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 (16 page)
Existing operations tend to be repetitive so that scientific management techniques can be readily applied to control and improve customer order receipt and processing, and vendor, production, and delivery processes. Traditionally, these operating processes have been monitored and controlled by financial measures, such as standard costs, budgets, and variances. Over time, however, excessive focus on such narrow financial measures as labor efficiency, machine efficiency, and purchase price variances led to highly dysfunctional actions: keeping labor and machines busy building inventory not related to current customer orders, and switching from supplier to supplier to chase cheaper purchase prices (but ignoring the costs of large-volume orders, poor quality, uncertain delivery times, and disconnected ordering, receiving, invoicing, and collection processes between lower-priced suppliers and the customer). By now the defects associated with using traditional cost accounting measures in today’s short cycle time, and a high-quality, customer-focused environment have been amply documented.
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Figure 5-4
The Internal-Business-Process Perspective—The Operations Process
The influence, in recent years, of the total quality management and time-based competition practices of leading Japanese manufacturers has led many companies to supplement their traditional cost and financial measurements with measurements of quality and cycle time.
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Measurements of operating processes’ quality, cycle time, and cost have been developed extensively during the past 15 years. Some aspects of these measurements will likely be included as critical performance measures in any organization’s internal-business-process perspective. Because these measurements tend to be generic, and do not arise uniquely from the scorecard approach, we defer to the appendix of this chapter, the discussion of the time, quality, and cost performance measurements of operating processes.
In addition to these measurements, managers may wish to measure additional characteristics of their processes, and product and service offerings. Such additional measures could include measurement of flexibility, and of the specific characteristics of products or services that create value for customers. For example, companies may offer unique products and service performance (as can be measured by accuracy, size, speed, clarity, or energy consumption) that enable them to earn high margins on sales to targeted market segments. Companies that can identify the differentiating characteristics of their products and services will certainly want the focus and attention that measurement on the Balanced Scorecard can command. Thus critical product and service performance attributes (beyond response time, quality, and cost) can certainly be incorporated into the operating process component of the Balanced Scorecard’s internal-business-process perspective.
The final stage in the internal value chain is postsale service (see Figure 5-5). Postsale service includes warranty and repair activities, treatment of defects and returns, and the processing of payments, such as credit card administration. Companies that sell sophisticated equipment or systems, like Otis Elevator and General Electric Medical Systems (a manufacturer of electronic imaging equipment including computer-assisted tomography
[CAT] scanners and magnetic resonance imagers [MRI]), know that any downtime on their equipment is extremely expensive and inconvenient to their customers. Both these companies enhance the value of their equipment by offering rapid, reliable service to customers to minimize such disruptions. They even imbed electronic technology in their equipment that senses and transmits signals to company service personnel when the equipment shows signs of imminent failure. This technology enables repair people to show up on-site to perform preventive maintenance and repair, often surprising customers who had yet to notice any degradation in equipment performance. Newly established automobile dealerships, like Acura and Saturn, have deservedly earned superb reputations by offering dramatically improved customer service for warranty work, periodic maintenance, and repairs. A major element in the value proposition these car companies deliver to their customers is responsive, friendly, and reliable warranty and service work. And several department stores offer generous terms under which customers can exchange or return merchandise.
Companies attempting to meet their targeted customers’ expectations for superior postsale service can measure their performance by applying some of the same time, quality, and cost metrics, described for operating processes (see
appendix
to this chapter), to their postsale service processes. Thus, cycle times—from customer request to ultimate resolution of the problem—can measure the speed of response to failures. Cost metrics can evaluate the efficiency—the cost of resources used—for postsale service processes. And first-pass yields can measure what percentage of customer requests are handled with a single service call, rather than requiring multiple calls to resolve the problem.
Figure 5-5
The Internal-Business-Process Perspective—The Postsale Service Process
Kenyon Stores
Kenyon Stores (introduced in the previous chapter) is a multibillion dollar retailer of clothing. Kenyon’s senior executives had established an aggressive goal for sales growth of 150% over five years. They intended to achieve this ambitious goal by providing:
- a premium brand image;
- great fashion, design, and quality merchandise at an attractive price; and
- quick, efficient service and excellent product availability.
Kenyon had established specific customer objectives and measures (see
Chapter 4
) for product attributes, customer relationships, and image and brand. To deliver on its customer objectives, Kenyon identified five critical internal-business processes:
The first two of these, brand management and fashion leadership, can be considered part of Kenyon’s innovation process—identifying and influencing customer needs, and developing the fashion merchandise to fulfill those needs. The last three processes relate to the operations process—getting the correct merchandise to the point of sale and providing the customer with “a perfect shopping experience.”
RAND
M
ANAGEMENT
Within the brand management process, Kenyon identified four subobjectives:
- Brand Concept Definition: Build Kenyon into a dominant national brand with an increased share of wardrobe for the target customer.
- Category Dominance: Continue the growth of casual pants and jeans as the dominant category within Kenyon’s product mix.
- Positioning Strategy: Expand the Kenyon image from successful private label to mature brand that is clearly defined by the customer.
- Store Concept Definition: Develop successful merchandise assortment and marketing program.
These subobjectives were directed at building a concept and loyalty among targeted customers. The measures selected for these subobjectives were:
- Market share in selected categories (e.g., casual pants and jeans)
- Brand recognition (from market research)
- New accounts opened per year
These measures were intended to reflect Kenyon’s success in implementing its brand management strategy.
ASHION
L
EADERSHIP
Fashion leadership focused on effectively using information to choose fashions that would meet customers’ expectations in key clothing categories. This objective communicated the importance of early identification of fashion trends and rapid dissemination of this information so that key items could be introduced into stores ahead of the competition. The measure selected was the number of key items in which Kenyon was first or second to market. A second fashion definition measure was the percentage of sales from items newly introduced in the store. The definition of items that would be included in this measure would change year to year to reflect the new categories or accessories that would be emphasized each year.
OURCING
L
EADERSHIP
As a retailer, Kenyon knew that its own excellent performance was critically dependent on the performance of its key suppliers. These suppliers would need to manufacture goods quickly, responsively, and at low cost for Kenyon to achieve its ambitious objectives. Sourcing leadership stressed development and management of the supplier base so that desired volumes and mix of high-quality merchandise could be rapidly produced and delivered. Kenyon’s in-store personnel examined all incoming shipments of merchandise. They recorded the percentage of items that could not be offered to customers because of quality-related defects. The scorecard measured the overall percentage of quality-related returns, and could trace those returns back to individual vendors.
A second sourcing leadership measure came from a newly created vendor scorecard that evaluated suppliers along dimensions of quality, price, lead time, and input into fashion decisions.
ERCHANDISE
A
VAILABILITY
Merchandise availability related to a “perfect inventory” objective in which customer satisfaction, sales, and gross margin would be achieved by buying the right quantities of merchandise in the right colors and sizes, and stocking the right stores with the appropriate assortment in advance of customer demands. The first element of this objective, for an excellent buying process,
was measured by stores’ out-of-stock percentage on selected key items. Balancing this measure, to avoid excess inventory, was a measure of inventory turns on the selected key items.
The second element, getting the right product to the right store, used two measures. One was the total amount of markdowns. The second product allocation measure was the percentage of merchandise that had to be transferred between stores.
EMORABLE
S
HOPPING
E
XPERIENCE
A measure for Kenyon’s memorable shopping-experience objective has already been described in
Chapter 4
: a rating along the six elements of a “perfect shopping experience.” This measure occupied a position in both the customer and the internal-business-process perspective. In addition to this customized measure, Kenyon solicited feedback from customers; a score on customers’ satisfaction with their shopping experiences was included in this subobjective.
The complete set of internal-business-process perspective objectives and measures, and their link to customer perspective objectives, is shown in Figure 5-6.