Balanced Scorecard Tensions at Harlow Retail
Harlow Retail operates 40 stores. The board has introduced a balanced scorecard with four perspectives and set divisional manager bonuses primarily on the financial perspective. Current metrics: return on capital employed 14% (target 15%); like-for-like sales growth 2% (target 4%); customer satisfaction 78% (target 85%); employee turnover 32% (target 20%); average checkout queue 6 minutes (target 3); online order fulfilment accuracy 91% (target 98%); percentage of staff trained in new systems 40% (target 90%). Store managers report they are cutting training hours and delaying system upgrades to protect short-term profit, and customer complaints about queues have risen. One director argues the scorecard is 'working' because ROCE is close to target; another says it is failing.
1. Evaluate whether the scorecard is functioning as intended, applying the cause-and-effect logic of the balanced scorecard.
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It is not functioning as intended. A balanced scorecard relies on cause-and-effect linkages: learning & growth (training, turnover) → internal process (queue times, fulfilment accuracy) → customer (satisfaction) → financial (ROCE, sales growth).
Here the leading indicators are deteriorating precisely because the bonus is tied mainly to the lagging financial measure. Training at 40% vs 90% and turnover at 32% vs 20% are early-warning signals that will feed through to worse queue times (6 vs 3 mins), lower satisfaction (78% vs 85%) and eventually weaker ROCE. The 'close to target' ROCE is a lagging result that reflects past investment, not current health - it will likely fall next period.
The director calling it 'working' is reading a single lagging metric and ignoring the leading indicators. The scorecard's diagnostic value is being undermined by the reward system, which encourages exactly the short-termism the scorecard was meant to cure.
2. Recommend how the reward system and targets should be redesigned, and discuss one limitation of the balanced scorecard in this context.
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Redesign:
- Weight bonuses across all four perspectives, not predominantly financial - e.g. 40% financial, 25% customer, 20% internal process, 15% learning & growth - so managers cannot gain by sacrificing leading measures.
- Use a scorecard of linked targets with gates: no financial bonus if training falls below a floor or satisfaction below a threshold.
- Set targets realistically (85% satisfaction, 20% turnover) and review quarterly so deterioration in leading indicators triggers intervention before financial results suffer.
- Remove incentives to defer system upgrades by treating them as committed spend outside the manager's controllable cost base.
Limitation: the balanced scorecard gives no guidance on weighting or trade-offs between perspectives, and cause-and-effect links are assumed rather than proven. In a retail chain, some metrics (satisfaction, turnover) are noisy and partly outside a store manager's control (local labour market, catchment demographics), risking unfair blame. It is also costly to administer across 40 stores and can become a box-ticking exercise if measures are not genuinely linked to strategy.