Strategic Analysis and Development of Balanced Scorecard for Sheng Siong Group Ltd

Memorandum

To: Management Team

From: Management Consultant

Subject: Strategic Analysis and Development of Balanced Scorecard

This business memorandum is being written with the rationale of analyzing the strategies of Sheng Siong Group Ltd and will prepare a balanced scorecard for the company in their best of interests. This memo will be presented in two different sections. The first part of the memo will concern the strategies of the company which will discuss the strategic objectives, measures undertaken, the organization structure, financial performance, competitive advantage and the corporate social responsibility performance of the company. The second part of the memo will develop the balanced scorecard for the company which will comprise of five different perspectives and two strategic objectives per perspective.

Strategic Objectives of the company:

The strategic objectives of Sheng Siong Group Ltd can be illustrated appropriately from the company’s mission and vision. The vision of the company is to always strive to in order to be the preferred retailer in the market which extends beyond Singapore by expanding further offshore. The mission of the company is to create value for customers by provision of a comfortable and convenient shopping experience and environment with good services and assuring quality products at competitive prices (Reuters, 2022).

Commentary on the Strategic Measures undertaken:

There are several strategic initiatives and measures which have been undertaken by the company in order to achieve their strategic objectives. Providing customers access to a diverse product and brand portfolio, both offline (brick and mortar supermarkets) and online (e-commerce website) is one such initiative. Sheng has managed to undertake strategic store additions since the year 2014-2015 in order to drive growth and revenue reaching a store count of 63 and retail area of 571,150 square feet. The company has also expanded its operations in China with both stores in Kunming being profitable and intent of further growing after lifting of Covid-19 restrictions. Lastly, the company has maintained cost efficiency over the years and have enhanced productivity by embracing innovation, technological advancements and digitization (Sheng Siong Supermarket, 2022).

Organization Structure of the company:

The group is led by the top tier management which comprises of Lim Hock Eng who is the Executive Chairman and Lim Hock Chee who is the Chief Executive Officer of the company (Bloomberg.com, 2022). Sheng Siong Group Ltd for the most part has a tall organizational structure that exercises vertical control with rigid hierarchical relationships. The organization makes use of the top-down approach as the choice of communication channel in order to communicate with employees.

Strategic Objectives of the company

Commentary on Financial Performance of the company:

Sheng Siong Group Ltd has had a strong financial performance considering a span of last five years through 2016-2020. Their total revenue has been increasing year on year through 2016-2020 with latest figures increasing from S$991.3 million in 2019 to S$1,394.0 million. Owing to an exponential increase in total revenue, the company have had a strong profitability performance which can be validated from interpretation of the gross profit margin and the net profit margin. The gross profit margin is a profitability financial ratio which indicates the proportion of revenue which is left behind after meeting the direct expenses of the entity which are its cost of sales (Jiambalvo, 2019). Furthermore, the net profit margin can be interpreted as the total profits or proportion of revenue which is left behind after covering for the total expenses which have been incurred during the year which includes direct expenses, operating expenses and financial expenses (Warren, Reeve & Duchac, 2016). The gross profit margin of the company in 2020 at 27.4% (increased from 26.9%) has been the highest in the past five years which can be credited to an increasing revenue trend.

Likewise, the total net profit figure which is the ultimate bottomline profit that a business generates as a result of its operations have been the highest in the past five years at S$139.1 million which has almost doubled from S$75.8 million in 2019.  Other than an increase in total revenue, the company also saw an increase in other sources of income which can be seen from the consolidated income statement resulting in a higher absolute net figure. Owing to an exponential increase in the absolute net profit figure, the earnings per share of the group also increased from 5.04 cents in 2019 to 9.22 cents in 2020 and have more than doubled when compared to 4.17 cents in 2016. Lastly, the company owing to an increase in profit figures were in a position to create further value for its shareholders which led to an increase in the dividend per share to 6.5 cents per share in 2020 up from 3.55 cents in 2019. An increase in the value of total current assets in 2020 because of an increase in cash & cash equivalents validates a sound liquidity position which results in a favourable current ratio and absolute cash ratio. Lastly, the company has a relatively low gearing because of noticeably fewer amount of interest bearing debts forming a part of the capital structure which reduces exposure to financial leverage (Ehrhardt & Brigham, 2016).

Commentary on the Strategic Measures undertaken

Competitive Advantage and Enhancement of Competitive Abilities:

Sheng Siong Group Ltd has a competitive advantage when it comes to market positioning. While peers such as Cold Storage and NTUC Fairprice strive to cater to the middle and high income group segment, Sheng Siong Group caters to price sensitive customers by providing a shopping experience which is second to none. Other than the cost leadership strategy, Sheng Siong Group is also attempting to differentiate their portfolio by also developing their in-house section of brands and products in order to offer their target market with quality alternatives which allows for substantial savings. The group to this date has a total of 1,400 in-house products which are sold offline and online.

Their ability to compete can be better and further enhanced based on several points of recommendation. The Covid-19 pandemic has increased the demand for e-commerce. The company does have an online presence but focuses more upon offline operations. They should consider increasing their efforts in the e-commerce space. Furthermore, the marketing efforts of the group are quite limited and it may consider spending upon digital and traditional marketing. Lastly, the group can consider accelerating growth in China as the market can be quite lucrative (Hbsp.harvard.edu, 2022).

Social and Environmental Responsibility of the Company:

As a retailer which has benefitted greatly from the customer base and community in Singapore, it is the social responsibility of the company to collaboratively join hands and leverage the strengths of being a major retailer into reciprocating and enriching the lives of the local community. From an environmental standpoint, it is the responsibility of the company to be the guardians and custodians of the present generation, minimize the environmental footprint, ensure sustainability in operations and foster an environment friendly mindset among the society at large.

Conceptual Overview of Balanced Scorecard:

The balanced scorecard tool is a popular performance measurement tool which helps to keep track and measure the financial and non financial performance concerning a particular organization using the help of appropriate measures which are also referred to as key performance indicators (Awadallah & Allam, 2015). Although, the original balanced scorecard which was introduced by Kaplan and Norton in the 1970’s had four different perspectives, modern scorecards have up to five or six different perspectives. The performance measurement tool helps an organization to keep track of attainment of their strategic objectives which in turn helps to attain the overall vision of the organization.

Organization Structure of the company

Balanced Scorecard of Sheng Siong Group Ltd:

With the help of a comprehensive secondary research into the annual report and the annual sustainability report of the company, the following balanced scorecard which includes five different perspectives have been prepared in the best interests of the organization.

Financial Perspective:

The two main strategic objectives of the company under the financial perspective are growth in revenue and the value provided to the shareholders. The company has seen an overall 40.6% increase in its total revenue in the year 2020 when compared to the previous financial year 2019. The percentage growth in revenue is one of the key measures to judge an improvement in financial performance when it comes to supermarkets. Lastly, providing value to shareholders is one of the most important strategic objectives for the company which can be measured by using the dividend per share ratio. This is because the shareholder’s have high expectations when it comes to their returns and paying high dividends amount to creating value and maximizing their wealth. The dividend per share in 2020 has increased from 3.55 cents in 2019 to 6.5 cents in 2020.

Customer Perspective:

‘Care for Customers’ is also one of the strategic priorities of the company which forms a substantial basis of the mission of the company. Therefore, measuring customer performance and perception is absolutely paramount as the financial performance of the company is dependent upon customer perspective. One of the key reasons to measure customer satisfaction is to constantly improve the consumer shopping experience in an attempt to focus upon customer service and care. This is measures by the company with the aid of CSISG (Customer Satisfaction Index of Singapore) score which has improved consistently over the years. Lastly, in order to understand the needs & preferences of customers, the company obtains feedback through social media platforms which is measured by complaint to compliment ratio that has improved to 1.29 in 2020 from 1.40 (Investors - Sheng Siong Supermarket, 2022).

Internal Business Perspective:

One of the key strategies of the company is to accelerate growth by setting up and launching new stores in tactful locations within the country. Hence, in order to judge an incremental value provided by setting up new stores, the company needs to measure progress. In 2020, the company successfully set up 5 new stores which consequently resulted in an increase in market share by 4% in the supermarket segment (Investors - Sheng Siong Supermarket, 2022). Lastly, since supermarkets are inventory intensive businesses, maintaining an optimal inventory level is crucial. Businesses should make use of automated inventory tracking software to better manage inventory. This is because understocking results in lost sales and overstocking increases holding costs and risk of damage or embezzlements.

Commentary on Financial Performance of the company

Learning & Growth Perspective:

Provision of competent training and development services to staff is one of the most important aspects of ‘caring for our people’. This allows employees to enhance their skills and competencies which mutually benefit the company and the employees. This is measured with the help of average training hours per employee. Some of the courses provided to employees consist of vocabulary proficiency, managerial programmes, product knowledge workshops, cyber security and others. One of the secondary benefits of the same is an increase in employee retention which is measured with the help of staff turnover ratio which has favourably decreased from 33.5% in 2019 to 24.3% in 2020 (Investors - Sheng Siong Supermarket, 2022).

Social and Environment Perspective:

Sheng Siong Group Ltd also believes in ‘caring for community & environment’ which has been discussed in the social and environmental objectives section of this report. Hence, it makes sense to measure performance so as to judge the corporate social responsibility performance of the company. Giving back to the community through providing employee support, employee family support, community initiatives fall in line with the expectations of stakeholders. The Group contributed SS$134,700 to the community in 2020 which excluded non-monetary contributions. Lastly, from an environmental standpoint, the Group is striving to reduce carbon footprint and consumption of electricity by using solar energy, LED lights, rainwater recovery system and cold storage heat recovery system. Thus it is important to measure and keep track for which the Group uses the greenhouse gas emissions intensity ratio which expresses the per kg of carbon dioxide emitted per S$ of revenue generated.

References

Awadallah, E. A., & Allam, A. (2015). A critique of the balanced scorecard as a performance measurement tool. International Journal of Business and Social Science, 6(7), 91-99.

Bloomberg.com. (2022). Bloomberg - Are you a robot?. Retrieved 25 January 2022, from

https://www.bloomberg.com/profile/company/SSG:SP

Ehrhardt, M. C., & Brigham, E. F. (2016). Corporate finance: A focused approach. Cengage learning.

Hbsp.harvard.edu. (2022). Harvard Business Publishing Education. Retrieved 25 January 2022, from

https://hbsp.harvard.edu/product/W14526-PDF-ENG

Investors - Sheng Siong Supermarket. (2022). Investors - Sheng Siong Supermarket. Retrieved 25 January 2022, from

https://corporate.shengsiong.com.sg/investors/

Jiambalvo, J. (2019). Managerial accounting. John Wiley & Sons.

Reuters. (2022). Retrieved 25 January 2022, from https://www.reuters.com/companies/SHEN.SI

Sheng Siong Supermarket. (2022). About - Sheng Siong Supermarket. Retrieved 25 January 2022, from

https://corporate.shengsiong.com.sg/about/#our-story

Warren, C. S., Reeve, J. M., & Duchac, J. (2016). Financial & managerial accounting. Cengage Learning.