Question

Vic Corporation refines petrol and sells it through its own petrol gas stations. On the basis of market research, Vic Corporation determines that 60% of the overall petrol market consists of “service-oriented customers,” medium- to high-income individuals who are willing to pay a higher price for gas if the gas stations can provide excellent customer service, such as a clean facility, a convenience store, friendly employees, a quick turnaround, the ability to pay by credit card, and high-octane premium petrol. The remaining 40% of the overall market are “price shoppers” who look to buy the cheapest petrol available. Vic Corporation’s strategy is to focus on the 60% of service-oriented customers. Vic Corporation’s balanced scorecard for 2018 follows. For brevity, the initiatives taken under each objective are omitted.

Objectives	Measures	Target Performance	Actual Performance
Financial Perspective
Increase shareholder value	Operating-income changes from price recovery	$80,000,000	$85,000,000
	Operating-income changes from growth	$60,000,000	$62,000,000
Customer Perspective
Increase market share	Market share of overall gasoline market	4%	3.8%
Internal-Business-Process Perspective
Improve gasoline quality	Quality index	92 points	93 points
Improve refinery performance	Refinery-reliability index (%)	91%	91%
Ensure gasoline availability	Product-availability index (%)	99%	99.5%
Learning-and-Growth Perspective
Increase refinery process capability	Percentage of refinery processes with advanced controls	94%	95%

Required:

1. Was Vic Corporation successful in implementing its strategy in 2018? Explain your answer. (3 marks)

2. Would you have included some measure of employee satisfaction and employee training in the learning-and growth perspective? Are these objectives critical to Vic Corporation for implementing its strategy? Why or why not? Explain briefly. (4 marks)

3. Explain how Vic Corporation did not achieve its target market share in the total gasoline market but still exceeded its financial targets. Is “market share of overall gasoline market” the correct measure of market share? Explain briefly. (4 marks)

4. Do you agree with Vic Corporation’s decision not to include measures of changes in operating income from productivity improvements under the financial perspective of the balanced scorecard? Explain briefly. (4 marks)

Answer 1

ANSWER:

1. Vic's strategy is to focus on “service-oriented customers” who are willing to pay a higher price for services. Even though gasoline is largely a commodity product, Vic wants to differentiate itself through the service it provides at its retailing stations.

Does the scorecard represent Vic's strategy? By and large it does. The focus of the scorecard is on measures of process improvement, quality, market share, and financial success from product differentiation and charging higher prices for customer service. There are some deficiencies that the subsequent assignment questions raise but, abstracting from these concerns for the moment, the scorecard does focus on implementing a product differentiation strategy.

Having concluded that the scorecard has been reasonably well designed, how has Vic performed relative to its strategy in 2013? It appears from the scorecard that Vic was successful in implementing its strategy in 2013. It achieved all targets in the financial, internal business, and learning and growth perspectives. The only target it missed was the market share target in the customer perspective. At this stage, students may raise some questions about whether this is a good scorecard measure. Requirement 3 gets at this issue in more detail. The bottom line is that measuring “market share in the overall gasoline market” rather than in the “service-oriented customer” market segment is not a good scorecard measure, so not achieving this target may not be as big an issue as it may seem at first.

2.         Yes, Vic should include some measure of employee satisfaction and employee training in the learning and growth perspective. Vic's differentiation strategy and ability to charge a premium price is based on customer service. The key to good, fast, and friendly customer service is well-trained and satisfied employees. Untrained and dissatisfied employees will have poor interactions with customers and cause the strategy to fail. Hence, training and employee satisfaction are very important to Vic for implementing its strategy. These measures are leading indicators of whether Vic will be able to successfully implement its strategy and should be measured on the balanced scorecard.

3. Vic's strategy is to focus on the 60% of gasoline consumers who are service-oriented, not on the 40% price-shopper segment. To evaluate if it has been successful in implementing its strategy, Vic needs to measure its market share in its targeted market segment, “service-oriented customer,” not its market share in the overall market. Given Vic's strategy, it should not be concerned if its market share in the price-shopper segment declines. In fact, charging premium prices will probably cause its market share in this segment to decline. Vic should replace “market share in overall gasoline market” with “market share in the service-oriented customer segment” in its balanced scorecard customer measure. Vic may also want to consider putting a customer satisfaction measure on the scorecard. This measure should capture an overall evaluation of customer reactions to the facility, the convenience store, employee interactions, and quick turnaround.  The customer satisfaction measure would serve as a leading indicator of market share in the service-oriented customer segment.

4. Vic is correct in not measuring changes in operating income from productivity improvements on its scorecard under the financial perspective. Vic's strategy is to grow by charging premium prices for customer service. The scorecard measures focus on Vic's success in implementing this strategy. Productivity gains per se are not critical to Vic's strategy and, therefore, should not be measured on the scorecard.