Transworld Auto Parts (A)

TAP, a $6.6 billion subsidiary of a U.S. diversified manufacturing company, was a Tier 1 manufacturer of
original and after-market parts for automobile producers in the United States and abroad. TAP had been
directly affected by the downturn in the auto industry. Parent had hired Ellen Bright as a CEO of TAP. After
dismal 2008 and disappointing financial results (Exhibit 1), Bright thought of making radical changes in
strategy and then implement the new one.

Parent company had set a stretch target goal for TAP: By 2011, achieve an 8% return on capital employed
(ROCE). The company’s CEO stated that if TAP do not reach these goals and maintain a positive cash flow,
he will seek to either divest or close TAP.

Changes and the implementation of new strategy:

As per exhibit 3,4 & 5, out of four customer centered divisions: luxury, economy, midpriced and truck, TAP
was losing money in the low performing truck and midpriced segments so, Bright decided to close these
two divisions and focus on luxury and economic divisions by selling more products to the customers and
make new customers in the new marker, primarily in Asia. While overall strategy was low cost without
compromising on quality of the parts, luxury and economy divisions had their own segment specific
strategies.

Q1. What are the respective business strategies of Transworld Auto Part’s economy and luxury divisions?
Ans.:

Luxury segment strategy:

Differentiate by focusing on innovation and technology. While other vendors in this segment put all the
frontline customer relationship, TAP luxury division was trying to position itself as a pioneer of innovation
in auto parts luxury. Enhance efforts in terms of innovation, creation and product design in order to be
at the forefront of the technology compared to existing competitors and therefore attract luxury OEMs.

Economy segment strategy:

while other competitors were all trying to have the lowest initial cost but do not guarantee the quality
and longevity TAP "economy" focuses on the sustainability and quality by offering superior rooms with a
term living much longer and does not require exorbitant maintenance expenses meaning, repositioning
TAP as a reliable supplier of lowest lifetime cost/high quality parts.

Q2. Which division manager developed a better strategy map and balanced scorecard? What changes
would you propose to the strategy maps and balanced scorecards of the two divisions?
Ans.:

Both the division managers did well in developing strategic map and balanced scorecard. While luxury
division focused on short term and quick financial results, economy division started at lower hierarchy of
the strategic map by focusing on learning and growth, employee engagement, enhancing workforce
capabilities and developing JIT/lean methodologies. The luxury division used less indicators and
performance drivers whereas economy division mapped to many performance indicators to its strategic
map, however, luxury division wasn’t able to establish the reasons for the fantastic short-term fantastic

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results. Their BSC doesn’t show how these results were achieved. It is very much obvious from the
economy division BSC that their financial results were better not positive as they invested heavily in
learning and growth, employee engagement and processes which are the first and second in the strategic
map bottom-up hierarchy and hence achieving financial result would take time. There are 4 perspectives
of the performance measures: financial, customer, processes, learning and growth. To create a good
BSC, we need to think cause-and-effect relationship between the four perspectives. The strategy map
is a visual representation of the strategy and the cause-and-effect relationships that will enable us to
reach our goals. The balanced scorecard takes the components of the strategy identified in the map and
creates specific targets and action plans to implement each strategic component. Economy division had
identified cause-and-effect relationships and performance drivers needed to execute the strategy where
as luxury division was falling way behind in identifying cause-and-effect relationships for their strategy
execution. Economy division had identified the performance drivers for long term but steady
improvement over the period of 2.5 years as the two divisions had 2.5 years to achieve ROCE of 8%. The
division "economy" had slightly improved its ROCE (-15% to -12%). Also, Ellen Bright realized that luxury
division’s quality indicators dropped slightly which is completely against the overall TAP’s strategy. It is
therefore difficult to understand by what cause and effect that division was able to achieve such
significant financial results.

Q3. Which division manager (Aaron or Kim) has done a better job of executing his business unit’s strategy?
Ans.:

The scorecard is “balanced” because it uses both financial and nonfinancial metrics to track progress.
Examples of financial goals are ROCE, cash flow, and revenue growth, whereas nonfinancial goals can
include topics such as increased employee training and leveraging IT. The BSC also keeps us from focusing
too much on the short term. Although improving revenues is vital for TAP’s short-term success, they can’t
lose sight off of the long-run goals that will position them for success years from now, like developing
partnerships with our customers. All of the nonfinancial goals have to be linked to our financial goals. On
the strategy map, many of the financial and customer goals are lagging indicators, that is, they improve
only after the strategy has been implemented for some time. There are leading indicators, however, that
can affect immediately. Many of the nonfinancial measures will be leading. Meeting leading targets
should indicate that we are on track to achieve our financial (lagging) targets.

While it appears that luxury division has done better job in terms of execution and achieving short term
goals by focusing on the upper part of the strategic map. No doubt they achieved the financial goal set by
Bright but slipped on the quality aspect which was a major strategy parameter. On the other hand,
economy division started from the lower part keeping in mind the leading non-financial indicators mapped
to the lagging financial indicators. They lagged behind from achieving financial results, however,
substantial work has been accomplished since the division recorded very encouraging results in the
process and learning dimensions. It appears that economy division wanted to lay a foundation of the long-
term growth whereas luxury division was keen on achieving short team cash.

Q4. Please suggest a revised strategy map and balanced scorecard for the division which you believe did
not have the better strategy map and balanced scorecard.
Ans.:

Strategic map may not be objective but BSC must be objective. What I am seeing in luxury division’s BSC
is less objectivity i.e. Initiatives are vague. Also, this division ignored non-financial lead indicators those
are linked with financial lag indicators. BSC must balance between financial and non-financial

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performance drivers which luxury division BSC is lagging. Considering positive financial results, Initial
perception of their BSC may be great but lack of cause-and-effect relationship and lead indicators will not
give these results a sustainability. There are good chances that missing L&D and Internal process
improvements may bring down the financial accomplishments in long run.