Harvard Case - Johansen's: The New Scorecard System
"Johansen's: The New Scorecard System" Harvard business case study is written by Luann J. Lynch, Jennifer Forman, Graham Gillam. It deals with the challenges in the field of Accounting. The case study is 15 page(s) long and it was first published on : Mar 17, 2016
At Fern Fort University, we recommend Johansen's implement a revised scorecard system that incorporates both financial and non-financial performance indicators, aligned with their strategic goals. This system should leverage activity-based costing (ABC) to provide a more accurate representation of costs and profitability, fostering better decision-making and resource allocation.
2. Background
Johansen's, a family-owned manufacturer of high-quality wood products, faces a critical juncture. Their current scorecard system, solely focused on financial metrics, fails to capture the complexities of their business and its evolving landscape. The company is experiencing declining profitability, struggling to compete with lower-cost imports, and facing pressure to improve environmental sustainability.
The main protagonists are CEO, John Johansen, and his son, Peter, who represents the next generation of leadership. John is committed to traditional values and financial performance, while Peter advocates for a more strategic and forward-looking approach, recognizing the importance of non-financial factors.
3. Analysis of the Case Study
Strategic Analysis:
- Competitive Advantage: Johansen's has a strong reputation for quality and craftsmanship, but this is challenged by lower-priced imports.
- Strategic Goals: The company needs to maintain profitability, improve efficiency, expand into new markets, and enhance environmental sustainability.
- Industry Dynamics: The wood products industry is facing increasing competition, price pressure, and evolving consumer preferences.
Financial Analysis:
- Profitability Decline: The company's profitability is declining due to rising costs, price competition, and inefficient resource allocation.
- Financial Statements: Johansen's needs to improve the accuracy and granularity of its financial statements to better understand cost drivers and profitability.
- Cash Flow: The company needs to improve its cash flow management to ensure financial stability and support growth initiatives.
Operational Analysis:
- Manufacturing Processes: Johansen's needs to optimize its manufacturing processes to reduce costs and improve efficiency.
- Cost Accounting: The current cost accounting system is outdated and does not accurately reflect the true costs of production.
- Employee Incentives: The company needs to align employee incentives with strategic goals and foster a culture of continuous improvement.
Framework:
This case study can be analyzed through the lens of the Balanced Scorecard framework, which incorporates four key perspectives:
- Financial: Measures financial performance, such as profitability, return on investment, and cash flow.
- Customer: Measures customer satisfaction, market share, and brand loyalty.
- Internal Processes: Measures operational efficiency, product quality, and innovation.
- Learning & Growth: Measures employee skills, knowledge, and innovation capabilities.
4. Recommendations
- Implement a Balanced Scorecard System: Develop a comprehensive scorecard system that incorporates both financial and non-financial metrics, aligned with the company's strategic goals. This system should include key performance indicators (KPIs) across the four perspectives of the Balanced Scorecard framework.
- Transition to Activity-Based Costing (ABC): Implement ABC to improve the accuracy of cost allocation and provide a more detailed understanding of cost drivers. This will help identify areas for cost reduction and improve profitability.
- Improve Financial Reporting: Enhance the company's financial reporting system to provide more granular information on costs, profitability, and cash flow. This will enable better decision-making and resource allocation.
- Develop a Strategic Growth Plan: Develop a strategic growth plan that outlines the company's vision, mission, and objectives, including expansion into new markets, product diversification, and innovation initiatives.
- Enhance Environmental Sustainability: Implement initiatives to improve environmental sustainability, such as reducing waste, using sustainable materials, and minimizing energy consumption. This will enhance the company's reputation and attract environmentally conscious consumers.
- Align Employee Incentives: Align employee incentives with the company's strategic goals, including profitability, customer satisfaction, and environmental sustainability. This will motivate employees to contribute to the company's success.
5. Basis of Recommendations
These recommendations consider the following:
- Core Competencies: Johansen's core competencies lie in its craftsmanship, quality, and customer service. The recommendations aim to leverage these strengths while addressing the challenges of cost competitiveness and sustainability.
- External Customers: The recommendations focus on meeting customer needs for quality, affordability, and environmental responsibility.
- Competitors: The recommendations address the competitive landscape by improving efficiency, cost structure, and innovation.
- Attractiveness: The recommendations are expected to improve profitability, enhance cash flow, and drive growth, making Johansen's more attractive to investors and customers.
Assumptions:
- The company has the resources and commitment to implement the recommended changes.
- The market for high-quality wood products remains viable, despite competition from imports.
- Consumers are increasingly willing to pay a premium for sustainable and ethically sourced products.
6. Conclusion
By implementing a revised scorecard system, leveraging ABC, and adopting a more strategic approach, Johansen's can achieve sustainable growth, improve profitability, and maintain its competitive edge in the evolving wood products market. This will require a commitment to change management, collaboration across departments, and a focus on continuous improvement.
7. Discussion
Alternatives:
- Status Quo: Continuing with the current scorecard system and operational practices would likely lead to further decline in profitability and market share.
- Merger or Acquisition: Merging with or acquiring another company could provide access to new markets, resources, and technologies. However, this carries significant risks and requires careful consideration.
Risks and Key Assumptions:
- Implementation Challenges: Implementing the recommended changes requires significant effort, resources, and commitment from all stakeholders.
- Market Volatility: The wood products industry is subject to fluctuations in demand, raw material prices, and competitive pressures.
- Employee Resistance: Changing the scorecard system and implementing new operational practices may encounter resistance from employees.
8. Next Steps
- Form a Task Force: Establish a cross-functional task force to develop and implement the revised scorecard system and ABC framework.
- Pilot Implementation: Pilot the new scorecard system in a specific department or product line to test its effectiveness and gather feedback.
- Communication and Training: Communicate the rationale for the changes to all employees and provide training on the new scorecard system and ABC methodology.
- Monitor and Evaluate: Regularly monitor the performance of the new scorecard system and make adjustments as needed.
By taking these steps, Johansen's can successfully transition to a more strategic and data-driven approach, positioning itself for long-term success in the evolving wood products industry.
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Case Description
Johansen's has just completed its first year under a new scorecard system for evaluation of manager performance. The manager of Store 51 has traditionally been one of the company's top-performing managers from a financial standpoint, but his overall performance rating has declined due to performance in nonfinancial dimensions. The managers at the performance summit must discuss his performance in the context of a new performance evaluation system, measurement issues around the nonfinancial metrics, and retention concerns. An alternative version of this case, (UVA-C-2349) takes a less conventional role-play pedagogical approach to the same material.
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