AC311 Fall 2020 Session 7.2 (Johansens) PDF

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Summary

© 2020 – Wim A Van der Stede and Roland F Speklé -1-Johansen’s:The new scorecard systemPurpose of the case To discuss balanced scorecard-type performance measurement systems To examine issues that may arise in linking broad-scope performance measurement to incentives To discuss the role of subjectiv...

Description

Johansen’s: The new scorecard system

© 2020 – Wim A Van der Stede and Roland F Speklé

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Purpose of the case •

To discuss balanced scorecard-type performance measurement systems

•

To examine issues that may arise in linking broad-scope performance measurement to incentives

•

To discuss the role of subjectivity in evaluations

© 2020 – Wim A Van der Stede and Roland F Speklé

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Key elements of strategy

• •

Positioned at the high end of the market Superior customer service

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Fierce competition, also from internet retailers  additional pressure on customers’ in-store experience

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Customer service experience has suffered from prior emphasis on financial performance

© 2020 – Wim A Van der Stede and Roland F Speklé

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Performance management background •

Relatively high level of autonomy for store managers  profit center structure

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Promotion from within; performance evaluation affects career opportunities

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Regional managers evaluated, and having historically maintained a mindset focused on, financial performance primarily

© 2020 – Wim A Van der Stede and Roland F Speklé

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The old system (implemented in 2006) Performance assessment purely financial:

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Store sales growth Gross margin Net income

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Why and which effects? (Exhibit 3)

• •

© 2020 – Wim A Van der Stede and Roland F Speklé

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© 2020 – Wim A Van der Stede and Roland F Speklé

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Synopsis of the new system Financial

Four dimensions:

Customer service

Leadership

Strategy implementation 

Overall score based on the four dimensions, but not assessed in a simple, ‘formulaic’ way



Overall rating reinforces importance of customer service

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Performance-dependent bonus, step-wise (Exhibit 5)

© 2020 – Wim A Van der Stede and Roland F Speklé

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© 2020 – Wim A Van der Stede and Roland F Speklé

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Financial • •

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Year-over-year sales growth Profitability Base-line target, reflecting stores’ specific circumstances Stretch target, (very) tight but attainable

© 2020 – Wim A Van der Stede and Roland F Speklé

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© 2020 – Wim A Van der Stede and Roland F Speklé

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Customer Service Based on (on-line) customer surveys: • • •

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Hurdle response rate (12%) Customer satisfaction scores Subjective assessment of customer feedback comments No specific targets, but a hurdle satisfaction score (4.4) on the survey to get a top score on customer service

© 2020 – Wim A Van der Stede and Roland F Speklé

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Leadership Subjective assessment based on:

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Annual 360-degree feedback Employee turnover Employee complaints

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No targets

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© 2020 – Wim A Van der Stede and Roland F Speklé

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© 2020 – Wim A Van der Stede and Roland F Speklé

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Strategy Subjective assessment of:

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Brand promotion Implementation of corporate initiatives Store managers’ initiatives?

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Again, no targets

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© 2020 – Wim A Van der Stede and Roland F Speklé

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© 2020 – Wim A Van der Stede and Roland F Speklé

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Effectiveness of the new system? 

Are the dimensions and the measures likely to elicit desirable behavior from the store managers? Do they focus on the right areas? 1. Aligned with strategy? 2. Do they match store managers’ responsibilities?

What store managers can do:

What store managers cannot do:

• •

• •

• • •

Drive sales Affect customer experience in the store Determine in-store marketing and sales promotions Determine store merchandising

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Affect store location Affect the demographics of the customer base in the area Make major investments in the store

Training and development of store employees

© 2020 – Wim A Van der Stede and Roland F Speklé

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Effectiveness of the new system? (cont.) •

Subjectivity? • At the level of (some of) the dimensions • In the way individual scores are aggregated to arrive at the overall score

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Performance hurdles in overall rating? To get an overall score of 5, one needs: • Top scores in at least 3 dimensions • No scores below 3 • Score on customer service at least 4

© 2020 – Wim A Van der Stede and Roland F Speklé

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What rating should Clark get? Some relevant facts: Clark is seen as one of the best managers, but this reputation is based on financial performance

•

•

This reputation seems to be well-deserved, though (Exhibit 6): • Gross profit Store 51: 40% (versus 35% average store) • Sales growth Store 51: 5.5% (versus 4.5% average store)

What rating should Clark get? •

Not getting a top score would cost him US$ 13,770 (Exhibit 1)

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However, “system says no …” But even apart from the bonus consequences, anything less than a top score would probably be unacceptable to Clark. Also, he wants to position himself for promotion.

© 2020 – Wim A Van der Stede and Roland F Speklé

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What rating should Clark get? Some arguments in favour of being strict: •

Fairness requires that all store managers are treated the same way

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Customer service is key to Johansen’s future and store managers do control that service and should be held accountable for it

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Making exceptions would erode the system’s credibility

© 2020 – Wim A Van der Stede and Roland F Speklé

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What rating should Clark get? Some arguments in favour of being lenient: •

Issues with the customer service metric: • Scores influenced by customer demographics? • Based on a small sample; possibly negatively biased • Can store managers influence response rates?

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How certain is Johansen’s about the model of its strategy? Is customer satisfaction really a leading indicator of financial performance?

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How could Johansen’s improve the measurement of customer service performance?

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Can it be gamed?

© 2020 – Wim A Van der Stede and Roland F Speklé

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Alternative incentive system designs that retain (some) use of subjectivity? e.g., target bonus of x% of salary – F% based on achieving financial targets – C% based on achieving customer satisfaction score target – S% subjective based on leadership and initiatives

What is X? F? C? and S?

© 2020 – Wim A Van der Stede and Roland F Speklé

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Alternative incentive system designs that retain (some) use of subjectivity? Or … ฀

Target bonus of x% of salary – F% based on achieving financial targets – S% subjective based on customer satisfaction “performance”, leadership skills, and “initiatives”

What is X? F? S?

© 2020 – Wim A Van der Stede and Roland F Speklé

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