail Customers," Management Science, April
2004
“Supply-Chain Coordination: How Companies
Leverage Information Flows to Generate Value," The
Practice of Supply Chain Management: Where
Theory and Application Converge, 2003
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Why?
Understand to what extent do balanced
scorecards (BSC) provide useful information
for testing and validating an organization's
strategy?
Understanding the role of balance scorecard
in the potential learning and feedback
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Objectives
• to explore whether, when, and how information about
problems with strategy of Store24 was captured in
Store24’s balanced scorecard.
• Find evidence that performance measurement of BSC
provide useful and timely information for testing the
efficacy of an organization's strategy.
• To stimulate new theories about the role of
multidimensional performance measurement systems
in the strategic feedback and learning processes of
organizations
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Process
 Strategy
 Balance Scorecard (BSC)
Performance Measurement
System
 Strategy Map
 Hypotheses Underlying the BSC
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Strategy of Store24

Traditional Strategy
 cleanliness,
 efficiency,
 freshness

Differentiation Strategy
 Greater Loyalty
 “end-caps”- contained high margin product
 Fun & Entertainment
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Balanced Scorecard Performance
Measurement System
Performance measures were organized around
the four traditional balanced scorecard
perspectives
–
–
–
–
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financial
customer
internal
learning & growth
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Balance Scorecard
Financial Perspective
Sales Revenue
Margin
Controllable Contribution
EBIT
Customer Perspective
Transaction Volume
In-store Comment Card
Process Perspective
Audit Score
Learning & Growth Perspective
Managerial Skill
Crew Skill
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Balance Scorecard of Store24
Pa ra me te r
Financial
Perspective
Return on Capital
Deployed
G&A Overhead
EBITDA
Controllable
Contribution
Gross Profit Growth
Sales Growth
Loyalty - Recommend
Store24
Primary Convenience
Store
Enjoyable Experience
Concept Development
Operational
Excellence
Ban Boredom
Manager Skills
Crew Skills
Manager Tenure
Perspective
Learning & Growth
Internal
Perspective
Customer
Perspective
Inventory Turnover
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Crew Tenure
Employee Satisfaction
Information System
Use
Me a sure me nt
EBITDA divided by value of
equipment and leaseholds
Average G&A cost per store
Controllable contribution less
rental or lease cost
Gross profit less utilities and
labor expense
Growth in gross profit from same
quarter in prior year
Growth in sales from same
quarter in prior year
Days inventory for general
merchandise and cigarettes
% would recommend Store24
and % will visit Store24 soon
based on telephone survey
% stating Store24 as their
primary convenience store based
on telephone survey
% viewing Store24 as fun and/or
entertaining place to shop based
on telephone survey
Net gross profit $ from new
concepts
W alk-through audit and mystery
shopper ratings of compliance
with basic operating standards
W alk-through audit and mystery
shopper ratings of compliance
with Ban Boredom
implementation standards
Skill rating of store managers
Average Skill rating of nonmanagement store employees
Number of years manager has
been with Store24
Averge number of years with
Store24 for non-management
store employees
Gallup survey of employee
satisfaction on 5-point scale
Regional manager evaluation of
store utilization of front and backoffice technology
Le ve l
Fre que ncy
Corporate
Corporate
Quarterly
Quarterly
Store
Quarterly
Store
Quarterly
Store
Quarterly
Store
Quarterly
Store
Quarterly
Corporate
Quarterly
Corporate
Quarterly
Corporate
Quarterly
Corporate
Quarterly
Store
Quarterly
Store
Quarterly
Store
Store
Every 6months
Every 6months
Store
Quarterly
Store
Corporate
Quarterly
Every 6months
Regional
Every 6months
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Strategy Map
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EBITDA
Asset
Utilization
Contribution
Gross Profit
Perspective
Differentiation in-store
Experience
Enhance the Customer
experience with flawless
operation
Ban Boredome Walk-Through Audits
Walk-Through Audits
Net Gross Profit From New Concepts
Mystery Shoppers
Required competencies
are build on capable
employees
Interaction
Increase Customer Value
Create Fun, entertaining instore atmospheres
Competencies
Friendly
Quality, Value,
Cleanliness,
Selection
Basic Requirement
Promotion
Interesting
Experience
Differentiators
Enjoyable
Perspective
Increase Sales
Perspective
Learning & Growth
Internal
Customer
Financial Perspective
ROI
Technology
Focus on technology is
on information system
use
Climate for Action
Ability to implement
relies heavily on
employee satisfaction
14
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Hypotheses Underlying the BSC &
Strategy Map
Explicit
Implicit
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Explicit Hypotheses
 H1: Ceteris Paribus strategy inputs are positively related to
financial performance.
 H2: Ceteris Paribus strategy inputs are positively related to
strategy-specific customer outcomes.
 H3: Ceteris Paribus strategy-specific customer outcomes are
positively related to financial performance.
 H4: Ceteris Paribus measures of employee capabilities are
positively related to measures of strategy inputs.
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Implicit Hypotheses
H5: Ceteris Paribus the impact of increases in
strategy inputs on strategy-specific customer
outcomes is positively related to the level of
employee capabilities.
H6: Ceteris Paribus the impact of increases in
strategy-specific customer outcomes on
financial performance is positively related to
the level of employee capabilities.
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Summary of Hypotheses Underlying
the Scorecard and Strategy Map
Financial
Perspective
Financial Performance
H3
Customer
Perspective
H6
Internal
Perspective
H1
Strategy-Specific Customer Outcomes
H2
Strategy Input
H5
H4
Learning
& Growth
Perspective
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Employee Capabilities
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Analysis
Financial Performance
Non Financial Performance
 Measure of Strategy Inputs
 Measure of Basic Operational Compliance
 Measure of Strategy –Specific Customer
Outcomes
 Employee Capability
Customers Performance Measure
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Strategy-Specific Input Measure
125%
Walk Through Audit Score
124%
124%
123%
123%
122%
122%
121%
121%
120%
120%
Q1 FY99
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Q2 FY99
Q3 FY99
Q4 FY99
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Enjoyable Experience Rating
Strategy-Specific Customer Outcome
Measure
6.2
6.1
6
5.9
5.8
5.7
5.6
5.5
Q1 FY99
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Q2 FY99
Q3 FY99
Q4 FY99
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RESULT
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Result
•
These results highlight that the hypothesized link in the scorecard between internal implementation of the
action plans related to the new strategy and financial performance does not exist (H1). However, it is
unclear whether the strategy was poorly formulated or poorly implemented.
•
although the strategy was well implemented, the strategy formulation may have been flawed.
•
suggest problems with the fit of the differentiation strategy with Store24’s employee capabilities. Crew
skills determine the magnitude of the relationship between strategy outcomes and financial performance,
but the relationship is only greater than zero for high levels of crew skills
•
information in the scorecard reveals that the primary role of employee capabilities is not necessarily in
ensuring store-level execution of the strategy (e.g. H4), but rather in ensuring that even if executed well at
the local level, the differentiation strategy ultimately translated into the desired financial outcomes.
Tables 3-5 offering evidence that formal analysis of the data generated by Store24's balanced scorecard
provides timely information about strategic problems relative to the firm's quarterly strategy review
process.
the operating standards which Store24 executives eventually abandoned were not, while those they
retained were, drivers of financial performance.
•
•
Overall, these results provide evidence that Store24 executives learned about the underlying drivers of
store performance despite a lack of reliance on formal statistical analysis of the assumed relationships
underlying their scorecard.
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Conclusion
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Q&A
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