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Johansen’s: The new Scorecard System – Case Questions1. Why has Johansen's introduced the new scorecard system?They had done a study to figure out why they, even after making an initial adjustment in their performance measurement, were still facing financial difficulties. The study gave the followin...

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Johansen’s: The new Scorecard System – Case Questions 1. Why has Johansen's introduced the new scorecard system?

They had done a study to figure out why they, even after making an initial adjustment in their performance measurement, were still facing financial difficulties. The study gave the following results: - Their industry-leading position wasn’t assured anymore, because of the entrance of internet retailers. - A recently published market research that was reviewed in the study showed that a rival company’s customer service was superior to theirs. - Lastly, a data-analysis suggested that the previous focus on profitability may also have a compromising effect on the customer-service. This was a real shock to the new leadership team, because having a superior customer service has always been the key value proposition of Johansen’s. Putting the customers first was what had made Johansen’s brand to what it is today. The previous performance measurement, where the focus was more on the financial metrics, was based on the assumption that manager would have known that customer service was at the heart of the company. The study showed something different, which made the leadership team determined to restore its position as leader in customer service, while at the same time improving their financial performance. That’s the reason they introduced the new scorecard system.

2. What is the company's strategy? What are the key success factors for successfully implementing that strategy? Describe the organizational structure in place at the company.

Johansen’s is a large high-end department store. Its reputation is built on providing a high level of customer service. The company implemented this core value into its strategy to maintain its position as the premier high-end retailer. One of the key success factors for implementing a strategy that focusses on customer services is making customer satisfaction the main goal. Other key factors are setting goals for customer service, knowing the customer touchpoints, empowering your employees in achieving greater customer satisfaction and having a consistent customer feedback loop. That basically what Johansen’s did by implementing this new scorecard. It already believes in empowering its employees, the store managers already had a great deal of autonomy and control over their store, they affect the in-store customer experience and they have fairly consistent customer feedback loop . By implementing the new scorecard they now also have targets for customer service and made customer satisfaction their main goal (again). Johansen’s has 121 stores across 32 states. It has divided its stores into five regions: Northeast, Southeast, Midwest, Southwest, and Northwest. Each region has a regional manager who oversees all the store managers in that region.

Johansen’s

Corporate Finance department

Northeast

Southeast

Midwest

HR

Southwest

Northwest

Region manager

Store 51

Store manager

Employees

Other stores

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3. Consider each of the four perspectives of Johansen's new scorecard system. Why are they included? How are they measured?

The new scorecard system was developed as a new performance measurement and incentive system. This scorecard system allows store managers to be assessed across four categories: Financial: This one is included to continue Johansen’s trend of the improved financial performance. Store managers will be rated among three key financial metrics: same-store sales growth, gross margin and net income. Regional manager set baseline targets, based on each store’s unique demographics, which lead to a “meets expectations” rating if met. On top of that, a stretch target is set, which leads to a “exceeds expectations” rating if met. Customer service: this is the main reason the new scorecard system is implemented. As customer service had always Johansen’s key value proposition, they are determined to restore its position as the premier customer service provided in the industry. Store managers get rated for customer service through customer surveys. These surveys are collected by online surveys. All the overall survey scores for an individual store were then averaged to get a customer satisfaction score at the store level. For this category, store managers are evaluated quantitatively and qualitatively. First, the regional manager considers the store’s survey response rate. Managers whose stores achieved less than a 12% response rate could earn a maximum of a “meets expectations” rating in the customer service category, even if the feedback was positive. This constructure of a minimum response rate was implemented in order to maintain a representative sample size. Second, the regional manager considered the average customer satisfaction score for the store. To get a 5 rating in customer service, store managers need to get an average customer satisfaction score of 4.4 or higher. Leadership: They believed in 360-degree feedback. The rating of this category is measured through HR insights. The regional manager receives information from HR such as turnover and employee complaints. All these factors are weighed and are part of the overall rating in this category. Strategy: this category is included in order to achieve cohesiveness and alignment throughout the company. Store managers are subjectively evaluated by the regional manager on promotion of the Johansen’s brand and branded merchandise, but also the implementation of various corporate initiatives. After assigning a rating for each of the four dimensions, the regional manager gives the store manager an overall rating, also on a 1-to-5 scale.

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4. What rating do you advocate awarding Clark? What are the key arguments you use to support that rating?

We want to start by stating that it’s very important to take all parties into consideration that could be affected by this decision. The most obvious, and main party, is of course Clark himself. But the regional manager will also have to justify her decision towards the managers that are attending the summit and even towards other store managers that did manage to ‘earn’ their overall 5 according to the formal rules of the scorecard. We think that it could be advocated to give Clark an overall score of 5. The following arguments could be used to support this rating: - He received at least a 3 in all four categories, and he also received a 5 in three of the four categories. Even though he didn’t meet the ‘hard’ requirement of a 4 or higher for customer service, the regional manager could argue from her subjective assessment to give him an overall 5 as he has been improving his Customer Satisfaction Score (CSS hereafter) progressively from the first to the fourth quarter (to a higher CSS than the previous year company-wide average of 3.6). - On top of that, his store has the highest sales in the region and sixth highest in the US. It could be argued to which extent the CSS is giving a fair and true visualization of the actual customer satisfaction. As is also mentioned in the case: it will be the dissatisfied customer that will shout the loudest, while the satisfied ones will just buy their stuff and keep silent. Wouldn’t the returning customers be a good measurement of how satisfied the overall customers are of store 51(almost three times as much sales and gross profit than the average store)? It could be advocated in the least. - He has also has a very good reputation among one of the managers at the summit who saw Clark as a ‘real star’ within the company and thinks that the company needs more managers like him. - Loyalty: as is stated in the case, Clark had the opportunity to accept an attractive offer, but instead chose to stay with the company. Some of the reasons were that he loved the culture and positive encouragement within the company. We think that looking at his previous record and all of the above mentioned, it would be a sign of ‘good will’ and positive encouragement to (at least) give him this year as transition period (since he has showed improvement during the year which, if continued, would definitely lead to him meeting the stated targets). After all, that’s what managers are also needed for: bringing a human touch to a formal performance system. We also think that this could be a reason for Clark to leave the company and go to one of the competitors. Overall, this is how we think an overall score of 5 could be advocated for Clark. We are aware of the counterarguments that could be given such as: - (Superior) Customer service is what has made this company a success. So if there is one point that we should absolutely not neglect, than it’s the customer service aspect of the scorecard. - The very low response rate and therefore not matching the predefined targets.

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What is the message that we are sending to all the other store managers? That we do not value customer service as much as we have stated when introducing the Scorecard?

The corporate HR manager and the Corporate Customer Experience manager will be very hard to convince as they are fully supportive of this new way of performance measurement. They will definitely use some of the above mentioned points, but in our opinion this could go both ways.

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