Read The Balanced Scorecard: Translating Strategy Into Action Online
Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
The Balanced Scorecard: Translating Strategy Into Action (12 page)
While value propositions vary across industries, and across different market segments within industries, we have observed a common set of attributes that organizes the value propositions in all of the industries where we have constructed scorecards. These attributes can be organized into three categories (see Figure 4-3).
- Product/service attributes
- Customer relationship
- Image and reputation
RODUCT AND
S
ERVICE
A
TTRIBUTES
Product and service attributes encompass the functionality of the product/service, its price, and its quality. For example, one can view the two customer segments identified by Rockwater as illustrative of the classic choice between customers that want a reliable low-cost producer versus those customers that want a differentiated supplier, capable of offering unique products, features, and services. Rockwater’s Tier 2 customers did not want frills and customization. They wanted the basic product, delivered reliably and on-time, with no defects, and at the lowest possible price. Its Tier 1 customers, on the other hand, were willing to pay a price premium for particular features or services that they perceived as highly valuable for achieving their competitive strategic vision. Similarly, Metro Bank identified several market segments in its customer base. One segment just sought the lowest-priced supplier of standard banking products like checking accounts. Another segment, however, looked to the bank as a one-stop source of financial products and services, and were willing to pay a
reasonable, but not necessarily the lowest, price for conducting financial transactions. Both segments, however, wanted high-quality service (zero defects) in transactions with the bank.
USTOMER
R
ELATIONSHIP
The customer relationship dimension includes the delivery of the product/service to the customer, including the response and delivery time dimension, and how the customer feels about purchasing from the company. For example, Metro Bank identified for its customer relationship objective that it should build and maintain high expectations about how the bank treated its customers. Metro defined three key elements of an excellent relationship with its customers.
Figure 4-3
The Customer Value Proposition
- Knowledgeable People: Differentiate ourselves through employees capable of recognizing customer needs and possessing the knowledge to proactively satisfy them.
- Convenient Access: Give customers access to banking services or information 24 hours a day.
- Responsive: Service customers expediently. The timeliness of the response should meet or exceed the customer’s perceived sense of urgency.
A retail chain like Nordstrom emphasizes the extraordinary level of service its salespersons are prepared to give its targeted and valued customers. The success of Intuit, a relatively small software company that dominates its market segment of personal-computer-based financial-management software, can be attributed to users’ passionate approval of the transparency and ease of use of its products. The relationship dimension also encompasses long-term commitments, such as when the supplying company links its information systems with customers’—electronic data interchange—to facilitate a broad range of activities across the selling/buying relationship: shared designs of products, linked production schedules, and electronic ordering, invoicing, and payment. The relationship could encompass qualification as a preferred supplier so that incoming items are delivered directly to workstations on the factory floor, bypassing receiving, inspection, handling, and storage. Some companies have even turned over their purchasing function to qualified suppliers, providing supplier representatives with office space and storage facilities on-site, and allowing the supplier to manage completely the flow of materials to arrive in the exact mix and quantity just-in-time to workstations. Such relationships are another dimension of choosing suppliers on a basis other than the one that quotes the lowest unit price.
MAGE AND
R
EPUTATION
The image and reputation dimension reflects the intangible factors that attract a customer to a company. Some companies are able, through advertising and delivered quality of product and service, to generate customer loyalty well beyond the tangible aspects of the product and service. Consumer preferences for certain brands of athletic shoes, designer clothing, theme parks (“I’m going to Disneyworld”), cigarettes (“The Marlboro
Man”), soft drinks (“the Pepsi generation”), and even chickens (Perdue) connote the power of image and reputation for targeted consumer segments. Metro Bank was attempting to build a reputation as a knowledgeable, friendly financial adviser capable of supplying a full line of banking products and services. Pioneer Petroleum, trying to differentiate its product in what is basically a commodity business, used advertising to communicate certain nonobvious features of its product, like purity that helped keep engines “clean” and free of sludge. Several investment banking firms convey an image of personalized, high-quality financial advice and service, and the “Big 6” accounting firms attempt to establish a reputation for quality and integrity that distinguishes them from smaller, more regional competitors.
The image and reputation dimension enables a company to proactively define itself for its customers. Rockwater, for example, wanted to outgrow an image dating back to the boom years of the early 1970s in which underwater engineering construction companies were viewed as a collection of guys, equipped with wet suits, scuba gear, and welding guns, jumping off barges into the North Sea. The construction of the Balanced Scorecard and the establishment of customer-based objectives and explicit feedback about the value propositions it delivered to customers were intended to convey a new professionalism about the way the company would do business. It would be part of the process by which Rockwater communicated to Tier 1 customers that it was now a technologically sophisticated, trusted, and valued partner capable of engaging in long-term supplier-customer relationships.
Kenyon Stores, a large clothing retailer, developed an image of who its targeted customers were.
- Range: 20–40-year-old female (target: 29 years)
- College educated
- Works full-time in professional executive position
- Innovatively fashionable
- Self-confident, great sense of humor
It then communicated this targeted customer image externally through a variety of advertising and in-store promotional material.
We can illustrate the development of customer value propositions across product and service attributes, relationship, and image and reputation with case studies of Kenyon, Rockwater, and Pioneer Petroleum.
Provide fashion and quality that the customers perceive as high-value and consider to be fairly priced.
The measures for this objective were the average unit retail price that the retailer wanted to maintain (i.e., no price discounting) and the number of transactions per store.
The fashion and design objective was to:
Provide fashionable merchandise that satisfies our customer’s aspirational and wardrobe needs within the Kenyon brand.
This, clearly, is not an easy objective to translate into specific operational measures. The company selected the average annual growth in purchases of “strategic merchandise” defined as key merchandise items that best exemplified the Kenyon image. A second measure selected was MMU, retailer jargon for maintained mark-up. MMU represents the actual margin realized by the retailer over purchase price, net of all discounts. Improving MMU would be an outcome (lagging) indicator of the store’s ability to sustain good margins because of well-received merchandise design and fashion.
The quality objective,
Ensure the highest quality and consistency of fit both within a style and across all product categories
was measured by the return rate of merchandise, an indication of the satisfaction of consumers with the quality of the product, and the fairness of the price paid.
The shopping experience dimension was considered extremely important. Key attributes were availability of merchandise and the in-store shopping experience. Availability was defined as having the customers’ first choice
items in stock. It was measured by the responses on a “What do you think?” card solicited from each customer, asking about satisfaction with the availability of size and color. The in-store shopping experience dimension was captured by an explicit vision of the six elements of the “perfect shopping experience”:
- Great looking stores with fashion impact
- Customer welcomed by attractive associates, fashionably dressed, with a smile on their faces
- Clear communication of special sales
- Associates with good product knowledge
- Personal name recognition by attending associate
- A sincere thanks and an invitation to return soon
The goal was to deliver the six elements every time the customer entered a store. “Mystery shopper” audits would measure how well an individual store was achieving this objective in its daily operations.
Kenyon, as described, had constructed a very specific definition of its “ideal shopper.” The ideal shopper image communicated to all employees the fashion expectations of their customers. The brand image objective for Kenyon was stated as:
We will build Kenyon into a dominant national brand by clearly understanding our target customer and differentiating ourselves in meeting her needs.
The success of developing this dominant brand image was measured by
market share in key merchandise items
and by the
premium price earned on branded items
. The success of communicating an attractive brand image would be measured by the higher price Kenyon could command over nonbranded or generic items of comparable characteristics and quality.
The mechanism of how Kenyon would deliver on the objectives and measures developed for its value proposition to targeted customers (see
Figure 4-4) was defined in the internal-business-process perspective, to be discussed in the next chapter