Transworld Auto Parts is a manufacturer of original and after-market parts for automobile producers in the United States and export markets. There are several product divisions within the company. The two most important product divisions are Economy Segment and Luxury Segment. Both these segments have had very different customers and customer value propositions. Resource allocations decisions need to be made by the company for the two product divisions.
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At the time presented by the case, Transworld Auto Parts is directly affected by the downturn in the auto industry. Major customers of the organization – including Chrysler and General Motors – are on the brink of insolvency. The key issue of the organization is resource allocation between its business divisions. The top management of the company and especially the CEO of Transworld Auto Parts has initiated a process to enhance the company’s execution and strategic effectiveness by using a strategy map and balanced scorecard process.
The key issue to comparatively analyze the performance of the Economy Segment and Luxury Segment to determine performance of the two divisions is actually performing using these scorecards and to recommend ways to further improve the process. Also, the top management of the company needs to implement changes to the scorecard and strategy maps to improve its performance measurements methods for future.
The comparative evaluation of balance scorecard shows that in terms of financial matrix, the Luxury Segment of Transworld Auto Parts has exceeded every single performance measure by a significant percentage. In the perspective of the economic downturn, it was anticipated that the financial performance of the company will lag in terms of cash flow, because sales were anticipated to contract during the period. However, despite a projected loss for the division at 7% on Capital Invested, the business division performed exceedingly well to produce a positive 4% Return on Capital Invested. Similarly, cash flows which were anticipated to be low due to low sales projections were actually positive owing to sales figures which are much higher than anticipated figures. Not only sales figures for Luxury Segments are far above their projected levels, but the percentage profit made by the company on each sale has also climbed for this business segment. Gross Margin Percentage for Luxury Segment is also much higher for this division of business than the target level.
In sharp contrast is the Balance Scorecard performance of Economy Segment of Transworld Auto Parts, which has performed much worse in all financial measures than the targeted level. The business division generated losses for the company. Even though, losses were already projected due to worsening macro-economic indicators, yet the Economy Segment’s actual performance was far worse than projected values.
In terms of marketing performance, both business segments have almost performed at par with the targeted level of increasing penetration in consumer markets, and being perceived as a brand of choice for quality at competitive cost (a value supplier). Even though, the targets were not easy, the marketing teams of both Luxury Segment and Economy Segment appear to have worked hard to meet their targeted percentages for multifarious marketing matrices.
Despite large divergences in financial matrices of Balance Scorecard, Luxury Segment and Economy Segment of Transworld Auto Parts have comparative results in the area of operational performance. In fact, Luxury Segment has lagged slightly in the most important measure of cost control by 5%. Raw Material Costs is a sizeable component of total business cost in automobile spare parts, hence, this measure of Balance Scorecard can spell the difference between profitable and non-profitable operations. Economy Segment has almost met all measures of operational excellence within the Balanced Scorecard. This indicates that the reasons for high losses incurred by this business segment are largely based on environmental variables rather than the performance management and staff of this business segment.
In the area of Learning and Growth, Economy Segment has made large leaps in performance. The two most important learning areas for an automotive production processes are Just in Time inventory system and Total Quality Management. While Luxury Segment of the business fell slightly short in these measures by five percent, Economy Segment exceeded every single measure. Learning and Growth section of a Balance Scorecard has key bearings on the future performance of the particular business segment.
A comparative analysis of the balanced scorecard measure of the two business divisions reveals that despite large divergences in term of profitability between Economy Segment and Luxury Segment, there are no alarming indicators for the Economy Segment. The attribution to large losses incurred by Economy Segment can be external circumstances of a higher than anticipated fall in purchasing power of consumers. Both business segments have performed equally well in terms of operational excellence. The recommendation for Transworld Auto Parts in the light of the analysis is to focus on Luxury Segment since the positioning of company’s brand is much stronger for this product segment.
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