Background Of Companies Standard Sofa Industries Accounting Essay

Category: Accounting

Many companies had previously built their objectives around financial targets and goals of little relevance to a long-term strategic vision, thus typically leaving a gap between strategy development and implementation. Therefore, the concept of the balanced scorecard has achieved increasing popularity in the business world. There are many companies have introduced balanced scorecard approach to track progress and manage the implementation of their strategies. The balanced scorecard interprets an organization's mission and strategy into a set of performance measures that provides the framework for implementing its strategy. It is great help used as performance measurement framework that balanced strategic non-financial performance measures and traditional financial metrics in the view of organizational performance. http://thebalancedscorecard.com/what_is_bsc.htm It reduces the emphasis of manager on short-run financial performance.

The Balanced Scorecard evaluates a company's activity in four different perspectives: (a) Financial perspective (b) Customer perspective (c) Internal business process perspective (d) Learning and growth perspective. The balanced scorecard is a management system that enables organizations to clarify their vision and strategy and interpret them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. https://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx

The Balanced Scorecard is widespread in the business world. By doing this assignment, we are going to observe the implementation of balance scorecard within the Small and Medium Enterprises (SMEs) in our country. How many of them are really using it in their operations and how do it benefits them?

Background of companies

Standard Sofa Industries Sdn. Bhd. :

Standard Sofa Industries Sdn. Bhd. was founded by Mr. C.G. Yuen. According to SME Corporation Malaysia, it is a small enterprise which states that the annual sales turnover of company is less than RM10 million and there are less than 50 full time employees. It was established in 1989 with humble beginning making upholstery furniture for domestic market. In 1998, they grew and expended their business to international market level through local partnership. Since then, they had switched their target market from local to international and become an export oriented manufacturer. They export their upholstery furniture to worldwide, including Australia & New Zealand, UK & Europe, South Africa, South Korea and other countries in South-East Asia, North-west Africa and North America. In the year 2010, SAMSON®, their in-house brand name was officially launched.

With more than 20 years experience in furniture industry and 15 years in export business, they do believe strongly in their business principals to provide Quality, Service, Delivery and Competitive Prices to their valued customers all the time. Today, their product range consists of fine recliners, full motions, stationary, modular, home theatre, designer chairs, sofa bed and other accessories.

Perunding NFL Sdn. Bhd.

Perunding NFL Sdn. Bhd. is a Chartered Quantity Surveyors Company (member of Royal Institution of Chartered Surveyors,UK) established way back in 1972 as Juruukur Bahan Berakan. The company was subsequently reincorporated as an unlimited company under the name of Nik Farid Dan Loh Sdn. Bhd. in 1976. To move in line with the prevailing market and planned business development, the company was restructured and renamed as Perunding NFL Sdn. Bhd. (PNFL) in December 1994.

Their services include Quantity Surveying/Cost Consultancy services (core services of Quantity Surveying) as well as Project Management, Facilities Management, Value Engineering, Technical Audit and Contractual Advice. It is a small enterprise based on their annual sales turnover which is lower than RM10million even though their full employees are more than 50 persons. PNFL has experience in various types of construction works and has been a recognized name in the Malaysia construction industry for decades. The experience and technical know-how of PNFL Project Team plays a major role to provide the requisite services with the standard and professionalism required to meet the ever-increasing demands of their clients.

Mary Song & Associates is a non-listed legal firm for almost 15 years in Kuala Lumpur. The company is a micro enterprise based on their annual sales turnover which is below RM250,000 and it employs less than 5 full time employees. As a small organization, the company is still using manual system for the data processing system. They have lack of the knowledge and information to computerize their daily works.

ICL Associates Sdn. Bhd. is a consultancy company in Kuala Lumpur. It was established in the year of 1982. According to the definition of SMEs Malaysia, as a company in service industry, it is a medium enterprise due to the sales turnover of company is more than RM250,000 but less than RM10 million. They also employ more than 20 full time employees. However, the computer is still mainly using manual system for the data processing systems.

Findings

Company

Industry

Position of Respondent

C1

Standard Sofa Industries Sdn. Bhd.

Manufacturing

Senior accountant

C2

Perunding NFL Sdn. Bhd.

Construction

Financial manager

C3

Mary Song & Associates

Legal firm

Lawyer

C4

ICL Associates Sdn. Bhd.

Construction

Project manager

The questions are separated in 4 sections, Part A, B, C and D. The questions of Part A ask about the specific purposes served by performance evaluation, adoption of marketing strategy and level of performance evaluation within the company.

For the C3 and C4, they are using decision making for the specific purposes served by performance evaluation. However, C1 is using controlling strategy and C2 is using both planning and controlling strategy.

Besides that, C1 and C2 are using differentiation strategy as an adoption of marketing strategy. C4 is using cost leadership strategy and C3 is using focus strategy.

For the question asking about the levels of performance evaluation, most of the companies are using company level just like C3 and C4. However, as a manufacturer, C1 is using activity level to evaluate the level of performance. The construction company, C2 is using both company level and activity level.

In Part B, a multi-line matrix question was developed based on the simplified coded data (0 to 4) identified from the transcripts. The respondents were asked for the usage of performance evaluation measures. This section is also mainly to know the extent of adoption of balanced scorecard within SMEs in our country.

Table 1 shows the results of these questions. we asked respondents to say to what extent they are using or not using with the performance evaluation measures on a Rating-scale of 0 (Never use) to 4 (Very often). Responses are summarised and analysed in Table 1.

As shown in Table 1, in total of 92% of the respondents are using performance evaluation measurement in their companies, and there is in total of 8% of the respondents do not use performance evaluation measurement. However, 49% of the extent of measurements was used by those companies instead of 43%. It is showed that SMEs in Malaysia seldom use these measurements to assess their companies performance. There are 3 companies do not use and do not know about balance scorecard. There is only 1 company rarely using balance scorecard in evaluation. Those respondents said that they do not know about balance scorecard and never implement because they do not have the relevant knowledge. According to the respondents, larger companies may implement it but as SMEs do not have enough resources.

Table 1

Performance evaluation measures

Rating Scale

n

0

1

2

3

4

Balanced scorecard

4

3

1

Budget variance analysis

4

1

2

1

Controllable profit

4

1

2

1

Divisional profit

4

1

2

1

Return on investment

4

1

1

2

Residual income

4

2

2

Economic value added

4

1

2

1

Cash flow

4

2

1

1

Market share

4

1

2

1

Non-financial/qualitative measures

4

1

3

Production processes

4

1

3

Team performance

4

2

1

1

Employee attitudes

4

1

2

1

Ongoing supplier evaluations

4

1

2

1

Customer satisfaction surveys

4

1

1

1

1

5 (8%)

29 (49%)

26 (43%)

n=number of responses

Rating scale:

0=never 1=rarely 2= sometimes 3=often 4=very often

Next, we specified the questions about the details in usage of balance scorecard. The results were showed in the following tables.

The Table 2 shows that even though the respondents do not know and do not use balance scorecard, they still implement some of the measurement in balance scorecard without knowing it. With 89% of the respondents are using the financial perspective of balance scorecard and 11% of the respondents do not using it. 61% of the respondents are seldom using financial perspective in balance scorecard if compare to 28% of the respondents who are using it more often. As a result, the companies are not aware in using the financial perspective of balance scorecard but they do not use it often. 3 respondents said they have often used Return on Investment in evaluation, while 1 respondent said it use it very often.

Table 2

Balanced scorecard

-financial perspective

Rating Scale

n

0

1

2

3

4

% of revenues from new products

4

2

1

1

% of revenues from new customers/markets

4

1

2

1

Sales growth % for targeted segments

4

1

2

1

% reduction in cost per unit

4

1

1

2

% to total revenues of selling & administration costs

4

1

2

1

Return on investment

4

3

1

Economic value added

4

2

1

1

3 (11%)

17 (61%)

8 (28%)

n=number of responses

Rating scale:

0=never 1=rarely 2= sometimes 3=often 4=very often

For the customer perspective, there are 94% of respondents are using the customer perspective of balanced scorecard while 6% of the respondents are not using it. In total of 83% use this perspective not frequently, 11% of the respondents use it more frequently. There are 4 companies said that they use the measurement of total sales to new customers sometimes to evaluate the performance of companies. While measurement percentage returns from customers is sometimes used by 3 companies, and it is often used by 1 company.

Table 3

Balanced scorecard

-customer perspective

Rating Scale

n

0

1

2

3

4

% market share

4

1

1

2

% growth in business from existing customers

4

1

2

1

Total sales to new customers

4

4

Customer survey satisfaction ratings

4

1

2

1

Customer profitability analysis

4

2

1

1

Customer survey product functionality rating scores

4

1

1

2

Price relative to competitors

4

2

2

% returns from customers

4

1

3

% on time deliveries

4

1

2

1

2 (6%)

30 (83%)

4 (11%)

n=number of responses

Rating scale:

0=never 1=rarely 2= sometimes 3=often 4=very often

As shown in Table 4, there are in total of 95% of the respondents are using internal business perspective in their companies, and there is in total of 5% of the respondents have never used it before. However, 93% of the respondents are using internal business perspective less frequent, while 2% of the respondents are using it more frequent. 4 companies are sometimes using the measurement of percentage customer requests that are handled with a single call to improve the companies performance. Then, there are 3 companies said they sometimes use the measurement of cycle time in resolving customer problems, while 1 company uses it often.

Table 4

Balanced scorecard

-internal business perspective

Rating Scale

n

0

1

2

3

4

% of sales from new products

4

1

1

2

New product introductions versus competitors

4

1

3

% of sales from new markets

4

2

2

Development cycle time (time to the market)

4

1

3

Output/inputs ratios

4

1

3

Total quality costs as a % of sales

4

4

% of defective output

4

3

1

Unit cost trends

4

1

3

Manufacturing cycle efficiency

4

1

3

% of customer requests that are handled with a single call

4

4

Cycle time in resolving customer problems

4

3

1

2 (5%)

41 (93%)

1 (2%)

n=number of responses

Rating scale:

0=never 1=rarely 2= sometimes 3=often 4=very often

In the learning and growth perspective, there is in 100% of the respondents are using the measurement in evaluation. 4 companies said that they are using number of suggested improvements per employee, number of suggestions implemented per employee, percentage of employees with personal goals aligned to the balance scorecard, percentage of employees who achieve personal goals sometimes in the evaluation of companies without intention.

Table 5

Balanced scorecard

-learning and growth perspective

Rating Scale

n

0

1

2

3

4

Employee satisfaction survey ratings

4

2

2

Annual % of key staff leaving

4

1

3

Sales revenue per employee

4

1

3

% of processes with real time feedback capabilities

4

1

2

1

% of customer-facing employees having on line access to customer and product information

4

1

2

1

Number of suggested improvements per employee

4

4

Number of suggestions implemented per employee

4

4

% of employees with personal goals aligned to the balance scorecard

4

4

% of employees who achieve personal goals

4

4

0

34 (94%)

2 (6%)

n=number of responses

Rating scale:

0=never 1=rarely 2= sometimes 3=often 4=very often

The last question in Part B is a dichotomous question which asks about the intention of the company in using balanced scorecard in future if they are not using. 3 out of 4 respondents said they will consider to use the balance scorecard because it is a good tool of performance measurement that balanced non-financial performance and financial performance. (C2, C3, C4) Nevertheless, there is 1 respondent said they will not consider it due the lack information in the company. (C1)

In Part C, we ask the respondents what is the main obstacles faced by implement the balanced scorecard. Most of the respondents indicated the main obstacle is lack of technological support, including training and staffing in their companies. (C2, C3, C4) There are 2 respondents said that they have lack of information (C1, C2). They also said that they have to re-organisation of existing practices and policies if implement balanced scorecard (C3, C4)

Table 6

Obstacles faced

C1

C2

C3

C4

Total n=4

Lack of technological support, including training and staffing

√

√

√

3

Lack of information

√

√

2

Lack of commitment from top management

√

1

High cost

√

1

Ambiguity within strategies

√

1

Re-organisation of existing practices and policies

√

√

2

n=number of respondents

Conclusion

According to the findings, we can clearly know that the SMEs still do not have much knowledge about balanced scorecard in the company performance evaluation. However, they do use some of the measurements in balanced scorecard without knowing it in less frequency. It shows that 89% of the respondents are using the financial perspective of balance scorecard. There are 94% of respondents are using the customer perspective of balanced scorecard while 6% of the respondents are not using it. Furthermore, there are in total of 95% of the respondents are using internal business perspective in their companies. With in total of 100% of the respondents are using the measurement in evaluation.

Most of the companies will consider to use balance scorecard in future. They should solve the problems that they have faced before implement it. The major problem is they do not have technological support, including training and staffing. Besides that, they also have lack of information and the difficulty in re-organisation of existing practices and policies.

The sample size of this survey is small and it may not represent the views of other preparers from all SMEs. Extending to bigger sample size would be useful to adopt a longitudinal approach, which can help to shed further light on the evolving process of balanced scorecard practices and its adoption.