Implementation of balanced scorecard at Qantas group
This report provides a brief description of the balanced scorecard and its components. It provides calculation of return on investment for Qantas Group for the year 2019 and the ways in which ROI can be improved. It also covers the ways in which implementation of balanced scorecard system would help the Qantas group to improve its competitive advantage. The reports provide a conclusion about the overall suitability of balanced scorecard for Qantas Group.
This report focuses on the balanced scorecard and explores possibility of use of this tool by Qantas Group, the biggest airline company of Australia to achieve its strategic goals. A balanced scorecard is a management tool that splits the strategic vision of the organization into various steps and actions that are to be taken so as to achieve their goals and it is one of the most popular performance management tools. This report provides a brief overview about Qantas Group, calculation its ROI, description about balanced scorecard and its components and would suggest ways in which the implementation to BSC would help Qantas Group to gain competitive advantage.
Qantas Airways Limited is the largest Airlines Company of Australia. The company is involved in operation of both domestic and international airlines. It is also involved in the provision of air transport services, freight services and frequent flyer program. The company was founded in the year 1920 and it started operating international flights in the year 1935 (Qantas.com n.d.). The headquarters of the company are located in Mascot which falls in the state of New Southern Wales. Some of the popular segments of this company are Qantas Domestic, Jetstar Group, Qantas Loyalty, Qantas International and Corporate. Qantas Domestic, Qantas International and Jetstar Group are involved in operation of flights for passengers while the Qantas Loyalty is involved in organizing programs for recognizing loyalty of customers (Reuters n.d). The company has more than 29000 employees and mainly operates in Australia, Asia and New Zealand while has certain limited operations in UK and United States of America (IBIS World n.d.). The company owns total 314 aircrafts which includes 6 aircrafts which are dedicated for freight services to national as well as international locations (Reuters n.d).
At present, the company is lead by Mr. Alan Joyce as its Chief Executive Officer and managing Director. He was appointed as the CEO in year 2008 and has held experience of nearly 15 years with various Airlines companies (Qantas.com n.d.). Apart from him, the group is managed by Andrew Finch as its General Counsel and Vanessa Hudson as its Chief Financial Officer.
The return on investment is a measure that is used to find out the efficiency of an investment in terms of the return that will be generated on the investment. The main purpose for which any investment is made is to earn profits or return on that investment, so investors are always interest to know what is the return that is generated by various investments made by the so as to be able to know that which investment offers the best return (CFI 2017). Investors use the return on investment ratio as a tool to compare the profitability of various investments held by them (Edmunds n.d.). As the return on investment is stated in the form of percentage it is really useful in evaluating a particular investment or in comparison of different investments. It is used to find out the benefit that will be earned by an investor on the cost of the investment made by them. A higher return on investment ratio shows that the investment is profitable and it tells an investor whether or not it was worth investing into the company.
The formula for calculation of return on investment is given below:
Return on Investment = Net Profit/ Total Assets*100%
The net profit of the Qantas Group as taken from its Annual Report of the year 2019 is $ 891 million (Qantas n.d. b).
The average total assets of the Qantas Group (Based on total assets of year 2018 and 2019) is equal to $19012 million (Qantas n.d.b).
By using the above formula for calculation of return on investment, the return on investment of Qantas group for the year 2019 is 4.69 percent. The return on investment ratio of the group is quite low which shows that the company is not able to generate a good return on its investments.
The most common reason for low return on investment of a company is that the profits earned by it quite as compared to the cost of its investment. The revenue generated by the business is one of the important factors which affect the profits generated by the company. If the revenues generated by a company are declining, it would automatically lead to a fall in the profits generated by the company and will cause its Return on investment to go down (Edmunds n.d.). One of most effective ways to increase the return on investment is to adopt certain strategies so as to bring a significant improvement in the sales revenue of the company (Luckham 1982). Sales revenue can be increased either by increasing the selling prices or achieving a major boost in the quantity or volume of products or services sold by the company. A company should revise its pricing strategy as well as adopt various sales promotion techniques to increase the total sales revenue for the company.
A company should try to bring down its both direct and indirect costs so as to achieve an improvement in its return on investment. A decrease in the direct and indirect costs would ultimately lead to an increase in the net profit of the company (Luckham 1982). As a result with higher net profits, the return on investment generated by the company will increase.
Another important way for a company to achieve an improvement in its return on investment is by increasing its sales generated with its existing assets or by achieving the same level of sales with lesser assets. At times companies own too many assets which are quite expensive or have excess inventory or outstanding debtor’s balances. Companies should take effort to properly manage its inventories and accounts receivables so that working capital of the business are not blocked in these and they do not unnecessarily increase the amount of total assets which causes a decline in return o investment of the company (Luckham 1982). Hence, a company must properly manage its assets and get rid of those assets which are not able to generate desired level of sales revenue for the business.
A Balanced Scorecard is a tool used by the management of an organization to get a quick but detailed view of the business. A balanced scorecard includes both financial as well as non-financial measures for evaluating the performance of the business (BC Campus n.d.). In the past, companies measures their performance only in terms of the financial gains made by them, however it was later realized by them that just focusing on financial measures is not enough. There are certain important non-financial measures which must be taken into consideration in order to get a complete overview of the performance of the business organization. As the name itself suggests, a balanced scorecard provides a view of the financial measures as well as the important strategic and non-financial measures so as to provide a more “balanced” overview of the overall performance of the organization (Kaplan, Norton 1992).
A balanced scorecard is made up of 4 major components which are used to measure the performance of the business. Every component of the balanced scorecard provides a view of different side of the business organization such that management can have a look at the balanced or complete view of the organization.
Components of a balanced scorecard
Learning and Growth
This component of the balanced scorecard focuses on the corporate culture that prevails at the business organization. At present, the current business environment involves a tough competition within the nation and also from businesses that exists in other nations of the world. In order to be able to deal with the tough competition that prevails in the market, a business must make regular improvements to its current products and processes and must be capable of driving innovation so as to be able to launch new products which have additional features and utility in comparison to products offered by competitors. If an organization is able to use innovation and drive improvement in its processes, it will add value to the company (Moore n.d.).
This component of the balanced scorecard focuses on the aspect of customer satisfaction achieved by the business. As no business could survive without its customers, it is quite important for a company to evaluate how well it is doing in relation to its clients or customers. There is no doubt that every business organizations aims at providing the highest level of satisfaction and win the loyalty of customers. It is important for the top management of the company to know how it is performing in relation to the customer service and customer satisfaction. The balanced scorecard measures how the company has performed in terms of customer service and how the company is looked at in the industry as compared to its competitors. Some of the variables which are used to measure this are – number of repeat customers, number of new customers, ranking of the company in the industry and market share of the products offered by the company (Balancedscorecards.com n.d.).
Internal Business processes
This component of the balanced score card looks at the capability of the organization to run its processes and business activities in a smooth manner. The balanced score measures the efficiency of the business in carrying out its operations. It focuses on factors like reduction of waste, reduction in time take by various processes and optimum utilization of all the resources owned by the company. The internal business processes of any business are also an important aspect that must be considered by the company in measuring its performance. It is important to achieve customer satisfaction and high quality of customer service but this can achieved only when this is converted in the form of actions that must be taken by the company internally so as to fulfill the expectations of its customers. The internal factors that must be considered in the balanced scorecard comprised of those factors which can affect the level of customer satisfaction such as quality of products and/or services offered to the customers, skills and expertise of staff, level of productivity attained by the company, process cycle, and inefficiencies existing in current processes (Balancedscorecards.com n.d.). A business organization must try to identify its core competencies and measure them from time to time.
This component of the Balanced Scorecard looks at the financial performance of the business. The most important financial objectives of any business organization are – profitability, growth and maximization of wealth of shareholders. This component of balanced scorecard consists of most the indicators that were used traditionally for evaluating the performance of any company. The various financial metrics that are included in the balanced scorecard would depend upon the type of the company and the nature of its operations. Financial performance can be measured by looking at various financial indicators such as increase in sales revenue, increase in operating income, positive cash flows, return on equity etc (Kaplan, Norton 1992). Some other type of financial metrics include earnings per share, inventory turnover ratio, return on investment, asset turnover ratio etc. The financial metrics that are included in the balanced scorecard must be able to cover those metrics which could have an impact on the decisions taken by management.
The industry in which Qantas Group operates is the airline industry which is characterized by large investments in infrastructure and a large number of employees. Owing to these reasons, the airline companies are required to incur significant fixed costs. Apart from these huge fixed costs, they operate in an extremely competitive environment and are required to respond immediately to market demands so as to be able to survive in the market (Erdogan, Kaya 2014). Hence, it is quite important for airline companies to manage their performance and use appropriate tools to measure their present as well as future performance. Balanced scorecard is one such useful tool which can help the Qantas Group to successfully implement its business strategy as it allows a company to analyze its performance from four different aspects (Belay 2017). The implementation of balanced would enable the Qantas Group to improve its competitive advantage in a number of ways as described below:
The services provided by any airline company involves various steps starting from reservation of the passenger , check in and check out at the airport, and ends with departure from airport. A Balanced scorecard would allow a big Airline company like Qantas Group to look at those areas which are prone to issues and problems (Erdogan, Kaya 2014). A balanced scorecard provides information about various indicators such as number of customers, rate of complaints made by customers, efficiency of check in service, the quality of cabin services, the quality of food and beverages provided during the flight etc. which allows the airline company to improve these areas and increase the level of satisfaction attained by its customers (Erdogan, Kaya 2014).
A balanced scorecard can help the Qantas group to improve its financial performance in the long run. Most of the performance management tools that are used by organizations tell about short term performance of the business however, the balanced scorecard is different from other tools. A balanced scorecard provides information about the long term financial performance of the business. It provides information about some indicators that are specific to the airlines industry such as revenue passenger kilometers, revenue per workload unit, cost per available kilometers etc. which are very useful for understanding the actual financial performance of an airline company which cannot be understood and evaluated properly by using the traditional indicators financial performance such as earnings per share, price earnings ratio, net profit ratio, debt to equity ratio etc. (Erdogan, Kaya 2014).
The implantation of balanced scorecard by Qantas Group would help it to drive some major improvements in its internal business processes. The main operation processes for Qantas Airlines are ground services, passenger services, predefined planning and maintenance, etc. which are related to operation of flights carried on by it (Erdogan, Kaya 2014) . In order for smooth and time provision of flight service provided by Qantas all the processes must be carried out in a smooth and efficient manner. If each operational department at Qantas Group implements their own balanced scorecard, it would enable the company to assess the performance of its internal processes. This will enable the Qantas group to know the real state of its internal processes and it could identify those processes where major process improvements are required. The company can also use the balanced scorecard to assess the efficiency and effectiveness of services provided by third party providers and subcontractors (Erdogan, Kaya 2014). The airline companies employ the services contractors and subcontractors for certain services such as management of airport terminal and ground services. It is important for the airline company to assess the performance of the services that carried out by the subcontractors because if anything goes wrong with those services, the airline company will only be answerable to the passengers (Erdogan, Kaya 2014). If Qantas group would implement the balanced scorecard to its different operational processes it would be able to check the quality of services provided by its subcontractors.
The implementation of balanced scorecard would enable the Qantas group to keep itself updated about technological advancements that take place in the market, human resources and airline co operations. There exists a strong completion between various companies that operate in the Airlines industry and if one company introduces a new innovative service, it is imitated by other companies within no time (Erdogan, Kaya 2014). Therefore, in order to beat the competition, Qantas group would require differentiating itself from its competitors. This can be achieved by ensuring that it has staff which is better skilled and trained and are capable of providing better quality services. By using a balanced score card, the company could get information about some of the most important human resource performance indicators which are manager/pilot ratio, the number of permanent employees held by the business, satisfaction of employees etc (Erdogan, Kaya 2014). As the Qantas group be able to appropriately measure its human resource performance this will enable them to take the required actions to put in place better trained personnel who will enable it to drive innovation and product differentiation.
On the basis of above discussions and explanations, it can be concluded that a balanced scorecard is a really effective to have a “balanced” and complete picture of the performance of the business as it covers both financial as well as non-financial indicators. A balanced score card could prove a really effective performance management tool for any company operating in the airlines industry as it would enable it to assess its performance from various aspects. It is highly suitable for organizations like Qantas to implement balance scorecard as due to the nature of its operations and the industry in which it operates, there is a strong need for a multidimensional performance management system like balance scorecard which would help them to decide their key performance indicators which would ultimately enable them to gain a competitive advantage and achieve its strategic goals.
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