Balanced Scorecard for the Digital Transformation of Global Container Shipping Lines

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Balanced Scorecard for the Digital Transformation
of Global Container Shipping Lines
Svetlana Maydanova
Unifeeder A/S branch of Unifeeder A/S
in St.-Petersburg, RF
St.-Petersburg, Russia
sma@unifeeder.com
Ann-Kathrin Lange
Institute of Maritime Logistics
Hamburg University of Technology
Hamburg, Germany
ann-kathrin.lange@tuhh.de
Igor Ilin
Peter the Great Saint-Petersburg
Polytechnic University
St. Petersburg, Russia
ivi2475@gmail.com
Vadim Korablev
Peter the Great Saint-Petersburg
Polytechnic University
St. Petersburg, Russia
korablev@spbstu.ru
Carlos Jahn
Institute of Maritime Logistics
Hamburg University of Technology
Hamburg, Germany
Carlos.jahn@tuhh.de
Abstract - The liner container shipping industry is at a
maturity stage. and companies undertake strategic changes to
resolve key problems by using for example the digital
transformation. The digital transformation is the process of
digital technologies integration into all company business
activities, requiring fundamental changes by introducing new
technologies, cultures, operations and the new products and
services creation principles.
For digital transformation success established companies
need to undertake consecutive actions starting from the
strategic vision and followed by fundamental realization
mechanisms. There is a strong requirement of the new
architectural concepts creation, allowing the companies to get a
competitive advantage and to provide strategic alignment of
business and IT architecture for further successful
development.
In this research paper architectural approach concepts to
the global container shipping line information systems are
formulated, the Enterprise Strategic Alignment Method,
allowing the company effective development during the global
changes of forms and methods of business is adapted and the
Balanced Scorecard for digital transformation control is
developed.
Keywords— container shipping, Balanced Scorecard, digital
transformation, value-based management
I. INTRODUCTION
Currently there is a new competitive environment
emergence and fundamental change in traditional industries,
within the concept of "Industry 4.0" companies predict
horizontal and vertical processes intensive digitalization in a
value creation chain. This becomes impossible without
architectural approach application to the company
information systems. [1]
The container liner shipping industry is at a maturity
stage, which is characterized by declining income growth,
structural overcapacity which has a negative impact on the
markets. Besides, the companies who are established in the
industry experience competition from "digital disruptors",
i.e. new companies which are digital savvy. For the key
problems resolving companies the established companies
undertake strategic changes, such as business consolidation,
processes integration, investments into digitalization. [2]
Analysts define seven trends of digital transformation,
which are capable to change soon the container liner
shipping industry: blockchain, electronic platforms, Internet
of things, predictive analytics, artificial intelligence,
autonomous vessels and robotics, and cyber security. [3]
It should be noted that digital transformation is the
process of digital technologies integration into all company
business activities, requiring fundamental changes by
introducing new technologies, culture, operations and new
products and services. The creation of new business offers
for company clients and partners remains the digital
transformation obligatory feature. [3]
For the digital transformation success, companies need
to undertake consecutive actions starting from the strategic
vision and followed by fundamental realization
mechanisms. There is a strong requirement of the new
architectural concepts creation, allowing the industry leaders
to get a competitive advantage and to provide strategic
alignment of business and IT architecture for further
successful development. [3]
The aim of this research paper is to create an
architectural approach concept to the global container liner
shipping information systems formulation, the Enterprise
Strategic Alignment Method adoption and the development
of a Balanced Scorecard for a company’s digital
transformation control.
II. MATERIALS AND METHODS
Strategic alignment is a continuous process of adaptation
and change in which organizations try to create synergy
between their position within their competitive environment
and the design of the appropriate structure to support the
execution. [4]
The Enterprise Strategic Alignment Method (ESAM)
represents a cross-domain approach to the company
business and IT architecture alignment in order to achieve
its strategic objectives. This method combines such
discipline approaches as Strategic Management, Capability
International Conference on Digital Transformation in Logistics and Infrastructure (ICDTLI 2019)
Copyright © 2019, the Authors. Published by Atlantis Press.
This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).
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Based-Planning, Enterprise Architecture and Enterprise
Portfolio Management. [5]
ESAM is presents a company activity business model as
a subject domain, allowing to coordinate all strategic stages
of the company transformation according to its changes.
ESAM can be applied at any stage. In this research paper
the method is adapted for global container shipping lines
digital transformation planning and implementation. For this
purpose, in this paper there are strategic models as Business
Model Canvas [6], Capability Based Planning [7-8] used.
The global container shipping line is considered as a
logistics system in terms of the value-based Supply Chain
Management concept [9]. and developed the Balanced
Scorecard [10], allowing to estimate the digital
transformation impact on the company long-term
shareholder value. For global container shipping line
strategic map modelling there were applied International
Accounting Standards (could be GAAP standards as well)
IAS, strategic model Marketing Mix, Supply Chain
Operations Reference Model, BIMCO Shipping KPI’s
standard, IMO standard, Capacity Management practice,
international frameworks COBIT, ITIL, enterprise
architecture modeling language Archimate and modeling
tool Archi.
III. RESULTS
Enterprise architecture influence on the realization of a
company’s strategy is considered by many modern
researchers. During the industry digital transformation and
the new competitive environment formation, it is necessary
to formulate the following architectural approach concepts
to the global container shipping line information systems:
1. Digital business ecosystem architecture [11].
2. New network communications and new storage and
data processing technologies development [11].
3. Strong inherent relationship between three main
aspects, namely EA models, data from enterprise
information systems and IoT devices, and advanced
analytics [12].
The business model describes the basic principles of the
company creation, development and successful activity.
According to a Business Model Canvas, a company business
model consists of nine blocks, which reflect the logic of the
company activity and are aimed to generate profit. These
nine blocks cover four main business aspects: customer
relationship, value proposition, company infrastructure and
financial efficiency. The business model is like a strategic
plan, which is realized through organizational structures,
processes and systems.[6]
We need to consider what changes will occur in the
global container liner shipping liner business model during
the digital transformation:
1. Key Activities: business ecosystem creation which
provides for clients and partners the higher value of services
in a value creation chain.
2. Value Propositions: flexibility, transportation
process transparency, focus on real client demand, end-to-
end supply chain solution.
3. Key Partnerships: during network rivalry era, it is
necessary to use effectively resources and competences of a
business ecosystem partners. Yesterday's competitors
become partners as well, the role of IT – the companies and
digital startups increases.
4. Key Resources: IT resources from the best of
possible operational needs support tool, with the least
strategic impact, become the technological transformation
mechanism, requirements to IT resources must be aligned
with the company strategic goals.
5. Customer Relationships: IT-infrastructures change
provides customer relationship new opportunities such as
automated services and co-creation.
6. Channels: company e-platforms and partner e-
platforms for freight and other services sale will allow
excluding intermediaries from the supply chain.
7. Customer Segments: processes automation and
digitalization will allow global container shipping lines to
implement direct sales for cargo owners, consignees and
large international shipping companies, to exclude
intermediaries from the supply chain, reduce client
transportation costs and improve containers delivery
transparency. Besides, there will appear new customer
segment – the satellite companies, creating additional value
in the supply chain.
8. Cost Structure: digital transformation will allow to
optimize costs for vessel calls network, empty containers
relocation, fleet and containers maintenance, overhead costs,
however IT and cyber security costs will increase.
9. Revenue Streams: In addition to freight and
associated income, there will appear new income types
based on rendered services new quality.
Thus, global container shipping lines digital
transformation will affect all nine blocks of a company’s
business model, what can proof the imminent need of
phased introduction of the latest technologies in the
container shipping industry.
Strategic management researchers have investigated for
the last decades how organizations can gain and maintain
the competitive advantage dynamic situations. This has led
to the formulation of multiple theories, with a focus on
resources and capabilities as a source for a competitive
advantage. Whereas resource-based theories focus on
accumulating of valuable, rare, inimitable and non-
substitutable (VRIN) resources, the capability-based
theories focus on adapting, integrating and re-configuring
internal and external organizational skills, recourses and
functional competencies toward a changing environment.
[5]
To characterize the global container liner shipping
business capabilities more precisely it is necessary to
consider the company as a complex logistic network, the
international supply chain basis.
Thus, the logistic network represents the multilayered closed
flow process: the upstream and downstream flows of
products, services, finances, and information. Logistic
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networks, united by logistic agreements, represent a supply
chain. [9]
Therefore, global container shipping lines digital
transformation should provide effect on physical, logistical,
financial and service supply chain flows.
During the company’s digital transformation, it is
necessary to analyze technical capabilities and their
influence on the company’s strategic goals achievement. For
determination of new business model introduction
commercial value and cost there need to be defined quality
and quantitative, natural and ad valorem strategic indicators,
for this purpose the value-based management theory could
be used.
Value-based management (VBM) is a creation of an
activity results assessment system on the company value
basis and aligning management tools in accordance with this
integrated indicator. Based on the comprehension of
Modigliani and Miller (1958), the financial value of a firm
is determined by the present value of its future cash flows.
[13]
There is a direct interrelation between the company
value and its business model as used business model
determines company future cash flows. [9]
The concept of value-based management (VBM) is
linked to the shareholder value. Shareholder value and debt
are seen as complementary portions of the total economic
value of a company or business unit. The maximization of
shareholder value is perceived as the primary objective of a
company, and hence VBM stipulates that all parts of a
company are managed in such a way that the equity value of
this entity is increased, i.e. shareholder value is added.
Being obliged to this objective by defined targets and
effective compensation packages, management can apply
decision making in financing, investing and operating in
order to improve the operating profit, increase the capital
turnover and reduce the effective tax rate. These value
drivers in turn have an impact on the valuation components
cash flow, discount rate and debt and ultimately influence
the shareholder value of a company. [14]
As the global container shipping lines are a logistic
network and international supply chain basis, it is necessary
to consider company management as the value-based
Supply Chain Management. [9]
Shareholder value added is influenced by the cash flow
from operations, the discount rate and the debt. The discount
rate in turn is affected by the cost of capital, while cash
flows from operations are driven by sales growth, profit
margins and tax rates as well as by working capital and
fixed assets and furthermore by value growth duration. The
cost of capital is related to financing decisions, working
capital and fixed assets are influenced by investment
decisions, sales growth, profit margin and tax rate are
stimulated by operating management decisions. [14]
The conceptual design of a framework for value-based
SCM comprehended as production process, influences
company value by four financial drivers: sales, cost,
working capital and fixed assets.
Thus, indicators system development for global
container shipping line activity assessment needs to provide
control on influencing company value by above-stated
factors. Besides, during company digital transformation it is
necessary to control investment and financial decisions
quality.
Fig. 1. Conceptual framework for value- based SCM [9]
The Balanced Scorecard, suggested in this paper, is a
logical extension of value-based Supply Chain Management
Framework.
The financial perspective represents a set of the
operating, financial, investment activity goals, and strategic
objectives of company financial position should also be
defined. The digital transformation strategic objectives
achievement will allow increasing the company long-term
shareholder value. Strategic objectives of customer, internal
process, and organizational capacity perspective are
specified by decomposition of the financial perspective
goals via drivers.
As already mentioned, the company long-term
shareholder value.is determined by the cost of capital, the
tax rate, and the company value growth duration as well as
such logistic network operational process management
drivers as sales growth, working capital, supply chain
operational cost and assets efficiency. Thus, digital
transformation strategic objectives could be defined; their
achievement will allow to increase the long-term
shareholder value of global container shipping line:
1) market share increasing (loyal customers);
2) new products and services sales;
3) sales to new customers;
4) value co-creation;
5) working capital effectiveness maximizing;
6) service maintenance costs reducing;
7) assets utilization effectiveness maximizing.
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Besides, the company’s financial activity strategic
objectives are: financial instruments profit obtaining,
favorable financing terms; company investment activity
strategic objective is specified: return on invested capital
gaining; company financial position strategic objectives are
determined: ongoing activity profit obtaining, company
financial sustainability.
Financial perspective strategic indicators could be set in
accordance with the DuPont Formula theory.
Fig. 2. Financial Perspective strategic map
In the marketing environment, there are currently a
number of critical business transformations, all with
significant implications for supply chain management. They
could be characterized as follows: a shift of marketing
strategy from the supplier to customer; from the push
strategy to the pull strategy; from inventory to information;
from transactions to relationships; from “trucks and
warehouses” to end-to-end pipeline management; from
functions to processes; from the stand-alone competition to
network rivalry. [15]
Customer Perspective drivers reflect the processes
happening in supply chain management and the factors
influencing their changes: real demand information
obtaining; customer relations management; flexibility and
efficiency for customers; delivery process end-to-end
integrated management; resources flexibility; focus on the
processes creating value for clients; effective use of
resources and competences of partners; digital marketing
tools usage.
For the customer perspective strategic objectives
definition, it is necessary to use a strategic model marketing
mix and strategic and digital marketing tools.
The customer perspective strategic objectives are as
follows:
1) timely obtaining information about actual demand;
2) partners competences and resources nobility and
use;
3) lead generation;
4) customer service level increase;
5) omnichannel sales;
6) yield management;
7) enforceable contracts;
8) on time cargo delivery.
Fig. 3. Customer Perspective strategic map
The customer perspective strategic indicators could be
set with the metrics, used in strategic and digital marketing.
As a basis of the internal process perspective in this
paper the Supply Chain Operations Reference Model was
used. This model is built around six major processes: Plan–
Source–Make–Deliver–Return–Enable; and covers the key
supply chain activities from identifying the customer
demand through to delivering the product and collecting the
money. The aim of SCOR is to provide a standard way to
measure the supply chain performance and to use common
metrics to benchmark against other organizations. [15]
Internal process drivers in accordance with SCOR are
defined as performance, processes, practices, people;
strategic goals are determined as strategic characteristics of
supply chain performance: reliability, responsiveness,
agility, costs, and asset management efficiency.
SCOR provides an opportunity to analyze supply chain
processes and to correlate internal process perspective
indicators with other Balanced Scorecard indicators
therefore the SCOR model become extremely an effective
tool during the company’s digital transformation.
SCOR does not attempt to prescribe how an organization
should conduct its business or tailor its systems/information
flow. Every organization that implements supply chain
improvements using SCOR will need to extend the model,
using industry, organization, and/or location-specific
processes, systems, and practices. [16]
The global container shipping line backbone network is
deployed based on the major vessels on deep-sea routes
connecting hubs as well as major ports. In addition to this, it
has a large range of more localized niche and feeder
services. Established cargo flows as well as effective assets
management have a high influence on global container
shipping line processes.
The system of key performance indicators for the
commercial fleet operating activity analysis and
benchmarking was developed by the Baltic and International
Maritime Council (BIMCO) - the international sea trade
transportations industry association. This system was
organized as a standard, named BIMCO Shipping KPI
Standard.
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Special vessel characteristics are loading capacity, speed
and consumed fuel. These technical characteristics have a
considerable influence on vessel use efficiency indicators.
However, vessel calls network modeling has the most
significant effect on commercial fleet efficiency.
The commercial fleet utilization in the container
transport is called liner ship fleet planning and consists of
three main objectives:
1) optimum vessels size and fleet structure;
2) optimum fleet operation mode;
3) optimum vessel calls network.
Capacity management is an important part of supply
chain management, allowing the companies to be
competitive in the market and to fulfill customer
requirements in the most flexible way with minimum
expenses.
The container liner shipping industry possesses
considerable impact on the environment due to its global
activity. Compliance to environmental protection standards
is an essential indicator of global container shipping line
activity. Universal safety and environmental efficiency
standards are defined by the International Maritime
Organization – the specialized agency of the United
Nations, besides, safety and environmental efficiency
standards can be established by national acts.
Internal Process Perspective indicators need to be
amended with BIMCO Shipping KPI Standard, IMO
standard, capacity management metrics.
Fig. 4. Internal Process strategic map
Learning and growth perspective drivers are people,
infrastructure and technology, and culture.
The SCOR model allows correlating of performance,
processes, practices indicators with the supply chain
personnel skills. Besides, the BIMCO Shipping KPIs
Standard establishes requirements to human resource
management to ensure safe and efficient operations of the
ships.
During the global container shipping line digital
transformation, IT-architecture strategic indicators,
initiatives and problems definition and IT-architecture
changes control by expert organizational structure are
needed.
The Open Group Architecture Framework (TOGAF)
originated as a generic framework and methodology for
development of technical architectures but evolved into an
enterprise architecture framework and method could be tool
for enterprise architecture design. [17]
The Architecture Development Method (ADM), which
is considered the TOGAF core, and consists of a stepwise
cyclic approach for the development of the overall
enterprise architecture, will provide necessary support for
global container shipping line IT-architecture modelling.
[18]
To set strategic indicators for company EA governance it
is relevant to use COBIT and ITIL frameworks.
COBIT (Control Objectives for Information and related
Technology) framework is the international standard,
supported by global consortium ISACA, provides good
practices across company domains and process framework
and presents activities in a manageable and logical structure.
COBIT’s good practices are strongly focused on control;
these practices will help to optimize IT-enabled investments,
ensure service delivery and provide a measure of service
fails. [19]
The business orientation of COBIT consists of linking
business goals to IT goals, providing metrics and maturity
models to measure their achievement, and identifying the
associated responsibilities of business and IT process
owners. The process structure of COBIT and its high-level,
business-oriented approach provide an end-to-end view of
IT and the decisions to be made about IT. [19]
COBIT framework defines data as an initial resource and
sets the following criteria to which they have to comply:
effectiveness, efficiency, confidentiality, integrity,
availability, compliance, reliability. Other IT resources and
IT processes should be aligned in order to provide data
compliance to the above-stated criteria and company
business goals performance. [19]
IT Infrastructure Library (ITIL) framework is a source of
good practice and is used to establish and improve
capabilities in service management. While ISO/IEC 20000
is a standard to be achieved and maintained, ITIL offers a
body of knowledge useful for achieving the standard.
The ITIL describes the principles of IT services
continuous improvement and existing frameworks,
standards and quality management models: PMBOK,
PRINCE2, CMMI, ISO/IEC 20000, ISO/IEC 27001,
ISO/IEC 17799 and others. The ITIL recommends using
them in the combination, the most suitable for the specific
company. [20]
Learning and growth perspective strategic goals of
global container shipping lines have to provide company
digital transformation strategic objectives achievement and
could be formulated as follows:
1) data compliance to specified criteria;
2) IT resources effectiveness;
3) IT processes effectiveness;
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4) data architecture compliance to company strategic
goals;
5) business and IT application architecture alignment;
6) business and infrastructure architecture alignment;
7) IT projects effectiveness;
8) personnel high qualification.
Fig. 5. Learning and Growth Perspective strategic map
Learning and growth perspective strategic
indicators have to provide data architecture and IT
architecture compliance both legislation requirements as
well as requirements of the standards and frameworks.
IV. DISCUSSION
In this research paper global container shipping lines
digital transformation in the context of its influence on the
long-term shareholder value of the company is considered,
company digital transformation strategic objectives and
strategic metrics are defined for financial perspective,
customer perspective, internal process perspective, learning
and growth perspective. However, in this research paper
digital transformation risks are not considered as this is a
subject for separate research.
V. CONCLUSION
Global container shipping lines digital transformation
will have a significant effect on all nine blocks of the
company business model, will allow to create new customer
offers, to cut costs, to optimize company assets utilization,
to create new sales and key partners interaction channels, to
reduce negative factors influence and to create further
successful company development concept.
Nevertheless, it is necessary to formulate the following
requirements to company digital transformation:
1) Digital transformation has to comply with company
strategic objectives.
2) Digital transformation demands cross-disciplinary
approach.
3) Digital transformation is impossible without
approach change to collecting, transfer, storage, processing,
and the analysis of data.
4) Digital transformation has to be based on the
international standards, industry standards; international
consortiums and organizations reference models and
frameworks.
5) Digital transformation demands continuous
approach, with constant results assessment and actions
correction.
To meet these requirements ESAM method application
and the Balanced Scorecard, developed in this research
paper, is appropriate for global container shipping line
digital transformation.
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