PART I
CHAPTER 1
MEASUREMENT & MANAGEMENT IN THE INFORMATION AGE
INTRODUCTION:
NAVIGATING TODAY’S ORGANIZATIONS THROUGH COMPLEX
COMPETITIVE ENVIRONMENTS IS AS COMPLICATED AS FLYING A
JET
WE NEED TO MONITOR THE ENVIRONMENT & PERFORMANCE OF
THE ORGANIZATION FOR OBTAINING EXCELLENT FUTURE
OUTCOMES
BSC IS THE KEY IN THIS JOURNEY
BSC TRANSLATES ORGANIZATION’S MISSION & STRATEGY INTO A
COMPREHENSIVE SET OF PERFORMANCE MEASUREMENT
THE SCORECARD MEASURES ORGANIZATION PERFORMANCE
ACROSS FOUR BALANCED PERSPECTIVES:
o FINANCIAL
o CUSTOMERS
o INTERNAL BUSINESS PROCESS
o LEARNING & GROWTH
BSC ENABLES COMPANIES TO TRACK FINANCIAL RESULTS, WHILE
SIMULTANEOUSLY MONITORING PROGRESS IN BUILDING THE
CAPABILITIES & ACQUIRING THE INTANGIBLE ASSETS THEY NEED
FOR FUTURE GROWTH
COMPETING IN THE INFORMATION AGE
THE INFORMATION AGE ENVIRONMENT FOR BOTH
MANUFACTURING & SERVICE ORGANIZATIONS REQUIRES NEW
CAPABILITIES FOR COMPETITIVE SUCCESS
THE ABILITY OF THE COMPANY TO MOBILIZE & EXPLOIT ITS
INTANGIBLE ASSETS HAS BECOME FAR MORE DECISIVE THAN
INVESTING & MANAGING PHYSICAL, TANGIBLE ASSETS
INTANGIBLE ASSETS ENABLE AN ORGANIZATION TO:
o DEVELOP CUSTOMER RELATIONSHIPS THAT RETAIN THE
LOYALTY OF EXISTING CUSTOMERS, & ENABLE NEW
CUSTOMERS SEGMENTS & MARKET AREAS TO BE SERVED
EFFECTIVELY / EFFICIENTLY
o INTRODUCE INNOVATIVE PRODUCTS & SERVICES DESIRED
BY TARGETED CUSTOMER SEGMENTS
o PRODUCE CUSTOMIZED HIGH-QUALITY PRODUCTS /
SERVICES AT LOW COST & WITH SHORT LEAD TIMES
o MOBILIZE EMPLOYEE SKILLS / MOTIVATION FOR
CONTINUOUS IMPROVEMENTS IN PROCESS CAPABILITIES,
QUALITY, & RESPONSE TIMES
o DEPLOY INFORMATION TECHNOLOGY, DATA BASES &
SYSTEMS
INFORMATION AGE ORGANIZATION ARE BUILT ON A NEW SET OF
OPERATING ASSUMPTIONS:
o CROSS FUNCTIONS / LINKS TO CUSTOMERS & SUPPLIERS /
CUSTOMER SEGMENTATION / GLOBAL SCALE /
INNOVATION / KNOWLEDGE WORKER
AS ORGANIZATIONS ATTEMPT TO TRANSFORM THEMSELVES TO
COMPETE SUCCESSFULLY IN THE FUTURE, THEY ARE TURNING
TO A VARIETY OF IMPROVEMENT INITIATIVES LIKE:
o TOTAL QUALITY MANAGEMENT
o JUST IN TIME [PRODUCTION / DISTRIBUTION SYSTEMS]
o TIME BASED COMPETITION
o LEAN PRODUCTION / LEAN ENTERPRISE
o BUILDING CUSTOMER-FOCUSED ORGANIZATIONS
o ACTIVITY BASED COST MANAGEMENT
o EMPLOYEE EMPOWERMENT
o REENGINEERING
BREAKTHROUGHS IN PERFORMANCE REQUIRE MAJOR CHANGE, &
THAT INCLUDES CHANGES IN MEASUREMENT / MANAGEMENT
SYSTEMS USED BY ORGANIZATION
NAVIGATING TO MORE COMPETITIVE, TECHNOLOGICAL, &
CAPABILITY DRIVEN FUTURE CANNOT BE ACCOMPLISHED MERELY
BY MONITORING & CONTROLLING FINANCIAL MEASURES OF PAST
PERFORMANCE
TRADITIONAL FINANCIAL ACCOUNTING MODEL
THE TRADITIONAL FINANCIAL ACCOUNTING MODEL IS BEING USED
BY INFORMATION AGE COMPANIES AS THEY ATTEMPT TO BUILD
INTERNAL ASSETS & CAPABILITIES & TO FORGE LINKAGES &
STRATEGIC ALLIANCES WITH EXTERNAL PARTIES
THE LIMITATION WITH THIS TRADITIONAL FINANCIAL ACCOUNTING
SYSTEM IS DOES NOT INCORPORATE THE VALUATION OF A
COMPANY’ S INTANGIBLE / INTELLECTUAL ASSETS, SUCH AS HIGH
QUALITY PRODUCTS / SERVICES MOTIVATED & SKILLED
EMPLOYEES. RESPONSIVE & PREDICTABLE INTERNAL
PROCESSES, & SATISFIED & LOYAL CUSTOMERS
THIS VERY ASSET & CAPABILITIES ARE CRITICAL FOR SUCCESS IN
TODAY’S & TOMORROW’S COMPETITIVE ENVIRONMENT
THE BALANCE SCORE CARD
RETAINS TRADITIONAL FINANCIAL MEASURES
THESE FINANCIAL MEASURES ARE INADEQUATE FOR EVALUATING
& GUIDING THE JOURNEY, THAT INFORMATION AGE COMPANIES
MUST MAKE TO CREATE FUTURE VALUE THROUGH INVESTMENT
IN CUSTOMERS / SUPPLIERS / EMPLOYEE / PROCESS /
TECHNOLOGY / INNOVATION
BSC COMPLEMENTS FINANCIAL MEASURES OF PAST
PERFORMANCE WITH MEASURES OF THE DRIVERS OF FUTURE
PERFORMANCE
THE OBJECTIVES & MEASURES OF THE SCORECARD ARE
DERIVED FROM ORGANIZATION’S VISION / STRATEGY
THE FOUR PERSPECTIVE PROVIDE THE FRAMEWORK FOR THE
BSC
THE BSC REVEALS THE VALUE DRIVERS FOR SUPERIOR LONG
TERM FINANCIAL / COMPETITIVE PERFORMANCE
THE BSC AS A MANAGEMENT SYSTEM
BSC EMPHASIZES THAT THE FINANCIAL / NON FINANCIAL
MEASURES MUST BE PART OF THE INFORMATION SYSTEM FOR
EMPLOYEES AT ALL LEVELS OF THE ORGANIZATION
FRONT LINE EMPLOYEE MUST UNDERSTAND THE FINANCIAL
CONSEQUENCES OF THEIR DECISIONS & ACTIONS, WHILE SENIOR
EXECUTIVES MUST UNDERSTAND THE DRIVERS OF LONG TERM
FINANCIAL SUCCESS
THE OBJECTIVES & THE MEASURES ARE DERIVED FROM TOP
DOWN PROCESS DRIVEN BY THE MISSION & STRATEGY OF THE
BUSINESS UNIT
THE BSC SHOULD TRANSLATE UNIT’S MISSION / STRATEGY INTO
TANGIBLE, OBJECTIVES & MEASURES
THE MEASURES REPRESENT A BALANCE BETWEEN EXTERNAL
MEASURES FOR SHAREHOLDERS & CUSTOMERS & INTERNAL
MEASURES OF CRITICAL BUSINESS PROCESSES, INNOVATION, &
LEARNING & GROWTH
CONCLUSIONS:
TODAY ORGANIZATIONS OPERATE IN A TURBULENT
ENVIRONMENT
SENIORS NEED FEEDBACK ABOUT THE STRATEGIES WHICH ARE
BEING IMPLEMENTED
STRATEGIES THOUGH FORMULATED WITH GOOD INTENTIONS,
SOMETIMES ARE NOT VALID IN CONTEMPORARY CONDITIONS
SENIORS SHOULD RECEIVE FEEDBACK FROM VARIOUS SOURCES
TO TAKE ADVANTAGE OF ENVIRONMENTAL CHANGES & TO
COUNTER COMPETITOR BEHAVIOR
WITH THE CHANGE IN ENVIRONMENTS, NEW STRATEGIES HAVE
TO BE EVOLVED FOR CAPITALIZING ON OPPORTUNITIES OR TO
COUNTER THREATS
ASSUMPTION ON WHICH STRATEGIES HAVE TO CONSTANTLY
EXAMINED WHETHER IT IS VIABLE & VALID
THIS CAN BE DONE ONLY IF THOSE IMPLEMENTING THE
STRATEGY GIVE A FEEDBACK
THIS IS KNOWN AS DOUBLE LOOP FEEDBACK
THE SCORECARD SHOULD BE BASED ON A SERIES OF CAUSE &
EFFECT RELATIONSHIPS DERIVED FROM THE STRATEGY,
INCLUDING ESTIMATES OF THE RESPONSE TIMES & MAGNITUDES
OF THE LINKAGES AMONG THE SCORECARD MEASURES
THE OUTCOMES IS TO ADJUST THE QUANTITATIVE RELATIONSHIP
AMONG STRATEGIC MEASURES ON THE BSC
CHAPTER II
WHY DOES BUSINESS NEED A BSC?
INTRODUCTION:
MEASUREMENT SYSTEM AFFECTS THE BEHAVIOR OF INDIVIDUALS;
BOTH INSIDE / OUTSIDE THE ORGANIZATION
THE BSC RETAINS ITS FINANCIAL MEASUREMENT, AS A CRITICAL
SUMMARY OF MANAGEMENT, & BUSINESS PERFORMANCE, BUT IT
HIGHLIGHTS A MORE GENERAL / INTEGRATED SET OF
MEASUREMENTS THAT LINK CURRENT CUSTOMER, INTERNAL
PROCESS, EMPLOYEE, & SYSTEM PERFORMANCE TO LONG TERM
FINANCIAL SUCCESS
FINANCIAL MEASUREMENT
FINANCIAL MEASURES ARE INADEQUATE FOR GUIDING / EVALUATING
ORGANIZATIONS TRAJECTORIES THROUGH COMPETITIVE
ENVIRONMENT
THEY TELL US ABOUT THE PAST ACTIONS; FAIL TO PROVIDE
ADEQUATE GUIDANCE FOR THE ACTIONS TO BE TAKEN
THE BSC
PROVIDES COMPREHENSIVE FRAMEWORK THAT TRANSLATES
COMPANY’S VISION / STRATEGY INTO A COHERENT SET OF
PERFORMANCE MEASURES
MISSION STATEMENTS ADDRESSES CORE BELIEFS & IDENTIFIES
TARGET MARKETS & CORE PRODUCTS
MISSION STATEMENT SHOULD BE INSPIRATIONAL
THEY SHOULD SUPPLY ENERGY / MOTIVATION TO THE
ORGANIZATION
BSC TRANSLATES MISSION / STRATEGY INTO OBJECTIVES &
MEASURES
ORGANIZED INTO FOUR DIFFERENT PERSPECTIVES:
FINANCIAL / CUSTOMER / INTERNAL BUSINESS PROCESS /
LEARNING & GROWTH
BSC SHOULD BE USED AS A COMMUNICATION, INFORMING, &
LEARNING SYSTEM & NOT A CONTROL SYSTEM
USES MEASUREMENT TO INFORM EMPLOYEES ABOUT THE DRIVERS
OF CURRENT & FUTURE SUCCESS
THE FOUR PERSPECTIVES OF THE SCORECARD PERMIT A BALANCE
BETWEEN SHORT / LONG TERM OBJECTIVES, BETWEEN OUTCOMES
DESIRED & THE PERFORMANCE DRIVERS OF THOSE OUTCOMES
FINANCIAL PERSPECTIVE
FINANCIAL PERFORMANCE MEASURES INDICATE WHETHER A
COMPANY’S STRATEGY, IMPLEMENTATION, & EXECUTION ARE
CONTRIBUTING TO BOTTOM LINE IMPROVEMENT
CUSTOMER PERSPECTIVE:
CORE OUTCOME MEASURES CUSTOMER SATISFACTION / RETENTION
& NEW CUSTOMER ACQUISITION / CUSTOMER PROFITABILITY /
MARKET / ACCOUNT SHARE IN TARGETED SEGMENTS
IT SHOULD ALSO INCLUDE SPECIFIC MEASURES OF VALUE THAT THE
COMPANY WILL DELIVER TO ITS CUSTOMER IN TARGETED
SEGMENTS
INTERNAL BUSINESS PROCESS PERSPECTIVE
IDENTIFY THE CRITICAL INTERNAL PROCESS
THESE PROCESSES SHOULD ENABLE THE BUSINESS UNIT TO
DELIVER THE VALUE PROPOSITIONS THAT WILL ATTRACT &
RETAIN CUSTOMERS IN TARGETED SEGMENTS &
SATISFY SHAREHOLDERS EXPECTATIONS
THESE PROCESS SHOULD HAVE GREATER IMPACT ON CUSTOMER
SATISFACTION & IN ACHIEVING FINANCIAL OBJECTIVES
THE BUSINESS PROCESSES IS DIVIDED INTO TWO:
INNOVATION PROCESS
WHICH INCLUDES PRODUCT DESIGN / PRODUCT
DEVELOPMENT
OPERATIONS PROCESS
WHICH INCLUDES MANUFACTURING / MARKETING / POST SALE
SERVICE
LEARNING & GROWTH PERSPECTIVE:
IT IDENTIFIES INFRASTRUCTURE THAT THE ORGANIZATION MUST
BUILD TO CREATE LONG TERM GROWTH / IMPROVEMENT
ORGANIZATIONAL LEARNING / GROWTH COME FROM THREE
PRINCIPLE SOURCES:
PEOPLE / SYSTEMS / ORGANIZATIONAL PROCEDURES
THE ABOVE THREE PARAMETERS WILL REVEAL LARGE GAPS
BETWEEN THE EXISTING & REQUIRED CAPABILITIES TO ACHIEVE
BREAKTHROUGH PERFORMANCE
TO CLOSE THESE GAPS BUSINESS WILL HAVE TO INVEST IN RE-
SKILLING EMPLOYEES, ENHANCING INFORMATION TECHNOLOGY &
SYSTEMS, & ALIGNING ORGANIZATIONAL PROCEDURES / ROUTINES
LINKING MULTIPLE SCORECARD MEASURES TO SINGLE STRATEGY
THE MULTIPLE MEASURES ON A PROPERLY CONSTRUCTED BSC
SHOULD CONSIST OF A LINKED SERIES OF OBJECTIVES /MEASURES
THAT ARE BOTH CONSISTENT & MUTUALLY REINFORCING
THE SCORECARD SHOULD INCORPORATE THE COMPLEX SET OF
CAUSE & EFFECT RELATIONSHIPS AMONG THE CRITICAL VARIABLES,
INCLUDING LEADS, LAGS, & FEEDBACK LOOPS TRAJECTORY, THE
FLIGHT PLAN OF THE STRATEGY
THE LINKAGES SHOULD INCORPORATE BOTH CAUSE & EFFECT
RELATIONSHIP, & MIXTURES OF OUTCOME MEASURES &
PERFORMERS DRIVERS
CAUSE & EFFECT RELATIONSHIP
A STRATEGY IS A HYPOTHESIS OF CAUSE & EFFECT
THERE SHOULD BE A RELATIONSHIP AMONG THE OBJECTIVES &
PERFORMANCE DRIVERS
THE CHAIN OF CAUSE & EFFECT SHOULD PERVADE ALL FOUR
PERSPECTIVE OF A BSC
FOR EXAMPLE RETURN ON CAPITAL EMPLOYED MAY BE SCORECARD
MEASURE IN THE FINANCIAL PERSPECTIVE
THIS DRIVER SHOULD EXPAND SALES FROM EXISTING CUSTOMERS
THIS WILL RESULT IN HIGH DEGREE OF LOYALTY AMONG THOSE
CUSTOMERS
SO CUSTOMER LOYALTY IS INCLUDED IN SCORECARD INTO THE
CUSTOMER PERSPECTIVE
NEXT FIND OUT WHAT IS VALUED BY A LOYAL CUSTOMER?
IT IS ON TIME DELIVERY OF ORDERS [OTD]
INCLUDE ON TIME DELIVERY IN SCORECARD INTO CUSTOMER
PERSPECTIVE
NEXT FIND OUT SHOULD THE COMPANY DO IN ITS INTERNAL
PROCESS TO ACHIEVE OTD?
TO ACHIEVE OTD; ORGANIZATION SHOULD ACHIEVE SHORT CYCLE
TIME IN OPERATING PROCESSES
INCLUDE SHORT CYCLE TIME / QUALITY IN SCORE CARD INTO THE
INTERNAL PROCESSES PERSPECTIVE
NEXT FIND OUT WHAT SHOULD THE ORGANIZATION DO TO REDUCE
CYCLE TIME / HAVE HIGH QUALITY IN INTERNAL PROCESSES
TO ACHIEVE THIS THE ORGANIZATION SHOULD TRAIN & IMPROVE
SKILLS OF ITS EMPLOYEES
INCLUDE TRAINING IN K / S IN SCORECARD INTO THE LEARNING /
GROWTH PERSPECTIVE
THIS IS HOW AN ENTIRE CHAIN OF CAUSE / EFFECT RELATIONSHIPS
ARE ESTABLISHED THROUGH THE FOUR PERSPECTIVE
EVERY MEASURE SELECTED FOR A BSC SHOULD BE AN ELEMENT IN
A CHAIN OF C / E RELATIONSHIPS THAT COMMUNICATES THE
MEANING OF THE BUSINESS UNIT’S STRATEGY TO THE
ORGANIZATION
PERFORMANCE DRIVERS:
A GOOD BSC SHOULD HAVE A MIX OF OUTCOME MEASURES &
PERFORMANCE DRIVERS
PD PROVIDES INFORMATION AS TO HOW THE OUTCOMES ARE TO BE
ACHIEVED
PD ARE INDICATORS WHETHER THE STRATEGY IS BEING
IMPLEMENTED SUCCESSFULLY
SHOULD FINANCIAL MEASURES BE SCRAPPED?
PERIODIC FINANCIAL STATEMENTS / FINANCIAL MEASURES MUST
CONTINUE TO PLAY AN ESSENTIAL ROLE; FOR IMPROVEMENTS IN
QUALITY / RESPONSE TIME / PRODUCTIVITY / NEW PRODUCTS ARE
MEANS TO AN END; NOT THE END ITSELF
SUCH IMPROVEMENTS ONLY BENEFIT A COMPANY WHEN THEY CAN
BE TRANSLATED INTO IMPROVED SALES, REDUCED OPERATING
EXPENSES OR HIGHER ASSET UTILIZATION
NOT ALL LONG TERM STRATEGIES ARE PROFITABLE STRATEGIES
A FAILURE TO CONVERT IMPROVED OPERATIONAL PERFORMANCE
INTO IMPROVED FINANCIAL PERFORMANCE, SHOULD MAKE THE
EXECUTIVE RETHINK THE COMPANY’S STRATEGY OR ITS
IMPLEMENTATION PLANS
THE BSC MUST RETAIN A STRONG EMPHASIS ON FINANCIAL
OUTCOMES
ULTIMATELY ALL THE MEASURES ON SCORECARD SHOULD BE
LINKED TO FINANCIAL OBJECTIVES
FOUR PERSPECTIVES: ARE THEY SUFFICIENT?
THE FOUR PERSPECTIVE SHOULD BE CONSIDERED AS TEMPLATE, &
NOT A STRAIT JACKET
NO MATHEMATICAL THEOREM EXISTS THAT FOUR PERSPECTIVES
ARE BOTH NECESSARY / SUFFICIENT
THE SCORECARD OUTCOMES / PERFORMANCE DRIVERS SHOULD
MEASURE THOSE FACTORS THAT CREATE COMPETITIVE
ADVANTAGE, & BREAKTHROUGH FOR AN ORGANIZATION
THE BSC SHOULD TELL THE STORY OF THE BUSINESS UNIT’S
STRATEGY
ORGANIZATIONAL UNIT FOR A BSC
BSC ARE BEST DEFINED FOR STRATEGIC BUSINESS UNITS [SBUS]
AN IDEAL STRATEGIC BUSINESS UNIT FOR BSC CONDUCTS
ACTIVITIES ACROSS AN ENTIRE VALUE CHAIN:
INNOVATION
OPERATIONS
MARKETING
DISTRIBUTION SELLING
SERVICE
SUCH A SBU HAS ITS OWN PRODUCTS & CUSTOMERS, MARKETING &
DISTRIBUTION CHANNELS, & PRODUCTION FACILITIES
AND MOST IMPORTANT IT HAS A WELL DEFINED STRATEGY
ONCE A BSC HAS BEEN DEVELOPED FOR A SBU IT BECOME THE
BASIS FOR BSC FOR DEPARTMENTS / FUNCTIONAL UNITS WITHIN A
SBU
MISSION & STRATEGY STATEMENTS FOR DEPARTMENTS /
FUNCTIONAL UNITS CAN BE DEFINED WITHIN THE FRAMEWORK
ESTABLISHED BY THE BUSINESS MISSION / STRATEGY / SCORECARD
MANAGERS IN DEPARTMENTS / FUNCTIONAL UNITS CAN THEN
DEVELOP THEIR OWN SCORECARDS THAT WILL BE CONSISTENT
WITH & HELP DELIVER THE SBU MISSION / STRATEGY
IN THIS WAY THE SBU SCORECARD IS CASCADED DOWN TO LOCAL
RESPONSIBILITY CENTERS WITHIN THE SBU ALLOWING ALL
RESPONSIBILITY CENTERS TO WORK COHERENTLY TOWARD THE
SBU OBJECTIVE
THE RELEVANT QUESTION FOR WHETHER A DEPARTMENT /
FUNCTIONAL UNIT SHOULD HAVE A BSC IS
“WHETHER THAT ORGANIZATIONAL UNIT HAS / SHOULD HAVE A
MISSION / STRATEGY / CUSTOMERS / INTERNAL PROCESSES THAT
ENABLE IT TO ACCOMPLISH ITS MISSION / STRATEGY”
IF IT DOES THE UNIT IS A VALID CANDIDATE FOR A BSC
IT IS SIMPLER TO CONSTRUCT SCORECARDS FOR THE INDIVIDUAL
SBUS DEFINED BY THEIR UNIQUE DISTRIBUTION CHANNELS
CORPORATIONS CONTAINING SEVERAL SOMEWHAT INDEPENDENT
SBUS HAVE STARTED BY DEVELOPING A BSC AT THE CORPORATE
LEVEL
SUCH A CORPORATE-LEVEL SCORECARD ESTABLISHES A COMMON
FRAMEWORK, A CORPORATE TEMPLATE ABOUT THEMES & COMMON
VISIONS THAT MUST BE IMPLEMENTED IN THE SCORECARDS
DEVELOPED AT THE INDIVIDUAL SBUS
THE CORPORATE SCORECARD ALSO ESTABLISHES HOW THE
CORPORATION ADDS VALUE BEYOND THE VALUE CREATED BY THE
COLLECTION OF SBUS OPERATING AS INDEPENDENT UNITS
THIS VALUE CREATING ROLE OF THE CORPORATION IS CALLED AS
“PARENTING ADVANTAGE”
INTEGRATE SBU SCORECARDS INTO THE BROADER CORPORATE
FRAMEWORK
STRATEGIC POSITIONING OR CORE COMPETENCIES / CAPABILITIES –
DRIVEN:
STRATEGY FOCUSES AT MARKET / CUSTOMER SEGMENTS THE
BUSINESS UNIT INTENDS TO SERVE, IDENTIFYING THE CRITICAL
INTERNAL BUSINESS PROCESSES THAT THE UNIT MUST EXCEL TO
DELIVER THE VALUE PROPOSITIONS TO CUSTOMERS IN THE
TARGETED MARKET SEGMENTS & SELECTING THE INDIVIDUAL /
ORGANIZATIONAL CAPABILITIES REQUIRED FOR THE INTERNAL
CUSTOMER, & FINANCIAL OBJECTIVES
ALTERNATIVELY SOME COMPANIES COMPETE BY EXPLOITING
UNIQUE CAPABILITIES / RESOURCES / CORE COMPETENCIES
COMPANIES DEPLOYING A STRATEGY BASED ON A CORE
COMPETENCIES / UNIQUE CAPABILITIES MAY WISH TO START THEIR
STRATEGIC PLANNING PROCESS BY IDENTIFYING THESE CRITICAL
COMPETENCIES / CAPABILITIES FOR THEIR INTERNAL BUSINESS
PROCESS PERSPECTIVE, & THEN FOR THE CUSTOMER
PERSPECTIVE, SELECTING CUSTOMER & MARKET SEGMENTS WHERE
THESE COMPETENCIES / CAPABILITIES ARE MOST CRITICAL FOR
DELIVERING CUSTOMER VALUE
THE BSC IS PRIMARILY A MECHANISM FOR STRATEGY
IMPLEMENTATION & NOT FOR STRATEGY FORMULATION
IT CAN ACCOMMODATE EITHER APPROACH FOR FORMULATING
BUSINESS UNIT STRATEGY [STARTING FROM CUSTOMER
PERSPECTIVE] OR START FROM EXCELLENT INTERNAL BUSINESS
PROCESS CAPABILITIES
WHATEVER APPROACH THAT SBU USES TO FORMULATE THEIR
STRATEGY THE BSC WILL PROVIDE AN INVALUABLE MECHANISM FOR
TRANSLATING THAT STRATEGY INTO SPECIFIC OBJECTIVES,
MEASURES, & TARGETS, & MONITORING THE IMPLEMENTATION OF
THAT STRATEGY DURING SUBSEQUENT PERIODS
MEASURING BUSINESS STRATEGY
CHAPTER III
FINANCIAL PERSPECTIVE
INTRODUCTION:
IT SERVES AS THE FOCUS FOR THE OBJECTIVES & MEASURES IN ALL
THE OTHER SCORECARD PERSPECTIVES
EVERY MEASURE SHOULD BE A PART OF A LINK OF CAUSE-AND-
EFFECT RELATIONSHIPS THAT CULMINATE IN IMPROVING FINANCIAL
PERFORMANCE
THE SCORECARD SHOULD TELL THE STORY OF THE STRATEGY,
STARTING WITH THE LONG RUN FINANCIAL OBJECTIVES, & THEN
LINKING THEM TO THE SEQUENCE OF ACTIONS THAT MUST BE
TAKEN WITH THE FINANCIAL PROCESSES, CUSTOMERS, INTERNAL
PROCESSES, & FINALLY EMPLOYEES & SYSTEMS TO DELIVER THE
DESIRED LONG RUN ECONOMIC PERFORMANCE
IT WOULD BE UNLIKELY FOR ONE FINANCIAL METRIC & ESPECIALLY A
SINGLE TARGET FOR A SINGLE FINANCIAL METRIC, TO BE
APPROPRIATE ACROSS A WIDE RANGE OF BUSINESS UNIT
FINANCIAL OBJECTIVES & MEASURES MUST PLAY A DUAL ROLE:
DEFINE THE FINANCIAL PERFORMANCE EXPECTED FROM THE
STRATEGY,
& THEY SERVE AS THE ULTIMATE TARGETS FOR THE OBJECTIVES
& MEASURES OF ALL THE OTHER SCORECARD PERSPECTIVES
LINKING FINANCIAL OBJECTIVES TO BUSINESS UNIT STRATEGY:
FINANCIAL OBJECTIVES CAN DIFFER CONSIDERABLY AT EACH STAGE
OF A BUSINESS’S LIFE CYCLE
FOLLOWING ARE THE THREE STAGES:
GROWTH / SUSTAIN / HARVEST
CONCLUSIONS:
A BUSINESS UNIT EVEN IN A MATURE HARVEST STAGE MIGHT
UNEXPECTEDLY FIND ITSELF WITH A GROW OBJECTIVE
SUCH A TRANSFORMATION WOULD COMPLETELY SHIFT THE
FINANCIAL / INVESTMENT OBJECTIVES FOR THE BUSINESS UNIT
THAT’S WHY THE FINANCIAL OBJECTIVES SHOULD BE REVIEWED
PERIODICALLY, TO REAFFIRM / CHANGE THE UNIT’S FINANCIAL
STRATEGY
RISK MANAGEMENT
EFFECTIVE FINANCIAL MANAGEMENT ADDRESS RISK AS WELL AS
RETURN
BUSINESS SHOULD BALANCE EXPECTED RETURNS WITH THE
MANAGEMENT & CONTROL OF RISKS
RISK MANAGEMENT SHOULD BE AN ADDITIONAL OBJECTIVE THAT
SHOULD COMPLEMENT WHATEVER EXPECTED RETURN STRATEGY
THE BUSINESS UNIT HAS CHOSEN
STRATEGIC THEMES FOR THE FINANCIAL PERSPECTIVE:
FOR EACH OF THE THREE STRATEGIES OF GROWTH / SUSTAIN /
HARVEST; THERE ARE THREE FINANCIAL THEMES THAT DRIVE THE
BUSINESS STRATEGY:
REVENUE GROWTH / MIX
COST REDUCTION / PRODUCTIVITY IMPROVEMENT
ASSET UTILIZATION / INVESTMENT STRATEGY
REVENUE GROWTH & MIX REFER TO EXPANDING PRODUCT /
SERVICE OFFERINGS, REACHING NEW CUSTOMERS / MARKETS /
CHANGING THE PRODUCT / SERVICE MIX TOWARD HIGHER VALUE
ADDED OFFERINGS, & RE-PRICING PRODUCTS / SERVICES
THE COST REDUCTION / PRODUCTIVITY OBJECTIVE REFERS TO
EFFORTS TO LOWER THE DIRECT COSTS OF PRODUCTS / SERVICES,
REDUCE INTEREST COSTS, & SHARE COMMON RESOURCES WITH
OTHER BUSINESS UNITS
FOR THE ASSET UTILIZATION THEME, REDUCE THE WORKING
CAPITAL LEVELS REQUIRED TO SUPPORT A GIVEN VOLUME & MIX OF
BUSINESS. IT CAN ALSO BE DONE BY DIRECTING NEW BUSINESS TO
RESOURCES CURRENTLY NOT USED TO CAPACITY, USING SCARCE
RESOURCES MORE EFFICIENTLY & DISPOSING OF ASSETS THAT
PROVIDE INADEQUATE RETURNS ON THEIR MARKET VALUE
ALL THESE ACTIONS ENABLE THE BUSINESS TO INCREASE THE
RETURNS EARNED ON ITS FINANCIAL / PHYSICAL ASSETS
REVENUE GROWTH & MIX
THE MOST COMMON REVENUE GROWTH MEASURE, BOTH FOR
GROWTH / HARVEST STAGE BUSINESS UNITS, WOULD BE SALES
GROWTH RATES & MARKET SHARE FOR TARGETED REGIONS,
MARKETS, & CUSTOMERS
NEW PRODUCTS
GROWTH STAGE BUSINESS WILL USUALLY EMPHASIZE EXPANSIONS
OF EXISTING PRODUCT LINES OR OFFERING ENTIRELY NEW
PRODUCTS / SERVICES
A COMMON MEASURE FOR THIS OBJECTIVE IS THE % OF REVENUE
FROM NEW PRODUCTS / SERVICES INTRODUCED WITHIN A
SPECIFIED PERIOD.
THE PREFERRED WAY IS FOR THE NEW PRODUCT OR NEW PRODUCT
EXTENSION TO BE A DRAMATIC IMPROVEMENT ON EXISTING
OFFERINGS SO THAT IT CAPTURES NEW CUSTOMERS / MARKETS,
NOT JUST REPLACES SALES OF EXISTING PRODUCTS
BUT IF TOO MUCH PRESSURE IS PLACED ON THIS MEASURE ALONE,
A BUSINESS UNIT COULD SCORE WELL ON THIS MEASURE BY
MAKING A CONTINUING SERIES OF INCREMENTAL IMPROVEMENTS
THAT REPLACE EXISTING PRODUCTS BUT NONE OF WHICH OFFERS
DISTINCT ADVANTAGES TO CUSTOMERS.
OR ALTERNATIVELY & MORE DYSFUNCTIONALLY, A BUSINESS UNIT
COULD SIMPLY CEASE SELLING A HIGH-VOLUME MATURE PRODUCT,
ALLOWING RECENT PRODUCT SALES TO REPRESENT A HIGHER
FRACTION OF TOTAL SALES
TO CAPTURE WHETHER THE NEW PRODUCT / SERVICE REPRESENTS
A DISTINCT IMPROVEMENT FROM EXISTING OFFERINGS, SOME
COMPANIES FOCUS ON THE PRICES OR GROSS MARGINS FROM NEW
PRODUCTS / SERVICES, ANTICIPATING THAT OFFERINGS WITH
SIGNIFICANTLY MORE FUNCTIONALITY & CUSTOMER VALUE WILL
LIKELY COMMAND A HIGHER MARGIN THAN MATURE EXISTING
PRODUCTS
NEW APPLICATIONS:
DEVELOPING ENTIRELY NEW PRODUCTS CAN BE VERY COSTLY &
TIME CONSUMING WHERE THE PRODUCT DEVELOPMENT CYCLES IS
LONG
BUSINESS IN THE SUSTAIN STAGE MAY FIND IT EASIER TO GROW
REVENUES BY TAKING EXISTING PRODUCTS & FINDING NEW
APPLICATIONS FOR THEM
TAKING EXISTING PRODUCTS TO NEW APPLICATIONS REQUIRES
THAT A COMPANY DEMONSTRATE EFFECTIVENESS IN NEW
APPLICATION
IF NEW PRODUCT APPLICATIONS IS AN OBJECTIVE, THE % OF SALES
IN NEW APPLICATIONS WOULD BE USEFUL BSC MEASURE
NEW CUSTOMERS / MARKETS
TAKING EXISTING PRODUCTS / SERVICES TO NEW CUSTOMERS /
MARKETS ALSO CAN BE DESIRABLE ROUTE FOR REVENUE GROWTH
MEASURES SUCH AS % OF REVENUES FROM NEW CUSTOMERS /
MARKET SEGMENTS / GEOGRAPHIC REGIONS WOULD EMPHASIZE
THE IMPORTANCE OF INVESTIGATING THIS SOURCE OF REVENUE
ENHANCEMENT
NEW RELATIONSHIPS:
SOME COMPANIES HAVE ATTEMPTED TO REALIZE SYNERGIES FROM
THEIR DIFFERENT STRATEGIC BUSINESS UNITS BY HAVING THEM
COOPERATE TO DEVELOP NEW PRODUCTS OR TO SELL PROJECTS
TO CUSTOMERS
WHETHER THE COMPANY STRATEGY IS TO INCREASE TECHNOLOGY
TRANSFER ACROSS DIVISIONS OR TO INCREASE SALES TO
INDIVIDUAL CUSTOMERS FROM MULTIPLE BUSINESS UNITS WITHIN
THE COMPANY, THE OBJECTIVE CAN BE TRANSLATED INTO THE
AMOUNT OF REVENUE GENERATED FROM COOPERATIVE
RELATIONSHIPS ACROSS MULTIPLE BUSINESS UNITS
IN SUCH CASE THE COMPANIES NEED TO DISTINGUISH HOW MUCH
OF THEIR SALES IS COMING FROM COMPETITIVELY PRICED
OFFERINGS VERSUS THE SALES MADE AT A PREMIUM OR THROUGH
LONG TERM RELATIONSHIPS BECAUSE OF VALUE ADDED FEATURES
& SERVICES
NEW PRODUCT & SERVICE MIX
BUSINESS MAY CHOOSE TO INCREASE REVENUES BY SHIFTING
THEIR PRODUCT & SERVICE MIX
A BUSINESS MAY FEEL THAT IT HAS A SUBSTANTIAL COST
ADVANTAGE IN SELECTED SEGMENTS, WHERE IT CAN WIN BUSINESS
AWAY FROM COMPETITORS BY OFFERING SIGNIFICANTLY LOWER
PRICES
IF IT FOLLOWS THIS LOW COST STRATEGY, IT SHOULD MEASURE THE
GROWTH OF SALES IN THE TARGETED SEGMENTS
ALTERNATIVELY A BUSINESS MAY CHOOSE A MORE DIFFERENTIATED
STRATEGY, DE-EMPHASIZING LOW PRICE OFFERINGS & ATTEMPTING
TO SHIFT ITS PRODUCT / SERVICE MIX MORE TOWARDS PREMIUM
PRICED ITEMS
THIS BUSINESS COULD CHOOSE TO MEASURE THE GROWTH IN
SALES & THE % OF TOTAL SALES IN THE PREMIUM SEGMENTS
NEW PRICING STRATEGY
REVENUE GROWTH ESPECIALLY IN MATURE / HARVEST STAGE
BUSINESS UNITS MAY BE REALIZED BY RAISING PRICES ON
PRODUCTS / SERVICES & CUSTOMERS WHERE REVENUES ARE NOT
COVERING COSTS
FOR THIS COMPANIES IMPLEMENT ACTIVITY BASED COST SYSTEMS
THAT TRACE COSTS / PROFITS & EVEN ASSETS EMPLOYED DOWN TO
INDIVIDUAL PRODUCTS / SERVICES & CUSTOMERS
FOR SPECIALIZED, NICHE PRODUCTS OR PARTICULARLY DEMANDING
CUSTOMERS THAT PRICES CAN BE INCREASED, OR EQUIVALENTLY
LARGE DISCOUNTS ELIMINATED, WITHOUT LOSING SHARE, TO
COVER THE COSTS OF FEATURES & SERVICES ON CURRENTLY
UNPROFITABLE PRODUCTS & CUSTOMERS
FOR HIGHLY HOMOGENEOUS PRODUCTS / SERVICES, A SIMPLE
PRICE INDEX, SUCH AS NET REVENUE PER TON, PRICE PER CALL, OR
PRICE PER UNIT WILL REVEAL THE TRENDS IN PRICING STRATEGY
FOR THE COMPANY & THE INDUSTRY
COST REDUCTION / PRODUCTIVITY IMPROVEMENT
IN ADDITION TO ESTABLISHING OBJECTIVES FOR REVENUE GROWTH
& MIX, A BUSINESS MAY WISH TO IMPROVE ITS COST &
PRODUCTIVITY PERFORMANCE
INCREASE REVENUE PRODUCTIVITY
EFFORTS TO REDUCE COSTS THROUGH DEDICATED AUTOMATION &
STANDARDIZED PROCESSES MAY CONFLICT WITH THE FLEXIBILITY
REQUIRED TO CUSTOMIZE NEW PRODUCTS / SERVICES FOR NEW
MARKETS
IN GROWTH STAGE THE BUSINESS INSTEAD OF FOCUSING ON COST
REDUCTION, SHOULD FOCUS ON REVENUE ENHANCEMENT; SAY
REVENUE PER EMPLOYEE; TO ENCOURAGE SHIFTS TO HIGHER
VALUE ADDED PRODUCTS / SERVICES & TO ENHANCE THE
CAPABILITIES OF THE ORGANIZATION’S PHYSICAL / PERSONAL
RESOURCES
REDUCE UNIT COSTS:
FOR SUSTAIN STAGE BUSINESS, ACHIEVING COMPETITIVE COST
LEVELS IMPROVING OPERATING MARGINS, & MONITORING INDIRECT
& SUPPORT EXPENSE LEVELS WILL CONTRIBUTE TO HIGHER
PROFITABILITY & RETURN ON INVESTMENTS RATIOS
REDUCE THE UNIT COST OF PERFORMING WORK OR PRODUCING
OUTPUT
FOR FIRMS WITH RELATIVELY HOMOGENEOUS OUTPUT, SUPPLYING
A SIMPLE TARGET FOR REDUCING COST PER UNIT CAN SUFFICE
SINCE THE COST OF PERFORMING ACTIVITIES OR PRODUCING
OUTPUTS MAY USE RESOURCES & ACTIVITIES FROM MANY
DIFFERENT DEPARTMENTS IN AN ORGANIZATION, AN ACTIVITY
BASED PROCESS ORIENTED COSTING SYSTEMS WILL LIKELY BE
REQUIRED FOR ACCURATE MEASUREMENT OF THE UNIT COST OF
PROCESSING TRANSACTIONS & PRODUCING OUTPUT
IMPROVE CHANNEL MIX
TO REDUCE COSTS SHIFT CUSTOMERS / SUPPLIERS FROM HIGH
COST MANUALLY PROCESSED CHANNELS TO LOW COST
ELECTRONIC CHANNELS
THIS COST REDUCTION STRATEGY CAN BE MEASURED BY % OF
BUSINESS IT TRANSACTS THROUGH THE VARIOUS CHANNELS, WITH
A GOAL OF SHIFTING THE MIX FROM HIGH TO LOW COSTS CHANNELS
BY SHIFTING TO MORE EFFICIENT PROCESSING CHANNELS CAN
SIGNIFICANTLY INCREASE PRODUCTIVITY & LOWER THE COST OF
DOING BUSINESS
REDUCE OPERATING EXPENSES:
LOWER SELLING / GENERAL / ADMINISTRATIVE EXPENSES
THE SUCCESS OF THESE EFFORTS CAN BE MEASURED BY TRACKING
THE ABSOLUTE AMOUNT OF THESE EXPENSES OR THEIR % TO THE
TOTAL COSTS / REVENUES
OBJECTIVES TO REDUCE SPENDING & EXPENSES LEVELS SHOULD
BE BALANCED, BY OTHER MEASURES SAY OF CUSTOMER
RESPONSIVENESS, QUALITY, & PERFORMANCE, SO THAT COST
CUTTING DOES NOT INTERFERE WITH ACHIEVING IMPORTANT
CUSTOMER & INTERNAL PROCESS OBJECTIVES
ASSET UTILIZATION / INVESTMENT STRATEGY:
OBJECTIVES SUCH AS RETURN ON CAPITAL EMPLOYED, RETURN ON
INVESTMENT, & ECONOMIC VALUE ADDED PROVIDE OVERALL
OUTCOME MEASURES OF THE SUCCESS OF FINANCIAL STRATEGIES
TO INCREASE REVENUES, REDUCE COSTS, & INCREASE ASSET
UTILIZATION.
CASH TO CASH CYCLE:
WORKING CAPITAL ESPECIALLY ACCOUNTS RECEIVABLE,
INVENTORY, ACCOUNTS PAYABLE, IS AN IMPORTANT ELEMENT OF
CAPITAL FOR MANY MANUFACTURING / RETAIL / WHOLESALE /
DISTRIBUTION COMPANIES
ONE MEASURE OF THE EFFICIENCY OF WORKING CAPITAL
MANAGEMENT IS THE CASH TO CASH CYCLE. IT REPRESENTS THE
TIME REQUIRED FOR THE COMPANY TO CONVERT CASH PAYMENTS
TO SUPPLIERS OF INPUTS TO CASH RECEIPTS FROM CUSTOMERS
REDUCING THE CASH CYCLE FROM CURRENT LEVELS CAN BE
EXCELLENT TARGET FOR IMPROVING WORKING CAPITAL EFFICIENCY
IMPROVE ASSET UTILIZATION:
IMPROVE THE PRODUCTIVITY FROM CAPITAL INVESTMENT
PROJECTS & ACCELERATE THE CAPITAL INVESTMENTS PROCESS SO
THAT THE CASH RETURNS FROM THESE INVESTMENTS ARE
REALIZED EARLIER
REDUCTION IN THE CASH TO CASH CYCLE FOR INVESTMENTS IN
PHYSICAL / INTELLECTUAL CAPITAL
PHYSICAL CAPITAL INCLUDES EQUIPMENTS / BUILDINGS / PHYSICAL
FACILITIES
INTELLECTUAL CAPITAL INCLUDES HUMAN BEINGS
MANY OF AN ORGANIZATION’S RESOURCES SUPPLY THE
INFRASTRUCTURE FOR ACCOMPLISHING WORK
THESE RESOURCES REQUIRES CONSIDERABLE CAPITAL
INVESTMENTS
INVESTMENTS IN INTELLECTUAL ASSETS SUCH AS R & D,
EMPLOYEES, / SYSTEMS WILL INCREASE AN ORGANIZATION’S
OVERALL RETURN ON INVESTMENT
RISK MANAGEMENT OBJECTIVES & MEASURES
MOST OS ARE CONCERNED WITH THE RISK & VARIABILITY OF THEIR
RETURNS
WHEN IT IS STRATEGICALLY IMPORTANT THESE O WILL WANT TO
INCORPORATE EXPLICIT RISK MANAGEMENT OBJECTIVES INTO
THEIR FINANCIAL PERSPECTIVE
CHAPTER IV
CUSTOMER PERSPECTIVE
INTRODUCTION
IN THE CUSTOMER PERSPECTIVE OF THE BSC, COMPANIES IDENTIFY
THE CUSTOMER & MARKET SEGMENTS IN WHICH THEY HAVE
CHOSEN TO COMPETE
THESE SEGMENTS REPRESENTS THE SOURCES THAT WILL DELIVER
THE REVENUE COMPONENT OF THE COMPANY’S FINANCIAL
OBJECTIVES
THE CUSTOMER PERSPECTIVE ENABLES COMPANIES TO ALIGN
THEIR CORE CUSTOMER OUTCOME MEASURES – SATISFACTION,
LOYALTY, RETENTION, ACQUISITION, & PROFITABILITY – TO
TARGETED CUSTOMERS & MARKET SEGMENTS
IT ALSO ENABLES THEM TO IDENTIFY & MEASURE EXPLICITLY THE
VALUE PROPOSITIONS THEY WILL DELIVER TO TARGETED
CUSTOMERS & MARKET SEGMENTS
THE VALUE PROPOSITION REPRESENT THE DRIVERS, THE LEAD
INDICATORS, FOR THE CORE CUSTOMER OUTCOME MEASURES
IN THE CUSTOMER PERSPECTIVE OF THE BSC THE COMPANIES
SHOULD TRANSLATE THEIR MISSION / STRATEGY STATEMENTS INTO
SPECIFIC MARKET & CUSTOMER BASED OBJECTIVES
BUSINESS MUST IDENTIFY THE MARKET SEGMENTS IN THEIR
EXISTING / POTENTIAL CUSTOMER POPULATIONS & THEN SELECT
THE SEGMENTS IN WHICH THEY CHOOSE TO COMPETE
THUS THE CUSTOMER PERSPECTIVE OF THE SCORECARD
TRANSLATES AN O’S MISSION / STRATEGY INTO SPECIFIC
OBJECTIVES ABOUT TARGETED CUSTOMERS & MARKET SEGMENTS
THAT CAN BE COMMUNICATED THROUGHOUT THE O
MARKET SEGMENTATION
IN GENERAL, EXISTING & POTENTIAL CUSTOMERS ARE NOT
HOMOGENEOUS
THEY HAVE DIFFERENT PREFERENCES & VALUE THE ATTRIBUTES OF
THE PRODUCT / SERVICE DIFFERENTLY
THE COMPANY’S STRATEGY SHOULD BE DEFINED BY THOSE
CUSTOMER & MARKET SEGMENTS THAT I CHOOSES TO TARGET
THE BSC SHOULD IDENTIFY THE CUSTOMER OBJECTIVES IN EACH
SEGMENT
IF YOU TRY TO SATISFY ALL THE CUSTOMERS’ PREFERENCES, WE
RUN THE RISK OF DOING NOTHING WELL FOR ANYBODY
THE ESSENCE OF STRATEGY IS NOT JUST CHOOSING WHAT TO DO;
IT ALSO REQUIRES CHOOSING WHAT NOT TO DO
ONCE A BUSINESS HAS IDENTIFIED & TARGETED ITS MARKET
SEGMENTS, IT CAN ADDRESS THE OBJECTIVES & MEASURES FOR ITS
TARGETED SEGMENTS
COMPANIES GENERALLY SELECT TWO SETS OF MEASURES FOR
THEIR CUSTOMER PERSPECTIVE.
THE FIRST SET REPRESENTS GENERIC MEASURES THAT
VIRTUALLY ALL COMPANIES WANT TO USE; LIKE: CUSTOMER
SATISFACTION / MARKET SHARE / CUSTOMER RETENTION.
THESE APPEAR IN MANY BSC, & IT IS REFERRED AS CORE
MEASUREMENT GROUP
THE SECOND SET OF MEASURES REPRESENTS THE
PERFORMANCE DRIVERS – DIFFERENTIATORS – OF THE
CUSTOMER OUTCOMES
THEY ANSWER THE QUESTION: WHAT MUST THE COMPANY
DELIVER TO ITS CUSTOMERS TO ACHIEVE HIGH DEGREE OF
SATISFACTION, RETENTION, ACQUISITION, & EVENTUALLY
MARKET SHARE
THE PERFORMANCE DRIVER MEASURES CAPTURE THE VALUE
PROPOSITION THAT THE COMPANY WILL ATTEMPT TO DELIVER TO
ITS TARGETED CUSTOMER & MARKET SEGMENTS
CUSTOMER CORE MEASUREMENT GROUP
IT IS GENERIC ACROSS ALL KINDS OF ORGANIZATIONS
THE CORE MEASUREMENT GROUP INCLUDES MEASURES OF:
MARKET SHARE
IT REFLECTS THE PROPORTION OF BUSINESS IN A GIVEN
MARKET THAT A BUSINESS UNIT SELLS
CUSTOMER RETENTION
TRACKS THE RATE AT WHICH A BUSINESS UNIT RETAINS /
MAINTAINS ONGOING RELATIONSHIPS WITH ITS
CUSTOMERS
CUSTOMER ACQUISITION
MEASURES THE RATE AT WHICH A BUSINESS UNIT
ATTRACTS / WINS NEW CUSTOMERS / BUSINESS
CUSTOMER SATISFACTION
ASSESS THE SATISFACTION LEVEL OF CUSTOMERS ALONG
SPECIFIC PERFORMANCE CRITERIA WITHIN THE VALUE
PROPOSITION
CUSTOMER PROFITABILITY
MEASURES THE NET PROFIT OF A CUSTOMER / SEGMENT
AFTER ALLOWING FOR THE UNIQUE EXPENSES REQUIRED
TO SUPPORT THAT CUSTOMER
MARKET & ACCOUNT SHARE
ONCE THE TARGETED CUSTOMER GROUP / MARKET SEGMENT HAS
BEEN SPECIFIED, MEASURING MARKET SHARE IS A
STRAIGHTFORWARD EXERCISE
THERE ARE MANY SOURCES WHICH PROVIDES ESTIMATES OF THE
TOTAL MARKET SIZE
WHEN COMPANIES HAVE TARGETED PARTICULAR CUSTOMERS /
MARKET SEGMENTS, THEY CAN USE A SECOND MARKET SHARE
MEASURE: THE ACCOUNT SHARE OF THOSE CUSTOMERS’ BUSINESS
SUCH A MEASURE PROVIDES A STRONG FOCUS TO THE COMPANY
WHEN TRYING TO DOMINATE ITS TARGETED CUSTOMERS’
PURCHASES OF PRODUCTS / SERVICES IN CATEGORIES THAT IT
OFFERS
CUSTOMER RETENTION
FOR MAINTAINING / INCREASING MARKET SHARE IN TARGETED
CUSTOMER SEGMENTS, IS TO START BY RETAINING EXISTING
CUSTOMERS IN THOSE SEGMENTS
CUSTOMER RETENTION CAN BE MEASURED FROM PERIOD TO
PERIOD
CUSTOMER LOYALTY CAN ALSO BE MEASURED BY THE % GROWTH
OF BUSINESS WITH EXISTING CUSTOMERS
CUSTOMER ACQUISITION
COMPANIES SEEKING TO GROW THEIR BUSINESS WILL HAVE AN
OBJECTIVE TO INCREASE THEIR CUSTOMER BASE IN TARGETED
SEGMENTS
CUSTOMER ACQUISITION MEASURES THE RATE AT WHICH A
BUSINESS UNIT ATTRACTS / WINS NEW CUSTOMERS / BUSINESS
IT COULD BE MEASURED IN EITHER THE NUMBER OF NEW
CUSTOMERS OR TOTAL SALES TO NEW CUSTOMERS IN THESE
SEGMENTS
CUSTOMER SATISFACTION
IT PROVIDES FEEDBACK ON HOW WELL THE COMPANY IS DOING
JUST SCORING ADEQUATELY ON CUSTOMER SATISFACTION IS NOT
SUFFICIENT FOR ACHIEVING HIGH DEGREES OF LOYALTY /
RETENTION / PROFITABILITY
ONLY WHEN CUSTOMERS RATE THEIR BUYING EXPERIENCE AS
COMPLETELY / EXTREMELY SATISFIED CAN A COMPANY COUNT ON
THEIR REPEAT PURCHASING BEHAVIOR
TO GET FEEDBACK ON CUSTOMER SATISFACTION, THREE
TECHNIQUES ARE EMPLOYED:
MAIL SURVEYS / TELEPHONE INTERVIEWS / PERSONAL
INTERVIEWS
THE IMPORTANT THING IN SURVEYS IS GETTING VALID RESPONSES
FROM A HIGH % OF CUSTOMERS. THIS IS AN EXPERTISE JOB
CUSTOMER PROFITABILITY
MEETING THE FOUR MEASURES OF SHARE / RETENTION /
ACQUISITION / SATISFACTION DOES NOT GUARANTEE THAT A
COMPANY HAS PROFITABLE CUSTOMERS
COMPANIES WANT MORE THAN SATISFIED / HAPPY CUSTOMERS,
THEY WANT PROFITABLE CUSTOMERS
A MEASURE LIKE CUSTOMER PROFITABILITY HELPS KEEP
CUSTOMER FOCUSED ORGANIZATIONS FROM BECOMING CUSTOMER
– OBSESSED
CUSTOMERS PROFITABLE UNPROFITABLE
TARGETED SEGMENT RETAIN TRANSFORM
UNTARGETED
SEGMENT
MONITOR ELIMINATE
RETAIN PROFITABLE CUSTOMERS IN TARGETED SEGMENTS
UNPROFITABLE CUSTOMERS IN TARGETED SEGMENTS REPRESENTS
OPPORTUNITIES TO TRANSFORM THEM INTO PROFITABLE
CUSTOMERS
PROFITABLE CUSTOMERS IN UNTARGETED SEGMENTS CERTAINLY
ARE TO BE RETAINED, BUT NEED TO BE MONITORED TO ASSESS NEW
DEMANDS FOR SERVICE / FEATURES / CHANGES IN THE VOLUME &
MIX OF PRODUCTS / SERVICES THEY PURCHASE DO NOT BECOME
UNPROFITABLE
THE UNPROFITABLE CUSTOMERS IN UNTARGETED SEGMENTS
SHOULD NOT BE PAID ANY ATTENTION
BEYOND THE CORE: MEASURING CUSTOMER VALUE PROPOSITION
CUSTOMER VALUE PROPOSITION REPRESENT THE ATTRIBUTES
THAT SUPPLYING COMPANIES PROVIDE, THROUGH THEIR PRODUCTS
/ SERVICES, TO CREATE LOYALTY / SATISFACTION IN TARGETED
CUSTOMER SEGMENTS
VALUE PROPOSITION ARE THE DRIVERS OF CORE MEASUREMENTS
OF SATISFACTION / ACQUISITION / RETENTION / MARKET / ACCOUNT
SHARE
THE FOLLOWING COMMON SET OF ATTRIBUTES ARE APPLICABLE TO
ALL THE INDUSTRIES:
PRODUCTS / SERVICE / CUSTOMER RELATIONSHIP / IMAGE &
REPUTATION
PRODUCT / SERVICE ATTRIBUTES
ENCOMPASSES THE FUNCTIONALITY OF THE PRODUCT / SERVICE,
ITS PRICE, ITS QUALITY
CUSTOMER RELATIONSHIP:
IT INCLUDES THE DELIVERY OF THE PRODUCT / SERVICE TO THE
CUSTOMER, INCLUDING THE RESPONSE & DELIVERY TIME
DIMENSION, & HOW THE CUSTOMER FEELS ABOUT PURCHASING
FROM THE COMPANY
THE RELATIONSHIP DIMENSION ALSO ENCOMPASSES LONG TERM
COMMITMENTS LIKE SHARING INFORMATION WITH CUSTOMERS /
PREFERRED SUPPLIER WHEREAS NO THE MATERIAL SUPPLIED IS
TAKEN ON PRODUCTION LINE WITHOUT INCOMING INSPECTION
IMAGE & REPUTATION:
IT REFLECTS THE INTANGIBLE FACTORS THAT ATTRACT A
CUSTOMER TO A COMPANY
THE IMAGE / REPUTATION DIMENSION ENABLES A COMPANY TO
PROACTIVELY DEFINE ITSELF FOR ITS CUSTOMERS
PERFORMANCE DRIVERS FOR CUSTOMER SATISFACTION
REPRESENTATIVE MEASURES THAT CAN CAPTURE THE TIME /
QUALITY / PRICE DIMENSIONS OF ITS CUSTOMER RELATIONSHIPS
TIME:
A MAJOR COMPETITIVE WEAPON IN TODAY’S COMPETITION
IT IS RESPONDING RAPIDLY / RELIABLY TO CUSTOMER’S REQUEST. IT
IS NECESSARY IN ORDER TO OBTAIN / RETAIN VALUABLE
CUSTOMERS’ BUSINESS
QUALITY:
IT CONTINUES TO REMAIN A CRITICAL COMPETITIVE DIMENSION
IT IS TAKEN FOR GRANTED
PRICE:
CUSTOMERS WILL ALWAYS BE CONCERNED WITH THE PRICE THEY
PAY FOR THE PRODUCT / SERVICE
INTERNAL – BUSINESS – PROCESS PERSPECTIVE
INTRODUCTION:
IDENTIFY THE PROCESSES THAT ARE MOST CRITICAL FOR
ACHIEVING CUSTOMER / SHAREHOLDER OBJECTIVES
ALL COMPANIES ARE NOWADAYS ATTEMPTING TO IMPROVE QUALITY
/ REDUCE CYCLE TIMES / INCREASE YIELDS / MAXIMIZE
THROUGHPUT / LOWER COSTS FOR THEIR BUSINESS PROCESSES
UNLESS ONE CAN OUTPERFORM COMPETITORS ACROSS THE BOARD
ON ALL BUSINESS PROCESSES, IN QUALITY / TIME / PRODUCTIVITY /
COST; SUCH IMPROVEMENTS WILL FACILITATE SURVIVAL; BUT WILL
NOT LEAD TO DISTINCTIVE & SUSTAINABLE COMPETITIVE
ADVANTAGES
IN THE BSC THE OBJECTIVES / MEASURES FOR THE INTERNAL
BUSINESS PROCESS PERSPECTIVE ARE DERIVED FROM EXPLICIT
STRATEGIES TO MEET SHAREHOLDER & TARGETED CUSTOMER
EXPECTATIONS
WITH A SUCH A PROCEDURE, IDENTIFIED FOR THE INTERNAL
BUSINESS PROCESS PERSPECTIVE, NEW PROCEDURES THAT
WOULD LEAD TO BREAKTHROUGH PERFORMANCE FOR
CUSTOMERS / SHAREHOLDERS
THE INTERNAL BUSINESS PROCESS VALUE CHAIN
EACH BUSINESS HAS A UNIQUE SET OF PROCESSES FOR CREATING
VALUE FOR CUSTOMERS & PRODUCING FINANCIAL RESULTS
THE FOLLOWING ARE THE THREE PRINCIPAL BUSINESS PROCESSES:
INNOVATION / OPERATIONS / POST SALE SERVICE
IN THE INNOVATION PROCESS, THE BUSINESS UNIT RESEARCHES
THE EMERGING / LATENT NEEDS OF CUSTOMERS, & THEN CREATES
THE PRODUCTS / SERVICES THAT WILL MEET THESE NEEDS
IN THE OPERATIONS PROCESS, THE EXISTING PRODUCTS /
SERVICES ARE PRODUCED & DELIVERED TO CUSTOMERS.
IN POST SALE SERVICE, WE TALK ABOUT THE SERVICE PROVIDED TO
THE CUSTOMER, AFTER THE ORIGINAL SALE / DELIVERY OF A
PRODUCT / SERVICE
INNOVATION PROCESS:
IT IS A CRITICAL INTERNAL PROCESS
IDENTIFY & NURTURE NEW MARKETS, NEW CUSTOMERS, & THE
EMERGING & LATENT NEEDS OF EXISTING CUSTOMERS
THE COMPANIES DESIGN & DEVELOP THE NEW PRODUCTS /
SERVICES THAT ENABLE THEM TO REACH THE NEW MARKETS /
CUSTOMERS & TO SATISFY CUSTOMERS’ NEWLY IDENTIFIED NEEDS
IT CONSISTS OF TWO COMPONENTS:
1. UNDERTAKE MARKET RESEARCH TO IDENTIFY THE SIZE OF
THE MARKET, THE NATURE OF CUSTOMER’S PREFERENCES, &
PRICE POINTS FOR THE TARGETED PRODUCT / SERVICE.
IDENTIFY NEW OPPORTUNITIES / MARKETS FOR PRODUCTS /
SERVICES THAT ORGANIZATION COULD SUPPLY. DO NOT
SATISFY CUSTOMERS, BUT AMAZE THEM
2. INFORMATION ON MARKETS / CUSTOMERS PROVIDES THE
INPUT FOR THE ACTUAL PRODUCT / SERVICE DESIGN &
DEVELOPMENT PROCESSES. DURING THIS STEP, THE
ORGANIZATION’S RESEARCH & DEVELOPMENT GROUP
DEVELOPS NEW PRODUCTS / SERVICES FOR DELIVERING
VALUE TO CUSTOMERS. EXPLOITS EXISTING TECHNOLOGY
FOR THE NEXT GENERATION OF PRODUCTS / SERVICES. PUTS
DEVELOPMENTAL EFFORTS TO BRING NEW PRODUCTS /
SERVICES TO MARKET
FOR THIS; THE ORGANIZATION HAS TO SPEND MORE MONEY ON R&D
PROCESSES
THE OPERATIONAL PROCESS:
IT STARTS WITH RECEIPT OF CUSTOMER ORDER & FINISHES WITH
DELIVERY OF THE PRODUCT / SERVICE TO THE CUSTOMER
THIS PROCESS STRESSES EFFICIENT CONSISTENT & TIMELY
DELIVERY OF EXISTING PRODUCTS / SERVICES TO EXISTING
CUSTOMERS
BESIDES HAVING FINANCIAL MEASURES LIKE STANDARD COSTS /
BUDGETS / VARIANCES, NEW PRACTICES LIKE TQM, JIT, SHOULD
SUPPLEMENT THE FINANCIAL MEASURES
INCORPORATE ANY ATTRIBUTES OF THE PRODUCT / SERVICE INTO
THE OPERATING PROCESS WHICH CREATES VALUE TO CUSTOMERS
OPERATIONS PROCESS: TIME / QUALITY / COST:
PROCESS TIME MEASUREMENT:
CUSTOMERS VALUE SHORT LEAD TIMES, & RELIABLE LEAD TIMES
PRODUCTION PROCESS SHOULD RESPOND RAPIDLY TO
CUSTOMERS ORDERS
MANUFACTURING COMPANIES SHOULD REDUCE CYCLE OR
THROUGHPUT TIMES OF INTERNAL PROCESSES
SERVICE COMPANIES SHOULD ELIMINATE WASTE TIME IN
SERVICE DELIVERY PROCESS
PROCESS QUALITY MEASUREMENT:
FOLLOWING ARE THE VARIETY OF PROCESS QUALITY
MEASUREMENTS:
PROCESS PART PER MILLION DEFECT RATES
YIELDS [RATIO OF GOOD ITEMS PRODUCED TO GOODS ITEMS
ENTERING TE PROCESS]
WASTE
SCRAP
REWORK
RETURNS
% OF PROCESSES UNDER STATISTICAL PROCESS CONTROL
SERVICE ORGANIZATIONS SHOULD IDENTIFY THE DEFECTS IN THEIR
INTERNAL PROCESSES THAT COULD ADVERSELY AFFECT COSTS /
RESPONSIVENESS / CUSTOMER SATISFACTION
MAKING DEFECT FREE PRODUCT SHOULD BE AIMED IN PROCESS
QUALITY MEASUREMENT
PROCESS COST MEASUREMENT:
NORMALLY ONE MEASURES THE EXPENSES & EFFICIENCIES OF
INDIVIDUAL TASKS / OPERATIONS / DEPARTMENTS
WE SHOULD ALSO FOCUS ON COST AT PROCESS LEVELS LIKE
ORDER FULFILLMENT / PURCHASING / PRODUCTION PLANNING &
CONTROL WHICH USES RESOURCES
POST SALE SERVICE:
INCLUDES WARRANTY / REPAIR ACTIVITIES, TREATMENT OF
DEFECTS & RETURNS, & THE PROCESSING OF PAYMENTS, SUCH AS
CREDIT
CYCLE TIME FROM CUSTOMER REQUEST TO ULTIMATE RESOLUTION
OF THE PROBLEM CAN MEASURE THE SPEED OF RESPONSE TO
FAILURE
COST METRICS CAN EVALUATE THE EFFICIENCY – THE COST OF
RESOURCES USED – FOR POST SALE SERVICE PROCESSES
FIRST – PASS YIELDS CAN MEASURE WHAT % OF CUSTOMER
REQUESTS ARE HANDLED WITH A SINGLE SERVICE CALL, RATHER
THAN REQUIRING MULTIPLE CALLS TO RESOLVE THE PROBLEM
LEARNING & GROWTH PERSPECTIVE
INTRODUCTION:
THIS PERSPECTIVE DEVELOPS, OBJECTIVES & MEASURES TO DRIVE
O LEARNING & GROWTH
OBJECTIVES IN THE LEARNING & GROWTH PERSPECTIVE ARE THE
DRIVERS FOR ACHIEVING EXCELLENT OUTCOMES IN THE FIRST
THREE SCORECARD PERSPECTIVE
THE BSC STRESSES THE IMPORTANCE OF INVESTING FOR THE
FUTURE & NOT JUST TRADITIONAL AREAS FOR INVESTMENT
THE FOLLOWING ARE THE THREE PRINCIPAL CATEGORIES FOR THE
LEARNING & GROWTH PERSPECTIVE:
EMPLOYEE CAPABILITIES
INFORMATION SYSTEMS CAPABILITIES
MOTIVATION, ENVIRONMENT, & ALIGNMENT
EMPLOYEE CAPABILITIES:
THE ROUTINE & REPETITIVE WORK WERE SPECIFIED IN DETAIL;
STANDARDS WERE ESTABLISHED; MONITORING SYSTEM WERE
ESTABLISHED TO ENSURE THAT WORKERS PERFORMED THESE
TASKS JUST AS DESIGNED
EMPLOYEES WERE HIRED TO DO PHYSICAL WORK & NOT TO THINK
TODAY MACHINE HAS REPLACED ROUTINE WORK.
EFFICIENCY / PRODUCTIVITY HAS TO BE CONSTANTLY IMPROVED
IDEAS FOR IMPROVING PROCESSES & PERFORMANCE, FOR
CUSTOMERS MUST INCREASINGLY COME FROM LINE EMPLOYEES
WHO ARE CLOSEST TO INTERNAL PROCESSES & O’S CUSTOMERS
THERE CANNOT B STANDARD FOR CURRENT / FUTURE
PERFORMANCE
THIS SHIFT REQUIRES MAJOR RESKILLING OF EMPLOYEES SO THAT
THEIR MINDS / CREATIVE ABILITIES CAN BE MOBILIZED FOR
ACHIEVING O OBJECTIVES
CORE EMPLOYEE MEASUREMENT GROUP
THE FOLLOWING ARE THE THREE CORE EMPLOYEE
MEASUREMENTS:
EMPLOYEE SATISFACTION
EMPLOYEE RETENTION
EMPLOYEE PRODUCTIVITY
THE EMPLOYEE SATISFACTION OBJECTIVE IS GENERALLY
CONSIDERED THE DRIVER OF THE OTHER TWO MEASURES,
EMPLOYEE RETENTION, & EMPLOYEE PRODUCTIVITY
MEASURING EMPLOYEE SATISFACTION:
NOWADAYS O CONSIDERS EMPLOYEE MORALE / OVERALL JOB
SATISFACTION AS HIGHLY IMPORTANT
SATISFIED EMPLOYEES ARE PRECONDITION FOR INCREASING
PRODUCTIVITY, RESPONSIVENESS, QUALITY, & CUSTOMER SERVICE
TO HAVE HIGH LEVEL OF CUSTOMER SATISFACTION; IT IS ESSENTIAL
TO HAVE SATISFIED EMPLOYEES
ELEMENTS IN AN EMPLOYEE SATISFACTION SURVEY COULD
INCLUDE THE FOLLOWING:
INVOLVEMENT WITH DECISIONS
RECOGNITION FOR DOING A GOOD JOB
ASSESS TO SUFFICIENT INFORMATION TO DO THE JOB WELL
ACTIVE ENCOURAGEMENT TO BE CREATIVE & USE INITIATIVE
SUPPORT LEVEL FROM STAFF FUNCTIONS
OVERALL SATISFACTION WITH THE COMPANY
COMPANIES TYPICALLY MEASURE EMPLOYEE SATISFACTION WITH
AN ANNUAL SURVEY IN WHICH A SPECIFIED % OF RANDOMLY
CHOSEN EMPLOYEES IS SURVEYED EACH MONTH
AN AGGREGATE INDEX OF EMPLOYEE SATISFACTION COULD BE
POSTED ON THE BSC
MEASURING EMPLOYEE RETENTION:
EMPLOYEE RETENTION CAPTURES AN OBJECTIVE TO RETAIN THOSE
EMPLOYEES IN WHOM THE O HAS A LONG TERM INTEREST
UNWANTED DEPARTURES REPRESENTS A LOSS IN THE
INTELLECTUAL CAPITAL OF THE BUSINESS
LOYAL EMPLOYEES CARRY THE VALUES OF THE ORGANIZATION,
KNOWLEDGE OF O PROCESSES, & SENSITIVITY TO THE NEEDS OF
THE CUSTOMERS
IT IS GENERALLY MEASURED BY % OF KEY STAFF TURNOVER
MEASURING EMPLOYEE PRODUCTIVITY: -
EMPLOYEE PRODUCTIVITY IS AN OUTCOME OF THE AGGREGATE
IMPACT FROM ENHANCING EMPLOYEE SKILLS & MORALE,
INNOVATION, IMPROVING INTERNAL PROCESSES, & SATISFYING
CUSTOMERS
MANY WAYS TO MEASURE THE EMPLOYEES PRODUCTIVITY
THE SIMPLEST IS REVENUE PER EMPLOYEE. HOW MUCH OUTPUT
CAN BE GENERATED PER EMPLOYEE? THIS SYSTEM HAS FOLLOWING
LIMITATIONS:
COSTS ASSOCIATED WITH REVENUE ARE NOT INCLUDED.
PROFITS DECREASES WHEN ADDITIONAL BUSINESS IS
ACCEPTED AT BELOW THE COST
A RATIO IS USED TO MEASURE AN OBJECTIVE. EITHER
INCREASE THE NUMERATOR [INCREASING REVENUE WITHOUT
INCREASING MANPOWER], OR DECREASE THE DENOMINATOR
[DOWNSIZING]. INCREASING NUMERATOR IS PREFERRED TO
DECREASING DENOMINATOR
OUTSOURCE THE FUNCTIONS. THIS ENABLES THE O TO
SUPPORT THE SAME LEVEL OF OUTPUT [REVENUE] BUT WITH
FEWER INTERNAL EMPLOYEES.
IF THIS MEASURE IS USED THEN IT MUST BE BALANCED WITH OTHER
MEASURES OF ECONOMIC SUCCESS SO THAT TARGETS FOR THE
MEASURE ARE NOT ACHIEVED IN DYSFUNCTIONAL WAYS
SITUATION SPECIFIC DRIVERS OF LEARNING & GROWTH
ONCE THE PARAMETER LIKE SATISFACTION; RETENTION; &
PRODUCTIVITY ARE IDENTIFIED, THEN IDENTIFY THE SITUATION -
SPECIFIC UNIQUE DRIVERS IN THE LEARNING & GROWTH
PERSPECTIVE
THE DRIVERS TEND TO BE DRAWN FROM THREE CRITICAL
ENABLERS:
RESKILLING THE WORK FORCE
INFORMATION SYSTEMS CAPABILITIES
MOTIVATION, EMPOWERMENT, & ALIGNMENT
RESKILLING THE WORKFORCE:
EMPLOYEES SHOULD TAKE UP NEW RESPONSIBILITIES; IN ORDER TO
SURVIVE & GROW IN A COMPETITIVE ENVIRONMENT
EMPLOYEES ARE TRAINED FOR SPECIFIC STRATEGIC JOBS RELATIVE
TO ANTICIPATED O NEEDS
THE QUALIFICATIONS FOR A GIVEN POSITION ARE DEFINED SO THAT
EMPLOYEES IN THIS POSITION CAN DELIVER CAPABILITIES FOR
ACHIEVING PARTICULAR CUSTOMER & INTERNAL BUSINESS
PROCESS OBJECTIVES
COMPETENCIES ARE MEASURED ALONG FOLLOWING DIMENSIONS:
KNOWLEDGE / SKILL / ATTITUDE
ANOTHER IMPORTANT FACTOR IS THE TIME REQUIRED TO TAKE THE
EXISTING EMPLOYEES TO THE NEW REQUIRED LEVELS OF
COMPETENCY
INFORMATION SYSTEMS CAPABILITIES:
FOR AN EMPLOYEE TO BE EFFECTIVE IN TODAY’S COMPETITIVE
ENVIRONMENT THEY NEED EXCELLENT INFORMATION ON
CUSTOMERS, ON INTERNAL PROCESSES, & OF THE FINANCIAL
CONSEQUENCES OF THEIR DECISIONS
EMPLOYEES NEED RAPID, TIMELY, & ACCURATE FEEDBACK ON THE
PRODUCT / SERVICE PROVIDED TO THE CUSTOMER
FEEDBACK WILL RESULT IN CONTINUOUS IMPROVEMENT
MOTIVATION, EMPOWERMENT, & ALIGNMENT:
EMPLOYEES SHOULD ALSO BE MOTIVATED TO ACT IN THE BEST
INTERESTS OF AN O
THEY MUST BE GIVEN FREEDOM TO MAKE DECISIONS & TAKE
ACTIONS
MEASURES OF SUGGESTIONS MADE & IMPLEMENTED:
MOTIVATED & EMPOWERED EMPLOYEE WILL ALWAYS OFFER
NUMBER OF SUGGESTIONS
IT CAPTURES ONGOING PARTICIPATION OF EMPLOYEES IN
IMPROVING THE O’S PERFORMANCE
IMPLEMENTING SUGGESTIONS TALKS OF QUALITY OF SUGGESTIONS,
AS WELL AS COMMUNICATING TO THE EMPLOYEE THAT THEIR
SUGGESTIONS ARE VALUED, & TAKEN SERIOUSLY
FOLLOWING INITIATIVES WILL GIVE IMPETUS TO SUGGESTION
SCHEMES:
PUBLISHING SUCCESSFUL SUGGESTIONS TO INCREASE THE
VISIBILITY & CREDIBILITY OF THE PROCESS
ILLUSTRATED THE BENEFITS & IMPROVEMENTS THAT HAD
BEEN ACHIEVED THROUGH EMPLOYEE SUGGESTIONS
& COMMUNICATED A NEW REWARD STRUCTURE FOR
IMPLEMENTED SUGGESTIONS
MEASURES OF IMPROVEMENTS:
BESIDES EXPENSIVE SAVINGS, O CAN ALSO LOOK FOR
IMPROVEMENTS IN QUALITY / TIME / PERFORMANCE IN PROCESS
ONE OF THE MODEL IS HALF LIFE METRIC; WHEREIN THE LENGTH OF
TIME REQUIRED FOR PROCESS PERFORMANCE TO IMPROVE BY 50%
THE HALF LIFE METRIC CAN BE APPLIED TO ANY PROCESS METRIC
SUCH AS COST / QUALITY / TIME THAT THE O WANTS TO REDUCE TO
ZERO
MEASURES OF INDIVIDUAL & O ALIGNMENT:
THE DEPARTMENTS & INDIVIDUALS SHOULD HAVE THEIR GOALS
ALIGNED WITH THE COMPANY OBJECTIVES ARTICULATED IN BSC
IT IS NOT THE GOALS BUT ALSO THE REWARD & RECOGNITION
SYSTEMS MUST BE ALIGNED WITH BUSINESS OBJECTIVES
ALL MEASURES OF PERFORMANCE SHOULD BE TEAM BASED
ALIGNMENT:
TOP DOWN MANAGEMENT ROLLOUT:
THE SENIOR MANAGEMENT ESTABLISHES THE CONTEXT &
FRAMEWORK FOR THE BSC AS A MEANS TO COMMUNICATE SHARED
OBJECTS
BUILD UNDERSTANDING & ACCEPTANCE OF THE BSC
ENGAGE MANAGERS TO DEVELOP MEASURES FOR THEIR AREAS OF
RESPONSIBILITY
ENGAGE MANAGERS TO TRACK PERFORMANCE TO ESTABLISH A
BASELINE OF INFORMATION FOR ESTABLISHING TARGETS
ENGAGE MANAGERS TO DEVELOP & EXECUTE AN IMPLEMENTATION
PLAN FOR CASCADING THE SCORECARD APPROACH DOWNWARD
WITHIN THEIR O
EMPLOYEE ROLLOUT:
COMMUNICATE CONTEXT, ORGANIZATIONAL STRATEGIES & NEW
INITIATIVES
INTRODUCE THE BSC -
WHAT IS IT
HOW IS IT BEING USED
WHAT’S THE IMPLEMENTATION PLAN
WHAT’S BEEN ACCOMPLISHED
WHAT ARE THE NEXT STEPS
PROFIT PLAN / TARGET SETTING
IMPLEMENT TOP DOWN PROCESS FOR DEFINING FINANCIAL
TARGETS
IMPLEMENT BOTTOM UP PROCESS FOR ESTABLISHING TARGETS
FOR NON-FINANCIAL MEASURES
PERSONAL GOALS ALIGNMENT:
EACH EMPLOYEE ESTABLISHES A STRATEGY ALIGNED GOAL BY
IDENTIFYING AN ACTIVITY WHICH THEY PERFORM [& OR MEASURE]
WHICH WILL IMPACT A MEASUREMENT ON THE SCORECARD
PERSONAL GOALS ESTABLISHED THROUGH NEGOTIATION PROCESS
WITH MANAGEMENT
MEASUREMENT APPROACH:
MEASURES EVOLVE THROUGH IMPLEMENTATION:
% OF TOP MANAGERS EXPOSED TO BSC
% OF STAFF EXPOSED TO BSC
% OF TOP MANAGERS WITH PERSONAL GOALS ALIGNED TO BSC
% OF STAFF WITH PERSONAL GOALS ALIGNED TO BSC % OF
EMPLOYEES WHO ACHIEVED PERSONAL GOALS
CONCLUSIONS:
THE O ALIGNMENT MEASURES IS THE % OF THE BUSINESS UNITS
THAT HAD SUCCESSFULLY COMPLETED THIS ALIGNMENT PROCESS
MEASURE THE PROGRESS IN GAINING AWARENESS & COMMITMENT
TO THE OBJECTIVES & MEASURES FOR THE BSC; & IDENTIFY AREAS
THAT ADDITIONAL EFFORT & ATTENTION
MEASURE TEAM PERFORMANCE:
NOWADAYS O ARE TURNING TO TEAMS TO ACCOMPLISH IMPORTANT
BUSINESS PROCESSES
THESE O WANT OBJECTIVES & MEASURES TO MOTIVATE & MONITOR
THE SUCCESS OF TEAM BUILDING & TEAM PERFORMANCE
CHAPTER VII
LINKING BSC MEASURES TO YOUR STRATEGY
INTRODUCTION:
THE OBJECTIVE OF ANY MEASUREMENT SYSTEM SHOULD BE TO
MOTIVATE ALL EMPLOYEES TO IMPLEMENT SUCCESSFULLY THE
BUSINESS UNIT’S STRATEGY
THE BSC COMMUNICATES THE FOLLOWING BUSINESS UNIT’S
STRATEGY:
DESCRIBES THE VISION. CREATES SHARED UNDERSTANDING.
CREATES HOLISTIC MODEL OF THE STRATEGY THAT ALLOWS
ALL EMPLOYEES TO SEE THEIR CONTRIBUTION TOWARDS THE
O SUCCESS. WITHOUT SUCH LINKAGE, THE INDIVIDUALS &
DEPARTMENTS CAN OPTIMIZE THEIR LOCAL PERFORMANCE
BUT NOT CONTRIBUTE TO ACHIEVING STRATEGIC OBJECTIVES
THE BSC FOCUSES CHANGE EFFORTS. IF THE RIGHT
OBJECTIVES & MEASURES ARE IDENTIFIED SUCCESSFUL
IMPLEMENTATION WILL LIKELY OCCUR. IF NOT INVESTMENTS &
INITIATIVES WILL BE WASTED
A BSC SHOULD BE SENSITIVE & TRANSPARENT.. IT SHOULD LINK
STRATEGY TO OBJECTIVES & MEASURES
LINKING THE BSC MEASURES TO STRATEGY:
THERE ARE THREE PRINCIPLES THAT ENABLE AN O’S BSC TO BE
LINKED TO ITS STRATEGY:
CAUSE & EFFECT
PERFORMERS DRIVERS
LINKAGE TO FINANCIALS
CAUSE & EFFECT:
STRATEGY IS A SET OF HYPOTHESIS OF CAUSE & EFFECT
C & E RELATIONSHIP IS EXPRESSED BY A SEQUENCE. FOR EXAMPLE
A LINK BETWEEN IMPROVED SALES TRAINING OF EMPLOYEES &
HIGHER PROFITS CAN BE ESTABLISHED THROUGH FOLLOWING
SEQUENCE OF HYPOTHESIS:
INCREASE EMPLOYEE’S TRAINING
RESULT EMPLOYEES MORE KNOWLEDGEABLE ABOUT THE
FULL RANGE OF PRODUCTS THEY CAN SELL
RESULT SALES WILL IMPROVE
RESULTS AVERAGE MARGINS WILL INCREASE
EVERY MEASURE SELECTED FOR A BSC SHOULD BE AN ELEMENT OF
A CHAIN OF C&E RELATIONSHIPS THAT COMMUNICATES THE
MEANING OF THE BUSINESS UNIT’S STRATEGY TO THE O
OUTCOME & PERFORMANCE DRIVERS:
A BSC USES CERTAIN GENERIC MEASURES
THESE GENERIC MEASURES TEND TO BE CORE OUTCOME
MEASURES, WHICH REFLECT THE COMMON GOALS OF MANY
STRATEGIES AS WELL AS SIMILAR STRUCTURES ACROSS
INDUSTRIES & COMPANIES
THESE GENERIC OUTCOME MEASURES TEND TO BE A LAG
INDICATORS SUCH AS PROFITABILITY, MARKET SHARE, CUSTOMER
SATISFACTION, CUSTOMER RETENTION, & EMPLOYEE SKILLS
THE PERFORMANCE DRIVERS THE LEAD INDICATORS ARE THE ONES
THAT TEND TO BE UNIQUE FOR A PARTICULAR BUSINESS UNIT.
THE PD REFLECT THE UNIQUENESS OF THE BUSINESS UNIT’S
STRATEGY
A GOOD BSC SHOULD HAVE A MIX OF OUTCOME MEASURES &
PERFORMANCE DRIVERS
PD TELLS US WHETHER THE STRATEGY HAS BEEN ACHIEVED OR
NOT
LINKAGE TO FINANCIALS:
OPERATIONAL IMPROVEMENTS SHOULD BE LINKED TO ECONOMIC
RESULTS
ANY IMPROVEMENT PLAN SHOULD BE LINKED TO SPECIFIC TARGETS
FOR CUSTOMER & EVENTUALLY FINANCIAL PERFORMANCE
IF THIS DOES NOT HAPPEN; THE O WILL BECOME DISILLUSIONED
ABOUT THE LACK OF TANGIBLE PAYOFFS FROM THEIR
IMPROVEMENT PLANS
STRATEGIC VERSUS DIAGNOSTIC MEASURES: HOW MANY
MEASURES ON A BSC?
STRATEGIC MEASURES DEFINE A STRATEGY; DESIGNED FOR
COMPETITIVE EXCELLENCE
WHILE DIAGNOSTIC MEASURES MONITOR WHETHER THE BUSINESS
REMAINS IN CONTROL & CAN SIGNAL WHEN UNUSUAL EVENTS ARE
OCCURRING THAT REQUIRE IMMEDIATE ACTION
THE OUTCOME & PD MEASURES ON THE BSC ARE BASED ON NEW
INFORMATION ABOUT THE COMPETITORS, CUSTOMERS, MARKETS,
TECHNOLOGIES, & SUPPLIERS.
OUT OF THE MEASURES SO SELECTED FOR PD, MANY SHOULD BE
NEW MEASUREMENTS
THE BSC IS NOT A REPLACEMENT FOR AN O’S DAY-TO-DAY
MEASUREMENT SYSTEM. THE SCORECARDS MEASURES ARE
CHOSEN TO DIRECT THE ATTENTION OF MANAGERS & EMPLOYEES
TO THOSE FACTORS EXPECTED TO LEAD TO COMPETITIVE
BREAKTHROUGHS FOR AN O
HOW BAD THINGS HAPPEN TO GOOD MEASURES: USING DIAGNOSTIC
MEASURES TO BALANCE STRATEGIC MEASURES
EVEN THE BEST OBJECTIVES & MEASURES CAN BE ACHIEVED IN BAD
WAYS.
SCORECARD GUARDS AGAINST SOME OF THE MYOPIC SUB
OPTIMIZATION THAT OCCURS WHEN ONLY A SINGLE MEASURE
ESPECIALLY A FINANCIAL ONE IS USED TO MOTIVATE & EVALUATE
BUSINESS UNIT PERFORMANCE.
SUB OPTIMIZATION IS NOT UNIQUE ONLY TO FINANCIAL MEASURES
A COMPANY’S TOTAL MEASUREMENT SYSTEM SHOULD NOT
ENCOURAGE SUB OPTIMIZATION ALONG ANY SINGLE MEASURE OR
PERSPECTIVE
DESIGNERS SHOULD ATTEMPT TO ANTICIPATE THE SUB
OPTIMIZATION THAT MIGHT OCCUR FOR A GIVEN METRIC ON THE
BSC & PROVIDE SUPPLEMENTAL METRICS THAT DISCOURAGE
ACHIEVING THE PRIMARY SCORECARD OBJECTIVE IN UNDESIRABLE
WAY
RATHER THAN CLUTTER UP THE SCORECARD WITH ADDITIONAL
NON-STRATEGIC MEASURES, COMPANIES CAN USE DIAGNOSTIC
MEASURES TO BALANCE THE STRATEGIC MEASURES ON THE
SCORECARD
CONCLUSIONS:
THE BEST BSC SHOULD TELL THE STORY OF THE STRATEGY, SO
WELL THAT THE STRATEGY CAN BE INFERRED BY THE COLLECTION
OF OBJECTIVES & MEASURES & THE LINKAGES AMONG THEM
CHAPTER VIII
STRUCTURE & STRATEGY:
BUSINESS UNIT VERSUS CORPORATE STRATEGY:
THE DEVELOPMENT OF CORPORATE – LEVEL SCORECARDS IS STILL
IN ITS EARLY DEVELOPMENT STAGES. TO DATE THE CORPORATE
CAN CLARIFY THE FOLLOWING TWO ELEMENTS:
1. CORPORATE THEMES: VALUES, BELIEFS, & THEMES THAT
REFLECT THE CORPORATE IDENTITY & MUST BE SHARED BY ALL
SBUS. EXAMPLE: SAFETY, INNOVATION, ETHICS
2. CORPORATE ROLE: ACTIONS MANDATED AT THE CORPORATE
LEVEL THAT CREATE SYNERGIES AT THE SBU LEVEL. EXAMPLE:
CROSS – SELL CUSTOMERS ACROSS SBUS, SHARE COMMON
TECHNOLOGIES, CENTRALIZE A SHARED SERVICE
CORPORATE SCORECARD ARTICULATES AS TO HOW THE
CORPORATION ADDS VALUE TO ITS COLLECTION OF STRATEGIC
BUSINESS UNITS.
SUCH CORPORATE VALUE ADDED CAN ARISE FROM SEVERAL
SOURCES, INCLUDING COMMON THEMES THAT PERVADES ALL
BUSINESS UNITS SHARED CORPORATE SERVICES & EXPLICIT
INTERACTIONS & TRANSACTIONS AMONG BUSINESS UNITS THAT
CREATE UNIQUE COMPETITIVE ADVANTAGE IN MARKET SEGMENTS
THESE THEMES & SYNERGIES SHOULD BE EXPLICITLY IDENTIFIED,
COMMUNICATED WITH CORPORATE SCORECARD, & LINKED TO
BUSINESS UNIT SCORECARDS
PART TWO
MANAGING BUSINESS STRATEGY:
INTRODUCTION:
SCORECARD ENABLES AN O TO BRIDGE A MAJOR GAP
[DEVELOPMENT & FORMULATION OF STRATEGY & ITS
IMPLEMENTATION] THAT FORMERLY EXISTED IN THEIR O
IN THE TRADITIONAL MANAGEMENT SYSTEMS, THE O USED TO:
ESTABLISH & COMMUNICATE STRATEGY & DIRECTIONS
ALLOCATE RESOURCES
DEFINE DEPARTMENTAL TEAM & INDIVIDUAL GOALS &
DIRECTIONS
PROVIDE FEEDBACK
THE FOLLOWING ARE THE BARRIERS TO EFFECTIVE STRATEGY
IMPLEMENTATION:
VISIONS & STRATEGIES THAT ARE NOT ACTIONABLE
STRATEGIES THAT ARE NOT LINKED TO DEPARTMENTAL,
TEAM, & INDIVIDUAL GOALS
STRATEGIES THAT ARE NOT LINKED TO LONG / SHORT TERM
RESOURCE ALLOCATION
FEEDBACK THAT IS TACTICAL, NOT STRATEGIC
EACH OF THE ABOVE BARRIER CAN BE OVERCOME BY INTEGRATING
THE BSC INTO A NEW STRATEGIC MANAGEMENT SYSTEM
BARRIER # 1: VISION & STRATEGY NOT ACCEPTABLE:
THE PROCESS OF BUILDING A BSC CLARIFIES THE STRATEGIC
OBJECTIVES & IDENTIFIES THE FEW CRITICAL DRIVERS FOR
STRATEGIC SUCCESS
THE PROCESS CREATES A CONSENSUS & TEAM WORK AMONG ALL
SENIOR MEMBERS
THE SCORECARD TRANSLATES A VISION INTO KEY STRATEGIC
THEMES THAT CAN BE COMMUNICATED & ACTED UPON
THROUGHOUT THE O
BARRIER # 2: STRATEGY NOT LINKED TO DEPARTMENTAL TEAM &
INDIVIDUAL GOALS
USE THE BSC TO COMMUNICATE THE NEW STRATEGIES TO ALL
EMPLOYEES & THEN ALIGN DEPARTMENTAL, TEAM, & INDIVIDUAL
GOALS TO SUCCESSFUL IMPLEMENTATION OF THE STRATEGY
BARRIER # 3: STRATEGY NOT LINKED TO RESOURCE ALLOCATION:
THE CRITICAL ELEMENTS OF A PROGRAM THAT TRANSLATES
STRATEGY INTO ACTION:
ESTABLISH LONG TERM QUANTIFIABLE, & STRETCH GOALS FOR
SCORECARD MEASURES
IDENTIFY THE INITIATIVES [INVESTMENTS & ACTION PROGRAMS] &
RESOURCES FOR THESE INITIATIVES THAT WILL ENABLE THE
LONG TERM TARGETS ON THE SCORECARD TO BE ACHIEVED
COORDINATE THE PLANS & INITIATIVES ACROSS RELATED O
UNITS
ESTABLISH SHORT TERM MILESTONES THAT LINK THE LONG
TERM SCORECARD TARGETS TO SHORT TERM BUDGETED
MEASURES
BARRIER # 4: FEEDBACK THAT IS TACTICAL, NOT STRATEGIC:
A STRATEGIC FEEDBACK & LEARNING PROCESS BASED ON THE BSC
HAS FOLLOWING THREE ESSENTIAL INGREDIENTS:
STRATEGY IS SHARED WITH EMPLOYEES, WHICH ENABLES
INDIVIDUAL TO SEE HOW THEIR ACTIVITIES CONTRIBUTE TO
ACHIEVING THE OVERALL STRATEGY
A FEEDBACK IS COLLECTED ABOUT THE PERFORMANCE,
RELATIONSHIP BETWEEN STRATEGIC OBJECTIVES & INITIATIVES
TAKEN IS TESTED
A PROBLEM SOLVING TEAM PROCESS, ANALYZES, & LEARNS
FROM THE PERFORMANCE DATA, & ADAPTS THE STRATEGY TO
EMERGING CONDITIONS & ISSUES
CHAPTER IX
ACHIEVING STRATEGIC ALIGNMENT: FROM TOP TO BOTTOM
INTRODUCTION:
IMPLEMENTING STRATEGY BEGINS BY EDUCATING & INVOLVING THE
PEOPLE WHO MUST EXECUTE IT
O ENCOURAGES EMPLOYEES TO SUGGEST WAYS BY WHICH THE
VISION & STRATEGY CAN BE ACHIEVED
EVERY PERSON IN THE O FROM THE BOARD ROOM TO THE BACK
ROOM SHOULD UNDERSTAND THE STRATEGY & HOW THEIR ACTIONS
SUPPORT THE “BIG PICTURE”
THE BSC PERMITS SUCH A TOP TO BOTTOM ALIGNMENT
STRATEGY SHOULD ALSO BE SHARED WITH CERTAIN KEY VENDORS /
SUPPLIERS
SHARING CREATES COMMITMENT AMONG ALL THE EMPLOYEES OF
THE O
METHODS OF SHARING STRATEGIES:
THE ALIGNMENT OF SHARED VISION & COMMON DIRECTION IS DONE
BY USING THE FOLLOWING THREE MECHANISMS:
1. COMMUNICATION & EDUCATION PROGRAMS:
EVERY ONE IN THE O SHOULD UNDERSTAND THE STRATEGY &
THE REQUIRED BEHAVIOR TO ACHIEVE THE STRATEGIC
OBJECTIVES. FOR THIS THE O HAS CONTINUING EDUCATION
PROGRAM ON STRATEGY & REINFORCES THE EDUCATION
WITH FEEDBACK ON ACTUAL PERFORMANCE
2. GOAL SETTING PROGRAMS:
ONCE ALL THE EMPLOYEES UNDERSTAND THE STRATEGY,
AND THEN TRANSLATE THE STRATEGIC OBJECTIVES INTO
PERSONAL & TEAM OBJECTIVES. LINK PA TO OBJECTIVES &
MEASURES ARTICULATED IN THE BSC
3. REWARD SYSTEM LINKAGE:
ALIGNMENT OF THE O TOWARD THE STRATEGY MUST BE
MOTIVATED THROUGH INCENTIVE & REWARD SYSTEM
[INCENTIVE COMPENSATION SYSTEM]
CHAPTER X
TARGETS, RESOURCE ALLOCATION, INITIATIVES, & BUDGETS
INTRODUCTION:
THERE ARE FOUR STEPS NEEDED TO USE THE SCORECARD IN AN
INTEGRATED LONG RANGE STRATEGIC PLANNING & OPERATIONAL
BUDGETING PROCESS:
SET STRETCH GOALS
IDENTIFY & RATIONALIZE STRATEGIC INITIATIVES
IDENTIFY CRITICAL CROSS BUSINESS INITIATIVES
LINK TO ANNUAL RESOURCE ALLOCATION & BUDGET
SET STRETCH GOALS
BSC IS EFFECTIVE IF USED FOR BRINGING ABOUT O CHANGE
TO COMMUNICATE THE NEED FOR CHANGE, MANAGERS SHOULD
ESTABLISH TARGETS FOR THEIR PERFORMANCE, WHICH SHOULD BE
ACHIEVABLE WITHIN 3-5 YEARS
THE TARGETS SHOULD REPRESENT DISCONTINUITY IN BUSINESS
UNIT PERFORMANCE. EXAMPLE: DOUBLING YOUR SALES IN A PERIOD
OF 4 YEARS
SENIORS ARE NOT SHY ABOUT SETTING STRETCH GOALS; BUT THE
STRETCH GOALS ARE QUESTIONED BY THOSE WHO HAVE TO
ACHIEVE IT
WHEN STRETCH GOALS ARE SET; SIMULTANEOUSLY PROVIDE THE
EMPLOYEES WITH KNOWLEDGE / TOOLS / MEANS TO ACHIEVE SUCH
AMBITIOUS GOALS
BSC BECOMES A POWERFUL TOOL FOR ACHIEVING AGGRESSIVE
TARGETS BECAUSE IT STRESSES THE LINKAGES FOR ACHIEVING
OUTSTANDING PERFORMANCE.
THE INCLUSION OF PERFORMANCE DRIVERS & LEAD INDICATORS
ON THE SCORECARD ENABLE MANAGERS TO IDENTIFY THE
OPERATIONAL FACTORS SUCH AS STRATEGIC INVESTMENTS,
MARKET RESEARCH, INNOVATIVE PRODUCTS / SERVICES, RESKILLED
EMPLOYEES, & ENHANCED EMPLOYEE INFORMATION SYSTEMS THAT
MUST BE CREATED IF THE AMBITIOUS FINANCIAL TARGETS ARE TO
BE ACHIEVED
THE SCENARIO PLANNING PROCESS ENABLES A SEEMINGLY
IMPOSSIBLE OBJECTIVE TO BE DECOMPOSED INTO A SERIES OF
SMALLER OBJECTIVES THAT TAKEN TOGETHER WOULD ENABLE THE
REVENUE GROWTH TARGET TO BE ACHIEVED
BY DEFINING THE KEY DRIVERS FOR THE REVENUE GROWTH
OBJECTIVE, & BY COMMITTING TO TARGETS & INITIATIVES FOR EACH
DRIVER, ENABLES THE EMPLOYEES TO REACH THE STRETCH
TARGET FOR REVENUE GROWTH
THE SCORECARD PROVIDES A TOOL TO MONITOR, HOW WELL THE
STRATEGY IS BEING IMPLEMENTED
IDENTIFY STRATEGIC INITIATIVES:
ONCE THE FINANCIAL, CUSTOMER, INTERNAL PROCESS, & LEARNING
& GROWTH MEASURES HAVE BEEN ESTABLISHED; ASSESS WHETHER
CURRENT INITIATIVES WILL HELP ACHIEVE THESE AMBITIOUS
TARGETS OR WHETHER NEW INITIATIVES ARE REQUIRED
TO ACHIEVE THE STRETCH PERFORMANCE TARGETS, REQUIRES
CREATIVITY
THERE ARE THREE WAYS IN WHICH A PLANNING PROCESS BASED ON
BSC CAN IMPROVE, & CHANNEL THIS CREATIVITY:
1. THE MISSING MEASUREMENT PROGRAM
2. CONTINUOUS IMPROVEMENT PROGRAMS
3. STRATEGIC INITIATIVES, SUCH AS REENGINEERING
THE MISSING MEASUREMENT PROGRAM:
EVERY ACTIVITY SHOULD RESULT IN ACHIEVING A PURPOSE
FOR THIS WE NEED DATA. IF THE DATA DOES NOT EXIST, THEN WE
WILL NOT KNOW WHETHER THE MANAGEMENT PROCESS FOR A KEY
STRATEGIC OBJECTIVE IS LIKELY TO BE INADEQUATE OR NON
EXISTENT
INSTITUTING A PROCESS OF COLLECTING DATA, LEADS THE O TO
DEVELOP STRATEGIC INITIATIVES, & FACILITATES BETTER
MANAGEMENT OF CRITICAL INTERNAL PROCESS. BOTH FACTORS
ARE ESSENTIAL TO SUPPORT SUPERIOR PERFORMANCE
CONTINUOUS IMPROVEMENT PROGRAMS
LINKED TO RATE OF CHANGE OF METRICS
DETERMINE WHETHER STRETCH GOALS CAN BE ACHIEVED
THROUGH CONTINUOUS IMPROVEMENT PROGRAMS
IF THE ANSWER IS YES, THEN THE RATE OF IMPROVEMENT SHOULD
BE USED FOR TRACKING WHETHER ON RIGHT DIRECTION OR NOT
WHATEVER THE FACTORS ONE USES FOR CONTINUOUS
IMPROVEMENT, EACH OF THE FACTOR; ESTABLISH A TARGETED
RATE OF IMPROVEMENT
STRATEGIC INITIATIVES DIRECTED TO
RADICAL IMPROVEMENT OF PERFORMANCE DRIVERS:
TO ACHIEVE THE STRETCH TARGETS, DEVELOP / DEPLOY NEW WAYS
OF ACCOMPLISHING THEM
RATHER THAN JUST APPLYING FUNDAMENTAL PROCESS REDESIGN
TO ANY LOCAL PROCESS, WHERE GAINS CAN BE EASILY OBTAINED,
DEVELOP OR REENGINEER PROCESSES THAT WILL BE CRITICAL FOR
THE O STRATEGIC SUCCESS
AND UNLIKE CONVENTIONAL REENGINEERING PROGRAMS WHERE
OBJECTIVE IS MASSIVE COST CUTTING, THE OBJECTIVE FOR A
REENGINEERING / TRANSFORMATION PROGRAM NEED NOT BE
MEASURED BY RUPEES SAVED
THE TARGETS FOR THE STRATEGIC INITIATIVE CAN BE DRAMATIC
TIME REDUCTIONS IN ORDER FULFILLMENT CYCLES, SHORTER TIME
TO-MARKET IN PRODUCT DEVELOPMENT PROCESSES, & ENHANCED
EMPLOYEE CAPABILITIES
THE O SHOULD FOCUS ON ISSUES THAT CREATE GROWTH [WEALTH]
& NOT JUST THOSE THAT REDUCE COSTS & INCREASES EFFICIENCY
THE KEY INGREDIENT FOR SETTING PRIORITIES FOR
REENGINEERING PROGRAMS IS THE CAUSE & EFFECT
RELATIONSHIPS
COMPANIES SHOULD REVIEW ALL THEIR CURRENT INITIATIVES TO
DETERMINE WHETHER THEY ARE CONTRIBUTING TO ACHIEVEMENT
OF ONE OR MORE SCORECARD OBJECTIVES
ORGANIZATIONS SHOULD ALSO LINK THEIR INVESTMENT DECISIONS
TO THEIR STRATEGIC PLANS
ONCE THE BSC HAS ARTICULATED THE STRATEGY & IDENTIFIED THE
DRIVERS FOR ACCOMPLISHING THE STRATEGY, COMPANIES CAN:
1. IDENTIFY NEW STRATEGIC INITIATIVES
2. FOCUS A MULTITUDE OF STRATEGIC INITIATIVES, LIKE
CONTINUOUS IMPROVEMENTS, REENGINEERING, &
TRANSFORMATION PROGRAM
3. AND ALIGN INVESTMENT & DISCRETIONARY SPENDING
PROGRAMS
IDENTIFY CRITICAL CROSS BUSINESS & CORPORATE INITIATIVES:
AN IMPORTANT ELEMENT IN THE PLANNING PROCESS IS TO IDENTIFY
THE LINKAGES OF THE SBUS TO THE OTHER SBUS IN THE
CORPORATION, & TO FUNCTIONAL ACTIVITIES DONE AT THE
CORPORATE LEVEL
THE LINKAGE TO OTHER SBUS PROVIDES OPPORTUNITIES FOR
MUTUALLY REINFORCING ACTION & SHARING OF BEST PRACTICES
THESE OPPORTUNITIES INCLUDE DEVELOPING / SHARING “K” ABOUT
CRITICAL TECHNOLOGIES & CORE COMPETENCIES, COORDINATING
MARKETING EFFORTS TO COMMON CUSTOMERS, & SHARING
PRODUCTION & DISTRIBUTION RESOURCES WHERE SIGNIFICANT
ECONOMIES OF SCALE / SCOPE EXIST
ONE OF THE CORPORATE LEVEL FUNCTIONS IS TO PROVIDE
MECHANISMS WHEREBY SUCH OPPORTUNITIES FOR SYNERGY
ACROSS DECENTRALIZED SBU CAN BE IDENTIFIED / EXPLOITED
THE BSC PROVIDES SUCH MECHANISM
THE SCORECARD PROVIDES A COMMON FRAMEWORK FOR
ORGANIZING THE PLANNING PROCESS OF CORPORATE SUPPORT
DEPARTMENTS
IT ENABLES THESE DEPARTMENTS TO UNDERSTAND THE
STRATEGIES OF THE ENTIRE CORPORATION & THE INDIVIDUAL SBUS
SO THAT THE SUPPORT DEPARTMENTS CAN DEVELOP / DELIVER
BETTER SERVICES THAT HELP THE OPERATING UNITS &
CORPORATION ACHIEVE THEIR STRATEGIC OBJECTIVES
LINK TO ANNUAL RESOURCE ALLOCATION & BUDGETS
STRATEGIC PLANNING & OPERATIONAL BUDGETING PROCESSES
ARE TOO IMPORTANT TO BE TREATED AS INDEPENDENT PROCESS
S.P. MUST BE LINKED TO OPERATIONAL BUDGETING IF ACTION IS TO
BE TIED TO VISION
THE TARGETING PROCESS SETS ASPIRATIONS FOR WHAT THE
BUSINESS UNIT MUST ACHIEVE FOR BREAKTHROUGH
PERFORMANCE IN THE STRATEGIC MEASURES IN THE FOUR
SCORECARD PERSPECTIVES
RESOURCES & INITIATIVES ARE DEPLOYED TO START THE JOURNEY,
TO CLOSE THE GAP BETWEEN CURRENT PERFORMANCE & THE
STRETCH TARGETS TO BE ACHIEVED DURING THE NEXT 3-5 YEARS
SINCE THE PERIOD IS TOO LONG, TO VALIDATE THE STRATEGY,
SHORT-TERM TARGETS FOR THE SCORECARD SHOULD BE
FORMULATED.
THESE SHORT TERM TARGETS ARE THE TANGIBLE EXPRESSION
ABOUT THE SPEED & IMPACT OF CURRENT PROGRAMS & INITIATIVES
ON STRATEGIC MEASURES
THIS PROCESS EXPANDS THE TRADITIONAL BUDGETING PROCESS
TO INCORPORATE STRATEGIC AS WELL AS OPERATIONAL TARGETS
THE BUDGETING PROCESS SHOULD ENCOMPASS THE EXPECTED
SHORT-TERM PERFORMANCE ON THE STRATEGIC OBJECTIVES &
MEASURES OF THE OTHER THREE SCORECARD PERSPECTIVES
CHAPTER 11
FEEDBACK & THE STRATEGIC LEARNING PROCESS:
FROM COMMAND & CONTROL TO STRATEGIC LEARNING
STRATEGIES FOR TODAY’S INFORMATION AGE O CANNOT BE LINEAR
OR STABLE.
SENIORS NEED FEEDBACK, FOR STRATEGIES ARE BEING
IMPLEMENTED IN TURBULENT ENVIRONMENT
O NEED THE CAPACITY FOR DOUBLE LOOP LEARNING, THE
LEARNING THAT OCCURS WHEN MANAGERS QUESTION THEIR
ASSUMPTIONS, & REFLECT ON WHETHER THE THEORY UNDER THEY
WERE OPERATING IS STILL CONSISTENT WITH THE CURRENT
EVIDENCE, OBSERVATIONS, & EXPERIENCE
THEY NEED ON OCCASION TO BE ABLE TO DEVISE NEW STRATEGIES
TO CAPITALIZE ON NEW OPPORTUNITIES OR TO COUNTER NEW
THREATS THAT WERE NOT ANTICIPATED WHEN THE INITIAL
STRATEGIC PLAN WAS ARTICULATED
FREQUENTLY IDEAS FOR SEIZING NEW OPPORTUNITIES COME FROM
MANAGERS FURTHER DOWN IN THE O
THE FOLLOWING ARE THE KEY ASPECTS OF THIS EMERGENT VIEW
OF STRATEGY:
STRATEGIES ARE INCREMENTAL & EMERGE OVER TIME
INTENDED STRATEGIES CAN BE SUPERSEDED
STRATEGY FORMULATION & IMPLEMENTATION ARE INTERWINED
STRATEGIC IDEAS CAN ARISE THROUGHOUT THE O
STRATEGY IS A PROCESS
MANAGEMENT PROCESSES BUILT AROUND THE STRATEGY
ARTICULATED IN THE BSC MUST PROVIDE REGULAR OPPORTUNITIES
FOR DOUBLE LOOP LEARNING:
BY COLLECTING DATA ABOUT THE STRATEGY
TESTING THE STRATEGY
REFLECTING ON WHETHER THE STRATEGY IS STILL APPROPRIATE
IN LIGHT OF RECENT DEVELOPMENTS, & SOLICITING IDEAS
THROUGHOUT THE O ABOUT NEW STRATEGIC OPPORTUNITIES &
DIRECTIONS
TOWARD A STRATEGIC LEARNING PROCESS:
AN EFFECTIVE STRATEGIC LEARNING PROCESS HAS THREE
ESSENTIAL INGREDIENTS
1. A SHARED STRATEGIC FRAMEWORK THAT COMMUNICATES THE
STRATEGY & ALLOWS EACH PARTICIPANT TO SEE HOW HIS / HER
ACTIVITIES CONTRIBUTE TO ACHIEVEMENT OF THE OVERALL
STRATEGY
2. A FEEDBACK PROCESS THAT COLLECTS PERFORMANCE DATA
ABOUT THE STRATEGY & ALLOWS THE HYPOTHESIS ABOUT
INTERRELATIONSHIPS AMONG STRATEGIC OBJECTIVES &
INITIATIVES TO BE TESTED
3. A TEAM PROBLEM-SOLVING PROCESS THAT ANALYZES & LEARNS
FROM THE PERFORMANCE DATA & THEN ADOPTS THE STRATEGY
TO EMERGING CONDITIONS & ISSUES
SHARED STRATEGIC FRAMEWORK
THE BSC IS A REPRESENTATION OF THE O’S SHARED VISION
THE SCORECARD’S OBJECTIVES & MEASURES CLARIFY &
COMMUNICATE THE VISION TO MOBILIZE & FOCUS THE O
A SHARED VISION DEFINES IN CLEAR & OPERATIONAL TERMS THE
RESULTS THAT THE WHOLE O IS ATTEMPTING TO ACHIEVE
BSC ESTABLISHES A COMMON MODEL OF PERFORMANCE &
COMMUNICATES A HOLISTIC APPROACH TO LINKING INDIVIDUAL
EFFORTS & ACCOMPLISHMENTS TO BUSINESS UNIT OBJECTIVES
THIS SHARED VISION & SHARED PERFORMANCE MODEL
STRUCTURED AROUND BSC PROVIDES THE FIRST ELEMENT FOR A
STRATEGIC LEARNING PROCESS
STRATEGIC FEEDBACK
A STRATEGIC FEEDBACK SYSTEM SHOULD BE DESIGNED TO TEST,
VALIDATE, & MODIFY THE HYPOTHESIS EMBEDDED IN A BUSINESS
UNIT STRATEGY
THE CAUSE & EFFECT RELATIONSHIPS EMBODIED IN A BSC ENABLE
EXECUTIVES TO ESTABLISH SHORT TERM TARGETS THAT REFLECT
THEIR BEST FORECAST ABOUT THE LAGS & IMPACTS BETWEEN
CHANGES IN PERFORMANCE DRIVERS & ASSOCIATED CHANGES IN
ONE OR MORE OUTCOMES
FOR EXAMPLE:
WHAT IS THE IMPACT OF A 10% IMPROVEMENT IN ON TIME
DELIVERY ON CUSTOMER SATISFACTION?
HOW LONG IS THE DELAY BETWEEN QUALITY IMPROVEMENTS
& INCREASES IN CUSTOMER RETENTION
THE FOLLOWING APPROACHES HAVE BEEN USED TO PROMOTE
STRATEGIC LEARNING
1. CORRELATION ANALYSIS:
2. MANAGEMENT GAMING / SCENARIO ANALYSIS
3. ANECDOTAL REPORTING
4. INITIATIVE REVIEW
5. PEER REVIEW
6. CROSS FUNCTIONAL TEAMS
7. STRATEGIC REVIEW MEETING
8. CONTINUAL DOUBLE LOOP LEARNING ABOUT STRATEGY
CORRELATION ANALYSIS:
VALIDATE CAUSE & EFFECT RELATIONSHIPS BY MEASURING THE
CORRELATION BETWEEN TWO OR MORE MEASURES
CORRELATIONS AMONG THESE VARIABLES PROVIDE POWERFUL
CONFIRMATION OF THE BUSINESS UNIT’S STRATEGY
IF HYPOTHESIZED CORRELATIONS ARE NOT FOUND OVER TIME THE
O HAS EVIDENCE THAT THE THEORY UNDERLYING ITS STRATEGY IS
NOT WORKING
SEE THE EXAMPLE ON PAGE 256-258 OF THE TEXT BOOK
MANAGEMENT GAMING / SCENARIO REPORTING
ON THE FIRST ANNIVERSARY OF THE SCORECARD’S
IMPLEMENTATION BUT PRIOR TO UPDATING THE MODEL FOR THE
SUBSEQUENT YEAR, DO THE FOLLOWING:
1. COMPILE STATISTICAL DATA FROM THE PREVIOUS YEAR,
STRESSING THE CORRELATIONS BETWEEN THE VARIABLES
2. EVALUATE THE PREVIOUS YEAR’S STRATEGY &IDENTIFY ANY
FATAL FLAWS IN IT
3. IF RESULTS WERE NOT ACHIEVED ON SCORECARDS MEASURES,
DETERMINE THE LIKELY CAUSE
4. THIS WILL RENEW & STIMULATE THEIR THINKING ABOUT THE
DRIVERS OF STRATEGIC SUCCESS
ANECDOTAL REPORTING
STRATEGIC LEARNING SHOULD PROVIDE EARLY INDICATORS AS TO
WHETHER THE STRATEGY IS WORKING
SUPPLEMENT YOUR QUANTITATIVE PERFORMANCE REPORTS WITH
STORIES ABOUT STRATEGIC RELATIONSHIPS WITH CUSTOMERS, AS
TO HOW THESE OBJECTIVES HAVE BEEN ESTABLISHED, & THE
LESSONS THAT COULD BE LEARNED
BY TELLING STORIES ONE GETS INFORMAL FEEDBACK THAT THE
STRATEGY WAS WORKING, AS WELL EDUCATE THE O ON THE
INTENTION & SPECIFIC DETAILS OF THE STRATEGY
IN THIS WAY THE O USE PAST PERFORMANCE TO INFLUENCE
FUTURE PERFORMANCE
INITIATIVE REVIEW:
WE REQUIRE STRATEGIC INITIATIVE TO ACHIEVE STRETCH TARGETS
FOR ITS SCORECARD MEASURES
THESE INITIATIVES SHOULD BE REVIEWED DURING STRATEGIC
LEARNING PROCESS
THIS KNOWLEDGE KEEPS THE O FOCUSED ON IMPLEMENTING THE
INITIATIVES & ASSESSING WHETHER THEY ARE STILL EXPECTED TO
LEAD TO ACHIEVEMENT OF AMBITIOUS TARGETS
PEER REVIEW:
ANOTHER EFFECTIVE MECHANISM FOR LEARNING IS TO GAIN
PERSPECTIVE FROM INDEPENDENT OUTSIDERS. CALL SENIORS
FROM OTHER DIVISION TO REVIEW THE BSC OF YOUR DIVISION
THE PEER REVIEW TEAM REVISITED THE STRATEGY, THE
OBJECTIVES, & MEASURES & THE STRATEGIC INITIATIVES
THE TEAM ALSO SPOKE TO EMPLOYEES AT RANDOM LOCATIONS IN
THE O TO DETERMINE THE PROGRAM’S AWARENESS LEVEL&
PENETRATION
THE TEAM SUBMITTED AN INDEPENDENT & OBJECTIVE EVALUATION
OF THE SCORECARD STRUCTURE & PROCESS
CROSS FUNCTIONAL TEAMS
MAINTAINING A CROSS FUNCTIONAL PERSPECTIVE IS AN IMPORTANT
COMPONENT OF THE LEARNING PROCESS
AVOID REVERTING TO FUNCTIONAL SPECIALIZATION
FOR EXAMPLE O NOT ASSIGN THE VP FINANCE THE RESPONSIBILITY
FOR FINANCIAL PERSPECTIVE. SIMILARLY DO NOT ASSIGN THE VP
MARKETING THE RESPONSIBILITY OF CUSTOMER PERSPECTIVE
RESPONSIBILITY OF ACHIEVING THE MEASURES & MOBILIZING THE
INITIATIVES SHOULD BE SHARED ACROSS THE ENTIRE MANAGEMENT
GROUP
STRATEGIC REVIEW MEETING:
A FORMAL, PERIODIC STRATEGIC REVIEW MEETING PLAYS A
CRITICAL ROLE IN THE EXECUTIVE TEAM STRATEGIC LEARNING
PROCESS
BESIDES FOCUSING ON OPERATIONAL ISSUES ALSO FOCUS ON
STRATEGIC ISSUES
FOR STRATEGIC REVIEW MEETINGS TO BE EFFECTIVE, THEY
SHOULD BE SEPARATED IN BOTH TIME / PLACE FROM OPERATIONAL
REVIEW MEETINGS
STRATEGIC REVIEW MEETINGS SHOULD BE DONE ONCE IN A
QUARTER
THE QUARTERLY STRATEGIC REVIEW MEETING SHOULD FOCUS ON
ISSUES, NOT PERFORMANCE OF FUNCTIONAL DEPARTMENTS, WITH
A GOAL OF REFINING THE STRATEGY & ITS IMPLEMENTATION
THE IDENTIFICATION OF STRATEGIC ISSUES THAT REQUIRE
FURTHER EXPLORATION & CLARIFICATION CLOSES THE LOOP ON
STRATEGIC LEARNING PROCESS
QUARTERLY REVIEWS BECOME OPPORTUNITIES TO LEARN ABOUT
THE VALIDITY OF THE STRATEGY & HOW WELL ITS BEING EXECUTED
THE LEARNING PROCESS CAN BE FURTHER ENHANCED BY LINKING
OPERATIONAL & STRATEGIC REVIEW MEETINGS
THE LINKAGES BETWEEN OPERATIONAL & STRATEGIC REVIEWS
ALLOW MANY SUCH ISSUES TO BE IDENTIFIED & ACTED UPON AS
THEY EMERGE SO THAT BOTH STRATEGY & OPERATIONS CAN
EVOLVE ACCORDINGLY
CONTINUAL DOUBLE LOOP LEARNING ABOUT STRATEGIES:
FACE-TO-FACE CONTACT AT THE STRATEGIC REVIEW MEETING IS
IMPORTANT ELEMENT OF THE TEAM BUILDING & PROBLEM SOLVING
PROCESSES REQUIRED FOR STRATEGIC LEARNING. IN A TYPICAL
MEETING TIME IS SPENT ON SOMEONE REVIEWING & EXPLAINING
THE NUMBERS
TO ENHANCE STRATEGIC LEARNING PROCESS, WE CAN MOVE FROM
EVENT DRIVEN LEARNING TO A CONTINUAL LEARNING PROCESS.
PUT REPORTS ON NETWORK TO BE REVIEWED AT INDIVIDUAL’S
CONVENIENCE. THE NETWORK ALSO PROVIDES ONGOING
DIALOGUES, & THE SHARED TIME CAN BE USED TO FOCUS ON
ISSUES & INTERPRETATION
THE PROCESS OF DATA GATHERING, HYPOTHESIS TESTING,
REFLECTION. STRATEGIC LEARNING & ADAPTATION IS
FUNDAMENTAL TO HE SUCCESSFUL IMPLEMENTATION OF BUSINESS
STRATEGY
THIS CAPACITY FOR ENABLING STRATEGIC LEARNING AT THE
EXECUTIVE LEVEL MAKES THE BSC THE CORNERSTONE OF A
STRATEGIC MANAGEMENT SYSTEM
CHAPTER 12
IMPLEMENTING A BSC MANAGEMENT PROGRAM
LAUNCHING THE BSC PROGRAM
ADOPT BSC FOR A SPECIFIC STRATEGIC PURPOSE.
IT DOES NOT RELATE SOLELY TO IMPROVE THE MEASUREMENT
SYSTEM, BUT MOBILIZES O TO A NEW STRATEGIC DIRECTION.
THE DYNAMICS: MOBILIZING THE O:
THE STEPS IN THE IMPLEMENTING THE BSC:
1. CLARIFY THE VISION:
a. FORM A NEW EXECUTIVE TEAM TO WORK TOGETHER FOR A
PERIOD OF 3 MONTHS
b. LET THE TEAM MEMBERS BE THE FUNCTIONAL HEADS
c. TRANSLATE A GENERIC VISION INTO A STRATEGY
d. COMMUNICATE THE SAME SO THAT THE SAME COULD BE
UNDERSTOOD
e. THE ABOVE PROCESS BUILDS CONSENSUS, & COMMITMENT
TO THE STRATEGY
f. THIS PROCESS TAKES ABOUT 3 MONTHS
2. COMMUNICATE TO MIDDLE MANAGERS:
a. THE SENIOR MEMBERS OF THE MANAGEMENT ARE
BROUGHT TOGETHER TO LEARN ABOUT & DISCUSS THE
NEW STRATEGY
b. THIS PROCESS SHOULD TAKE ABOUT 2 MONTHS
3. DEVELOP BUSINESS UNIT SCORECARDS:
a. USING THE CORPORATE SCORECARD AS A TEMPLATE,
EACH BUSINESS UNIT TRANSLATES ITS STRATEGY INTO ITS
OWN SCORECARD
b. THIS PROCESS SHOULD TAKE ABOUT 6-9 MONTHS
4. ELIMINATE NONSTRATEGIC INVESTMENTS:
a. THE CORPORATE SCORECARD CLARIFIES STRATEGIC
PRIORITIES
b. IT ALSO IDENTIFIES MANY ACTIVITIES THAT ARE NOT
CONTRIBUTING TO THE STRATEGY
5. LAUNCH CORPORATE CHANGE PROGRAMS:
a. THE CORPORATE SCORECARD IDENTIFIES THE NEED FOR
CROSS-BUSINESS CHANGE PROGRAMS
b. THEY ARE LAUNCHED WHILE THE BUSINESS UNITS
PREPARE THEIR SCORECARDS
6. REVIEW BUSINESS UNIT SCORECARDS:
a. THE CEO & THE EXECUTIVE TEAM REVIEW THE INDIVIDUAL
BUSINESS UNITS’ SCORECARDS
b. THE REVIEW PERMITS THE CEO TO PARTICIPATE
KNOWLEDGEABLY IN SHAPING BUSINESS UNIT STRATEGY
c. THIS PROCESS TAKES ABOUT 3 MONTHS
7. REFINE THE VISION:
a. THE REVIEW OF BUSINESS UNIT SCORECARDS IDENTIFIES
SEVERAL CROSS BUSINESS ISSUES NOT INITIALLY
INCLUDED IN THE CORPORATE STRATEGY
b. THE CORPORATE SCORECARD IS UPDATED
c. THIS PROCESS TAKES ABOUT 1 MONTH
8. COMMUNICATE THE BSC TO THE ENTIRE COMPANY:
a. AT THE END OF ONE YEAR, WHEN THE MANAGEMENT
TEAMS ARE COMFORTABLE WITH THE STRATEGIC
APPROACH, THE SCORECARD S DISSEMINATED TO THE
ENTIRE O
9. ESTABLISH INDIVIDUAL PERFORMANCE OBJECTIVES:
a. THE MANAGEMENT LINKS THEIR INDIVIDUAL OBJECTIVES &
INCENTIVE COMPENSATION TO THEIR SCORECARDS
b. THIS PROCESS TAKES ABOUT 2 MONTHS
10.UPDATE LONG RANGE PLAN & BUDGET:
a. FIVE YEAR GOALS ARE ESTABLISHED FOR EACH MEASURE
b. THE INVESTMENTS REQUIRED TO MEET THESE GOALS ARE
IDENTIFIED & FUNDED
c. THE FIRST YEAR OF THE FIVE YEAR PLAN BECOMES THE
ANNUAL BUDGET
11.CONDUCT MONTHLY & QUARTERLY REVIEWS:
a. AFTER CORPORATE APPROVAL OF THE BUSINESS UNIT
SCORECARDS, A MONTHLY REVIEW PROCESS,
SUPPLEMENTED BY QUARTERLY REVIEWS THAT FOCUSES
ON STRATEGIC ISSUES BEGINS
12.CONDUCT ANNUAL STRATEGY REVIEW:
a. AT THE START OF THE THIRD YEAR, THE INITIAL STRATEGY
HAS BEEN ACHIEVED & THE CORPORATE STRATEGY
REQUIRES UPDATING
b. THE EXECUTIVE COMMITTEE LISTS TEN STRATEGIC ISSUES
c. EACH BUSINESS UNIT IS ASKED TO DEVELOP A POSITION
ON EACH ISSUE AS A PRELUDE TO UPDATING ITS
STRATEGY & SCORECARD
13.LINK EVERYONE’S PERFORMANCE TO THE BSC:
a. ALL EMPLOYEES ARE ASKED TO LINK THEIR INDIVIDUAL
OBJECTIVES TO THE BSC
b. THE ENTIRE O’S INCENTIVE COMPENSATION IS LINKED TO
THE SCORECARD
c. THE BSC IS NOW A ROUTINE PART OF THE MANAGEMENT
PROCESS
BUILDING AN INTEGRATED MANAGEMENT SYSTEM:
THE INTRODUCTION OF BSC CREATES PRESSURE TO BROADEN ITS
ROLE IN THE MANAGEMENT SYSTEM
TO GET TANGIBLE BENEFITS OF BSC TIE THE SCORECARD INTO
OTHER MANAGEMENT PROGRAMS, SUCH AS BUDGETING, SETTING
OF PERSONAL TARGETS, ALIGNMENT OF STRATEGIC INITIATIVES
THE BSC PROVIDES A VEHICLE TO INTRODUCE STRATEGIC THINKING
INTO ONGOING MANAGEMENT PROCESSES
STRATEGY FORMULATION & STRATEGIC ISSUE UPDATE:
SENIOR MANAGEMENT CAN EITHER INITIATE THE DEVELOPMENT OF
A BSC LINKED TO A NEW LONG RANGE PLAN, OR IT CAN UPDATE THE
STRATEGY ANNUALLY
LINK TO PERSONAL OBJECTIVES & REWARDS:
AS COMPANIES ATTEMPT TO IMPLEMENT NEW STRATEGIES LIKE
BUILDING RELATIONSHIPS
DEVELOPING NEW TECHNOLOGIES
ACCESSING NEW CUSTOMERS / CONSUMERS
MANAGERS MUST CONTINUALLY TAKE RISKS & EXPERIMENT SO
THAT THEY CAN LEARN & GROW
EXECUTIVES MUST ENCOURAGE THIS INNOVATIVE BEHAVIOR BY
LINKING IT TO PERSONAL OBJECTIVES & REWARDS
INCENTIVE COMPENSATION MOTIVATES PERFORMANCE
BEFORE TYING BSC TO COMPENSATION. MANAGEMENT MUST GAIN
SOME EXPERIENCE IN MANAGING THE BSC
CONSEQUENCES SHOULD BE EXPLICITLY TIED TO THE BALANCED
SET OF OBJECTIVES, MEASURES, & TARGETS ON CORPORATE &
BUSINESS SCORECARDS
LINK TO PLANNING, RESOURCE, ALLOCATION, & ANNUAL BUDGETS
LINK THE STRATEGIC PLANNING TO BUDGETED TARGETS
THE BUDGETING PROCESS SHOULD TRANSLATE THE STRATEGIC
PLANNING INTO AN OPERATIONAL BUDGET
FEEDBACK & STRATEGIC LEARNING:
THIS PROCESS LINKS MONTHLY OPERATIONAL REVIEWS, &
QUARTERLY STRATEGIC REVIEWS THAT EXAMINE
BY INTEGRATING THE FOCUS SHIFTS FROM TACTICS TO STRATEGY,
& EFFECTIVELY TRANSLATE STRATEGIES INTO ACTIONS
SOME CAUTIONS: IT’S NOT AS SIMPLE AS IT SEEMS:
THE FOLLOWING FACTORS CONTRIBUTE TO THE FAILURE OF BSC:
STRUCTURAL DEFECT
MANY O SUPPLEMENT FINANCIAL MEASURES WITH NON
FINANCIAL ONES
THESE NON-FINANCIAL MEASURES ARE LAGGING MEASURES.
THEY REPORT HOW WELL THE O’S STRATEGY WORKED IN THE
PAST
THEY ARE GENERIC. ALL THE COMPANIES ARE TRYING TO
IMPROVE ALONG THESE DIMENSIONS
THEY DO NOT TELL THE EMPLOYEES WHAT THEY MUST EXCEL
TO WIN FUTURE COMPETITIVE GAMES
ORGANIZATIONAL DEFECTS:
DELEGATING DEVELOPMENT OF BSC TO MIDDLE MANAGEMENT TASK
FORCE
BSC TO BE EFFECTIVE MUST REFLECT THE STRATEGIC VISION OF
THE SENIOR EXECUTIVE GROUP
MANAGING THE BSC STRATEGIC MANAGEMENT SYSTEM:
TWO TYPES OF CHANGE AGENTS ARE REQUIRED FOR EFFECTIVE
IMPLEMENTATION OF ANY NEW SYSTEM:
1. O NEEDS TRANSITIONAL LEADERS, WHO WILL FACILITATE THE
BUILDING OF THE SCORECARD, & EMBED ITS AS A NEW
MANAGEMENT SYSTEM
2. O WILL NEED A DESIGNATED MANAGER TO OPERATE THE
STRATEGIC MANAGEMENT SYSTEM ON AN ONGOING RECURRING
BASIS
BOTH THE TRANSITIONAL LEADER & MANAGER OF THE ONGOING
SYSTEM HAVE TO WORK FULL TIME ON EMBEDDING THE BSC AS A
STRATEGIC MANAGEMENT SYSTEM
TRANSITIONAL MANAGEMENT:
THE FOLLOWING ARE THE THREE CRITICAL ROLES OF A
TRANSITIONAL LEADER:
1. ARCHITECT
2. CHANGE AGENT
3. COMMUNICATOR
ARCHITECT:
a. MUST UNDERSTAND THE BSC
b. MUST BECOME PASSIONATE ABOUT IT
c. RESPONSIBLE FOR BUILDING THE BSC
d. RESPONSIBLE FOR INTRODUCING THE SCORECARD INTO
THE MANAGEMENT SYSTEM
e. CAPABLE OF EDUCATING THE EXECUTIVE TEAM
f. GUIDE THE TRANSLATION OF STRATEGY OF STRATEGY
INTO SPECIFIC OBJECTIVES, & MEASURES. SHOULD DO IT IN
SUCH A WAY, THAT IT DOES NOT TRIGGER DEFENSIVE
REACTIONS
g. RUN THE PILOT PROGRAM
CHANGE AGENT:
a. EMBED THE SCORECARD INTO ONGOING MANAGEMENT
PROCESS
b. SHOULD REPORT TO THE CEO
c. HELP MANAGERS TO REDEFINE THEIR ROLE
COMMUNICATOR:
a. IS RESPONSIBLE FOR GAINING THE UNDERSTANDING, BUY
IN & SUPPORT OF ALL O MEMBERS
b. THE NEW STRATEGIES REQUIRES NEW VALUES, & WAYS OF
DOING WORK, THAT ARE BUILD AROUND THE FOUR
PERSPECTIVE
c. SHOULD MOTIVATE EMPLOYEES & TEAM TO PROVIDE
FEEDBACK ABOUT WHETHER THE PROPOSED STRATEGY IS
FEASIBLE & DESIRABLE
MANAGING THE ONGOING STRATEGIC MANAGEMENT PROCESS:
THE CHIEFS OF STRATEGIC PLANNING, HR, FINANCE, & INFORMATION
SYSTEMS ARE THE TRADITIONAL “OWNERS” OF PIECES OF THE
STRATEGIC MANAGEMENT PROCESS
ONCE THE EMBEDDING OF BSC INTO AN O’S ONGOING MANAGEMENT
PROCESS IS OVER, WHO TAKES UP THE RESPONSIBILITY FOR THE
OPERATION OF THE OF THE TOTAL SYSTEM
THE CEO OF THE BUSINESS UNIT IS THE ULTIMATE PROCESS
OWNER.
THE ONGOING OPERATION OF THE SYSTEM MUST BE ASSIGNED TO
PARTICULAR PERSON, OTHERWISE GAPS WILL DEVELOP IN
MEASUREMENT, REPORTING, & MONITORING
THE END