The Balanced Scorecard: Translating Strategy Into Action (13 page)

Because of the commodity nature of Pioneer’s product (gasoline), consumers did not place great value on specific product attributes when choosing among competing retailers. Targeted consumers’ preferences (once the highly price-sensitive segment was eliminated as a targeted group) emphasized the nature of the relationship when making the purchase. Pioneer, however, did survey consumers on their perception of product quality and brand image, enabling it to include one measure each from the product attribute and reputation and image categories. Pioneer’s value proposition for targeted consumers is shown in Figure 4-7.

The case studies of Kenyon, Rockwater, and Pioneer Petroleum show how objectives can be established for the value propositions delivered to targeted customers. While each organization should develop its own set of value propositions that it wishes to capture in the customer perspective of its Balanced Scorecard, we have found that virtually all value propositions typically incorporate measures related to the response time, quality, and
price of customer-based processes. The
appendix
to this chapter presents a brief discussion of representative measures that can capture the time, quality, and price dimensions of its customer relationships.

At the conclusion of formulating the customer perspective, managers should have a clear idea of their targeted customer and business segments, and selected a set of core outcome measurements—share, retention, acquisition, satisfaction, and profitability—for these targeted segments. These outcome measures represent the targets for companies’ marketing, operational, logistics, and product and service development processes. But, these outcome measures have some of the defects of traditional financial measures. They are lagging measures—employees will not know how well they are doing with customer satisfaction or customer retention until it is too late to affect the outcome. Also, the measures do not communicate what employees should be doing in their day-to-day activities to achieve the desired outcomes.

Managers must also identify what customers in targeted segments value and choose the value proposition they will deliver to these customers. They can then select objectives and measures from among three classes of attributes that, if satisfied, will enable the company to retain and expand its business with these targeted customers. The three classes of attributes are:

• Product and service attributes: functionality, quality, and price
  
• Customer relationship: quality of purchasing experience and personal relationships
  
• Image and reputation
  

By selecting specific objectives and measures across these three classes, managers can focus their organization on delivering a superior value proposition to their targeted customer segments.

We discuss here representative measures that companies can use to develop time, quality, and price metrics for the customer perspective of their Balanced Scorecard.

Time has become a major competitive weapon in today’s competition. Being able to respond rapidly and reliably to a customer’s request is often the critical skill for obtaining and retaining valuable customers’ business. For example, Hertz introduced its #1 Card, enabling busy travelers to be taken directly to their rented car where the completed paperwork has previously been placed, the trunk opened for luggage, and the car already air-conditioned in summer or heated in winter. The traveler only has to show his or her driver’s license for identification upon departing the parking lot. Banks accelerate approval of mortgage and loan applications, reducing waiting times from weeks to minutes. Japanese auto manufacturers can deliver a newly ordered customized car to a consumer’s driveway in less time (one week) than it takes the purchaser to obtain a valid parking sticker from government authorities. Including time-based customer measures signals the importance of achieving and continually reducing lead times for meeting targeted customers’ expectations.

Other customers may be more concerned with the reliability of lead times than with just obtaining the shortest lead times. For example, many shippers still prefer to use trucks rather than rail, not because trucks are cheaper or even faster for long-distance moves. But since many railroads cannot deliver reliably on time, within a one-day receiving window, the shippers (and their customers) prefer a more expensive, even longer, transport medium that can guarantee arrival within a desired time interval. Such reliability is especially important for manufacturers who operate without inventories under a just-in-time discipline. Honda and Toyota want deliveries to their assembly plants to arrive within a one-hour time window. Observers have noted delivery trucks driving around outside an automobile assembler’s facility until the production process is ready for the items being delivered. At the upper end of the receiving time window, a late delivery will shut down an entire production facility that operates with zero inventories of raw materials and purchased parts. For service companies, think about the frustration of a consumer who has taken time off from work to be at home, only to find that delivery or installation is not made at the scheduled time. If reliable delivery is vital for important customer segments, a measure of on-time delivery will be a useful performance driver for customer satisfaction and retention. The OTD measure should be based on the customer’s expectation. Telling Honda or Toyota that your definition of “on time” is
± 1 day, when their production process can tolerate a window no wider than ± 1 hour, will not likely win you much business from these demanding companies.

Lead time is important not only for existing products and services. Several customers value suppliers that can offer a continual stream of new products and services. For such market segments, a short lead time for introducing new products and services could be a valued performance driver for customer satisfaction. This objective could be measured as the elapsed time from when a new customer demand has been identified to the time when the new product or service has been delivered to the customer. We explore this time-to-market measure when discussing the innovation process in the internal-business-process perspective (
Chapter 5
).