Chapter 14: Balanced scorecard, Sustainability CASE: Nost Vineyards1

Jude Quan has become the new chief financial officer (CFO) at Nost Vineyards (NV). As such, he is responsible for making top-level decisions, such as driving operational and financial changes to ensure NV continues to grow. Jude is a CPA with years of experience at a larger corporation than NV, with operations across Canada. He wants to ensure that his decisions for the upcoming year show the CEO and the New Chairman of the Board of Directors how well he is managing the organization as a whole.

Nost Vineyards is a wine manufacturer. It distributes its products to retailers across Canada. Nost's objective is to be the number one distributor of its product lines in Canada. Nost competes against a limited number of Canadian companies but also competes against several large California vintners. It seeks to increase market share through the delivery of quality products. It believes it can achieve its objectives through quality control in its manufacturing processes, improved efficiency (particularly relating to yields), and innovation of its products. These goals align with NVs corporate strategy.

Historically NV has used return on assets and return on investment to evaluate and reward the divisional managers performance. Jude is concerned because these measures of performance present some challenges and can be manipulated. He knows that there are other methods of evaluating the performance of divisions or even the whole company and would like to explore them. In particular, Jude has a lot of experience in implementing Balanced Scorecards (BSC) at his previous company. The performance of his prior company improved after implementing the BSC.

Additional information:

Nost has had problems with employee turnover, both in production and administration. It pays competitive wages and salaries but still has struggled managing employee turnover. Employee surveys have determined that employees do not believe the company provides adequate training or support and that employees are unaware of opportunities for advancement. Exhibits are provided below.

Required:

Take the role of Jude and make a summary report for the CEO and new Chairman of the board. Case summary must be solved in the following format:

Items to consider:

1. Create BSC(s) for Nost Vineyards. Do not include targets or rewards. 2. What types of sustainability measures would you recommend for Nost? 1-2 paragraphs

Internal Notes to Financial Statements:

1. Divisional sales are as follows: West Coast, $13,310,000; Prairies, $3,630,000; Central, $10,890,000; Atlantic, $2,420,000. 2. Variable costs are 20% of sales. 3. Divisional fixed costs are as follows: West Coast, $4,235,000; Prairies, $968,000; Central, $3,630,000; Atlantic, $726,000. 4. The hurdle rate for the company as a whole is 15%. 5. Interest Expense is not allocated to divisions.

Exhibit A: Divisional Items from Consoliated Statement of Fianncial Postion