Designing A Balanced Scorecard Strategy Map For An Auto Parts
Designing A Balanced Scorecard Strategy Map For An Auto Parts
Designing A Balanced Scorecard Strategy Map For An Auto Parts
an auto parts
Designing a Balanced Scorecard strategy map for an auto parts
Designing a Balanced Scorecard strategy map for an auto parts manufacturing company
Domestic Auto Parts (DAP), 16 a $1 billion subsidiary of a U.S. auto parts manufacturing
company, manufactured and marketed original and after-market parts for automobile producers
in the United States. It distributed products directly to original equipment automakers as well as
to large retail chains. DAP was currently number four in market share in the United States out of
nine direct competitors. Its 9% return on capital was respectable but less than that of its leading
competitors.
DAP’s current product line was solid, but it had not introduced new products to the market
during the past three years. This had caused its projected revenues to decline and its industry
position to slip. As recently as two years ago, DAP was number two in the industry, but
competitors Western Auto and Just in Time Automotive had passed it, pushing DAP to number
four. Western Auto had introduced higher value products to the market with the use of
technology both to manufacture products and in the parts themselves. Western’s customers
paid a premium price for the improved performance of the company’s products.
DAP, on the other hand, had protected margins during its revenue decline by aggressively
attacking costs. It succeeded in maintaining its gross and operating margin levels but at the cost
of limiting plant investment and technology upgrades in manufacturing plants. It was beginning
to experience maintenance problems, such as an increase in unscheduled downtime. Also,
because it lacked the flexible manufacturing capabilities of competitors, it had to produce to
stock rather than to order, causing inventory costs to rise to noncompetitive levels. Company
management now recognized that the recent cost cutting had maintained margins in the short
term but may have severely affected DAP’s ability to compete in the longer term.
To help turn the company around, the parent company had recently hired a new CEO, Ellen
Bright. Her job was clearly set out for her—either turn the subsidiary around in two years or close
the business. The minimum requirements for continued operations were to achieve 12% return
on capital employed (ROCE) and a growth rate faster than the industry’s so that it could regain
its number one or two position among competitors.
With this directive in hand, Bright held a meeting with her executive team to explain the situation
and get their input. She started the meeting by stating:
The only way we can achieve our goal is for each of you and your departments to cooperate to
improve our return on capital. Product quality has set us apart in the past. We must regain our
high-quality position and grow our revenues and our contribution to the parent company.
My review of the economics and the competitive situation at DAP suggests that we must do
three things: we need to grow; we must be customer intimate; and, we must be operationally
excellent. And we must do all three things at once to be successful.
Joe [the new chief financial officer brought in by Bright], you and I have been working on the
economics required to achieve our financial goals. Why don’t you share our initial findings with
the group?
Joe Nathan described the financial goals for the turnaround:
ANSWER
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