The Scorecard Measures Between Toyota and Peugeot - Essay Example

? The scorecard measures Between Toyota & Peugeot Table of contents Introduction 3 2. Balanced scorecard as related to the just-in-time technique in Toyota 3 2.1 Customer 4 2.2 Internal Processes 5 2.3 Employee Learning and Growth 5 2.4 Financial 6 3. Alternative strategic management accounting techniques for Peugeot 6 3.1 Activity based costing in Peugeot 7 3.2 Target costing in Peugeot 8 4. Differences in problems faced by Toyota and Peugeot 8 5. Conclusion - Evaluation of Toyota and Peugeot success in achieving their targets 9 References 11 Appendix 12 1. Introduction The effectiveness of strategies of modern organizations can be influenced by a series of factors. The organizational profits but also the response of the customers to a firm’s strategic decisions indicate the ability of the organization to identify plans that are aligned with the market trends. The role of various factors in a firm’s performance has been extensively studied in the context of management accounting. A series of management accounting techniques has been developed in order to help firms to measure their performance, either in the short or the long term. Current paper focuses on the potential use of Balanced Scorecard, an accounting technique developed in 1990 by Kaplan and Norton, for measuring the performance of a well known, organization: Toyota. Reference is made to potential scorecard measures under each of the four headings of the balanced scorecard that could be applied to Toyota. At the next level, two alternative strategic management techniques are suggested for another well-known firm of the global automotive industry, Peugeot, at the level that these techniques could possibly help the organization to measure its performance more effectively. The performance of both, Toyota and Peugeot, is compared with reference to these firms’ potential to apply effectively their strategies. Peugeot is more prepared in order to face the challenges of the global market, a fact that is related to the firm’s ability to avoid failures when measuring its performance. 2. Balanced scorecard as related to the just-in-time technique in Toyota The just-in-time technique used in Toyota is based on the following principle: waste must be controlled, as possible. For this reason, in Toyota efforts are made so that the following philosophy is applied: the volume of the firm’s products is decided in accordance with the level of the existing orders (Toyota, Production system, 2012). In order to be able to respond quickly to new orders, the firm promotes the following strategies: all parts required for the vehicle ordered are available in the assembly line, so that the production of the vehicle can proceed with no delay (Toyota Production system 2012). After using certain parts for producing a new vehicle, the assembly line has to replace these parts so that its stock is kept at a specific level, a fact that secures the readiness of the firm’s production units to respond quickly to new orders (Toyota Production system 2012). The above technique could be analyzed using the Balanced Scorecard (Figure 1, Appendix). The Balanced Scorecard is consisted from four parts: ‘Customer, Internal Processes, Employee Learning and Growth and Financial’ (Niven 2006, p.13). A series of potential scorecard measures under each of the four headings of the balanced scorecard as they could apply to Toyota are presented below. 2.1. Customer The relationship between the firm and its customers has faced severe challenges the last decade mostly because the continuous failures in the firm’s products. It is expected that customers’ loyalty has been decreased, a problem that should be faced by the organization with no delay. A measure should be developed by the organization for estimating the level of customer loyalty and the level of customer satisfaction in regard to the firm’s products worldwide. The firm would initiate a survey among its customers worldwide; the views of the firm’s existing customers on the quality of the firm’s products would be used as a measure for assessing the firm’s brand image in the global market (Jiambalvo 2009). In this way, appropriate changes would be made on the firm’s existing production processes but also on its customer services sector. 2.2 Internal Processes As already noted earlier, until today, millions of the firm’s products have been recalled worldwide. The particular failures have been related to various parts of the firm’s production system, including the design and the development phases of the above system (Facts and Details 2011). At the same time, failures have been reported in regard to the report of these failures to the firm’s supervising managers, meaning that significant time is spent on processing the details of each failure and report it to the local manager; moreover, it seems that the managers involved in the production processes are not aware of the level and the characteristics of those products’ parts that are proved problematic. In this way, the firm’s actual performance cannot be fully measured by its strategic managers. At the next level, the above delay results to the lack of effective measures for improving the quality of the firm’s products. The firm should introduce a measure for checking the quality and the effectiveness of its internal processes. Such measure would be the type of parts that have been found to be problematic as these parts are related to a specific function of the firm’s cars; in this way, the potential relationship between specific suppliers and the failures in the firm’s products could be identified. 2.3 Employee Learning and Growth As already noted, the key problem of the organization is the inability of the firm’s managers to control failures in regard to the firm’s products. The above problem has two different aspects: the problems faced by managers in controlling the development of production and the lack of effective communication between employees in various organizational departments. At the same time, the severe failures in the firm’s production processes reveal the inability of certain employees to respond to the requirements of the production process, meaning that employees are not fully aware of the characteristics of each product and the technical aspects of the production process. Particular emphasis should be given on the ability of managers to understand the requirements of the various phases of production, taking into consideration the fact that managers are those who give the guidelines to employees in order to perform each task. An IT system could be established for checking the level of participation of managers in the firm’s training programs. Also, such system could include a feature for allowing the firm’s managers to provide feedback in regard to their training as members of the organization (Jiambalvo 2009, p.457). 2.4 Financial The continuous recalls of the firm’s production have negatively affected the firm’s profitability; indeed, in 2011, the firm’s profits in Japan, North America and Europe have been decreased (Toyota, Financial Results 2011, p.6). Despite the increase of the firm’s profits in Asia and other regions (Toyota, Financial Results 2011, p.6), it is clear that a measure should be established for helping the firm controlling its performance worldwide. The measure chosen should help the firm to improve its performance in the long term, rather than the short term, taking into consideration the strong market competition but also the continuous failures in the firm’s products for almost a decade. The financial measure that would play such role would be a future metric, such as the orders submitted in the firm’s sales units internationally (Brown 2007, p.183) 3. Alternative strategic management accounting techniques for Peugeot Production in Peugeot is based on the following technique: four workshops are used as the basis of the firm’s production system (PSA Peugeot Citroen, Production 2012). The design of the firm’s products is based on the market’s trends, as reflected in the orders of the firm’s customers. There is no just-in-time system, like in Toyota; rather the preferences of the firm’s customers set the criteria on which the planning of the firm’s cars are based; at the next level, the firm’s cars are produced – using the above plans – and are made available in the firm’s units worldwide (PSA Peugeot Citroen, Production 2012). The above practice of Peugeot meets the terms of the ‘value chain analysis’ (Finlay 2000, p.222). In the context of the above technique, the internal processes of an organization ‘are linked together so that they form a chain, known as the value chain’ (Finlay 2000, p.222). In the value chain, the role of the customers is decisive; indeed, in value chain customers set the criteria on which organizational plans related to a series of products will be based (Finlay 2000). The production system of Peugeot has also suffered a series of problems; in the past, it has been quite difficult for the firm’s production units to respond quickly to the customers’ orders, especially in regard to the firm’s diverse models (Operations Research 2012). The use of alternative management accounting techniques, such as the Activity Based Costing or the Target costing could help the firm to face effectively the above problems, as explained below. 3.1 Activity based costing in Peugeot In the context of activity based costing, managers need to develop the following tasks: a) to identify the most important activities within the organization, b) estimate the cost of each of these activities, c) identify the cost drivers of the above activities, and d) develop the relationship between products and cost activities, at the level that the firm’s products have been depended on these activities (Drury 2007, p.228). In the case of Peugeot, the use of Activity based costing for estimating the cost of the firm’s activities, would help to identify those activities, the cost of which is expected to be increased in the next year; in this way, the firm’s managers could develop in advance appropriate measures for controlling the firm’s costs in regard to these activities. The activity based costing technique would be used along with the firm’s value chain analysis technique, as supported by detailed estimations for the firm’s costs in the next year (see Figure 5 & 6, Appendix) 3.2 Target costing in Peugeot The target costing technique requires the development of the following activities: a) to set the ‘target price’ (Drury 2007, p.539), meaning the price that customers would be willing to pay for a particular product, b) at the next level, the target profit needs to be deducted from the target price in order to identify the target cost of the specific product (Drury 2007), c) Estimate the cost of the product in real terms (Drury 2007, p.539) and d) if the actual cost is found to be higher than the target cost, then it needs to be reduced reaching the level of the target cost (Drury 2007, p.539). The target costing would allow Peugeot to reduce its costs, a fact that would enhance the firm’s performance, which has been negatively influenced by the earthquake in Japan in 2011. Also the target costing would help the firm to decrease its prices and improve its position towards its rivals, especially in markets, which are quite important for the automobile industry, such as the Chinese market. The key difference between the target costing and the activity based costing as potential techniques for controlling costs within organizations is the following one: activity based costing focuses on the cost of activities while target costing focuses on the costs of products; in the case of Peugeot this means that each of these techniques can to identify problems in regard to different parts of the organization’s operations. 4. Differences in problems faced by Toyota and Peugeot The problems that the two firms have to face are differentiated: in Toyota, the identification of the problems related to the firm’s production line has led to massive recalls, from 2000 onwards. Toyota has been able to respond quickly to the orders of the customers but severe operational failures have not been avoided. On the other hand, in Peugeot the inability of the firm’s production units to respond to the needs of the firm’s diverse models and to meet deadlines in regard to the delivery of cars is the key challenge that the firm has to face. 5. Conclusion - Evaluation of Toyota and Peugeot success in achieving their targets Between the two organizations, Peugeot seems to be more capable in handling problems in regard to its production line; the increase of the units sold by the organization in 2010 – compared to 2009 is significant (see Figure 3, Appendix). As noted above, the two firms have different challenges to face in regard to their performance; however, in Peugeot innovation is highly valued while in Toyota the practice of keeping the firm’s production system unchanged for quite a long has led to the expansion of the firm’s operational problems worldwide. Indeed, the first failures in regard to the Toyota’s production system were reported in 2000 (Facts and Figures 2011); the failures in regard to various parts of the firm’s products have been continued up to 2011, leading to a recall of about 1.7 million cars (The Wall Street Journal, Toyota Recall, 2012). At the same time, no sign exists that the recalls of the firm’s cars worldwide can be controlled. In 2010, the failures of the firm’s products in China, which is the largest market for automobiles worldwide (Tundra Headquarters 2010), heavily affected the organization’s position in the international market and revealed the need for the immediate introduction of effective performance measurement systems so that, from now on, similar problems are avoided. However, the performance of the organization in terms of units sold can be characterized as rather satisfactory (see Figure 4, Appendix). On the other hand, Peugeot shows trends for continuously increase of its profits; despite the limitation in its revenues in 2011, its overall performance can be characterized as quite satisfactory, taking into consideration the level of the cost saving and the increase in research and development, as related to the years 2009 up to 2012. References Brown, M. 2007. Beyond the balanced scorecard: improving business intelligence with analytics. New York: Productivity Press. Drury, C. 2007. Management and Cost Accounting. Belmont: Cengage Learning. Facts and Details. 2011. Toyota recalls and problems during the economic crisis in 2008 and after the tsunami in 2011. Online. Retrieved in 30 January 2012, from Finlay, P. 2000. Strategic management: an introduction to business and corporate strategy. Essex: Pearson Education. Goodman, M. 1994. Corporate communication: theory and practice. New York: SUNY Press. Jiambalvo, J. 2009. Managerial Accounting. Hoboken: John Wiley and Sons. Niven, P. 2006. Balanced scorecard step-by-step: maximizing performance and maintaining results. Hoboken: John Wiley and Sons. Operations Research. 2012. Speeding Car Body Production at PSA Peugeot Citroen. Online. Retrieved in 30 January 2012 from < http://www.scienceofbetter.org/can_do/success_stories/scbpppc.htm> Peugeot-Citroen PSA. 2012. Production. Key figures. Online. Retrieved in 30 January 2012, from The Wall Street Journal. 2012. Toyota Recall. Online, Retrieved in 30 January 2012, from < http://topics.wsj.com/subject/T/toyota-recall/5858> Thompson, J. 2001. Understanding corporate strategy. Belmont: Cengage Learning. Toyota. 2012. Toyota production system. Online. Retrieved in 30 January 2012 from Tundra Headquarters. 2010. Toyota’s Problems In China Bigger Than Acceleration issue. Online. Retrieved in 30 January 2012 from < http://www.tundraheadquarters.com/blog/2010/03/17/toyota-problems-in-china/> Appendix Figure 1 – Kanban System in Toyota, as part of the just-in-time production process (Source: http://www.toyota-global.com/company/vision_philosophy/toyota_production_system/just-in-time.html) Figure 2 – Balanced Scorecard (Source: http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx) Figure 3 – Peugeot, units sold in 2009 compared to 2010 (Source: Peugeot, 2010 Financial results) Figure 4 – Toyota, units sold, for 2010 and 2011 Figure 5 – Cost saving in Peugeot – for 2009 up to 2012 (Source: Peugeot, 2010 Financial results) Figure 6 – Production and development in Peugeot – for 2009 up to 2012 (Source: Peugeot, 2010 Financial results) Read More