Performance Analysis of Burberry PLC

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Performance Analysis of Burberry PLC

Word Count: 2460

Contents

Executive Summary

Introduction

Vision and Strategy

Balanced Scorecard

Strategy Map

Discussion and Evaluation of Balanced Scorecard and Strategy Map for Burberry PLC

Recommendations

References

Appendix

Executive Summary

Burberry PLC is a British luxury brand with exclusive products, extremely good product quality and brand image. The vision and strategy of the retailer is to sustain the brand image, strength and purity; achieve product excellence and apply innovation at various levels. In wake of this, a Balanced Scorecard for Burberry is prepared that highlights the key goals to align the different sub- units and operations of the firm with the common vision of the firm. Based on this, a strategy map is proposed that illustrates the interlinking between the different strategies.

Based on this, following recommendations are proposed to the management team of Burberry PLC:

  • Open more physical stores of Burberry brand, especially where the market is conducive like the Asian countries. Pitching into new countries will definitely widen the customer base as well as product base.
  • Aggressive use of digital media to reach out to the customer requirements at a fast rate and more direct way.
  • Product portfolio diversification that will also attract more number of prospective customers.
  • Focussing on the different ways to improve the revenues and internally creating value added business chains that are rational and optimal.
  • Decommissioning of licenses gradually so as to have 100% direct operations under the brand name only with no dependency on others.

Introduction

Burberry PLC, established in 1856, is a luxury brand (PLC, 2014) that primarily caters to the requirements of the elite classes. Amongst the leading European brands, it is the only British brand that can be scaled up against the five big Italian and another five French brands (Hall, 2011). The company has withstood the many odds and economic cycles to survive as a winner. The British brand’s financial figures during the early 2000s were not as promising as before. However, under the double – act of the then CEO Angela Arhendts and the Chief designer Christopher Bailey from 2006 to year 2014, the company took a turnaround and its financial statements revived phenomenally by reaching a sales figure of £2 billion and a total market capitalization of £7 billion according to Roberts (2013). This was possible by introducing a series of reforms from financial and non- financial perspective that led to not only driving up the revenues but also revitalizing the brand image.

To take this further, in this report, the vision and strategy of Burberry PLC are described, followed by defining a ‘Balanced Scorecard’ for the company as whole and drawing a strategy map. These are evaluated in detail and based on the evaluation recommendations are made.

Vision and Strategy

The Vision and Strategy of Burberry PLC is (PLC, 2014):

  1. Brand Momentum to ensure that brand strength, positioning and purity is a priority
  2. Innovation in marketing to connect to larger audience present globally
  3. Product excellence through centralized designing, quality and maintenance of its iconic heritage

Balanced Scorecard

Balanced Scorecard is defined as a closed loop controller whereby the actual measured performance can be compared with the expected values (Muralidharan, 2004). The differential is supplied as an input into the system to incorporate the changes and move the system towards expected values. This is very useful for management while implementing strategies. Based on the vision and strategy of the organization the goals under different sub- sections are identified along with outlining the key performance indicators or measures for each of the goal, target and the required action. Please refer to the Appendix 1 that presents the horizontal or trend analysis of the company for the two consecutive years 2012 and 2013.

Financial perspective

All Financial goals are for the entire corporation

GOAL

KPI

Target

Initiative or ACTION

1 Cash Flow in the short run

Increasing the cash flows

Current assets and liabilities

Higher movement of inventory and increase in credit limits

Rationalization in the supply chain to make it value added (Murray, 2009).

2 Shareholders

Increase in the EPS

EPS of the company

To increase the EPS by 5-7%

By increasing the net profit

3 Profitability

To improve net profit margin

EBITDA

Profits reduced in 2013, but new target is an increment of 5%

Cost cutting, finance mix revision (Huefner, 2011)

4 Revenues

Increasing the growth rate of revenues

Net Sales of the company

Current rate is 8% while the target is 25%

Brand promotion and diversified product line

Customer perspective

All goals are for the entire corporation

GOAL

KPI

Target

Initiatives or ACTIONS

1 Customer Base

Widen the customer base geographically and demographically

Number of visitors, revenues

More stores in Asian countries

Introductory products, affiliations with retailers

2 Customer requirements

To incorporate the changing customer needs and inclination towards personalization

Frequency of launching new products

Market surveillance through online social media

Social networking site data collection

3 Customer experience

Improve customer convenience and ease of shopping

Customer equity

Enhancing technologically and well equipped shopping

After iPads, easing out the billing process (Patmore, 2009)

4 Brand Loyalty

Increase customer retention

Customer equity

Increase in revenues by 5-7%

By introducing loyalty programs and points

Internal Business perspective

All goals are for the entire corporation

GOAL

KPI

Target

Initiatives or ACTIONS

1 Design of products

Take into account cultural variation across the globe yet maintaining the brand icon

Product appeal to the consumers and increase in the sales for a given product

Attractive and in – vogue designs.

Regional central designing teams with final approval from the core designing team

2 Licensing

Reduce licenses and increase direct operations

Reduction in number of licenses

Achieve own operations to 100% in the long run

Roll out direct operations in beauty products

3 Team Work Appraisal

Recognition of craftsmen and teams at various levels

Increase in labour efficiency and utilization

Having department wise videos being flashed for consumers

Incentives driven performance and recognition of the same

4 Brand Re- Orientation

Having right mix of products – apparels, beauty, etc. and at right places

Revenues of the brand

Targeting sales growth rate of 25% and above

Achieving optimal marketing mix by re- shuffling investments

Innovation and learning perspective

All goals are for the entire corporation

GOAL

KPI

Target

Initiatives or ACTIONS

1 Products

Exclusive product designs, unmatched quality

Expansion in the product lines, decommissioning the obsolete products

Every quarter introducing some new products that meet consumer needs

Aggressive research and market survey to give inputs to the design team (Trottier, 2013)

2 Marketing

Enhance digital marketing

Customer attraction through marketing, increase in number of visitors to social sites

Increasing the number of visitors to online existence and marketing programs of the brand per industry standards

Having an expert marketing team that markets the brand as the customers want to see it (Heisler, 2013)

3 Leadership

Shift to participative leadership to some extent

Involvement of lower levels (especially store level staff) in the hierarchy in providing inputs

Getting 40% inputs from staff that directly interact with the customers

Increasing the interaction with customers

4 Diversification

In terms of products portfolio, brand presence and cultures

Regional store locations, number of products in different buckets

Introducing the brand in at least 5 new countries

Exploring more markets to introduce the brand where there is high competition

Strategy Map

The below strategic map is derived from the goals being set for the firm on whole in the above Balanced Scorecard. This map is helpful for the management as it represents or documents the Balanced Scorecard diagrammatically to the management.

The ‘Innovation and Learning’ goals form the base that influence or drive the internal business perspective, which in turn impacts the customer perspective as well as the financial perspective. It should be noted that for any firm, the most important objective is its long term sustenance and increasing the wealth of the shareholders.

Discussion and Evaluation of Balanced Scorecard and Strategy Map for Burberry PLC

The Balanced Scorecard is increasingly gaining popularity across different industries for the tool helps in integrating the focus of operations in an organization to align with that of the vision and strategy of the organization (Young, 2008). The use of Balanced Scorecard is convenient as well for the entire staff, especially the client facing staff and low line staff who directly interact with the customers. As a matter of fact, according to Kaplan & Norton (1996) balanced scorecard is preferred for primarily two important reasons – one being it envelopes all the important aspects, both financial as well as non- financial in nature which leads to a single report being presented to the management and second point is that it works as a shield against sub optimization. These two points can be analysed further. With respect to the first point, from the design of the Balances Scorecard, it is quite vivid that the strategic goals for the Burberry brand are defined from both the financial and non- financial perspective that covers the different influential aspects within the firm. It not only helps in defining the goals, but it also specifies the key performance indicators along with the respective targets, which makes goal achievement measurable and SMART. As the specifications are clear and the system resembling a closed loop controller, the variation observed in the actual outcome and the target specified is again fed into the system as input and the exercise repeats until the target is attained.

The strategy map is a more friendly representation of the Balanced Scorecard. It shows the links between the various goals and their mutual impact (Kaplan, 2004). The diagrammatic representation of the Balanced Scorecard covers the different perspectives by displaying the underlying respective objectives. This serves as an easy medium to communicate the various strategies to the management and guide them through the impact of different actions being undertaken to achieve the shared goals and vision of the organization.

In wake of this, the relevance of Balanced Scorecard and Strategic Map is very clear. Hereby, the various goals identified for Burberry PLC are evaluated in context with the vision and strategy of the British brand in the long run. To start with the financial perspective strategies, increase in cash flows would require reduction in debtors, increase in creditors, and fast conversion of inventories to capital which would better the cash liquidity for the firm in the short term. Besides, the customer equity and revenues play a critical role in increasing the shareholders’ equity. The growth rate of revenues needs to be increased from 8% to 25%. This will lead to an increase in the earnings per share, thereby increasing the shareholder interest. There are many ways to increase the revenues – strategies based on customer perspective, internal business perspective and innovation. Widening customer base implies increase in the net sales from all over the world. Having a well culturally diversified customer base implies a stronger brand creation. The reason being, the brand then caters to a higher range of customers, incorporating various requirements specific to different customers all of which leads to a strengthened brand. Besides, according to the new marketing mix strategy, many corporations are shifting their focus from products to customers in order to scale up to the competition in the industry (Borden, 2013). Burberry therefore should take in more inputs from the customers in order to understand the real requirements. This will impact the customer attraction and retention and consequently the sales. Being creative is important, but there needs to be a market for the same. Burberry being a luxury brand, customers look out for exclusivity. Yet they would prefer to don the typical iconic and identifiable Burberry brand. So it is a challenge for the designers to meet all these expectations. As there are slight cultural variations that drive the customer requirements, it is important to have designs specific to a region; but that should be passed through the central designing team to maintain integrity and purity of the brand. This will subsequently lead to product excellence as well.

Enhancing the internal business is very crucial to ensure cost control, better efficiency of staff and innovation at every stage. It was the initiative of the prior CEO Ms. Arhendts (Petroff, 2011) to decommission the excessive licensing the brand was indulged into before. The current CEO is continuing the same and in the long run, it is one of the important strategies for the company to have 100% direct operations in order to keep the brand image and quality of products intact. To further provide an impetus to the entire team, it is important to acknowledge the work of staff at all the levels (Silverthorne, 2013). This increases their contribution and creativity. Having a participative leadership style instead of individualistic can close in the gap between decision makings based on customer inputs.

Another important factor that influences the revenues is the innovative marketing styles and products. No matter how well established you are, marketing plays a critical role in reaching and connecting with the consumers (Borden, 2013). Social networking sites and media rule the digital marketing front. Burberry needs to more actively utilize these sites, especially visitor feeds to analyse their needs directly and fulfil those. This will also help in expanding the product line based on the current trends and expectations of consumers. Overall, it is very clear, that the different perspective strategies impact the sales of the brand. The different boxes represented in the Strategy map have several implications – with horizontal impact as well as vertical impact. In fact, for proper and successful implementation of the strategies, it is vital to take into account the mutual influence of the different actions. For instance, achieving brand loyalty would lead to increase in the customer retention, thereby contributing to increasing the number of customers and thereby the sales. This as well will help in establishing customer equity. As far as the impact is positive for different aspects, the underlying action is not endangering for the company. But it is necessary to account for the different aspects and their impacts. Another instance is while focussing to increase the cash flows, there are several line items that impact the net cash flows. But in the process to improve the cash flows, the relevant ratios especially the current ratio (Appendix 2), Average collection period should be taken into consideration.

Recommendations

On the basis of the above Balanced Scorecard, the Strategy Map and the evaluation of the same, the recommendations for Burberry PLC are proposed below:

  • Open more physical stores of Burberry brand, especially where the market is conducive like the Asian countries. Pitching into new countries will definitely widen the customer base as well as product base. This can open up new opportunities for the brand. Initially the brand can tie up with other retailers to introduce the brand.
  • Aggressive use of digital media to reach out to the customer requirements at a fast rate and more direct way. This will in turn, improve the frequency of new launches by the brand
  • Product portfolio diversification that will also attract more number of prospective customers. The fashion brand has beauty product line. It can include other accessories to complement the existing products.
  • Focussing on the different ways to improve the revenues and internally creating value added business chains that are rational and optimal. This can be achieved by integrating vertically and horizontally with various suppliers and vendors as well as distributors.
  • Decommissioning of licenses gradually so as to have 100% direct operations will make a difference to the brand image as all the products would be under the control of the brand and can be hallmarked for their quality and the brand image.

References

  1. Borden, N. (2013) The concept of Marketing Mix.
  2. Hall, J. (2011, April 27). Burberry Chief Angela wants to ‘sell the British attitude across the world’. The Telegraph .
  3. Heisler, A. (2013). The parallels between Angela Ahrendts tenure at Burberry and Steve Job’s return to Apple. TUAW.
  4. Huefner, R. (2011). A Guide to integrating Revenue management & Capacity Analysis. Management Accounting Quarterly , 40 - 46.
  5. Kaplan, R. a. (1996). Linking the Balanced Scorecard to Strategy. California Management Review , 39 (1).
  6. Kaplan, R. a. (2004). Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Boston, Massachusetts, USA: Harvard Business School Press.
  7. Muralidharan, R. (2004). A framework for designing strategy content controls. International Journal of Productivity and Performance Management , 590-601.
  8. Murray. (2009). The Wall Street Journal Guide to Management. Harper Business .
  9. Patmore, J. e. (2009). The Management of Creativity and Innovation. www.academia.edu.
  10. Petroff, A. (2011). Top paid CEO in UK is an American Woman. CNN Money.
  11. PLC, B. (2014). About Burberry. Retrieved May 31, 2014, from www.burberryplc.com: http://www.burberryplc.com/about_burberry/our_strategy
  12. Roberts, A. (2013). Burberry Designer Bailey to Become CEO as Ahrendts Goes to Apple. Retrieved May 31, 2014, from Bloomberg: www.bloomberg.com
  13. Silverthorne, S. (2013). Lessons for Managing and Motivating Creative People. HBS Working Knowledge.
  14. Trottier, D. (2013). The business of Conversations: Market Social Media and Surveillance and Visibility. First Monday , 2-4.
  15. Young, J. e. (2008). Evaluating the balanced scorecard at the University Health Network: an impact assessment. Health Q. , 52 - 6.

Appendix

  1. Horizontal Trend Analysis Percentage wise of Burberry PLC

Burberry PLC

Important Accounts

2013

2012

Icr/(Dcr)

Current Assets

966.5

1024.8

-6%

Non-Current Assets

779.7

585.8

33%

Total Assets

1746.2

1610.6

8%

Current Liabilities

563.5

596.8

-6%

Non-Current Liabilities

129.9

122.4

6%

Total Liabilities

693.4

719.2

-4%

Equity

1052.8

891.4

18%

Sales

1998.7

1857.2

8%

COGS

556.7

558.3

0%

Gross Profit

1442

1298.9

11%

Net Profit

259.2

265.1

-2%

EPS

0.57

0.593

-4%

  1. Ratio Analysis of Burberry PLC

Burberry PLC

Liquidity Ratios

2013

2012

Current Ratio

1.715173

1.717158

Quick Ratio

1.419184

1.838485

Working Capital Management

Average Collection

29.14594

28.53651

Account Receivable Ratio

12.52318

12.79063

Assets Management Ratio

Total Assets Turnover Ratio

1.1446

1.153111

Fixed Assets Turnover Ratio

2.563422

3.170365

Inventory Turnover Ratio

1.58604

1.7946

Profitability Ratio

Gross Profit Margin Ratio

72.1469

69.93862

Net Profit Margin Ratio

12.96843

14.27418

Return on Assets Ratio

14.84366

16.4597

Return on Equity Ratio

24.62006

29.73974

Debt Management Ratio

Debt Ratio

0.397091

0.446542

1

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