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