Question 4 Sretsof Entertainment Group Sretsof Entertainment Group (SEG) has recently completed a sustained period of expansion driven by the wishes of the company's chief executive ofcer (CEO) Jane Tyson. It now has three key divisions: Wines (SW); Resorts and Hotels (SRH); and, Sports betting (553). The focus has now turned to the performance measurement and reward system. Until now, each of the three divisions and their managers have been evaluated on the basis of TWO key measures: return on investment (calculated as controllable regional profit/controllable regional assets) and a customer satisfaction index (based on a likert scale rating across four key factors). The incentive component of the reward system for regional managers has been based on meeting specified divisional ROI targets, set in consultation with the CEO. Chief financial officer (CFO) Jackie Simons conducted an investigation to identify improvements to the performance measurement and reward system. Following a consultant's report and with the full support of the CEO, she sought co- operation from the SW Division to undertake a pilot implementation of a balanced scorecard (BSC). SW Balanced scorecard pilot project The divisional manager of SW is Brian Tan. Brian had supported the company's expansion plans with the acquisition of a wine business in the Shandong region of China two years ago. The acquisition meant that the division had three major operations located in Victoria, South Australia and Shandong. Each location contained vineyards, wine-making facilities and managed much of its own distribution to predominantly local customers, who were mainly supermarkets, wine shops and wholesalers. As part of the BSC project, Brian had reviewed the strategic direction of the division and how best it could develop its competitive advantage. The key strategic levers/planks identified by Brian are provided in Exhibit 1, which at this stage were applied to each of the three regions. The initial BSC was intended to reflect these strategic levers/planks. Exhibit 1 SW Division: Key strategic Planks/levers for all regions 0 Outperform the market across the product range 9 Achieve outstanding relative financial performance 0 Grow our markets, demographics and brands 0 Seek efficiency improvements resulting in a reduction in the manufacturing cost per case ofwine 0 Develop the knowledge of all staff through training and knowledge sharing; and retain our top talent 0 Eliminate unnecessary waste and improve the environmental and sustainability practices of the division The BSC project has now been operational for six months. The BSC measures, original targets and actual performance for the first six months across each of the three locations are provided in Exhibit 2. The first review meeting relating to the BSC pilot project is about to be conducted. Brian has hired you as a consultant to advise on a number of things which he hopes to discuss with senior management during the meeting. He has requested an assessment and feedback on the following issues: 0 Whether there are any critical performance metrics relevant to the division and the three regions that are not captured in the current BSC. If so, what can be done about it? 0 What are the key factors to be mindll of for a successful BSC project, particularly as senior management is keen to see the BSC implemented throughout the company? 0 If the scorecard was to be used as the foundation for the incentive component of the reward system for each of the regional managers, how might this best be structured? At this stage any incentive payments would be expected to be in the form of cash. \fa. Provide FOUR alternate measures (one in each perspective) to those in the existing BSC. State which measure is being replaced, the new measure, how it will be calculated and why it should be part of the BSC for the SW Division. A table is provided to guide the formatting of your response. 1'. Outline the key challenges associated with developing a bonus system based on BSC performance. Use the BSC of the SW Division of Sretsof to assist with your explanation. ii. Assuming a bonus pool of $100 000 available for the regional managers of the SW Division of Sretsof, construct and demonstrate a suitable bonus plan. Outline the key criteria you used to build the bonus plan. iii. What benefit would there be in introducing an element of subjective assessment into the performance evaluation process at Sretsof? How might this work in conjunction with your bonus distribution system developed in part