Redalyc.Corporation José R. Lindley: Balanced Scorecard Implementation

Universidad & Empresa ISSN: 0124-4639 [email protected] Universidad del Rosario Colombia

Jáuregui Machuca, Kety Lourdes; Santana Ormeño, Jorge Martin Corporation José R. Lindley: Balanced Scorecard Implementation Universidad & Empresa, vol. 7, núm. 15, julio-diciembre, 2008, pp. 11-46 Universidad del Rosario Bogota, Colombia

Available in: http://www.redalyc.org/articulo.oa?id=187214457001

How to cite Complete issue Scientific Information System More information about this article Network of Scientific Journals from Latin America, the Caribbean, Spain and Portugal Journal's homepage in redalyc.org Non-profit academic project, developed under the open access initiative Corporation José R. Lindley: Balanced Scorecard Implementation Kety Lourdes Jáuregui Machuca* Jorge Martin Santana Ormeño**

Recibido: mayo de 2008. Aprobado: julio de 2008

RESUMEN La Corporación José R. Lindley es una de las organizaciones más importantes que operan en el país, con una prestigiosa trayectoria en el mercado de gaseosas a través de su marca líder Inca Kola. Esta empresa se ha caracterizado por mantenerse a la vanguardia del sector, el cual en los últimos años se ha mostrado altamente competitivo.

Con la fi nalidad de mantener su liderazgo, hacer frente con éxito al difícil entorno del mercado local e incursionar en nuevos mercados internacionales, la Corporación José R. Lindley se ha preocupado constantemente por incorporar fi losofías y herramientas de gestión que le permi- tan asegurar su sostenibilidad en el tiempo, con una visión de futuro. En este sentido, decidió implementar un Balanced Scorecard (BSC), como una herramienta para medir y mejorar su productividad y efi ciencia, en el marco de su estrategia corporativa. En otras palabras, el BSC le facilitó monitorear el grado de acierto en la puesta en marcha de su estrategia.

En este contexto, el caso ilustra cómo se realizó el proceso de implementación de un BSC en la Corporación José R. Lindley, mostrando la complejidad del proceso que involucró recursos ﬁ nancieros y una dedicación importante de la organización, en especial provenientes de la Alta Dirección y del área de Sistemas de Información para el Soporte Tecnológico.

Asimismo, el caso muestra cómo es posible traducir una estrategia en un grupo de objetivos y medidas concretas, a través del BSC. En función a la relación causa-efecto, vincula los objetivos, con sus respectivos indicadores, iniciativas estratégicas y planes de acción correspondientes.

* Profesora asociada en el área de Administración. PhD in Management, IESE, Universidad de Navarra, España. Máster en Sistemas de Información, ITEMS, Campus Monterrey, México. PADE en Adminis- tración, ESAN, Perú. Post Graduate Diploma in Personal Computer, CICC de Tokio, Japón. Ingeniera Industrial, Universidad Nacional de Ingeniería de Lima, Perú. Actualmente es Director Asociado del programa doctoral de ESADE - ESAN. Correo electrónico: [email protected] ** Profesor principal del área de Operaciones y Tecnologías de Información de la Universidad ESAN. Ph.D. en Administración, Florida International University, EE.UU.; M.Sc. en Sistemas de Información, HEC Montreal, Canadá; Postgrado en Ingeniería de Sistemas, ENSIMAG Grenoble, Francia. Correo electrónico: [email protected]

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Palabras clave: cuadro de mando integral, sector de bebidas gaseosas, implementación de la estrategia, indicadores de desempeño.

ABSTRACT José R. Lindley Corporation is one of the most important organizations that operates in the country with a prestigious tradition in the market of sodas trough its leader brand “Inca Kola”. This enterprise has as its main character keeping in the vanguard of the sector, demonstrating a high competitive level in the recent years.

With the aim of keeping its leadership, facing successfully the difﬁ cult environment of the local market and entering international markets, José R. Lindley Corporation has constantly worried about incorporating management philosophies and tools that allow guaranteeing its sustainability in the time with a vision about the future. In this sense, it decided to implement a Balanced Scorecard (BSC), as a tool to measure and improve its productivity and efﬁ ciency, in the framework of its corporative strategy. In other words, the BSC facilitated monitoring the degree of accuracy in the implementation of its strategy.

In this context, the case illustrates how the process of the implementation of a BSC in José R. Lindley Corporation was performed, showing the complexity of the process that involved ﬁ nancial resources and an important dedication of the organization, specially those ones who comes from the High Direction and the Information Systems Area to provide technological support.

In addition, the case shows how it is possible to translate a strategy into a group of objectives and speciﬁ c measures trough the BSC. Based on the cause-effect relation, it links the objectives with its respective indicators, strategic initiatives and corresponding plans of action.

Key words: Balanced Scorecard Soda’s sector, implementation of the strategy, performance indicators.

The dream that José Lindley had in widely related with national identi- 1910 to open a small soda plant in Rí- ty, and longed for by the increasing mac, Lima, Peru, is still a live in the number of Peruvians living outside great Corporación José R. Lindley. the country. Its star product, the prestigious Inca Kola soda brand, has attracted the The ﬁ rm’s growth and development preference of most Peruvians since was based upon the Lindley family’s 1935, when it was launched into the effort and their philosophy to keep market. It has positioned itself in ahead in the soda sector. In the past the very heart of consumers as it is years, this sector has become one

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of the most competitive within the formed to identify the improvements Peruvian market, as a result of aggre that will serve to attain fast savings ssive commercial strategies displayed without investment. This was all by the different brands. This compe- supplemented by the development tition has grown more intensive since of a managerial skills workshop for 1999, when the biggest traditional all top and middle managers from brands (of which Inca Kola was a Corporación José R. Lindley S.A. leading one) became immersed in (Corporación José R. Lindley S.A., intensive and dynamic publicity and 2001a). promotional campaigns. It also became involved in a price war, which As a result of this work, a Manage- was generated in the attempt to cope rial Indicators System was created with the new competitive strategies for all management areas to follow used by small brands, mainly from on a weekly and monthly basis. The the inside of the country, whose value implementation of a Balanced Sco- proposal aimed at offering remark- recard system was also initiated in able low prices. order to measure and improve productivity and effi ciency throughout Under this scenario, Manuel Sala- the organization, so that the firm zar Corvetto, the General Manager could maintain its leadership in the at Corporación José R. Lindley, in sector in 2001 (Corporación José R. an attempt to maintain leadership in Lindley S.A., 2001b). the sector and to enable the fi rm to be more competitive, hires the services Four years have gone by since the of London Consulting Group at the beginning of this implementation beginning of 2001. They were re- and Manuel Salazar refl ects upon the quested to conduct a comprehensive relevance of this decision, as well as review of all the business processes its implications for the future. and recommend the overall restruc- turing of the fi rm. A LITTLE OF HISTORY

London Consulting Group worked In 1910, a British couple who had closely with the staff from all the just arrived in Peru, José Robinson ﬁ rm’s areas to implement the proces- Lindley and Martha Stoppanie de ses needed to improve the marketing Lindley, as well as their eight chil- system, recover lost sales, and prepa- dren: Martha, Victoria, Ana, José, re technical organizational manuals Nicolás, Alfredo, Antonio and Isaac, for each area, so that they could help established a ﬁ rm that elaborated and optimize the staff’s performance. processed soda in a modest building At the same time, another team was of 200 m2 in the district of Rímac,

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one of the oldest of the city of Lima, the fi rm and promoted the sales of the capital of Peru. This was a soda Inca Kola nation-widely. In 1948, he factory called Santa Rosa de José R. bought the fi rst fully-automatic ma- Lindley e Hijos S.A., named after the chine and increased production up to main saint of the city of Lima. an average of 36 bottles per minute. In addition, he was very concerned Soda production was performed about the welfare of his workers and through an artisan process carried wanted them to feel as part of the out by the entire family. In 1918, Inca Kola family. With this in mind, the firm purchased the first semi- he developed production workshops automatic machine, which allowed for the worker’s wives and summer a remarkable productivity increase. schools for their children. By 1928, the fi rm’s site measured an area of approximately 1.400 m2 and In the following years, technological all processing equipment had been innovations continued for product renewed. Its growth was a refl ection processing and bottling. Paper-la- of the high acceptance that their pro- beled bottles became glass bottles ducts had in the market. printed with the Inca Kola logo and an Inca image (the pre-Hispanic Publicity campaigns started a few emperor in Peru) in high relief. Like- years later in 1935, using the mass wise, new more demanding control, media resources available at that time. hygiene and quality regulations were Then, the brand that would made the introduced following the advances fi rm famous was launched with the of the time. slogan There is only one Inca Kola and there is nothing like it. Up to this Since 1972, Inca Kola has covered point, soda names had been taken af- the entire Peruvian territory and its ter the fruits they were made of, such success motivated the Lindley orga- as Orange Squash or Lemon Squash, nization to continue modernizing its but the firm decided to look for a industrial process; thus, new machi- brand and a formula that could not be nery was acquired, state-of-the-art associated to fl avors directly identifi ed technology was applied in its critical with fruit. Inca Kola was a product processes and the installed capacity consisting of different Andean citric was increased. Its advanced machi- fruits, and had a pleasant unidentifi a- nery allowed bottling between 400 ble fl avor. It was bottled in plain glass and 1.000 units per minute. And its bottles labeled with paper. evolution continued. In 1983, PET plastic bottles of 1-liter, 1 ½-liter and In 1945, José Lindley’s youngest 2-liter capacity were launched, and son, Isaac Lindley, took charge of in 1996, the acquisition of a German

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bottling line called Krones allowed During the past years, work has been an increase of the average bottling done to restructure the marketing and up to 1.000 bottles per minute for the distribution areas, which has allowed medium-sized product. the system to be improved, and now, 90.000 outlets are being served in In 1997, the different ﬁ rms forming Lima. the Lindley Grup, which carried out the different parts of the production Appendix 1 depicts some of the ima- process, joined to establish Corpora- ges that illustrate the ﬁ rm’s historical ción José R. Lindley. evolution.

In 1999, Corporación José R. Lin- During the year 2005, it was able dley made a strategic alliance with to maintain the ISO 9001 and ISO Coca Cola Company, by which the 14001 certifi cations that it had ma- multinational company acquired naged to obtain in 2001. And, it also 50% of the corporation, and agreed completed the internal and external to enlarge Inca Kola’s distribution audits for quality management and and to initiate its distribution in the environmental management in its international market. This informa- eleven industrial plants. In addition, it tion is more detailed in the Strategic initiated the construction of effl uents Alliance section. treatment plants at the Rímac, Zárate and Callao factories, aiming at rea- By 2001, the Corporación José R. ching environmental excellence in Lindley had already transformed into its operations and a culture of quality a fi rm with state-of-the-art technolo- that could benefi t all its consumers gy. US$10.5 million were invested in (Sociedad Nacional de Industrias, new bottling equipment that year. 2006). At present, it develops its production operations within an area of In 2004, Corporación José R. Lin 20.000 m2. In relation to this, Manuel dley acquired Embotelladora Lati- Salazar states that “before the year noamericana (ELSA), which was in 2010, a new mega plant will be built charge of Coca Cola’s manufactur- that will demand a US$60 million ing and management in Peru, and investment; this infrastructure will assumed its activities since then. gather the fi ve existing plants and Through this acquisition, the Lind- new machinery.” ley Corporation strengthened and consolidated its leadership in Peru, Appendix 2 presents the corporation’s and Coca Cola entrusted its strategic individual annual financial state- partner to be in charge of its operat- ments for the 1999-2005 period. The ing bottling activities. main fi xed assets of the partnership

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are located in the industrial plants of competition continues.” Furthermore, Lima, Callao, Jauja, Trujillo, Are- John Lindley, the President of Cor- quipa, Cusco, Iquitos, Sullana and poración Lindley, comments: “Coca Ica. In 2005, Corporación José R. Cola was the best image partner capa- Lindley’s social capital went up to ble of expanding the ‘national ﬂ avor’ over US$181.550 million. soda further around the world.”

A STRATEGIC ALLIANCE In addition to this alliance, which started in 1999, Corporación José R. When Corporación José R. Lindley Lindley acquired Embotelladora La- perceived that it would be very diffi - tinoamericana (ELSA), Coca Cola’s cult to withstand for any longer the producer in Peru, in 2004, expecting unequal battle with its main compe- to transform the soda market in Peru. titor in Peru, Coca Cola Company, Appendix 3 details the location of it started searching a foreign partner Corporación José R. Lindley’s dis- that will capitalize the fi rm in order to tributors in Peru. multiply the rather reduced presence of Inca Kola abroad. It was precisely As for exports, Inca Kola has a re- Coca Cola Company the fi rm that be- lative presence in the United States came its strategic ally from 1999. of America and in some Andean countries. Manuel Salazar remarks Coca Cola Company acquired 50% that this issue belongs exclusively to of the corporation as part of an agre- Coca Cola, “that up to this date, it has ement that would increase its force in ‘marketed’ the product in its 30 divi- the Latin American market by expan- sions around the world.” Nowadays, ding Inca Kola’s distribution through it is sold in Chile, Central America Coca Cola’s distributor (ELSA) to the and the United States, where it has few areas in Peru where it had not three plants in Los Angeles, Florida reached yet and to the international and New Jersey; it is distributed from market. In this way, Coca Cola Com- these sites to Asia and Europe. It is pany acquired full rights of the Inca worth mentioning that before the Kola brand outside Peru, 20% of Inca alliance, the Inca Kola brand had al- Kola’s bottling plant in Lima and 50% ready been sold abroad around 1970, of Inca Kola in Peru. but its presence was really boosted through the alliance. In this respect, Mr. Salazar states: “Coca Cola’s basic contribution to PRODUCTS José Lindley is its international ex- perience, technical issues and quality The corporation’s social aim is to be control; as for other aspects, (brand) dedicated to the formulation, manu-

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facturing, bottling, selling, distri- the one with the highest sales is San bution and marketing of fruit juice, Luis. At the end of 2005, a new type carbonated soda, gasifi ed drinks and of fl avored mineral water, Dasani, non-gasifi ed drinks (with or without was introduced in the market, with syrup), fruit pulp and juice for the varieties going from lemon non-ga- production of nectar and soda. It also sifi ed drinks and active citrus slightly distributes third-party products, sto- gasifi ed drinks to mineral water wi- res and transports goods in general, thout gas; all coming in several pac- manufactures all kinds of disposable kaging sizes. packaging, and has entered the agri- culture and agro industry. As for nectars, the Frugos brand is manufactured and marketed in non- In 2005, market shares of the products returnable glass formats and tetra manufactured and marketed by the pack containers. Frugos is conside- corporation were the following: gasi- red the leading brand in the Peruvian fi ed drinks 59,1%; water, 26%; nec- market. tars, 44%; and isotonic drinks, 15%. The company only produces and mar- As for gasifi ed drinks, 59,1% was kets Powerade as an isotonic drink. mainly obtained through the main brands, Inca Kola and Coca Cola, A LEADER IN SEARCH OF A which had a share of 23% and 22%, LARGER MARKET respectively. Corporación José R. Lindley produces and markets the There are several characteristics that Inca Kola, Inca Kola Diet, Crush, Ca- condition the performance of the nada Dry and Bimbo brands, as well soda industry in Peru; perhaps, the as the Coca Cola, Cola Light, Fanta, most important is the relation esta- Sprite and Kola Inglesa brands, which blished between the local bottling are bottled at ELSA, now part of the factories and the companies that corporation. It must be noted that Inca hold the brands, which are normally Kola is manufactured and market in transnational. These latter ones offer glass returnable bottles, non-returna- the fi rst ones their franchises for the ble glass, returnable plastic and cans; elaboration, marketing and distribu- while Coca Cola is produced and tion of their products in given areas marketed in plastic non-returnable of the country. bottles and dispensers. Manuel Salazar remarks: “Inca Kola In relation to mineral water, the is one of the few- not to say the only brands it produces and markets are one- sodas in the world that has sold San Luis, San Antonio y Bonaqua; more than Coca Cola in a national

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market.” In 1994, Inca Kola took the Coca Cola increasingly approaches lead of the Peruvian market and since closer share levels to the leader in then it has maintained its fi rst place in the capital’s market. This brand also spite of the competitors’ millionaire belongs to the corporation. campaigns. The decline in internal demand bet- In 2002, Corporación José R. Lind- ween the years 1998 and 2002, as ley concentrated 26% of the market well as the great-scale introduction in Peru with Inca Kola, as shown in of the so-called “b-brands” (cheap Figure 1. brands), such as Kola Real that in 2005 reached 12,7% of the market That same year’s studies of last con- in Lima, exacerbated competition sumption statement placed Inca Kola within the soda sector; thus, encoura- on the fi rst place with 37%, followed ging a price war, seriously affecting by Coca Cola with 25%. By then, a profitability margins and pushing brand originated in the provinces, some fi rms out of the market. Under Kola Real1, occupied the third place these circumstances, Corporación with 16%, although it had limited José R. Lindley was forced to rethink publicity and distribution. and establish strategies that would allow it to keep its leadership. According to recent information corresponding to the city of Metropoli- Manuel Salazar, General Manager tan Lima for the period 2003 to 2005, of José Lindley, comments on the Inca Kola’s leadership continues as proliferation of cheap soda produced shown in Figure 2; it can be seen that by small bottling factories in provin-

Figure 1. Peruvian Market Share per Brands

Others 34%

Inca Kola 26% Pepsi 7%

Kola Real 8% Coca Cola 25%

Source: Conde, 2003.

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Figure 2. Sales Shares in Metropolitan Lima per Brands

21,5% 21,5% 22,3%

19,5% 20,3% 21,8%

11,3% 11,3% 12,7% 5,5% 7,8% 8,1%

42,2% 39,1% 35,1%

2003 2004 2005 Others Pepsi Cola Cola Real Coca Cola Inca Cola

Source: CCR S.A.

ces, which have taken an important annually. This growth is attributed percentage of the local market due both to the launching of new presen- to the economic crisis. He states the tations that matched the preferences following: “There are two markets: of the diverse socioeconomic layers, one of franchises and one of lower and to signiﬁ cant price reduction that prices. If low-priced sodas disappear, the industry underwent during the consumers will not buy franchised past years. sodas due to their low income, so the competition is between them.” In the 1985-2002 period, the apparent total consumption of soda (national From these words, it may be inferred production plus imports, minus ex- that Mr. Salazar thinks that these ports) registered an average annual small competitors are only covering growth rate of 9,6%. Consumption a market segment that did not consu- went up from 557 million liters in me soda before. 1995 to 1.272 million liters in 2004, as shown in Figure 3. STATE OF THE SODA MARKET IN PERU Consumption levels are mainly de- termined by the population’s growth, Annual sales for soda in 2002 were acquisition capacity, price, taste and calculated in US$350 million. As preference patterns, and weather. for production volume, it has been es- timated that the sector has been Nevertheless, in spite of the increa- growing at an average pace of 10% se of production volume, Peru still

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Figure 3. Soda Consumption in Peru (in millions of liters)

1400

1200

1000

800

600

400

200

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: INDECOPI (2005). With data taken from the Ministry of Production of Peru and INEI

shows a consumption level per capita surpassed by Venezuela (62,0 liters), below that of the region: 40 annual Chile (89,6 liters), Argentina (71,0 liters against 69,2 annual liters, which liters), Brazil (67,2 liters) and Mexico is the regional average (Banco Wie- (121,80 liters) (INDECOPI, 2005). se Sudameris, 2002). According to a recent research done by INDECOPI The price of soda has gone down (2005), between 1995 and 2004, con- by 23% since 1999, as a result of sumption per capita rose from 21,9 the introduction in the market of the to 46,2 liters, with an average annual “b-brands”. According to the above increase rate of 7,9%. This is widely mentioned study, the nominal price

Figure 4. Soda Price Index (in %)

140 130 120 110 100 90 80 70 60 Jul-95 Jul-96 Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Ene-95 Ene-96 Ene-97 Ene-98 Ene-99 Ene-00 Ene-01 Ene-02 Ene-03 Ene-04 Ene-05

Nominal Real

Nominal: Jan; Real: Jul Source: INDECOPI (2005). With data taken from INEI

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index for soda has shown an irregu- barriers seem not to be working; lar trend in the past years. However, for instance, investments costs are the real price index clearly shows a lower. Table 1 presents brand offer decreasing trend. Between January and its corresponding producers and/ 1995 and October 1995, for instance, or bottling plants for the year 2005. the nominal index recorded an average monthly decreasing rate of 0,04%, Table 1. Main Soda Brands Marketed in whilst, the real index presented a the Local Market monthly decreasing rate of 0,41%, Producer Brands as shown in Figure 4. Coca Cola, Coca Cola Light, ELSA1/ Fanta, Sprite, Kola Inglesa. According to data taken from JP Inca Kola, Inca Kola Diet, J.R. Lindley2/ Morgan, Peru is one of the countries Crush, Canada Dry, Bimbo. in the region where soda is cheaper. A Kola Real, Big Cola, Sabor Ajeper greater demand and the introduction de Oro. Triple Cola, Concordia, Pep- of new brands are enabling a greater Ambev expansion of the operations of some si, 7Up, Mirinda. ﬁ rms in foreign markets. This is the Don Jorge Don Isaac, Perú Cola case for Kola Real, which has al- 1/ 2/ At present merged in Corporación José R. ready entered the market in Ecuador, Lindley (November, 2005). Source: INDECOPI (2005). With data taken Venezuela, México and Guatemala. from several ﬁ rms and the Ministry of Pro- duction in Peru Traditional entrance barriers in this market were the use of brands, the In addition, the market share in the capital required for operations, and Peruvian market per bottling enterpri- distribution channels. Now, these se for 2002, is shown in Figure 5.

Figure 5. Peruvian Market Share per Bottling Firm Others 8%

Industrias Ananos ELSA 13% 31%

Embotelladora Rivera 19% JR Lindley 29%

Source: Conde (2003).

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Moreover, tax load for this sector is decreasing at an annual average rate very high because soda is imposed of 2,48% between 1995 and 2004, a 17% tax on selective consump- and during the last year it reached tion (ISC), one of the highest in the 57,4%, as shown in Figure 6. There- region (Edilcex, 2005). This cons- fore, ﬁ rms could cope with a higher titutes a serious problem because demand (INDECOPI, 2005). the demand for soda is elastic, and therefore, tax cannot be transferred BALANCED SCORECARD to the consumer. IMPLEMENTATION

Soda makes up near 1,9% of the ba- The Balanced Scorecard (BSC) sic family basket. At present, the Pe- translates a ﬁ rm’s mission and strat- ruvian market presents an interesting egy into a set of understandable per- growth potential due to the reduced formance measures (indicators), so consumption per capita of this pro- that the strategy could be understood, duct, versus the other countries in the communicated and measured; thus, region, as noted before (Banco Wiese serving as a basis for all the activi- Sudameris, 2002). ties. Moreover, the indicators allow monitoring the accuracy level of During the past years, the installed strategy implementation (Kaplan & capacity of the sector has reached in Norton, 1996). In order to respond average 64,8%, which means an ave- to the ﬁ rm’s vision and strategy, the rage idle installed capacity of 35,2%. BSC uses four business perspec- However, used capacity has been tives:

Figure 6. Capacity used in the soda sector 1995-20041/ (in %)

80 71.9 73.5 70 66.5 65.7 66 62.8 62.5 61.9 60.1 57.4 60 50 40 30 20 10 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

1/ The data available does not allow the distinction of the production of soda with sugar and without sugar, or that of water, so the data refers to all of them. Source: INDECOPI (2005). With data taken from the Ministry of Production of Peru

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• A fi nancial perspective that es- surement of the overall Corporation’s tablishes the fi nancial objectives goals; Managerial, oriented towards that must be attain in order to sa- the measurement of the business and tisfy the shareholders’ interests. support units’ goals, that is to say, at functional level; and Operational, • A customer perspective that es- oriented towards the measurement tablishes the objectives that will of the specifi c objectives of strategic permit to meet the customers’ operations. needs in order to reach the established fi nancial aims. Mr. Aldo Neyra, Systems Manager, who was in charge of implementing • An internal processes perspecti- the Balanced Scorecard, adds: ve that establishes the processes in which excellence needs to be … when we started, strategic plan- achieved in order to satisfy cus- ning was not yet linked to the de- tomers. fi nition process and to the follow- up of the managerial indicators in • A learning and growth perspec- the Managerial Control Panel. Du- tive that establishes the way in ring a second stage, there was an which the firm must learn and attempt to align the indicators with innovate to attain all the goals the business’s strategic goals, which proposed in the other perspec- resulted into a feedback process. tives. Finally, the BSC methodology was adopted, executing the entrepreneu- BALANCED SCORECARD rial Strategic planning fi rst; and then, EVOLUTION IN implementing it with the help of the CORPORACIÓN JOSÉ R. BSC-E (Balanced Scorecard Exten- LINDLEY ded) technological application.

Manuel Salazar remarks: It is worth mentioning that before the Balanced Scorecard was imple- In order to implement the Balanced mented, the corporation was working Scorecard, Corporación José R. Lind- on strategic projects, such as Activit ley underwent a process of maturity, based Costing, which besides per- where an Integrated Dashboard was mitting to link the fi rm’s needs and fi rst developed and named Manage- priorities, it offered a sustained frame rial Control Panel (…) [which] con- for resource management, as well as sisted of 253 managerial indicators. exposing the differences in quality They were classifi ed in three levels: practices through the segments and Corporate, oriented towards the mea- departments. Aldo Neyra maintains

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that the implementation of this tool DEVELOPMENT OF THE contributed to identify important o- BALANCED SCORECARD pportunities for improvement, which ELABORATION PROCESS brought substantial savings to the fi rm after their application (Corpo- The corporation’s strategic manage- ración José R. Lindley, 2001). ment model in 2000 was basically sustained by the fi rm’s Sales bud- The ERP SAP R/3 was also imple- get and Expenses and Investments mented and resulted in the following budget. However, the BSC elabo- benefi ts: integration of computing ration process required an integral applications to facilitate corporate entrepreneurial vision of the business decision-making, improvement of into the future, which forced the res- business processes due to the de- tructuring of the corporation’s stra- crease of manual loading, establish- tegic framework. In other words, an ment of a working scheme oriented Entrepreneurial Strategic Planning to the Continuous Improvement of was required in order to defi ne the Processes, and better costs control managerial indicators. through the detailed analysis of the fi rm’s operations. Figure 7 shows the The corporation’s strategic fra- corporation’s organization. mework was initiated by reviewing

Figure 7. Organization of Corporación José R. Lindley

Technical Corporate Management Marketing Corporate Management

Soplado Prod. Sullana Prod. Frutos Prod.

Jaula Prod. Sales service Primary logistics logistics Materials Customer JRL Prod Marketing Distribution Distribotion development Research and Iquitos Prod.

Sustaining Financial Corporate Management Macro processes Support Human Resources Corporate Management

Support Systems Corporate Management

Support General Management

Source: Corporación José R. Lindley S.A. (2003a)

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the business’s definition, so as to nistrative efficiency at all times), clarify the reasons for the existence and innovation (applying creativity of the fi rm, as well as its future pro- across all the operations). jection. The organization’s mission, vision and values were reviewed and After reviewing the business defi ni- this was in charge of the Manage- tion, a strategic analysis was conduc- ment Committee, which was formed ted in the fi rm in order to identify the by the General Manager and all the strategic position and potential that fi rm’s Managers. would orient future actions, evalua- ting the corporation’s external and The fi rm’s vision was established as: internal environment, and finally, establishing the Strengths, Weaknes- a leading and profi table organiza- ses, Opportunities and Threats Ma- tion that manages the non-alcoholic trix (SWOT). This analysis sought to drinks business all over Peru, with identify the strong and weak points projection into the Andean region. infl uencing the fi rm’s actions; both, The fi rm’s mission was defi ned in the the ones it could handle directly as following way: To meet the needs of they represented variables under the thirst satisfaction, self-reward, meal responsibility of the internal mana- enjoyment and food supplementing gement, and those it could not han- by effi ciently producing and distri- dle as they belonged to the external buting non-alcoholic beverages and environment. The analysis of the nectars of the highest quality brands, SWOT matrix allowed the defi nition strengthening our staff’s competency of strategic initiatives, followed by and promoting team work (Corpora- the immediate application of the Del- ción José R. Lindley, 2005a). phi2 method to select and prioritize those initiatives in order to defi ne For this purpose, the following va- their relative relevance, and establish lues were established for the organi- priorities based upon it. zation: commitment (assuming as- signed tasks with responsibility and The strategic objectives stemmed motivation), identifi cation (valuing from these prioritized initiatives, the organization and its culture, tra- defining the corporation’s strate- dition and products), quality (achie- gic map, which was elaborated by ving excellence throughout the value using the concepts included in the chain and promoting continuous Balanced Scorecard. This is how the improvement), integrity (acting with strategic objectives were organized ethics, solidarity, environmental and according to the four map perspec- social responsibility), productivity tives: fi nance, customers, internal (working with operative and admi- processes, and learning and growth;

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and the relation cause-effect among Finally, detailed plans were defi ned them was also defi ned. Later on, the for each of the strategic initiatives in strategic map for 2005 will be shown order to establish, with greater clarity as an example. and accuracy, the courses of action needed to execute each strategic ini- Next, the budget corresponding to tiative. This involved the elaboration each of the strategic macro objectives of specifi c programs, and the appo- of the business was allocated, taking intment of people in charge, terms into account the initiatives involved. and resources. Thus, the strategic framework defi - ned for the corporation was linked to Many people from the corporation the specifi c requirements of concrete participated in all these processes, all resources needed for the attainment of which were organized in several of each strategic objective; thus, lin- groups, such as the Managerial Com- king strategic planning with its later mittee, a Facilitators Committee, and execution. various Work Teams per Operative and Functional Management. The corresponding managerial indicators and the goals they were STRATEGIC MAP willing to achieve were defi ned in order to closely follow up the attain- The Balanced Scorecard at Corpo- ment of the strategic objectives. The ración José R. Lindley focused on managerial indicators are ratios es- the four perspectives that sustain tablished to measure results in quan- this methodology, and the correspon- titative form, by which the level of ding Strategic Map was established. achievement for each objective can Different key areas were developed be known. When these are compared within each of the perspectives and to their corresponding desired goals, the specific objectives were spe- the deviation degree that may have cifi ed. These were related under a been generated from what was inten- cause-effect approach, in such a way ded can be clearly identifi ed and this that logical coherence could be es- will allow immediate actions for co- tablished upon the implication that rrecting such deviation. Conductive each specifi c objective had for the indicators were established to eva- attainment of the expected results of luate the objective achievement for greater level. the learning and growth and internal processes perspectives, as well as Indicators were established for each result indicators related to the objec- of the proposed strategic objectives tives of the client-based and fi nancial in order to measure performance, perspectives. follow up its evolution and take co-

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rrective measures for deviation. They 8 that represents the hierarchy and became a powerful tool for strategy the BSC-E application modules im- management. plemented at Corporación José R. Lindley, which translated the issues Likewise, each strategic objective established into a strategy. was associated to the strategic initiatives, which in turn were detailed The Strategic Map is annually re- with speciﬁ c plans and actions. viewed and updated according to the results of an analysis that guides It is in this way that the Balanced the priorities to be taken every year. Scorecard established the following This is why the strategic map became hierarchy: perspectives, areas, stra- a dynamic tool that facilitated the tegic objectives, indicators with their understanding, measurement, eva- corresponding corrective measures luation and correction of deviations accordingly to the observed devia- from the strategy. tions, and strategic initiatives with their corresponding action plans. In order to achieve this, most ma- This can be clearly viewed in Figure nagerial indicators and their corres-

Figure 8. Hierarchy and BSC-E Technology Application Modules

Perspective Balaced Scorecard

Key Areas

Objetives

Indicator Strategies

Corr. Act1 Corr. Act2 Plan Plan Plan Act Action plans Corrective measure Act Strategy management

Source: Corporación José R. Lindley S.A. (2003a)

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ponding goals are reviewed mon- pectives. Every Corporate Manage- thly; although, some indicators are ment (pointed out at the bottom of reviewed on a daily or weekly basis, the graph) has objectives and plans especially the operative ones; simi- aligned with the strategic objectives larly, all initiatives are reviewed once signalized on the map. a month. The objectives in each perspective Some examples related to one part of are described below: the developed systems are presented in order to achieve a better unders- • Finance: the aim of this perspec- tanding of the Balanced Scorecard tive is to generate more profi ta- implemented by Corporación José bility in the fi rm, so specifi c ob- R. Lindley. jectives were established, such as ensuring the fund operative fl ow One example of the 2005 strategic and complying with the establis- map is shown in Figure 9, in which hed Operative Budget. you could visualize the four pers- Figure 9. Strategic Map of Corporación José R. Lindley

1. Generate more proﬁ table Finance 2. Asure fund 3. Comply with operative ﬂ ow Operative Budge

4. Increase market volumenes and share Clients 6. Develope more 5. Consolidate sales and 7. Improve quality strategies distribution system service for costumers and costumers

Internal processes 10. Reduce cost and 9. Maximize the use of 8. Maintain enviromental increase productive information and technological and quality standarts resourses

Learning and Grown 13. Consolidate 12. Implant and integral 11. Strengthenre lations organizational culture managerial model for RR with interest groups

Human Res. Systems Image & Instituc. Téchnical Marketing Finances

Source: Corporación José R. Lindley S.A. (2003b)

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• Clients: Among the objectives of with interest groups, implemen- this perspective, we have: increa- ting the Human Resources Inte- sing market share and volumes, gral Managerial Model, and con- consolidating the sales and distri- solidating organizational culture. bution system, developing strategies for new business opportuni- The managerial indicators, strategic ties and improving service quality initiatives and action plans were de- for clients and consumers. veloped in detail based on the strategic maps, all of which together co- • Internal Processes: They focused rrespond to the Balanced Scorecard’s on three key objectives: maintai- concepts. Figure 10, extracted from ning environmental and quality the BSC-E system, shows a detailed standards, maximizing informa- example of managerial indicators tion use and technological resour- based on the corporation’s strategy ces, and fi nally, reducing costs for the year 2003. and increasing productivity. As it may be observed, the four pers- • Learning and Growth: They ai- pectives are defi ned at the fi rst level: med at strengthening relations 1. Finance; 2 Clients; 3. Internal Pro-

Figure 10. Managerial Indicators

Source: Corporación José R. Lindley S.A. (2003a)

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cesses; and 4. Learning and Growth. the ones that enable the measure- These perspectives correspond to the ment of the objectives’ achievement traditional structure of an Integrated level in quantitative form. In the Dashboard. example in Figure 10, the disaggregated managerial indicators for the At the second level and within each strategic objective can be apprecia- perspective, the key areas are deﬁ - ted: incrementing sales volumes in ned. In the example in Figure 10, the Lima corresponding to the key area key areas for the Client perspective Lima Volume/Share – Lima Marke- can be seen disaggregated. These key ting Management belonging to the areas are: Client’s perspective. These managerial indicators are: • Segmented marketing – Opera- tions Management • Fulﬁ llment of the visits plan per distributor - daily • Lima Volume/Share – Lima Mar- keting Management • Fulfillment of the Soda Sales Budget - monthly • Provinces Volume/Share – Pro- vinces Marketing Management • Pre-sales effectiveness – Daily

At the third level, and within each • Percentage of the total mix pene- key area, the strategic objectives tration (distributors) – Monthly are deﬁ ned, which are precisely the ones illustrated in the corresponding • Increase of sales volumes in Lima Strategic Map. In the example in Fi- (only Lima distributors) gure 10, the disaggregated strategic objectives of the Lima Volume/Sha- • On-line Pre-sales re – Lima Marketing Management key area can be appreciated, corres- • Lost sales from distributors – ponding to the Client’s perspective. Daily These strategic objectives are: As explained before, the managerial • Increase market share in Lima indicators are ratios that measure each indicator’s achievement quan- • Increase sales volumes in Lima titatively. Each of these ratios respond to a formula, which is usually At the fourth level, and within each expressed in percentage values, as strategic objective, the managerial illustrated in the graph. Although, indicators are defined, which are it could also be expressed in unitary

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time values or other measurements, levels, the traffic light will be in according to what is more convenient yellow, indicating that although the to measure. goal has not been reached, it is in progress and some improvement ac- As in most of the cases, for the Ba- tions may be needed. Finally, if the lanced Scorecard of Corporación indicator’s value is below the goal José R. Lindley, a traffi c light system at levels below those acceptable, the has been established, which con- traffi c light will be in red indicating sists in marking with colors (green, an emergency situation in need of yellow and red) the level of achie- immediate corrective measures. vement reached by each indicator, in permanent comparison with the The following is the description of initially proposed goal. Thus, if the a detailed example of strategic ini- indicator’s value is at similar or hig- tiatives and action plans based upon her levels of the goal, the traffi c light that established in the corporation’s will be in green light indicating that strategy for the year 2003, and which the objective has been achieved. can be seen in Figures 11 and 12 ex- If the indicator’s value is lower than tracted from the BSC-E system. that of the goal but at acceptable Figure 11. Strategic Initiatives

Source: Corporación José R. Lindley (2003a)

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The strategic initiatives needed to Each of the strategic initiatives has reach the strategic objectives are its corresponding action plan, which deﬁ ned within each strategic objec- is a program or activity needed to tive. In the example, for the strate- attain the strategic initiative. The fo- gic objective related to having the llowing graph shows the action plan ideal and necessary staff, belonging associated to the strategic initiative to the Staff Development – Human of: e-learning technology implemen- Resources Management key area tation, allocation of the people in and corresponding to the Learning and charge of each of them, timetables, Growth perspective, the following progress level or condition. strategic initiatives have been established: The Managerial Committee, a Faci- litators Committee and several work • Optimization project for the Hu- teams for each operative and functio- man Resources Management nal management participated in this deﬁ nition process. The frequency of • Implementation of E-learning review and updating of indicators technology and goals was variable: daily, weekly

Figure 12. Action Plans

Source: Corporación José R. Lindley S.A. (2003a)

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or monthly. Initiatives were reviewed Corporación José R. Lindley has every month. integrated all its business processes along the supply chain with the ERP BSC-E TECHNOLOGICAL SAP R/3 system. In addition, it has APPLICATION integrated its client-distributors all around the country through its in- Aldo Neyra, Systems Manager, com- formation systems, setting up the ments: “The technological applica- largest Intranet of the soda industry tion supporting the strategic map in Peru. was implemented based upon the established objectives: the system Hence, all business processes are called BSC-E (Balanced Scorecard systematized, from the acquisition Extended) is a software that enables of raw material to the placing of to translate all the strategic plan- products at the outlets, through pur- ning process into a follow-up and chasing management, warehousing, control system.” The system was production, plant maintenance, dis- implemented in June 2002 and its tribution and sales. Likewise, all su- technological architecture is shown pport processes, such as accounting, in Appendix 4. finance and human resources, are also integrated. Figure 13 shows the corporation’s systems architecture. Figure 13. Systems Architecture

Balanced Scorecard Implemental since September 2001

ABC Costing Implemental since November 1998

SAP R/3 Implemental since May 1999 BASIS II Implemental since November 1999

Source: Corporación José R. Lindley (2003c)

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The Balanced Scorecard obtains data levels are rewarded through the be- input in two ways: through an auto- nefi ts and compensation system. matic interface from the transactional systems (ABAP/4 and RPG ILE This process involves 130 offi cers programs), and manually, updated by who have defined and committed users in charge. Action Plans in the Annual Perfor- mance Commitment (CAP), which is The system has automatic tasks agreed at the beginning of the period. oriented towards the validation of During the year, the Action Plans’ the plans’ effect operation establi progress is systematically monito- shed upon the obtained indicators. red through the support of another In case of divergence, e-mail alerts technological application (Project are sent on plan and goal fulfi llment. Server), which operates under a Web (Corporación José R. Lindley, 2002, environment and enables direct up- 2003a, 2003b, 2003c). dating of progress by the offi cers in charge, and real-time control by the BALANCED SCORECARD person above them. IMPLEMENTATION AND UPDATING The corporation’s top management has a monthly specific meeting As described so far, the implemen- (Monthly Results Meeting) to review tation of the Balanced Scorecard the fulfi llment progress of the main represented the Strategic Map struc- plans and programs, according to the turing and the corresponding Integra- established indicators and goals by ted Dashboard, which is formed by using a standard format. the strategic managerial indicators system based on the established Stra- The implementation of these proces- tegic Planning. They were all suppor- ses can be improved; thus, improve- ted by the BSC-E application. ments are constantly introduced. One aspect sought is the generation of the As part of the implementation, it was highest possible level of automation necessary to align the organization of data loading, so that it facilitates with the strategy by translating the review and analysis work, without planning into individual operati- distracting the managers and offi cers’ ve plans performed by each Area time in operative tasks that do not Head or Manager. Their fulfi llment add any value. is measured within the annual process of Performance Measurement, On the other hand, alternatives for by which efforts within established new service platforms are checked

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periodically, so that they can provide The Balanced Scorecard implemen- more added value. tation at Corporación José R. Lindley considered the following factors: Currently, corporate ofﬁ cers are reviewing the support platform in order • Involvement of the top mana- to automate even more the data load gement as the project’s sponsor, coming from the different transac- demanding total commitment. tional systems with the support of new technological tools (Reporting • Systems Area performing as an Services). agent of change.

The established indicators are being • Formation of the project’s organi- improved, so that they can better re- zation team, including a facilita- fl ect the fulfi llment of the strategic tor per functional management. objectives established. • Consistent transactional infor- For the 2005 period, it was decided mation registered in the fi rm’s to implement individual Balanced systems. Scorecards for each Management based upon the strategic alignment • Permanent use of the Balanced defi ned at central level, which im- Scorecard as a control tool of the plied the involvement of a greater fi rm at all levels, either strategic number of offi cers in the use of su- or operative. pport methodology and application; this implied additional training and BALANCED SCORECARD instruction processes. IMPACT

Alongside the above mentioned, it Aldo Neyra comments that mana- was necessary to develop specifi c gers consider that the implemented indicators for the Balanced Score- Balanced Scorecard is their strate- card of each Management and to gic tool, which allows them to carry disaggregate the data loaded in the out the planning and follow-up of corporate Balanced Scorecard. A the whole fi rm because it registers process of greater complexity was and shows on-line the behavior of generated, which provided the be- the managerial indicators related nefi t of involving the organization’s to the planned strategic goals and main groups in the implementation objectives. It made possible a bet- of the strategy. ter alignment between the strategic

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objectives and the operative plans, the Balanced Scorecard has be- a greater participation and com- come the fi rm’s command and mitment of the offi cers in charge of monitoring center. the operation along the managerial process, and the possibility to ack- • Process-oriented organization nowledge in a direct and individual and results-based culture. manner contributions done by offi - cers to the attainment of the organi- • Formulation, implementation and zational objectives. As Mr. Manuel control of the corporation’s Stra- Salazar, the corporation’s General tegic Plan through the Balanced Manager, puts it: Scorecard.

… the Balanced Scorecard is a tool • Strategy linked with operations that has enabled us to conduct a clo- (at detailed level, for instance, ser follow-up of the problems that commercial managerial indica- generally arise in the various areas tors). of the fi rm, thanks to the indicators that we have developed. This allows • Immediate response to deviations us to improve all these aspects and of the operative performance ver- avoid the repetition of previous com- sus the established goals (through plications; thus, controlling a high managerial indicators). percentage of the situation within the corporation… • Performance management model based upon objectives, which The corporation’s top management uses the Balanced Scorecard as identify the following benefi ts gai- a support tool for staff’s results- ned through the implantation of the based reward. Balanced Scorecard: • Conversion of the corporation’s • Establishment of bidirectional great amount of data into use- communications of the strategic ful information for decision-ma- priorities and of the corporation’s king. organizational performance. In concrete terms, since the imple- • Establishment of an integral mea- mentation of the Balanced Scorecard surement system that controls in Corporación José R. Lindley up to and tracks all the fi rm’s processes date, the most important indicators through managerial indicators in have shown a favorable evolution order to monitor the fulfi llment of at the four basic perspectives’ le- the objectives established; thus, vel. Just to mention some examples,

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market share has increased, the ma- Conde, R. (2003). Análisis Industrias nagerial effectiveness index for dis- Añaños (Kola Real). Consultado tribution shows a superior effi ciency en: http://www.gestiopolis.com/ level, the level of production losses recursos/documentos/fulldocs/ has become reduced, the response ger/kolareal.htm., el 21 de sep- time for attending requests of the tiembre de 2005. Systems area has reduced; all of which impacts favorably in the fi rm’s Corporación José R. Lindley S.A. economic and fi nancial results. (2001a). Memoria 2001. Lima: Corporación José R. Lindley. References ---.(2001b). Tecnología de informa- Edilcex (2005). Arancel de adua- ción en la estrategia de negocio nas de importación-exportación de la Corporación José R. Lin- 2005. Lima: Edilcex. dley S.A. Lima.

Astigarraga, E. (2004). “El método ---.(2002). “Sistema: Balanced Sco- Delphi”. Universidad de Deusto. recard Extendido (BSC-E). Ma- Facultad de Ciencias Económicas nual de Usuario”. Lima, presen- y Empresariales, Donostia – San tación. Sebastián. Consultado en: http:// www.codesyntax.com/prospec- ---. (2003a). “Gestión estratégica y tiva/Metodo_delphi.pdf, el 8 de el Balanced Scorecard”. Lima, junio de 2006. presentación.

Álamo, O. (2002). “La mágica fór- ---.(2003b). “Implantación del Ba- mula de la Inca Kola”. Instituto lanced Scorecard en CJRLSA”, Internacional de Gobernabilidad El Inkakolero, N° 17 B. (IIG). Desarrollo Humano e Ins- titucional en América Latina – --. (2003c). “BSC en CJRLSA”. Li- DHIAL. Consultado en: http:// ma, presentación. www.iigov.org/dhial/?p=36_07, el 20 de septiembre de 2005. ---. (2005a). “Misión”; “Valores”. Consultado en: http://www.in- Banco Wiese Sudameris (2002). cakola.com.pe/quienes-mision. Reporte sectorial de gaseosas. htm, el 21 de septiembre de Lima: Departamento de Estudios 2005. Económicos del BWS. ---. (2005b). “Balanced Scorecard. Implantación del Balanced Sco-

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recard en Jrlsa”. Consultado en: Navarro, C. (2004). “Hemos reen- http://www.incakola.com.pe/ contrado el camino para manejar tecnologia-balance.htm, el 20 de Inca Kola como marca”. Entre- septiembre de 2005. vista a Manuel Salazar, gerente general de la Corporación José Indecopi (2005). Resumen docu- R. Lindley, El Comercio, 16 de mento de discusión (versión pre- agosto. liminar): “Una aproximación del impacto de las operaciones de Sociedad Nacional de Industrias adquisición y fusión registrados (2006). “Corporación J.R.Lindley en el mercado peruano de bebidas inauguró moderna planta de tra- gaseosas”. Consultado en: http:// tamiento biológico de eﬂ uentes”. www.indecopi.gob.pe/boletin/ Página web de la Sociedad Na- gee/index/Gaseosas.pdf, el 21 de cional de Industrias. Noticias: 12 septiembre de 2005. diciembre del 2005. Consultado en: http://www.sni.org.pe/modu- Kaplan, R. & Norton, D. (2006). les.php?name=News&ﬁ le=articl Alignment: Using the Balanced e&sid=149, el 20 de septiembre Scorecard to Create Corporate de 2005. Synergies. Boston: Harvard Bu- siness School Press. Suárez, D. (2004). “Éxito peruano: Grupo Kola Real se expande con ---. (2004). Strategy Maps: Conver- éxito en cuatro países”. Revista ting Intangible Assets into Tangi- Business, informe especial, fe- ble Outcomes. Boston: Harvard brero. Business School Publishing.

---. (2000). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Boston, Mass.: Harvard Business School Press.

---. (1996). The Balanced Scorecard: Translating Strategy into Action. Boston: Harvard Business School Press.

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APPENDIX 1. PHOTOGRAPHS OF THE HISTORY OF CORPORACIÓN JOSÉ R. LINDLEY

Founders: The Lindley Family Don Isaac Lindley

Modern Inca Kola Old botles

Inca Kola’s modern image Sales Force Source: Corporación José R. Lindley (2005b).

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APPENDIX 2A. ANNUAL FINANTIAL SYSTEM (IN THOUSAND OF NUEVOS SOLES1/)

General Balance (to December 31st, 2005, 2004, 2003, 2002, 2001, 2000 and 1999)

Account 2005 2004 2003 2002 2001 2000 1999 Assets Current Assets Cash and Banks 21.320 55.366 3.838 2.880 6.747 13.143 2.510 Negotiable Values (Accumula- 0000000 ted net provision) Receivable Trade Accounts 42.939 31.962 24.646 19.396 28.597 23.998 14.082 (Accumulated net provision) Receivable Accounts from 15.032 26.492 16.981 9.208 0 0 920 Related Other Receivable Accounts (ac- 41.913 4.084 15.582 3.911 0 0 16.763 cumulated Net Provision) Inventory (Accumulated Net 74.244 37.241 29.896 25.194 24.556 31.376 37.448 Provision) Assets for Derivative Finantial 000 Instruments Prepaid Expenses 2.339 23.872 716 1.192 1.181 1.208 3.378 Total Current Assests 197.787 179.017 91.659 61.781 61.081 69.725 75.101 Non- Current Assests Long-term Receivable trade 2.815 0 361 402 1.145 1.512 0 accounts Long-term Receivable accounts 0 49.58300000 from related Other Long-term receivable 050300000 accounts Inventory 0 0 0 Permanent Invstment (Accumu- 4.470 480.526 10.472 14.322 2.459 0 92 lated Net Provision) Assets for Derivative Financial 000 Instruments Real Estate Investments 0 0 0 Real Estate, Machinery and Equipment (net depreciation 365.891 153.009 144.994 152.269 157.021 189.026 219.978 and Accumulated devaloriza- tion)

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Account 2005 2004 2003 2002 2001 2000 1999 Intangible Assets (net write-off and Accumulated devaloriza- 39.197 20.783 22.955 27.600 36.636 0 0 tion) Income Tax and Deferred Assts 23.182 17.210 21.310 17.320 15.825 2.519 0 Participation Goodwill 305.554 0 0 Other Assets 19.257 11.782 10.684 17.826 10.268 50.243 4.816 Total Non Current Assets 760.366 733.396 210.776 229.739 223.354 243.300 224.886 TOTAL ASSETS 958.153 912.413 302.435 291.520 284.435 313.025 299.987 Liability and Equity Current Liability Bank Overdraft 1.632 0 0 Bank Loans2/ 23.567 120.541 5.563 25.794 39.541 96.035 61.820 Trade Payable Accounts 124.630 38.618 42.393 29.819 25.225 17.608 36.707 Payable Accounts from Related 45.098 85.887 00000 Other Payable Accounts 57.295 29.146 10.042 10.892 9.951 39.991 13.552 Current portion of long-term 5.889 71.235 41.976 10.760 8.231 2.443 22.006 Debts Liabilities for derivative Finan- 11.562 4.532 0 tial Instruments Total Current Liability 269.673 349.959 99.974 77.265 82.948 156.077 134.085 Non-current Liability Long-term debts 281.686 266.617 86.990 94.283 78.686 16.987 24.774 Payable Accounts from Related 0 0 00000 Liabilities for Derivative Finan- 0 17.711 0 cial Instruments Deferred Income (net) 0 17.029 00000 Income Tax and Deferred Liabi- 39.018 21.649 21.310 17.320 15.825 11.468 12.183 lity Participation Total No-current Liability 320.704 323.006 108.300 188.868 177.459 184.532 171.042 Total Liability 590.377 672.965 208.274 266.133 260.407 340.609 305.127 Contingency (Should only be 0000000 shown when existent) minority Stake 0 0 00000 Net Equty Capital 580.981 118.340 210.039 205.921 202.478 321.887 258.349

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Account 2005 2004 2003 2002 2001 2000 1999 additional Capital 0 223.083 00000 Investment Shares 71.966 11.954 21.207 20.791 20.444 38.772 37.170 Unfullﬁ lled Results 0 0 0 Revaluation Surplus 0 0 00000 Legal Reserves 4.335 118 112 110 108 2.230 2.129 Other Reserves 0 0 00000 Accumulated Results -289.506 -114.047 -137.197 -124.170 -116.054 -234.396 -168.703 Accumulated Effect from fo- 000 reign currency re-exchange Total Net Equity 367.776 239.448 94.161 102.652 106.976 128.493 128.945 TOTAL LIABILITY AND 958.153 912.413 302.435 291.520 284.435 313.025 299.987 NET EQUITY 1/ In 2005, The average exchange rate was of US$1.00 = 3.30 nuevos soles. 2/ In 2002 and previous years, this item included bank overdrafts Source: Conasev

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APPENDIX 2B. ANNUAL FINNANCIAL STATEMENTS (IN THOUSAND OF NUEVOS SOLES1/)

Proﬁ t and Loss Statements

Account 2005 2004 2003 2002 2001 2000 1999 Operacionale Income Net Sales (Operational In- 753.722 357.158 265.391 257.400 225.245 222.430 224.167 come) Other Operational Income Total Gross Income 753.722 357.158 265.391 257.400 225.245 222.430 224.167 Sales Costs (Operational) -550.262 -286.803 -189.574 -180.041 -166.427 -157.390 -143.240 Other Operational Costs Gross Earning 203.460 70.355 75.817 77.359 58.818 65.040 80.927 Operational Expenditure Sales Expenditure -136.014 -47.068 -39.278 -37.963 -48.471 -62.971 -67.665 Administrative expenditure -78.224 -33.229 -29.481 -26.030 -31.933 -30.705 -33.241 Provision for assests Devalori- zation Loss Operational Earnings -10.778 -9.942 7.058 13.366 -21.586 -28.636 -19.979 Other Income (Expenditure) Financial Income 4.546 2.220 240 1.408 1.622 Financial Expenditure -59.593 -27.738 -13.551 -14.345 -15.656 -15.827 -18.540 Shareholding on the results of subsidisry and affi liated under 1.247 -47.951 -4.136 the equity sharing method Profi t or loss for derivative fi - 4.273 -22.243 nancial instruments Other Income 63.001 3.874 3.535 1.054 Other Expenditure -104.460 -17.093 -7.606 -10.732 -27.943 -16.875 -32.732 Accumulate Effect for changes in accounting policies Results for infl ation Exposure 44.776 3.577 625 214 801 -5.239 Results Before Extraordinary Expenditure, Participation and -101.764 -77.971 -10.544 -6.143 -62.295 -60.537 -76.490 Income Tax Participation of current and 7.622 -1.109 228 3.057 338 -170 deferred workers

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Account 2005 2004 2003 2002 2001 2000 1999 Current and deferred Income 19.731 -3.330 617 8.335 916 -460 Tax Results before Extraordinary -74.411 -82.410 -9.699 -6.143 -50.903 -59.283 -77.120 Expenditure Extraordinary Expenditure (net participation and Inco- me Tax) Results before Minority Stake -74.411 -82.410 -9.699 -6.143 -50.903 -59.283 -77.120 Minority Stake 1.081 Net Earning (Lost) From the -73.330 -82.410 -9.699 -6.143 -50.903 -59.283 -77.120 period Preferred Stock Dividends Net Earning (lost) Attributable -73.330 -82.410 -9.699 -6.143 -50.903 -59.283 -77.120 to non-preferred shareholders

Basic earning (loss) for com- -0.1123 0.681 -0.043 -0.03 -0.23 -0.1964 -0.36 mon shares Basic earning (loss) for inves- -0.1123 0.681 -0.043 -0.03 -0.23 -0.1964 tment shares Diluted earning (loss) for com- -0.1123 0.681 -0.043 -0.03 -0.2182 -0.1964 mon shares Diluted earning (Loss) for in- -0.1123 0.681 -0.043 -0.03 -0.2182 -0.1964 vestment shares 1/ In 2005, the average exchange rate was of US$1.00 = 3.30 nuevos soles. Source: Conasev

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APPENDIX 3. GEOGRAPHICAL LOCATION OF DISTRIBUTORS

Source:XXXX

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APPENDIX 4. TECHNOLOGICAL ARCHITECTURE OF THE BSC-E APPLICATION

User’s Corporate Database Transactional interface intranet system Sistems

Excel Web browser Queries Track

S A P

Internet explorer Interfaces Interfaces

Commercial system

Report

Basis • Inspection or query interfaces with transactional systems • Automatic data loading interfaces

Source: Corporación José R. Lindley S.A.( 2003a)

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