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Balanced Scorecard Case Analysis
When Thomas Schmall became CEO of Volkswagen do Brazil (VWB) in 2007, the company was facing major market share declines and financial losses (Kaplan, R 2011). Because of the intense competition in the global market, VWB could not raise prices on products shipped and so the export margins failed to cover the company’s excess volume expenses, therefore, he needed to define a strategy to bring VWB back to life. Schmall and his team decided that the scorecard would be the means to accelerate the acceptance of the new strategy and culture. They wanted to use the scorecard to change the mindset of the company; essentially be the communicator from top all the way to the factory floor. Additionally, this tool would serve as VWB’s primary management system. The management team would assign objectives to a particular business unit and the objective owners would be responsible for seeing that the benchmarks were set, and the necessary resources were available to carry out the target goal (Kaplan, R. 2011).
Describe VWB’s new strategy
Schmall knew that change was needed and he wanted to develop a new strategy that would help to regain the leadership spot in his industry and the #1 position of producer in the South American Market. Schmall started his new strategy by focusing on his vision “build a high performance team that would drive VWB to become South American automotive industry’s leader in quality innovation, sales and profitability on a sustainable basis” (Kaplan, R 2011). VWB’s new strategy was to be multidimensional. He focused on building a strong management team that would lead the transformation. He wanted to get away from the previous strategy of reliance on cost reduction, employee layoffs, and downsizing. Together, the management team realized that they needed to focus on relationships with three major players in their business: employees, suppliers, and the dealers. With Schmall having previous experience in utilization of a Balanced Scorecard, he decided this would become the primary tool for VWB’s management system.
Step one was the creation of the strategy map that set forth the objectives that consisted of four major drivers: Financial, Customer, Internal Process, and Potential and Growth. The foundation of this map was the area of Potential and Growth. Objectives were to develop attractive and innovative product portfolio, achieve a high-performing culture, and develop sustainability as a guiding principle. The next layer was focused on the internal processes where he wanted to strive to develop a more service-oriented culture among the dealers. Additionally, he wanted to reduce cost while improving quality and delivery of the suppliers, and lastly, improve the efficiency, cost, and the flexibility of the workforce and production system (Kaplan, R 2011).
The Customer objective played on satisfying the customers’ expectations which included their dealers, the consumers, immediate customers, and ultimately the purchasers of their vehicles. Schmall and his team wanted to rebrand VWB as an innovator of high-quality vehicles. With Schmall’s executive team onboard for the strategic mission, they had reached the first milestone of the transformation program “
Act to Win.”
How does the strategy map (exhibit 4) and Balanced Scorecard (exhibit 5) help Schmall and Senn implement the new strategy? These two tools, Strategy Map and Balanced Scorecard, helped to implement the new strategy in a few ways. Overall, it helped to translate the strategy into objectives, monitor the progress, and communicate the objectives from upper management all the way to the shop floor. It was comprehensive and clear. The strategy map, with its four dimensions, clearly defines the cause and effect relations and how the intangible assets (employees) can get converted into tangible financial results. Each dimensions objectives had defined metrics associated with them to illustrate what is necessary to overcome the challenge. The Balanced Scorecard was the perfect tool to measure, monitor and define these outcomes. Along with the Balanced Scorecard was a matrix that listed each objective and with a set of actions that was assigned to the appropriate business unit that was responsible for monitoring and achieving their targets. This helped with implementation because there wasn’t any question as to who the champion would be assigned to a particular objective.
It allowed ownership, and with the CEO leading this transformation program and being supported by top management, it helped with buy-in from the employees. What are the strengths and weaknesses of the scorecard and its implementation? There is no doubt that a Balanced Scorecard is a great management tool to restructure a company’s culture and formulate an aggressive strategy. Yet, it has its weaknesses. Implementation into an existing operation is very time consuming and involves a lot of man-hours to formulate a plan so everyone understands how the tool works. Initially, when the Schmall presented “Act to Win”, to the executives, that had to go through a two day training program on the new strategy and the role of the strategy map and the scorecard which will help to execute it (Kaplan, R 2011). From there, they executive team had to create a group called Office of Strategy Management that coordinated all the work required to roll the execution program throughout the company.
Implementing the scorecard was definitely not something that was created over their morning coffee. It took a lot of time, effort, dedication, and commitment. The benefits certainly supersede the weaknesses. The Balanced Scorecard transformed VWB strategic plan from just a simple document, to a driving factor of the business. It was incorporated into everyone’s daily duties. It provided a framework with leading indicators and shined light on critical aspects of VWB’s business. Whether it was financial or non-financial, it served as the primary measurement tool that validated the results and provided long-term consistency to VWB’s objectives.
When Thomas Schmall began as president in 2007, VWB was facing many challenges. They were haunted by several years of market share decline and financial losses. Schmall knew he needed to formulate a strategy to reverse this trend. Schmall and his executive team decided that the scorecard would be the means to accelerate the acceptance of the new strategy and culture. They wanted to use the scorecard as the primary management tool to change the mindset of the company; essentially be the communicative tool to guide the business from internally and externally. While they knew there would be challenges, they saw the end result being worth it. They needed all hands on deck to make this Act To Win transformation program be successfully and in order to do this, they had to create buy-in.
With the Schmall leading the transformation, and his management team on board, the employees knew something huge was about to be launched. Employee confidence started to be restored because of the constant communication, and the annual result-sharing payment that was equally distributed among non-executives; that was a major motivating factor. Overall, the Balanced Scorecard and Strategy Map changed the company’s strategy and culture immensely and brought VWB back as the leaders in their industry.
Kaplan, Robert S. “Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard (TN).” Harvard Business School Teaching Note 111-143, June 2011. (Revised June 2011.)
“The Balanced Scorecard and Strategy Maps.” Euler Partners RSS. N.p., n.d. Web. 30 Oct. 2014. http://www.eulerpartners.com/balanced-scorecard-and-strategy-maps/