An Application of The Balanced Scorecard in Retailing

The International Review of Retail, Distribution and Consumer Research 9:1 Jan 1999 41–67
An application of the balanced

scorecard in retailing
Rhonda Thomas, Myron Gable and Roger Dickinson
Abstract
Retailers have sought measures of performance that go beyond the traditional. This
article reports on the application of the balanced scorecard. We summarize efforts to
go beyond traditional measures in retailing and conduct a study to test their value for
a large multi-unit retail chain. The results indicate that the balanced scorecard offers
a highly individualized and exible technique for improving the performance of
retailers.
Keywords
Strategy, planning, balanced scorecard, performance measures, retailing.
In a world where information is relatively scarce, and where problems for

decision are few and simple, information is almost always a positive good. In
a world where attention is a major scarce resource, information may be an
expensive luxury, diverting our attention from what is important to what is
unimportant.
(Simon 1978)
The purposes of this article are to explore the concept of the balanced scorecard
and to develop a methodology for the implementation of this concept in a retail
setting. Speci cally, the authors will describe an empirical study in which they
secured the co-operation of a large, national multi-store retailer. The empirical
study will detail:
1 the co-operating retailer;

2 factors operationalizing each of the four quadrants of the balanced score-
card (the input variables);
3 core retail measures – the output variables;
Rhonda Thomas is Visiting Assistant Professor at the Sellinger School of Business,

Loyola College, Baltimore, MD 21210, USA, Tel: 301 251 4711, Fax: 301 251 4710,
E-mail Rhondat@mindspring.com; Myron Gable is Professor of Marketing Emeritus,
College of Business, Shippensburg University, Shippensburg, PA 17252, USA, Tel: 941
359 1926, Fax: 941 351 4448; Roger Dickinson is Professor of Marketing, College of
Business Administration, University of Texas at Arlington, Arlington, TX 76019, USA,
Tel: 817 272 2284, Fax: 817 272 2854, E-mail Rogerd@uta.edu
Copyright © Routledge 1999 0959–3969

42 The International Review of Retail, Distribution and Consumer Research
4 the results of the study, including a description of the statistical treatment;

and
5 a discussion of the contribution of this study to the retailing sector.
Introduction
Over the years, many conceptual frameworks and measurement classi cation
schemes have attempted to match measurement with business strategy. The
Boston Consulting Group’s (BCG) portfolio planning model devised categories
for strategic business units (SBUs) based on market attractiveness and strength
of the rm in that market. The GE/McKinsey Matrix and the Technology
Portfolio Matrix followed with more theories (e.g. strategic, gameboard and
contingency perspective) for expanding strategic measurement and management
of complex organizations (Bettis and Hall 1982; Coe 1981; Hapeslagh 1982;
Farguhar and Shapiro 1983; Hamermesh 1986). However, they were limited by
what they measured and how they evaluated the market environment, the
business opportunity and competitive pressures (Abell 1980; Wind and Mahajan
1981; Wernerfeldt and Montgomery 1986; Varadarajan 1989; Kerin et al.
1990).
Much has been written about factors that in uence the success of retail rms.
Buzzell and Dew (1980) attempted to develop statistical relationships between
strength in the market and attractiveness of the market as CSFs in retailing.
Management Horizons (1987) identi ed ve themes for success: market respon-
siveness and focused market dominance; professional management and entrepre-
neurial are; innovative, highly programmed resource relationships; a leadership
position in productivity and technology; and a high value offer. A Wall Street
report summarizing other studies indicates that outstanding retailers hold
dominant market positions; emphasize their merchandising uniqueness; possess
management depth; emphasize effective store location; and invest in systems
(Varadarajan 1991). Bell and Salmon (1996) enumerate six critical success factors
in retailing, but they are addressed in a very general manner. Lusch and Jaworski
(1991) suggest that in retailing measurable output is not created until a
transaction with a customer occurs and the customer exists in an uncontrollable
external environment. The ef ciency of service businesses such as retailing may
be more dif cult to evaluate than manufacturing business ef ciency in that it is
dif cult to determine the (appropriate) amount of resources required to produce
service outputs (Sherman 1984). Schmenner (1986) suggests that concrete
operational measures are dif cult to put in place due to the variability of
employee–customer interaction related to services (such as in the retail trans-
action process).
There is building consensus that traditionally de ned nancial performance
measures, such as return on investment models, are not enough to evaluate a
company’s competitive position and understand ‘how we are doing’ in an
increasingly complex environment (Sherman 1984; Schmenner 1986; Eccles
1991; Webster 1992; Stalk et al. 1992; Kaplan and Norton 1992, 1993, 1996a).
Financial measures alone are too simplistic in their interpretation of service
businesses’ performance (Bharadwaj and Menon 1993).
Rhonda Thomas et al: An application of the balanced scorecard in retailing 43
Dunne and Rothenberg (1993) point out the limitations of many of the
indicators of performance in retailing. For example, while knowledge of market
share by management is important, it is very dif cult to measure in most
retailing environments. How does a Wal-Mart determine its market share? A
common way of calculating this measure is: market share 5 Wal-Mart sales
divided by total discount department store sales. However, this method of
calculation does not include other competitors such as traditional department
stores, apparel shops, hardware stores or any other type of store that handles a
product Wal-Mart carries.
The fundamental managerial challenge for retailers in developing strategic
models is shifting from the treatment of nancial gures as the foundation for
performance measurement to their treatment as one among a broader set of
measures (Eccles 1991). In a recent article, Kamakura et al. (1996) indicate that
a major problem in assessing the ef ciency of multiple retail outlets is securing
measures of customer satisfaction.
Kaplan and Norton (1992, 1993, 1996a, 1996b, 1996c) introduced the
conceptual framework of the balanced scorecard for designating, evaluating and
measuring multiple factors that drive a rm’s performance. The balance is seen
as between: long- and short-term objectives, nancial and non- nancial meas-
ures, lagging and leading indicators and external and internal performance
perspectives (Kaplan and Norton 1996c: viii). Managers do not have to rely on
short-term nancial measures as the sole indicators of the company’s perform-
ance. In this model, they link nancial and operational measures with a
business’s strategic goals. A scorecard should be based on a linked series of
cause-and-effect relationships derived from strategy. The objectives and meas-
ures should be both consistent and mutually reinforcing (Kaplan and Norton
1996c: 17, 29, 30). It is more than a collection of critical success factors.
The Kaplan and Norton balanced scorecard framework (see Figure 1) is
different from previous strategic models in that it integrates and balances
measurements of customer satisfaction, internal business processes at the man-
ager level and external nancial measures tied to long-term corporate strategies
and shareholder wealth. In addition, it values the organization’s ability to
innovate and improve. The scorecard provides a balanced picture of current
performance as well as making the executive aware of the possible drivers of
future performance.
As suggested above, the balanced scorecard has the capability of integrating
long-range strategic plans with short-term measurable objectives, thereby unit-
ing a company’s planning and budgeting processes during its scal year’s
operations (Kaplan 1994). The balanced scorecard is by-and-large presented
conceptually. It provides a means for linking the measurable objectives of a
retailer to its strategy and corporate vision (Kaplan and Norton 1996c).
The authors investigated the literature relating to each quadrant shown in
Figure 1, and this is discussed in a later part of the article. When these aspects
are addressed, speci c input measures operationalizing the balanced scorecard
are described and de ned. For example, instead of stating as a goal the
improvement of customer satisfaction, the authors will identify quantitative ways
of measuring customer satisfaction. Later they will test their ef cacy. Factors in
each aspect of the scorecard are discussed. Speci c input measures or proxies
operationalizing these factors are described and de ned in the next section.
Figure 1 The balanced scorecard
The empirical study
The co-operating retailer
Data were collected from internal company records of a multi-unit, multi-

market, publicly traded specialty retailer. This company had approximately 575
units in the United States and annual sales of over 680 million dollars. All data
were gathered in the autumn of 1996 with the exception of the outcome
variables, which were secured at the end of the year. The merchandise carried in
the stores is primarily moderately priced home furnishings and furniture items
with an emphasis on uniqueness and self-expression. Individual stores vary in
size and con guration based on the market and actual facility selected. Stores are
typically located in high-traf c, convenient locations such as malls and shopping
centres in both urban and suburban neighbourhoods. This rm maintains
statistics and trade area characteristics for each store and market. Extensive
operating information for each store is maintained by the company’s decision
support system.
Some stores were eliminated from the research. A unit was dropped from
consideration if it met one or more of the following criteria during the examined
year of operations: it was: 1) closed for thirty or more days during the year; 2)
opened more than fteen days after the start of the scal year; or 3) closed prior
to the end of the scal year. Additionally, one unit was eliminated because it was
closed due to a re. The resultant population of 542 store units was used for the
study.
Prior to selecting the input variables, an extensive review of the literature was
undertaken. Further, sensitive to the needs of the participating rm, a series of
nine meetings with eight senior executives and twenty-six regional managers was
held. The result of these initial meetings was the development of a list of fty-
ve possible input measures incorporating the four perspectives of the balanced
scorecard. At later meetings, measures were eliminated for reasons such as the
lack of archival data or of means adequately to measure a factor, e.g. days of
sunshine. Other measures were combined into a single variable. The nal
meeting on the selection of input variables reduced the number that top
management believed to be most important to the success of a store from fty-
ve to fourteen. These factors are now discussed within the context of the four
aspects of the balanced scorecard.
The customer quadrant
The ‘customer’s perspective’ re ects how a business is performing from its
customers’ perspectives regarding time, quality, performance and service
(Kaplan and Norton 1992). Speci c performance measures are to be derived
from customer goals. The scorecard boxes and their respective measures for this
study are enumerated and de ned in Table 1.
Constituency-based theory suggests that, for a rm to be pro table, the long-
term needs of its customers must be satis ed (Anderson 1982). Indeed, Kohli
and Jaworski (1990) found that those rms that were marketing-oriented (versus
selling-oriented) were also more likely to be pro table. This is especially
important in people-intensive, service-based businesses such as retailing. Mana-
gerial decision making should re ect expectations that customer-oriented ex-
penditures are likely to lead to long-term customer satisfaction, which ultimately
leads to increased pro tability (Webster 1992).
Customers do not typically purchase many products or services solely on their
characteristics or price (Bharadwaj and Menon 1993). Many researchers have
proposed that service quality is a critical determinant of business success and
nancial performance (Donovan and Rossiter 1982). According to Berry (1986),
perceptions of service quality in the retail experience have become the most
important purchase-determining condition. Many other empirical studies have
also underscored the relationship between perceived higher service quality and
higher pro ts (Lusch 1986; Thompson et al. 1986; Buzzell and Wirsema 1981;
Gale and Branch 1982). For this study, customer service is being de ned in a
way that indicates the number of sales personnel in the store. Because of the type
of merchandise sold, there is a need for a measurement of this type. We now
discuss the key input variables that were used in the customer quadrant.
Number of employees per square foot Ingene and Lusch (1980) used the number
of employees per square foot as a surrogate measure of service quality. They
found a positive linear relationship between sales increases and higher ratios of
employees to square footage of retail space. This led them to conclude that, with
more employees, personal selling opportunities increase, customers get more
assistance locating the merchandise they want and sales assistance is more
prompt, reducing delays and facilitating sales. Service level in the retail
environment, as seen from the customer’s perspective, was measured as the
average number of full-time employees per square foot of selling space
(FTSERVC).
Full- and part-time employees Full-time employees have been shown to be more
knowledgeable and demonstrate greater selling skills, experience and motivation
in servicing and assisting customers than part-time employees. This experience
is re ected in enhanced perception of quality and service by the customer.
Salespeople have an important impact on the customer’s perception of the store
and its quality (Bitner 1990). They provide tangible evidence of the store’s
atmospherics (Kotler 1988) and are often the primary source of information
(tangibility) about the store’s service quality. A study in the retailing sector in
1982 (Gable and Hollon) indicated that differences existed in compensation and
supplemental bene ts coverage between full-time and part-time salespeople,
perhaps leading to greater job dissatisfaction among part-timers.
Full-time employees tend to be better informed, have more experience and,
therefore, should be more effective in generating sales (Ingene and Lusch 1980;
Darden et al. 1993) due to factors such as higher levels of training, commitment
and job satisfaction than part-time employees. According to Wotruba (1990),
part-time workers may not follow suggested procedures or sales approaches as
frequently as full-time employees. Thurik and Van der Wijst (1984) examined the
use of part-time employees to deal with uctuations in demand and the in uence
these employees have over retail labour productivity. They reported weak
positive in uences on productivity for a sample of European-based retailing
organizations. Long-term customer relationships foster a positive image of the
company, its reputation and its merchandise.
Another surrogate measure of customer service would be the ratio of full-time
to part-time personnel (FTPT). Since full-time sales associates are in the store for
longer periods than the part-timers, the former have a better opportunity to
build better customer relationships, resulting in a greater ratio. As mentioned
earlier, this ratio was secured in the autumn of the year, not a period of high
part-time employment.
Salaries and wages Expenditures on sales staff have been shown to be positively
related to sales (Szymanski et al. 1993; Ingene and Lusch 1980; Gatignon and
Hanssen 1978; Johnston and Futrell 1989). Churchill et al. (1979) found that
compensation is the most important reward used to motivate salespeople. In
attempting to evaluate what determines a salesperson’s performance, Churchill et
al. (1985) found that only a few studies investigated the impact of organization/
environment factors on performance. Bitner (1990) further supported the
relationship of internally derived determinants (e.g. role, skill and motivation)
with organizational factors, but no one factor has been shown to dominate in
determining rm effectiveness. Ingene and Lusch (1980) suggested that better
part-time employees are apt to be hired as full-time employees, at higher pay. As
suggested above, full-time salespeople produce greater sales.
The salary and wages measure of customer service can be operationalized by
hourly wages. More experienced, satis ed and seasoned personnel typically
command higher salaries. Satis ed, experienced salespeople are thought to be
more motivated to satisfy a customer’s needs, develop customer loyalty and
communicate positive information about the merchandise and retailer than are
less experienced or less satis ed personnel. Increased worker satisfaction and
experience are expected to bring an increase in sales. Excessive expenditures on
wages may have a negative impact on pro tability, but seldom on sales. Thus,
another surrogate measure of service is higher salaries and wages per payroll
hours (COSTHOUR).
The rst part of Table 1 illustrates the measures, label de nitions, mean scores
and standard deviations representing the customer ‘box.’
The internal business quadrant
Kaplan and Norton (1992) de ne the quadrant as re ecting those business
processes that have the greatest impact on customer satisfaction and retention in
terms of cycle time, quality, employee skill and productivity. These measures
Table 1 Input and output measures: de nitions, mean scores, and standard deviations
(N 5 542)
Mean
Measure De nition score SD
The customer perspective
FTSERVC Average number of full-time sales associates .0005 .0002
per square foot of selling space
FTPT Ratio of the average number of full-time 0.76 0.89
sales associates to part-time sales associates
COSTHOUR Total of annual dollars of salaries and wages 7.39 0.67
per total payroll hours
The internal process perspective
TRANS Total annual number of transactions 31,705 6,619
completed
TURNOVER Percentage turnover of store personnel 99.7 53.4
INV Total average quarterly dollars of inventory 191,878 29,690
on hand
The nancial perspective
SURRHOUS Number of surrounding households in two- 20,913 12,978
mile radius
POPSTOR Population per store in market 287,410 135,219
PROXIM Distance in miles to nearest other company 13.83 26.71
store
OTHEROP Dollars of other operating expenses per 102,784 27,723
store, such as in-store promotion and
training, but not occupancy costs
FACICOST Total annual occupancy costs per square foot 25.80 11.34
of selling space
The innovation and learning perspective
STOREAGE Age of store in years 7.85 6.87
HRLYEXP Average tenure in years of hourly personnel 1.53 0.71
MGREXP Average tenure in years of store managers 5.92 4.33
The output variables
SALESQFT Net annual sales per square footage of store 140.08 41.28
OPPROFIT Pro t before taxes for a store (only direct 0.047 0.095
expenses to a store are considered)/net
annual sales
GMROI (Gross margin/net annual sales) (net annual 298.81 67.62
sales/average inventory) 5 gross margin/
average inventory
bond managerial judgement about internal process and (strategy) competencies

to the actions and behaviour of individuals at lower levels of the organization.
Elements in the internal business quadrant in retailing are tied to regional or
local managerial (store unit) control, as opposed to corporate mandate. These
measures of business process re ect managerial aspects of performance within
the control of the store manager, as shown in the second part of Table 1.
Number of transactions Transaction ef ciency is mostly within a store man-
ager’s control. Employees need suf cient training, motivation and rewards to
engage effectively in suggestive selling and close more sales. As suggested by
Dickinson et al. (1992), stores that experience a greater unit sales would be
expected to produce higher dollars of sales (and pro ts) per square foot with
everything else being equal. Lusch et al. (1993) note that suggestive selling is an
effective way for the retailer to increase sales and pro ts. They assert that
performance standards for salespeople should include measures such as sales per
hour.
Productivity in the retail process is measured by the number of transactions
completed (TRANS). This also re ects process ef ciency, employee training,
selling skills and inventory matching to the market – all of which can be
in uenced by the store and regional manager. The greater the number of
transactions per year, relative to other stores in the organization, the greater the
unit’s overall expected sales and pro ts, except in instances where the average
transaction amount declines.
Turnover Employee turnover can have positive and negative organizational
consequences (Boudreau and Berger 1985; Hollenbeck and Williams 1986;
Jackofsky 1984). Turnover is costly to organizations mainly because it requires
time and cost in the recruiting, hiring, training and retaining of salespeople
(Futrell and Parasuraman 1984; Weitz 1979). Turnover can also be bene cial and
functional to the organization (Gable 1983; Dalton et al. 1982; Johnston and
Futrell 1989) partly because it keeps employee salaries and fringe bene ts low.
Studies have found relationships between performance and turnover incon-
sistent. Futrell and Parasuraman (1984) maintain that few organizations have
managerial systems that assist the manager in keeping turnover under control.
Studies by Gable and Hollon (1984) and Gable et al. (1985) indicate that
turnover for retail trainees decreases when they have an understanding of the job
and have prior retail experience. Thus turnover can be in uenced by manage-
ment.
Ef ciency in the work-force is measured by the percentage of turnover at the
unit level (TURNOVER). Turnover serves as a proxy measure for the job
satisfaction of workers, effective internal marketing, appropriate training and
sound management hiring practices.
Inventory Inventory levels in uence both the revenue side and the cost sides of
a retailer’s bottom line. Revenues and costs are affected by such elements as
appropriate levels of quality, quantity, assortment of merchandise created for the
customer targets, distribution, advertising and discounting of excess merchan-
dise to make room for new, incoming goods.
Inventory co-ordination and compatibility are also important (Marcus 1987).
Few studies or measures have related the merchandise mix to retail sales and/or
pro ts (Bultez et al. 1989). Dickinson et al. (1992) propose an empirical model
of merchandise compatibility (crossover sales stimulated by the merchandise
mix) positively related to sales per square foot in evaluating retail performance as
measured in sales dollars per square foot.
Average inventory is another surrogate measure of internal business process
effectiveness. A greater amount (dollars) of inventory on hand suggests more
available merchandise to satisfy consumers which then suggests either larger
sales potential or higher costs because of the higher inventory levels. The more
inventory (INV), the greater the investment and the greater management’s
expectations of sales and pro ts for that unit.
The nancial quadrant
Financial measures re ect outputs at the corporate level. They are related to
external reporting issues, such as the creation of shareholder wealth and returns
on capital deployed. These nancial measures, found in the third section of Table
1, re ect corporate decision-making ability and managerial quality in directing
growth and creating shareholder value.
The decision regarding which markets offer the most attractive long-term
investments is made at the corporate level of multi-unit retailing organizations.
According to Mahajan et al. (1988), retailers have historically pursued growth
through rapid store expansion and increased market penetration, assuming that
a linear relationship existed between these and market share. They found that an
S-shaped growth model was a more accurate representation of market-growth
opportunities and was easier for managers to utilize in their market evaluation
assessments than previous models. This model includes market variables such as
number of company outlets, competitor outlets, market potential, company
market sales, company outlet share, expected market share, untapped sales
potential and sales potential before saturation. These variables are measured in
order to assess market penetration opportunities for multi-store retailers and
determine the number of outlets to be added or deleted in a market.
Location costs are an important decision criterion of management when deciding
to invest company resources in an outlet in a speci c market location. Location
decisions re ect long-term nancial commitments, which affect sales as well as
pro ts. The cost will be measured as the actual total occupancy cost divided by
the selling space of the unit and will, therefore, be used as the proxy for location
cost (FACICOST). Other operating expenses (OTHEROP) is another means for
measuring location costs. These include corporate directives and practices that
directly in uence a unit’s operating expenses and hence its pro tability. Cost
reductions and operating ef ciencies can be obtained by corporate initiatives
such as through the centralized purchasing of supplies. However, corporate
efforts such as training and marketing are expected to increase sales in the short
term, while increasing pro tability long term.
Market attractiveness Mahajan et al. (1985) re ect market attractiveness with
measures of market size, annual growth rate, pro t margin and competitive
intensity. Operating expenses are seen as a function of location strength and
demographic and socioeconomic characteristics of the site. Therefore, the

attractiveness of individual site locations will generally be re ected in increased
dollar operating and occupancy costs. Levels of market share do not measure
pro tability, as the costs of doing business vary from one market to the next.
The attractiveness of a market area may also be estimated by saturation theory
(Applebaum and Cohen 1961–2). This concept evaluates differences in con-
sumer demand and retail supply. Demand can be determined by the number of
relevant or target households in the market and the anticipated average ex-
penditures per household for the relevant goods and services, while supply often
considers total square feet of retail space serving or that will serve this
demand.
Population density is a characteristic of the community and often de ned by
the number of households per square mile. Ingene and Lusch (1981) found that
the greater the population density, the larger the average store square footage
and, thus, the fewer the number of stores that will be needed to serve a
population of a particular size.
Two measures of market attractiveness will be used as proxies to be evaluated
by management.
1) Number of surrounding households (SURRHOUS), which measures market
size. As the market size increases, the sales and pro t potential should under
many circumstances also increase. This measure does not directly measure
population size.
2) Number of people (population) per store (POPSTOR), which measures the
number of potential customers per store in the market. The greater the
population per store, the higher sales in general are expected. This is a direct
measure of population size.
Distance from nearest competing store In terms of accessibility to a particular
market, location and site selection theory has focused on de ning retail trading
areas. This is a geographically delineated area within which households would
generally be willing to travel to a retail location (Ingene 1984; Ingene and Lusch
1980; LaLonde 1961; Applebaum and Cohen 1961–2). Christaller’s (1966)
central place theory ranks communities according to the assortment of goods
available in each location. Other studies, such as Mahajan et al. (1985), utilized
demographic pro ts of market segments to determine site locations in their
portfolio approach. Variables used in this study included number of households,
change in number of households, average household income and median age.
Cannibalization can occur in particular markets and should be monitored and
evaluated relative to performance expectation: market opportunity against the
reality of competitive pressures. Cannibalization of sales from a store within the
same retailing organization is most easily measured and captured by the distance
to the retailer’s next closest outlet (PROXIM). Everything else being equal, as the
distance increases, sales and pro ts should increase.
The innovation and learning quadrant

The innovation and learning quadrant re ects the company’s ability to innovate,
improve and learn, and is related directly to the company’s value (Kaplan and
Norton 1992).
McGill and Slocum state:
any company today with a sustainable strategic advantage – an ability to ensure

a competitive edge over the long run via protection, perpetuation, and/or
replacement – has achieved that position through dedicating its people,
policies, and practices to learning from experience.
(McGill and Slocum 1993: 74)
The organization’s achieved experience in the market, quality of management

talent and longer employee tenure have all been linked to improved ef ciency
and business processes.
Retailers must continually explore new ways of servicing their customers and
continually monitor their merchandise mix in order to differentiate themselves
positively and sustainably in today’s competitive market. The adoption of
information innovations by large retailers (such as Home Depot, The Limited
and Wal-Mart) requires employee involvement and commitment to learning new
skills, as well as a willingness to work towards time and cost savings. This means
having the right culture to attract and the right managerial skills to identify (and
keep) the right type of people. It also means facilitating communication and
participation both vertically and horizontally among all levels of the organiza-
tion. The above elements are generally seen as relatively new bases for attaining
strategic advantage in the market and are gaining attention in performance
assessment of successful businesses (Senge 1990; Bharadwaj and Menon 1993;
Eccles 1991).
Manager and employee tenure McEvoy and Cascio (1987), in their meta-analysis
of performance and employee turnover, found that low turnover tends to occur
among good performers, while high turnover tends to occur among low
performers. Turnover is a dichotomization of the continuous variable referred to
as tenure. Typically, performance improves with tenure (Price and Mueller
1981). As managerial and employee tenure increases, an organization’s learning
potential is expected to improve.
Gable, Hollon and Dangello (1992) indicate that tenure at the job is also a
predictor of performance. Bowman (1963) suggests that managers identify
through experience the crucial variables associated with a decision and learn how
to weigh those variables in making decisions introduced by short-term organiza-
tional pressures and conditions. Bowman (1963) and Kunreuther (1969) provide
a series of studies in which signi cant cost savings were achieved by applying a
decision maker’s model consistently, further supporting the notion that manage-
rial tenure should be positively linked to organizational opportunities for
learning and innovation. Individuals are expected to learn with experience
(Senge 1990). Since rms are a collection of individuals, their capabilities are a
re ection of the cumulative experience and abilities of their membership (Hastie
1986).
Employee experience can be measured in average hourly employee tenure

(HRLYEXP). Satis ed workers stay with a rm longer, provide positive and
more extensive information to customers and are motivated to see the rm
succeed. The expectation is that the longer tenured employees will expend more
effort towards satisfying customer needs than dissatis ed workers. Therefore, as

experience increases, the ability to enhance the organization image and percep-
tion of quality will tend to increase.
Manager experience can be measured by average store manager tenure
(MGREXP). As store managers’ experience increases, their ability to understand
the customer, market, inventory and human resource skills and needs within that
store should improve. All of these aspects should re ect learning and experience
in the organization and should lead to improved performance and value for the
company. The average tenure of a manager was 5.92 years, whereas the average
for hourly workers was 1.53 years.
Store age Market tenure (presence in the market) generally leads to improved
company product and brand recognition among consumers in the market.
Knowledge of the company’s merchandise quality along with its price and value
are regarded as key factors in shaping buying behaviour (Sawyer and Dickson
1984; Doyle 1984). Word-of-mouth referrals, credibility and retailer reputation
may be enhanced. Experience curve effects are also expected to produce
improvements internally in the store’s operations (Abernathy and Wayne 1974;
Yelle 1979).
A company’s experience and the information available to customers about a
business shape the company’s reputation. Allen (1988) found that a company’s
reputation becomes more valuable as competition gets more intense. Company
reputation has long been recognized as a key factor in successfully marketing a
service (Thomas 1978; Zeithaml 1981; Lewis and Booms 1983). A company’s
reputation re ects the history of its past actions (Rosenthal and Landau 1979;
Kreps and Wilson 1980) and affects the buyer’s expectations with respect to the
quality of its offerings (Nelson 1970; Shapiro 1983). Lusch et al. (1993) suggest
that in retailing, successful strategic planning leads to market adaptation and
survival by understanding customers’ needs and competition in the marketplace.
Store experience is operationalized as tenure in a market, or store age (STORE-
AGE).
The innovation and learning measures are shown in the fourth section of
Table 1.
Core retail measures: output variables
Commonly used measures to assess performance in the retail setting are sales per
square foot, operating pro t margin and gross margin return on inventory
(GMROI). At a meeting with senior executives of the rm, these measures were
approved. Earlier analysis by the authors suggested that the input variables
would have an impact on performance. For this reason output data were secured
at a later point in time than the input variables.
Net annual sales per square foot is a measure of the productivity of store space that
permits easy comparison of retail units.
Operating pro t margin The ratio of net pro t divided by net sales indicates
how much a retailer is making on each dollar of sales after all expenses have been
considered. While this measure does not show how effectively a retailer is
utilizing the capital at its disposal, it is another well accepted predictor of retail
performance.
GMROI This measure incorporates two important retailing variables together

in a single statistic – The gross margin percentage is expressed as a percentage
of sales and the annual turnover rate of the inventory. It is computed in the
following manner: (gross margin/net sales) (net sales/average inventory) 5
(gross margin/average inventory).
Thus, if a particular store has a gross margin of 40 per cent and an annual
turnover rate of 5, the GMROI is 200. That is, for each dollar invested in
inventory, the store may be seen as obtaining $2.00 in gross margin annually.
Retailers who interrelate gross margin percentage and inventory turnover
effectively will be able to achieve higher performance results. The last part of
Table 1 presents relevant data about the output variables.
Results
An intercorrelation matrix of the fourteen input variables is presented in Table

2. It reveals a high degree of collinearity between OTHEROP with INV (0.74)
and TRANS (0.84) and INV with TRANS (0.74). Tabachnick and Fidell (1989)
recommend that any variables included in the same analysis be removed if they
have a correlation of 0.70 or higher. To diminish the impact of multicollinearity
and increase con dence in the results, the variables OTHEROP and INV were
removed from further analysis. Twelve variables remained and are employed in
the current research.
Table 3 displays correlations of each of the twelve input variables with the
three output variables. Nine of the twelve input variables correlate signi cantly
with SALESQFT. Similar results emerged for OPPROFIT and GMROI. Two
input variables, TURNOVER and HRLYEXP, failed to correlate signi cantly
with any of the output variables. There were mixed results for POPSTOR and
PROXIM. In three instances, COSTHOUR, SURRHOUS and FACICOST,
inverse correlations emerged with OPPROFIT.
While correlation analysis provides insights into the relationships between
input and output variables, there is still a need to select an appropriate analytical
technique that can distinguish high-performing stores from low-performing
stores as measured by the output variables, making use of the input variables.
Discriminant analysis is an appropriate statistical technique when the input
variables are metric and the output variables lend themselves to being categor-
ized.
Table 4 reports the statistical analyses predicting performance as measured by
OPPROFIT. Canonical discriminant analysis (SAS/STAT User’s Guide 1990)
was employed. The CANDISC procedure, as described in the guide, performs a
canonical discriminant analysis that is a dimension-reduction technique related
to principal component analysis and canonical correlation. In order to get a more
balanced grouping of stores, median cut-off values were used to assign a score to
each of the 542 observations. If a score was above the median response, it was
placed in one group and termed a ‘high’ performer. The others were labeled
Table 2 Intercorrelation matrix of input variables (N 5 542)
INV TURNOVER TRANS STOREAGE HRLYEXP MGREXP FTSERVC FTPT COSTHOUR SURRHOUS POPSTOR PROXIM OTHEROP FACICOST
INV 1.00 .01 .74* .15* .01 .26* .33* .06 .20* .12* .07 .06 .74* .28*
TURNOVER 1.00 .05 .04 –.41* –.13* .07 .04 –.23* .03 .01 .04 .01 .27*
TRANS 1.00 .13* .02 .29* .54* .11* .18 .34* .17* .09* .84* .44*
STOREAGE 1.00 .21* .17* .11* .06 .14* .14* .03 –.08 .06 –.23*
HRLYEXP 1.00 .27* .02 .04 .38* .04 .03 –.07 .01 –.05
MGREXP 1.00 .16* .08 .27* –.07 .09* –.02 .24* .01
FTSERVC 1.00 .46* .16* .32* .17* –.04 .51* .37*
FTPT 1.00 .03 .06 –.02 –.01 .10* –.04
COSTHOUR 1.00 .18* .12* –.27* .22* .34*
SURRHOUS 1.00 .06* –.15* .30* .45*
POPSTOR 1.00 .03 .25* .24*
PROXIM 1.00 .07 .16*
OTHEROP 1.00 .07
FACICOST 1.00
* Signi cant at .05 or lower
Table 3 Correlation of input measures with output variables (N 5 542)
Input measure SALESQFT OPPROFIT GMROI

TURNOVER .01 .05 .01
TRANS .74* .40* .73*
STOREAGE .17* .31* .09**
HRLYEXP .08 .04 .03
MGREXP .27* .22* .29*
FTSERVC .60* .21* .47*
FTPT .09** .14* .12*
COSTHOUR .24* –.19* .17*
SURRHOUS .21* –.16* .15*
POPSTOR .24* .01 .23*
PROXIM .01 .20* .03
FACICOST .44* –.44* .32*
* Signi cant at .01 or lower
** Signi cant at .05 or lower
‘low’ performers. Further, 80 per cent of each group was used as a classi cation
sample, the balance being employed as a hold-out sample. Therefore, the
discriminant analysis is performed using a fraction of the data set to validate the
rule generated by the balance of the dataset. The discriminant function is
quadratic, that is, the variance-covariance matrix is not assumed to be equal
between groups.
Table 4 indicates the standardized coef cients, F values and probabilities (p)
for the 12 input variables (the complete model). The complete model has a
R-square of .48 with an accompanying likelihood ratio of .52 (F 5 33.0,
p 5 .0001). Of the twelve predictor variables of OPPROFIT, nine are signi cant
at the .05 level or lower. The decision was then made to make use of a reduced
model, using only those nine variables.
Further, this table provides standardized coef cients for the nine input
variables. F values and probabilities are not shown because they are identical to
those for the complete model. They remain the same even if the model is
reduced. This model has a R-square of .47 with an accompanying likelihood ratio
of .53 (F 5 42.9), allowing rejection of the null hypothesis that there was no
relationship between the dependent variable and explanatory variables at the
.0001 level of signi cance. Of the nine variables, three (FTPT, COSTHOUR
and FACICOST) have negative loadings. The discriminant analysis ndings
indicate that higher-performing stores are more likely than lower-performing
stores to have: 1) higher TURNOVER, TRANS, STOREAGE, MGREXP,
FTSERVC and PROXIM and 2) lower FTPT, COSTHOUR and FACI-
COST.
The question of classi cation accuracy is of substantial importance. If the
classi cation accuracy were not greater than could be expected by chance,
differences in score pro les would provide no meaningful information for
identifying group membership. The question is then how much of the classifica-
tion accuracy should be relative to chance. Hair et al. (1987: 90) recommend that
the classi cation accuracy should be at least 25 per cent greater than that
achieved by chance. Chance classi cation accuracy is approximately 50 per cent
for the sample employed to develop the discriminant function. Therefore, the
classi cation accuracy should be a minimum of 62.5 per cent. The actual level of
classi cation accuracy of the analysis sample is 81 per cent, far exceeding the
minimum requirement. For the hold-out sample, the classi cation accuracy of 79
per cent is substantially higher than the criterion of 62.5 per cent. The
discriminant function, therefore, can be considered a valid predictor of perform-
ance as measured by OPPROFIT. The data for this section are provided in the
bottom section of Table 4.
In order to get more precise parameter estimates and better estimates of the
error rates, a re-sampling model was used. The entire analysis was performed
1,000 times using a different 0.2 fraction for the hold-out sample on each run.
Only the input variables used in the reduced model are used in this analysis.
Categorization accuracy of the classi cation sample of 433,392 is 79 per cent; for
the hold-out sample of 108,608, classi cation accuracy is also 79 per cent. These
results con rm the ndings of the reduced model. The standardized coef cients
calculated in this last procedure parallel those in the reduced model. These are
also displayed in Table 4. In addition, lower and upper con dence limits are
presented in the last two columns of Table 4. These results indicate that the
width of the con dence interval is small, con rming the accuracy of the
estimates in the re-sampling model. Because of the re-sampling technique, these
coef cients are more robust than those for the reduced model. The methodology
used for OPPROFIT is replicated for SALESQFT and GMROI.
Table 4 Discriminant analysis with OPPROFIT as the dependent variable

A Standardized coef cients
Complete model Reduced model Resampling model

Input Standardized Standardized Standardized
variable coef cient F value P coef cient coef cient Lower Higher
TURNOVER .014 7.63 .006 .070 .054 .052 .056
TRANS 1.074 73.24 .0001 1.078 1.063 1.059 1.067
STOREAGE .179 37.23 .0001 .151 .139 .137 .142
HRLYEXP -.166 1.82 .179 — — — —
MGREXP .030 12.19 .0005 .004 .040 .038 .043
FTSERVC .363 24.57 .0001 .364 .251 .247 .255
FTPT –.026 7.43 .007 –.040 –.035 –.038 –.032
COSTHOUR –.219 17.51 .0001 –.258 –.172 –.174 –.169
SURRHOUS –.059 0.83 .350 — — — —
POPSTOR .135 0.05 .821 — — — —
PROXIM .022 14.79 .0001 .031 .033 .031 .035
FACICOST –1.136 47.76 .0001 –1.123 –1.055 –1.061 –1.050
B Classi cation matrices – reduced model
Analysis sample Hold-out sample

(N 5 445) (N 5 97)
Low High Low High
performers performers performers performers
Predicted by discriminant analysis
Low performers 204 20 38 8
High performers 63 158 12 39
The data in Table 5 display the discriminant analysis predicting performance

as measured by SALESQFT. Again, a median split was used. The complete
model has a R-square of .39 and a likelihood ratio of .61 (F 5 22.7, pr. 5 .0001).
Of the twelve input variables, eight are signi cant at the .05 level or lower. These
are used in the reduced model which has a R-square of .38 with an accompany-
ing likelihood ratio of .62 (F 5 33.4, pr. 5 .0001). Two of the signi cant variables
(SURRHOUS and FACICOST) have negative loadings. Classi cation accuracy
for the analysis and hold-out samples are 76 per cent and 77 per cent
respectively. See the bottom section of Table 5 for those data.
When the re-sampling method of the discriminant analysis was performed
1,000 times, the classi cation accuracy of the analysis sample of 433,392 is 77 per
cent, and the hold-out prediction rate is 76 per cent for the sample of 108,608.
In both instances, chance categorization accuracy was far exceeded. The
standardized coef cients are shown in Table 5 as well as the lower and upper
con dence levels. The extent of the con dence interval is narrow, verifying the
accuracy of the standardized coef cients in the resampling model. The dis-
criminant analysis coef cients for SALESQFT reveal that high-performing
stores are more likely than low-performing stores to have: 1) higher TRANS,
STOREAGE, MGREXP, FTSERVC, COSTHOUR and POPSTOR, and 2)
lower SURRHOUS and FACICOST.
Table 6 reports the statistical analyses predicting performance as measured by
GMROI. Median cut-off values are assigned to each of the 542 observations,
Table 5 Discriminant analysis with SALESQFT as the dependent variable


TURNOVER .121 3.30 .070 — — — —
TRANS 1.130 221.99 .0001 1.133 1.148 1.145 1.151
STOREAGE .048 6.93 .009 .090 .096 .094 .098
HRLYEXP .086 0.76 .384 — — — —
MGREXP .223 6.89 .009 .224 .220 .217 .221
FTSERVC .465 106.04 .0001 .394 .394 .392 .397
FTPT –.138 2.83 .093 — — — —
COSTHOUR .113 10.17 .002 .132 .144 .140 .148
SURRHOUS –.274 9.53 .002 –.267 –.264 –.271 –.256
POPSTOR .098 12.78 .0004 .098 .080 .079 .082
PROXIM –.093 0.10 .756 — — — —
FACICOST –.156 25.42 .0001 –.112 –.105 –.109 –.102

(N 5 445) (N 5 97)
Low High Low High
resulting in 273 high performers and 269 low performers. The R-square of .38
for the complete model has a likelihood ratio of .62 (F 5 21.8, pr. 5 .0001).
Seven of the twelve input variables are signi cant at the .05 level or lower and
are used in the reduced model. Discriminant values for the reduced model have
a R-square of .36 with an accompanying likelihood ratio of .64 (F 5 34.9, pr. 5
.0001). Only FACICOST has a negative loading, paralleling the results for
OPPROFIT and SALESQFT. Categorization accuracy for the analysis and
hold-out samples is 75 per cent and 76 per cent respectively, surpassing the
acceptable level criterion.
The re-sampling model indicates a classi cation prediction rate of 74 per cent
for the analysis sample (320,908 of 433,392 cases) and 76 per cent sample (82,055
of 108,608 cases) exceeding the level for chance recommended by Hair et al.
(1987). Con dence intervals for the standardized coef cients are small. The
coef cients reveal that high-performing stores are more apt than low-performing
stores to have: 1) higher TRANS, STOREAGE, MGREXP, FTSERVC,
COSTHOUR and POPSTOR and 2) lower FACICOST.
The data in Table 7 indicate that TRANS, STOREAGE, MGREXP,
FTSERVC, COSTHOUR and FACICOST are signi cant discriminators for all
three resampling models. TRANS has the highest standardized coef cient in all
instances, and FACICOST has a negative coef cient for OPPROFIT,
SALESQFT and GMROI. STOREAGE, MGREXP and FTSERVC are sig-
ni cant discriminators for all three models. However, MGREXP has a low
Table 6 Discriminant analysis with GMROI as the dependent variable


TURNOVER .118 2.35 .126 — — — —
TRANS 1.306 234.56 .0001 1.250 1.181 1.179 1.184
STOREAGE .083 4.93 .027 .031 .029 .027 .031
HRLYEXP .033 0.38 .537 — — — —
MGREXP .103 23.64 .0001 .114 .125 .122 .128
FTSERVC .137 43.35 .0001 .112 .111 .110 .114
FTPT .070 1.42 .234 — — — —
COSTHOUR .032 7.41 .007 .022 .066 .063 .069
SURRHOUS –.305 3.82 .052 — — — —
POPSTOR .166 12.12 .0005 .191 .197 .194 .199
PROXIM –.068 0.82 .367 — — — —
FACICOST –.057 25.68 .0001 –.072 –.073 –.081 –.065

(N 5 445) (N 5 97)
Low High Low High
Table 7 A summary of analyses for OPPROFIT, SALESQFT and GMROI*
Input Aspect of OPPROFIT SALESQFT GMROI

variable scorecard Coef cient Ranking Coef cient Ranking Coef cient Ranking
TURNOVER Internal .054 6 — — — —
TRANS Internal 1.063 1 1.148 1 1.181 1
STOREAGE Innovation .139 5 .096 7 .029 7
HRLYEXP Innovation — — — — — —
MGREXP Innovation .040 7 .220 4 .125 3
FTSERVC Customer .251 3 .394 2 .111 4
FTPT Customer –.035 8 — — — —
COSTHOUR Customer –.172 4 .144 5 .066 6
SURRHOUS Financial — — –.264 3 — —
POPSTOR Financial — — .080 8 .197 2
PROXIM Financial .033 9 — — — —
FACICOST Financial -1.055 2 –.105 6 –.073 5
* Standardized coef cients from the resampling model (data being run 1,000 times) are being used.
Rhonda Thomas et al: An application of the balanced scorecard in retailing
59
coef cient for GMROI. Note that COSTHOUR is signi cant for all three
models but has a negative sign for OPPROFIT. The second column shows that
these six descriptors represent all aspects of the balanced scorecard. POPSTOR,
a measure from the nancial quadrant, is a signi cant discriminator for
SALESQFT and GMROI. Further, three variables are signi cant for one model
only: SURRHOUS for SALESQFT and PROXIM and TURNOVER for
OPPROFIT. The former has a high but negative coef cient, while the latter has
low coef cients. HRLYEXP is not a signi cant discriminator for any of the
models.
Discussion
Implications and conclusions based on this empirical research must remain

guarded. The cross-sectional data are for only one multi-store chain, at one point
in time. Moreover, the analysis suffers from the excluded variable bias. Some
variables were purposefully omitted, and some data that might have been useful
were not available. For example, measures for such factors as visual merchandis-
ing, advertising and store atmosphere were not considered. Further, the in-
formation generated by the research is provided to management in an ‘after the
fact’ form. Problems discovered by research of this kind may be remedied in the
long term but seldom in the short term. In addition, the fact that data were
secured from one rm may have resulted in a more homogeneous grouping,
possibly masking differences existing in a wider population of retailers. Because
of these limitations, this type of study should be replicated.
Despite its limitations, the balanced scorecard can provide assistance to busy
retailing executives. Some may be of the belief that retail managers cannot
operate with multiple measurements of performance. For some, multiple meas-
ures can be both confusing and ambiguous. Recent advances in technology and
increased sophistication of decision making have made it feasible to develop
integrated decision frameworks. The authors feel that the bene ts of bringing all
parts of the rm together with structured, quanti able, multiple measures are
worth the cost. Retail managers of the twenty- rst century will need a full body
of strategic tools if their rms are to survive and thrive. The use of discriminant
analysis, together with operationalizing the four aspects of the balanced score-
card, is capable of providing retailing managers with a highly individualized and
exible technique for both predicting and improving performance. By perform-
ing this analysis, retail management can de ne and measure performance
according to the rm’s unique strategic perspective and market position.
Comparing store performance within a chain can contribute to a number of
important management decisions. First, store-management evaluations, promo-
tion and development rely explicitly and implicitly on assumptions about the
causes of store performance. Second, important resource allocations at the store
level, such as advertising budgets, store expansions and store closings, are made
on management’s understanding of the relationships between inputs and per-
formance outcomes. Third, adopting a best practices approach to continuous
improvement and corporate learning requires the monitoring of inputs and
estimating their impact on outcomes.
In a recent issue of the Harvard Business Review (1996), seven letters to the
editor by high-level executives from rms such as Mobil Oil and Chase
Manhattan Bank indicate how they have incorporated the principles of the
balanced scorecard into better management of their respective organizations.
This article takes an initial step on how retailers can utilize the balanced
scorecard by organizing and creating multiple measures of performance.
In this study six of the measures were relevant in determining operating
pro t, sales per square foot and gross margin return on investment, and the six
are re ected in each of the four aspects of the balanced scorecard. These
performance indicators are:
1 number of transactions (from the internal process quadrant);

2 annual occupancy cost per square foot of selling space (from the nancial
quadrant);
3 age of store in years (from the innovation and learning quadrant);
4 store manager’s tenure in years (from the innovation and learning quad-
rant);
5 number of full-time employees per square foot of selling space (from the
customer quadrant); and
6 wages and salaries per payroll hour (from the customer quadrant).
Number of transactions (TRANS) This is the most powerful descriptor with all
three outputs. More effective merchandising, including more effective displays
and in-stock conditions, is important to increasing the number of transactions.
Similarly, more effective sales training should contribute to such aspects as a
more effective selling process and a better handling of multiple customers.
Point-of-sale modi cations might get customers through the selling process
more ef ciently. Waiting times might be decreased and customers more sat-
is ed.
Annual occupancy cost per square foot of selling space (FACICOST) This factor
has a negative impact on the three output variables. In the context of the present
retail chain, this appears to mean that the store has unique enough merchandise
and presentation. It is what is often called a destination store. Customers are
willing to travel speci cally to that outlet. Thus, the chain is probably overpaying
in today’s market for the bene ts derived from many mall locations. Relatedly,
many types of malls are decreasing in their abilities to bring customers in so that
many of the rents, negotiated in earlier more prosperous times for malls, are too
high for this retailer. Another possible explanation is that this chain has trouble
dealing with the intense competition that exists in many high-rent malls.
Age of store (STOREAGE) For almost all chains, older retail stores should be
systematically refurbished. For many retailers, however, particularly in the
beginning years of a store unit, pro ts and GMROI will rise. Retailers should
manage this ageing process. Taking the long-term view is important. Experience-
curve effects should improve performance, and word-of-mouth advertising
should yield long-term effects for outlets that are effectively managed. If a store
has achieved maturity, and sales and pro ts are not at a minimum desired level,
actions may be needed, including closing that store. FACICOST and STORE-
AGE are signi cant predictors, and in combination they point to the importance
of securing desirable locations on advantageous terms over the longer term.
Store manager’s tenure (MGREXP) Part of effective management is developing

managers who have a concern for the culture and the long-term success of the
rm. In general, part of the compensation of store managers should be based on
long-term performance factors, perhaps the image of a particular outlet.
Further, consideration should be given to the training, career patterns and lives
of those who manage stores. Steps should be taken to recruit and hire individuals
who will not only be good managers but also will remain with the organization.
To implement this two-step process, greater use can be made of the employment
application form (see Gable et al. 1992).
Full-time employees per square foot of selling space (FTSERVC) As suggested

above, FTSERVC should help pro tability and customer service in many ways.
Full-time employees should be better trained, leading to such results as fewer
walkouts, a more effective and pro table pattern of sales, a better organized
stock, and the systems of the store should be more effectively implemented and
better understood. Since customer service is a necessary condition for successful
store performance, the time taken for a customer to be served should be closely
monitored. For many retailers traf c patterns should be (and are) monitored by
day of the week and time of day. Efforts for many retailers should also be
directed towards making part-time employees feel more like full-time
employees.
Wages and salaries per payroll hour (COSTHOUR) This factor, like MGREXP
and FTSERVC, is associated with human resource management policies and
practices. It has a positive effect on sales and GMROI but is a negative
descriptor of pro tability. Therefore, care is essential before giving raises or
installing incentive programmes. Costs and bene ts should be carefully
monitored.
A perspective
A key bene t of this research to retailing managers is that insights generated

from this kind of study can usually be tested in another group of stores.
Additional research is needed to determine if the input variables that were
signi cant descriptors in this study would be the same for other rms and types
of retail rms. Other measures may be better predictors of sales and pro tability.
For example, the rm in this research is investigating the installation of
mechanical devices that will both count the number of customers entering a
store and indicate how long they stay. If implemented, this has interesting
implications as an input measure. Subsequent research could at some point lead
to different con gurations of factors associated with the balanced scorecard.
Further, the input variable (INV) was broadly de ned. Some measure of year-to-
year change of inventory holdings could be used as another way of measuring
inventory.
This study provides assistance to retailing executives who are concerned with
improving their organization’s performance. Because of the large number of
variables that retailers can employ (e.g. orientation to the customer, merchandise
mix, service level and location), comparisons across retail units are often
dif cult. Sheer size and complexity of organizational structure can add to the
problems. However, this study suggests that it is possible for each retailer to
de ne and measure performance according to its unique strategic perspective
and market position. The information generated is surely a boon to busy
executives operating in a dynamic environment.
Summary
Relying on one or two key measures of pro tability for planning and control has
been a continuing problem for retailing and business rms. This article offers a
brief history of various attempts at multiple measures. A balanced scorecard
makes it possible for each rm to de ne and measure performance according to
its unique strategic perspective and market position. The balanced scorecard is
analysed with data from a large multi-unit retail chain and appears to be a highly
individualized and exible technique for improving retailer performance.
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The International Review of Retail, Distribution and Consumer Research 9:1 Jan 1999 41–67

An application of the balanced

In a world where information is relatively scarce, and where problems for

1 the co-operating retailer;

Rhonda Thomas is Visiting Assistant Professor at the Sellinger School of Business,

Copyright © Routledge 1999 0959–3969

4 the results of the study, including a description of the statistical treatment;

Figure 1 The balanced scorecard

The empirical study

The co-operating retailer

Data were collected from internal company records of a multi-unit, multi-

The customer quadrant

The internal business quadrant

bond managerial judgement about internal process and (strategy) competencies

The  nancial quadrant

demographic and socioeconomic characteristics of the site. Therefore, the

The innovation and learning quadrant

McGill and Slocum state:

any company today with a sustainable strategic advantage – an ability to ensure

The organization’s achieved experience in the market, quality of management

Employee experience can be measured in average hourly employee tenure

effort towards satisfying customer needs than dissatis ed workers. Therefore, as

Core retail measures: output variables

GMROI This measure incorporates two important retailing variables together

An intercorrelation matrix of the fourteen input variables is presented in Table

Table 3 Correlation of input measures with output variables (N 5 542)

Input measure SALESQFT OPPROFIT GMROI

Table 4 Discriminant analysis with OPPROFIT as the dependent variable

Complete model Reduced model Resampling model

Analysis sample Hold-out sample

The data in Table 5 display the discriminant analysis predicting performance

Table 5 Discriminant analysis with SALESQFT as the dependent variable

Complete model Reduced model Resampling model

Analysis sample Hold-out sample

Table 6 Discriminant analysis with GMROI as the dependent variable

Complete model Reduced model Resampling model

Analysis sample Hold-out sample

Input Aspect of OPPROFIT SALESQFT GMROI

Implications and conclusions based on this empirical research must remain

1 number of transactions (from the internal process quadrant);

Store manager’s tenure (MGREXP) Part of effective management is developing

Full-time employees per square foot of selling space (FTSERVC) As suggested

A key bene t of this research to retailing managers is that insights generated

Buzzell, R. and Wirsema, F. (1981) Dunne, P. and Rothenberg, M.J. (1993)

Gatignon, H. and Hanssen, D.M. strategy’, Planning Review,

Chicago: American Marketing Olsen, L.M. and Lord, D.J. (1979)

Tabachnick, B. and Fidell, L. (1989) contingency approaches’, in Albaum,

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The nancial quadrant

effort towards satisfying customer needs than dissatis ed workers. Therefore, as

A key bene t of this research to retailing managers is that insights generated