Testing Strategy with Multiple

Performance Measures
Evidence from a Balanced
Scorecard at Store24
Presented By
BRIJESH SEHGAL J.K.YADAV SAJISEBASTIAN
VIJAY KUMAR SANJEEV KUMAR SANJAY KUMAR
S.P. SINGH

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 Agenda
• Introduction
• Objective
• Process
• Analysis
• Results
• Conclusion
• References/Credentials
• Q&A
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 Introduction

What the study is about?

Who did the study?

Why ?
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 What the study is about?
Store24, a privately held convenience store retailer in New England, the 4th largest in the region.
Whose primary product categories include cigarettes, beverages, snacks, prepared foods, and lottery
tickets. It operates in a mature environment with competition from convenience stores, gasoline
retailers, and drug stores. During FYs 1998 and 1999, Store24 formulated a strategy aimed at
increasing sales and margins. To achieve this, Store24 changed its strategy to creating
entertaining in-store atmospheres that would differentiate its stores from those of competitors. To
implement the same Store24 used BSC & Strategy Map, but the strategy was unsuccessful .

This study is a follow up research to analyze the failure of above strategy focusing on following
points:

 investigate the role of the balanced scorecard in generating useful information for testing and validating
an organization's strategy.

 Testing and validation of assumption underlying BSC.

 Finding the gap through statistical tests of the hypotheses underlying the firm's balanced scorecard and
strategy map

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 Who did the study?
Name Designation/Organisation Paper Publish
Dennis Campbell associate professor in the Accounting and
Management unit at Harvard Business School
Srikant M. Datar Arthur Lowes Dickinson Professor of
Accounting at Harvard Business School
V.G. Narayanan the Thomas D. Casserly, Jr. Professor of
Business Administration at Harvard Business
School
Susan L. Kulp Assistant Professor of Accountancy “Organizational Control Mechanisms: The Next
Phase of Procurement Efficiency," Interfaces, May-
June 2006

“Manufacturer Benefits from Information Integration

with Retail Customers," Management Science, April
2004

“Supply-Chain Coordination: How Companies

Leverage Information Flows to Generate Value," The
Practice of Supply Chain Management: Where
Theory and Application Converge, 2003

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 Why?
 Understand to what extent do balanced
scorecards (BSC) provide useful information
for testing and validating an organization's
strategy?

 Understanding the role of balance scorecard in

the potential learning and feedback

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 Objectives
• to explore whether, when, and how information about
problems with strategy of Store24 was captured in Store24’s
balanced scorecard.

• Find evidence that performance measurement of BSC

provide useful and timely information for testing the efficacy
of an organization's strategy.

• To stimulate new theories about the role of

multidimensional performance measurement systems in the
strategic feedback and learning processes of organizations

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 Process
 Strategy
 Balance Scorecard (BSC)
Performance Measurement
System
 Strategy Map
 Hypotheses Underlying the BSC
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 Strategy of Store24
 Traditional Strategy
 cleanliness,
 efficiency,
 freshness
 Differentiation Strategy
 Greater Loyalty
 “end-caps”- contained high margin product
 Fun & Entertainment

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 Balanced Scorecard Performance
Measurement System
Performance measures were organized around
the four traditional balanced scorecard
perspectives
– financial
– customer
– internal
– learning & growth

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 Balance Scorecard
Financial Perspective Sales Revenue
Margin
Controllable Contribution
EBIT
Customer Perspective Transaction Volume
In-store Comment Card

Process Perspective Audit Score

Learning & Growth Perspective Managerial Skill

Crew Skill

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 Learning
Learning & Growth
& Growth Internal
Internal Customer
Customer Financial
Financial
Perspective Perspective
Perspective Perspective
Perspective

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Perspective
Perspective Perspective
Balance Scorecard of Store24

12
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 Strategy Map

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 Hypotheses Underlying the BSC & Strategy
Map

Explicit

Implicit
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 Explicit Hypotheses
 H1: Ceteris Paribus strategy inputs are positively related to
financial performance.

H2: Ceteris Paribus strategy inputs are positively related to

strategy-specific customer outcomes.

H3: Ceteris Paribus strategy-specific customer outcomes are

positively related to financial performance.

H4: Ceteris Paribus measures of employee capabilities are

positively related to measures of strategy inputs.
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 Implicit Hypotheses
 H5: Ceteris Paribus the impact of increases in
strategy inputs on strategy-specific customer
outcomes is positively related to the level of
employee capabilities.

 H6: Ceteris Paribus the impact of increases in

strategy-specific customer outcomes on
financial performance is positively related to
the level of employee capabilities.
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 Summary of Hypotheses Underlying the
Scorecard and Strategy Map

Financial
Perspective Financial Performance

H3

Customer H1
Perspective Strategy-Specific Customer Outcomes

H6 H2

Internal
Perspective Strategy Input
H5

H4
Learning
& Growth Employee Capabilities
Perspective

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 Analysis
Financial Performance
Non Financial Performance
 Measure of Strategy Inputs
 Measure of Basic Operational Compliance
 Measure of Strategy –Specific Customer
Outcomes
 Employee Capability
Customers Performance Measure

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 Strategy-Specific Input Measure
125%

124%
Walk Through Audit Score

123%

122%

121%

120%

119%
Q1 FY99 Q2 FY99 Q3 FY99 Q4 FY99

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 Strategy-Specific Customer Outcome
Measure

6.2

6.1
Enjoyable Experience

6
Rating

5.9

5.8

5.7

5.6

5.5
Q1 FY99 Q2 FY99 Q3 FY99 Q4 FY99

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 RESULT

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 Result
• These results highlight that the hypothesized link in the scorecard between internal implementation of the
action plans related to the new strategy and financial performance does not exist (H1). However, it is
unclear whether the strategy was poorly formulated or poorly implemented.

• although the strategy was well implemented, the strategy formulation may have been flawed.

• suggest problems with the fit of the differentiation strategy with Store24’s employee capabilities. Crew
skills determine the magnitude of the relationship between strategy outcomes and financial performance,
but the relationship is only greater than zero for high levels of crew skills

• information in the scorecard reveals that the primary role of employee capabilities is not necessarily in
ensuring store-level execution of the strategy (e.g. H4), but rather in ensuring that even if executed well at
the local level, the differentiation strategy ultimately translated into the desired financial outcomes.
• Tables 3-5 offering evidence that formal analysis of the data generated by Store24's balanced scorecard
provides timely information about strategic problems relative to the firm's quarterly strategy review
process.
• the operating standards which Store24 executives eventually abandoned were not, while those they
retained were, drivers of financial performance.

Overall, these results provide evidence that Store24 executives learned about the underlying drivers of
store performance despite a lack of reliance on formal statistical analysis of the assumed relationships
underlying their scorecard.

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 Conclusion

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 References
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 Q&A

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