Weierman Department Store Balanced Scorecard

Weierman Department Store is located in the downtown area of a medium- sized city in the American Midwest. While the store had been profitable for many years, it is facing increasing competition from large national chains that have set up stores in the city's suburbs. Recently, the downtown area has been undergoing revitalization, and the owners of Weierman Department Store are some-what optimistic that profitability can be restored. In an attempt to accelerate the return to profitability, the management of Weierman Department Store is in the process of designing a balanced scorecard for the company. Management believes the company should focus on two key problems. First, customers are taking longer and longer to pay the bills they incur on the department store's charge card, and they have far more bad debts than are nor-mal for the industry. If this problem were solved, the company would have more cash to make much needed renovations. Investigation has revealed that much of the problem with late payments and un-paid bills is apparently due to disputed bills that are the result of incorrect charges on the customer bills. These incorrect charges usually occur because salesclerks enter data incorrectly on the charge account slip. Second, the company has been incurring large losses on unsold seasonal apparel. Such items are ordinarily resold at a loss to discount stores that specialize in such distress items. The meeting in which the balanced scorecard approach was discussed was disorganized and ineffectively led? possibly because no one other than one of the vice presidents had read anything about how to put a balanced scorecard together. Nevertheless, a number of potential performance measures were suggested by various managers. These potential performance measures are:

Performance measures suggested by various managers:
- Total sales revenue.
- Percentage of salesclerks trained to correctly enter data on charge account slips.
- Customer satisfaction with accuracy of charge account bills from monthly customer survey.
- Sales per employee.
- Travel expenses for buyers for trips to fashion shows.
- Average age of accounts receivables.
- Courtesy shown by junior staff members to senior staff members based on surveys of senior staff.
- Unsold inventory at the end of the season as a percentage of total cost of sales.
- Sales per square foot of floor space.
- Percentage of suppliers making just- in- time deliveries.
- Quality of food in the staff cafeteria based on staff surveys.
- Written- off accounts receivables (bad debts) as a percentage of sales.
- Percentage of charge account bills containing errors.
- Percentage of employees who have attended the city's cultural diversity workshop.
- Total profit.
- Profit per employee.

Required:

1. As someone with more knowledge of the balanced scorecard than almost anyone else in the company, you have been asked to build an integrated balanced scorecard. In your scorecard, use only performance measures suggested by the managers above. You do not have to use all of the performance measures suggested by the managers, but you should build a balanced scorecard that reveals a strategy for dealing with the problems with accounts receivable and with unsold merchandise. Construct the balanced scorecard following the format used in Exhibit 11- 5. Do not be particularly concerned with whether a specific performance measure falls within the learning and growth, internal business process, customer, or financial perspective. However, clearly show the causal links between the performance measures with arrows and whether the performance measures should show increases or decreases.

2. Assume that the company adopts your balanced scorecard. After operating for a year, there are improvements in some performance measures but not in others. What should management do next?

3. a. Suppose that customers express greater satisfaction with the accuracy of their charge account bills, but the performance measures for the average age of accounts receivable and for bad debts do not improve. Explain why this might happen.

b. Suppose that the performance measures for the average age of accounts receivable, bad debts, and unsold inventory improve, but total profits do not. Explain why this might hap-pen. Assume in your answer that the explanation lies within the company.

Exhibit 11-5 is attached.