Please help to answer the following questions based on the case facts provided below. (ALL NECESSARY CASE FACTS ARE PROVIDED TO ANSWER SUMMARY QUESTIONS. NOTHING IS MISSING)
1) What are major issues/problems?
2) What are the decision-makers goals and objectives?
3) Are there other stakeholder needs or preferences?
4) Are there any internal or external constraints to consider?
5) Briefly comment on how Kilgor's value system does or does not align with the strategy of the Wine Division (see p.2)
6) If you had to choose 3 or 4 "key success factors" for the Wine Division from the list of potential measures in Appendix 3, which ones would you select and why?
Kilgors Wine Division: A Balanced Scorecard Simulation
Introductory note: This digital simulation case can be accessed Figure 1. The divisional structure is supported by a shared- at www.kilgors com through a student registration process. Your instructor will provide the relevant registration credentials. services department chat includes accounting, human resources, informational technology, and legal services. Each "The wive industry is incredibly dynamic.. .our competitors are division manages its own product-development and value- always coming up with something surprising...we need to chain logistics. Division managers have significant autonomy herewe a more dynamic competitor.. .I'm here to learn how in managing their divisions. The CEO, Robin, promotes a the scorecard approach can help us..." culture of autonomous decision-making with an emphasis on -Lea, wine division manager, Kilgors organizational values (see Figure 2), believing this to be the best way to drive long-term shareholder value. An illustration INTRODUCTION of the interconnected values of Kilgors is provided in Figure 2. The Wine Division is the largest (based on assets and Lee, the wine division manager at Kilgore, has been tasked with revenue) of the three divisions of Kilgore. See Appendix 1 the implementation of a balanced scorecard (1850) for the Wine for a summary of the key financial data for each division and Division. It will operate as a pilot for the company The Wine Kilgore overall. The Wine Division currently operates several Division already uses a combination of measures throughout the vineyards and wineries, distributing most of its production internal value chain. At present, however, these measures are to local wholesalers, retail outlets, supermarkets, and hotels. used on an ad hoc basis by the functional units, and the setof Kilgors' wine division has a small international presence, but measures lacks integration. Management at Kilgors is hoping to Management is hoping to grow this aspect of operations over achieve a more integrated set of performance measures, as well the next few years. Management believes that international as a dynamic support tool to drive strategic decision-making growth is the key vehicle to drive market share across the through implementation of a BSC. product portfolio. Detailed financial data specifically relating to the Wine Division are provided in Appendix 2. BACKGROUND TO KILGORS AND THE WINE Like most integrated wine companies, Kilgors is exposed DIVISION to climate and seasonal factors, international competitive pressures; the challenges of innovation; changing consumer Kilgore is a multidivisional company (headquarters in tastes; and balancing costs, quality, and pricing. Operational Melbourne, Australia), with a focus on the wine, hospitality, planning is challenging because of the long production and entertainment industries. Kilgore was established in cycle from vineyard co bottled wine and the extended time 1995 as a small wine company but has now grown into a horizons required for marketing and product-emphasis diverse company that became publicly traded in 2006. The decisions. Common disruptions in this industry include new organizational structure and key personnel are shown in entrant products and wine varieties, actions by competitors such as price reductions, regulatory changes, and otherchanges in the supply chain. Lee finds that chese market disruptions are occurring more often, challenging the status ABOUT IMA" [INSTITUTE OF MANAGEMENT ACCOUNTANTS) quo and demanding a constant cycle of reactionary decision- MA , the association of accountants and financial professionals in making to defend market positions and remain competitive. business, is one of the largest and most respected associations During a recent strategic-planning process to review focused exclusively on advancing the management accounting its organizational strategy of high-quality products and profession. Globally, IMA supports the profession through research, differentiation, the Wine Division developed the following the CMA" (Certified Management Accountant) program, continuing three core strategic planks: education, networking and advocacy of the highest ethical business practices. IMA has a global network of more than 100,000 members 1. Outperform the market across the product range, in 140 countries and 300 professional and student chapters. 2. Seek efficiency improvements across the internal value Headquartered in Montvale, N.J., USA, IMA provides localized chain, and services through its four global regions: The Americas, Asia Pacific, 3. Develop the capabilities of all staff through training and Europe, and Middle East/India. For more information about IMA, please visit www.imanet.org. knowledge sharing. Following the strategic planning exercise, Lee has overseen some preliminary work on the development of a suite of possible BSC performance measures (see Appendix 3). Lee knows that more work is required to build on this preliminary list through further testing and development. At this stage, Lee recognizes that she needs guidance from someone with management accounting expertise to further develop and refine the BSC. She also recognizes chat planning for disruptions and market threats will be an integral part of this strategic planning process. ACKNOWLEDGEMENTS This case and simulation have been developed in conjunction with Oztron Media and Patch Media. We would like to thank all of those who have been so cooperative and contributed to the simulation, including Dale Linegar, Paul, Staubli, Daan Deman, Patch Moore, Gunther Burghard, Kevin Mccarthy, Naomi Soderstrom, Suzy Markovski, Robin Asher, Paul Dawber, and Kenny Cheng. We are grateful for the funding provided by the Faculty of Business and Economics at the University of Melbourne through the Teaching Innovation Grants program, as well as funding support through Royal Melbourne Institute of Technology. We thank Sarah Tesar, Michael Thouk, Andrew Lewinsky, and Viktor Arity for their assistance in developing and testing the case and simulation. Finally, we thank Kip Krumwiede, the associate editor of the IMA" (Institute of Management Accountants) Educational Case Journal and director of research at IMA, and reviewers for their support and helpful comments.Appendix 1. Summary Kilgore Financial Data (in millions) Wine Hospitality Entertainment Total AS USS AS US$ AS USS AS USS Revenue 350 07 245100 185.50 280100 198 00 195 07 826150 Gross Profit 122. 50 85.76 14 80 59. 31 108.40 74.48 31370 219159 Net Operating Profit 9.51 4.64 14.00 9 80 30 13 21.09 Total Assets 219 01 151.30 185 00 129. 50 124.00 628 00 364160Appendix 2. Wine Division Financial Data Kilgore Wine Division Income Statement Current Year Prior Year SUum Sm Por one pair cats $05 M5,0 OK 228,200,090 17.65 Cast of sales 227 500 000 159,290,000 6 10 25.27 205.390.000 143, PEG,200 23.73 Gross Profit 122 5010 0CO 35,750 0030 19.4 13.61 120,620 0030 9.51 EBEL Selling 12,120,080 Marketing 14.000 000 3,801 00 13.410.003 T,SET,000 Adminatration 43 000 000 13,600,0100 48,0001000 33,600,060 Carpraate allocations 16,003.009 11,200,080 Total expenses 113,000 000 17.50 12.55 104 010.030 Divisional prath 9.500 DOO 1.0E 12,610.000 8,127,080 No of Cares 4,241,434 Kilgars Wine Division Balance Sheet Current assets Sm Cash 15 030 000 14 501 000 12 500 0O0 8,750,080 Inventories 7,000 010 5,950,060 Receivables 21 0 In 19,400,080 34.500 000 45.000.000 Nan Current alsets Inventories 28,004 02) Property plant and equipment 1 00 00 15.500 010 46,200,080 Agricultural Parts 24 000 000 24,000 000 16,800,080 34,500 000 $5 000 00 14,500,080 164 000 100 114,100,080 Total amints 219 000,060 153,300,00 212,030 000 148,400,080 Key Performance Indicators ADI 5.95 1,594 020 - 10 210 000 7,147 030 6.470 000 4,539,000 Cinct manufacturing coit per one 26 10 ETEE 13.73 Market shan "A case contains o bellsAppendix 3. Full Set of Potential BSC Measures A Return on investment Discounts and rebates as a percentage of gross sales C Total cost of goods sold per case Wine Division operating income + division profit Gross margin percentage per wine case Share price Days immentory on hand [DIOH) H Production waste and soap Operating equipment effectiveness Schedule attainment Employee engagement index Employee safety [LTIF M Training and development hours per employee Rate of employee participation in community engagement projects Net sales generated by new products in the last two years P knowledge sharing within the division Net revenue growth by customer Customer satisfaction index Market share T Regrettable turnover ratio Quality index Sustainability: Total carbon emissions Sustainability: Energy efficiency Sustainability: Water efficiency EBITDA Free cash flow Brand awareness performance Wine industry awards ET Average dispute resolution time Packaging lie, bottles, cardboard) costsFigure 1. Kilgore Organizational Structure Company Board CEO: Robert Capital investment review committee; Chair: Judith Key support functions Entertainment Division Competitive strategy: Charles Judith Including accounting (CFO: Ray) and Human Resources. Wine Division Hospitality Division Divisional manager: Led Divisional manager: Divisional manager Competitive Mrategy: Competitive strategy:Figure 2. The Three Ps of Kilgore Value System PEOPLE Individual development; teamwork and autonomy Kilgore Value System Planet Performance Corporate and social responsibility Long-term shareholder value through through global citizenship Innovation and market leadership
