Successful implementation of Balanced Scorecard implies development of transparent and comprehensive strategic maps. In fact, a corporate strategy map can be developed in different ways. This article focuses on key problems arising at the stage of strategy map development and possible solutions. Very often these problems are reflected in business experience of world’s major companies that have successfully implemented Balanced Scorecard.

Depending on what solution the company chooses, it reflects unique peculiarities of Balanced Scorecard implementation. They will be also analyzed in this article, namely:

• How is strategy map implemented in the company and what is its decomposition to the lowest level of organization hierarchy?
• Some companies are talking about key activities aspects/perspectives while others stress the importance of activity focus. What are differences between these notions? Should every company develop its Balanced Scorecard and strategy map based on the four categories offered by Norton and Kaplan, or can maybe top managers and business owners have some freedom regarding this issue?
• What are strategic maps? How many strategic maps does the company need? Who chooses strategic maps?
• How deep should decomposition of strategic maps be? Should it necessarily come down to the level of an individual employee? Can all indicators in the strategic map be used to set company’s goals?

Organization process for strategy maps development

It has been repeatedly stressed in specialized literature and studies that is very important to create initiative group that would devote its entire time and efforts to implementation of strategic maps in the company. Group members should be trusted by company officials and be independent from heads of separate departments and business units. They should be also open for any ideas that may come from the lowest company levels. It is not an easy task to form such a group. Most managers have a very busy working schedule. Sometimes managers are reluctant to freely express their thoughts and opinions to all group members.

The solution may be the employment of an external advisor who will be appointed a project manager. Advantages of such decision are obvious in the situation when company employees want to preserve current management and control system. At that, it is unacceptable that project manager is the only person who creates and chooses key performance indicators for strategy maps. Decision-making should be a collective process. Project manager’s role is to organize the process and implement strategic maps. The initiative group should hold regular meetings to discuss urgent issues.

Organization of strategy maps implementation is a decisive success factor. Managers and top specialists, who are rather authoritative in the company, must promote the project in every way and get personnel involved and interested in it. At the same time, the innovative nature of the project pretty much depends on chances for personnel to get involved and contribute to its implementation. That’s why, the manager in charge of implementation of strategic maps should be very attentive to every opinion and suggestion coming from every individual employee in the company. The manager should initiate discussion of innovation, but in no way he should offer “already made” decisions.

Key activity aspects and focuses

Initially, Norton and Kaplan introduced the term of key activities aspects: how is company looking in the eyes of customers or what are peculiarities of business processes organization? Later on, authors and scholars started talking about focus of activity. These notions are not always identical. Such activity aspect as customer relations includes perception of the company by customers from the position of quality service, positive image of individual products or product lines offered by the company. Customer relations as focus of activity may mainly include company’s image and concept of its customers. What is the penetration rate of company’s products to different market segments? Is the number of customer growing? How much is the company dependent on non-numerous core customer group? But still, despite such difference, very often the above terms are used as synonyms.

Of course, the company should take into account both positions “how customers view the company” and “how the company views its customers.” Such indicators as operation cycles and number of products are simultaneously representing company competitive advantage as compared to other market players and conformity to internal standards. What internal standards should be set to secure company success in the market? The final verdict in this issue is left for customers and competitors. Still, it is very difficult to forecast this verdict at implementation stage of Balanced Scorecard and investment in development of new products.

It is believed that a good strategy map implies balance between several activity aspects of the company, primarily between the four perspectives. Besides, the company strives to get the best ratio of long- and short-term indicators, instead of getting the best values for current financial indicators. The balance varies. In particular, it can be a balance between assessment of the company by external persons (in all perspectives) and by company employees (in various activity focuses).

Based on the strategy map it is possible to get another balance which is balance between statistics and dynamics, i.e. between static goal situation and changes tempos. Balanced Scorecard characterizes company both at a given moment and tracks changes over a certain period of time. For example, it is possible to introduce to strategic map indicators that represent number of customers at a certain moment, and at the same time changes in the number of customers for a certain period of time. Evaluation of intellectual capital may serve as another good example. Evaluation of such capital represents its condition at a certain moment, but it is very interesting to learn how it changed for the reporting period. Strategic maps do not allow evaluation of company based on short term results. Balance between static and dynamic figures as one of the greatest advantage of strategy maps. Without strategy maps most investments are shown as expenses for the reporting period until the moment when first return on investment is achieved. But evaluation of investments and their inclusion to strategy maps and attracts managers’ attention as well as improves management process.

Can company choose key activity aspects/perspectives by itself?

Strategic maps in Norton and Kaplan model include four perspectives: financial, customer, internal processes, learning and growth. But some major companies have added the fifth perspective – human capital. Sometimes additional perspectives are developed to solve a particular problem. Let’s analyze indicators related to employee relations and development of IT technologies. Can they be included to traditional perspectives/key activity aspects or should they be assigned a separate category?

The major peculiar feature of a strategic map is the focus on business strategic development. If relations with employees or IT technologies are being the key focus in company strategic development, than these key activity aspects should be assigned special indicators to be evaluated and controlled. Indicators related to IT technologies or relations with employees can be applied at any level – department, branch, company or corporation as a whole. It is also very important to identify ties and relations of such indicators with other key activity aspects like innovation and development, relations with customers etc.

As already said above, strategic maps are designed to manage business development, that’s why emergence of new categories/key activity aspects is quite logical. The appearance of human resource perspective is explained by a special concept of human resource management. There are many companies that believe human resource capital has a great impact on material assets and company capability for development. At the same time, there are many scholars and business gurus who suggest that Norton and Kaplan model should be used without any changes as company managers and those in charge of implementation of Balanced Scorecard have every chance to expand categories to add additional indicators.

Norton and Kaplan model has mobilizing features as one of its goals is to focus company efforts on solving a limited number of problems. Since the strategic map contains last year’s results in its upper part, current goals and objectives in the middle, and strategic goals in the bottom, it is very easy to identify ties between short- and long-term goals. Last year’s results are presented in the form of traditional financial indicators. Key performance indicators related to internal processes and customer relations reflect ratio between internal and external factors in company activity at a present time. Besides, they show that current company’s position in the market and direction of company development depend both on internal and external factors, and this is understood both for company employees and its customers.

For example, the company may improve its current market position at the account of internal factors, as well as through an effective use of external environment factors. Human capital has an exceptional importance in all four perspectives. If the company adds an additional human resource perspective, then it will be difficult to formulate contents of learning and growth perspective which is located in the bottom of the strategy map. Thus, it is recommended to stay with the traditional BSC model, and if any amendments and additions are introduced they should be well integrated into the system of company strategic goals, mission, values, organization structure etc.

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation

Balanced Scorecard system has gained such a tremendous popularity that it has become a choice for many companies and businesses, some of which were somewhat light-minded before BSC implementation.  This revolutionary performance evaluation and strategic management tool seems like a magic stick for so many companies that hope Balanced Scorecard will turn their businesses successful overnight.  Unfortunately, or just to the contrary, fortunately, Balanced Scorecard is just a tool that can be both helpful and harmful, depending on whose hands are holding this tool.

Much has been written on most common mistakes and problematic areas associated with Balanced Scorecard implementation.  It has become clear that every implementation stage of Balanced Scorecard requires much persistence, knowledge, skills, experience and patience.  Balanced Scorecard does not work in the short term while there are so many top managers and business owners who want to have immediate positive financial results.

One of the greatest advantages of Balanced Scorecard is that this system makes it possible to clearly see cause and effect ties between indicators and BSC categories.  What are cause and effect ties?  Let’s analyze a hypothetical example! 

The company owners have set certain financial goals – to increase cost of company shares, gain competitive advantage through winning favor of new customers and thus occupying a greater market share.  As known, Balanced Scorecard evaluates indicators in the four categories which are called perspectives: financial, customer, internal processes, learning and growth.  The above goals are referred to financial category, but their implementation is impossible without measuring performance and implementation of goals in the three other categories.  With the help of strategy maps which are created by Balanced Scorecard software it will be possible to see HOW financial results will be obtained.  For example, to win favor of new customers it is necessary to introduce innovative products at competitive prices, which requires extensive use of company intellectual potential, optimization of internal structure, education and coaching of personnel.  So, this looks like a chain in which implementation of every subsequent goal is impossible without completion of the preceding one.  Understanding of cause and effect ties will give clear answers to most important question – of how to achieve success?

Cause and effect ties between indicators

The balance between different indicators and aspects of activity, included to strategic maps, has an exceptional importance.  Often, companies aimed at setting priorities and ties between different key success factors.  Here are some examples:

• What is the urgency of improvements in personal computer literacy?
• How does performance of customer support service influence rate of repeated sales?
• What is more profitable in the long term: improvements of business processes or price cutting strategy?

In such a way it would be logical to create a scheme which reflects ties between separate indicators of the strategy map.  For example, if customers remain satisfied with the product quality and customer support service, such customers are more likely to become a regular customers for the company which increases profits.  This is a direct way to implementation of financial strategic goals.  This scheme also underlines importance of separate indicators.  For instance, customer service in bank’s regional branches is characterized by indicator developed based on customer satisfaction index, as well as results of the audit and timely submission of annual reports to the head office.

The two types of cause and effect ties

Cause and effect ties can be of two types.  The first type includes ties which can be measured, evaluated and analyzed based on the experience or conducted research.  These may be, for example, influence of improvements in personnel computer literacy on added value of the company, or reaction of customers to offered services and support.  The second type implies supposed ties.  For example, it is possible to expect that increase in number of company web page visitors will encourage company managers to investigate new business opportunities and make investments in IT sphere.  There can be many various consequences of such a decision, but no research will prove or dispel this assumption.

It is possible to say that conclusions on interrelations between different key performance indicators in the strategic map can be made based on the experience and results of special research, but still some certainty may remain.

How to research cause and effect ties between KPIs

Research of cause and effect ties between indicators can be performed in two directions.  When decomposing mission and strategy to the level of key performance indicators and objectives the company moves from general notions to specified and detailed ones.  But then when mission and strategy is promoted in different departments and business units of the company with the help of strategy maps, key performance indicators build a chain of absence which leads to implementation of mission and strategic goals.  Key performance indicators in the strategy maps secure interrelation between key activities aspects.

Increase of human resource value in the company and its intellectual potential caused growth of intellectual capital in relations with customers, which also influences company profitability.  Some consulting companies claim that they manage to identify these ties.

Of course, these examples are very interesting but still it is impossible to identify a general trend.  These are just separate cases that illustrate only one aspect of a problem.  For instance, if company development very much depends on IT support, than knowledge and experience obtained by personnel will not be the only important factor.  It would be necessary to evaluate quality, accessibility and efficiency of using IT technologies.  This example vividly demonstrates the necessity for creation of a system of indicators capable of representing all critical success factors in full.

Number of indicators and ties in strategic maps

Is it necessary to describe cause and effect ties between indicators in the strategy maps?  Some strategic maps may include several indicators which are not related with one another.  This peculiarity is one of the advantages of strategy maps as compared to traditional financial reports.  If it is possible to identify ties between separate indicators, then such KPIs as personal computer literacy or customer support service quality can be formulated in financial figures.  In general, it would be better to leave identification of cause and effect ties between such indicators for users of strategy maps.  Setting priorities is in fact one of the major advantages of strategy maps development.  The choice of certain priorities means that developers of strategic map you favor to certain expected results.  For example, if company wants to improve customer support service, then improvements in business processes or price cutting strategy will be given relatively less priority.  Actually, company priorities should dictate certain succession of its actions.

It is not recommended to considerably decrease the number of key performance indicators in strategic maps as additional indicators makes it possible for company personnel to learn more about their business.  In open discussions may be held in order to explain ties between separate indicators.  If the indicator value is calculated based on statistical research, it is recommended to perform such a research.

When calculating final indicators and indexes on top levels of organization hierarchy both anticipated cause and effect ties and identified ones.  Widely used indicators related to customer satisfaction or human resource capital often present qualitative assessment of questionnaire results on customer attitude to certain aspects of company activity.  For example, grades for employee competence may be calculated as average grade assigned for answering of certain questions listed in the survey.  If the average personnel competence grade is 80% and 75% of managers said that they have necessary experience and knowledge, it means that the company has obvious potential to improve performance.  But is the high rate of those who claim they have necessary knowledge and skills good in all cases?  There are several reasons for a negative answer to this question:

1. Most employees know they lack knowledge in certain areas and they are working on that.
2. Job management is ineffective or its core principles are not understood to the personnel, and that’s why employees are doing the job for which they do not have necessary skills and knowledge.  Thus this and the kind word they should not perform.
3. Company personnel have high claims and always want to improve own professional level.

The last two reasons look quite real.  In the second reason play the most important role in the negative answer, then it wouldn’t be reasonable to start an education and training program, because re-assignment of tasks between employees or improvements and job management will have a greater effect.  If the third reason is a major one then training and education program will be quite effective, and quantify the sense of employees who are not satisfied with own professional level is an argument speaking in favor of the company.  At the same time it would be logical to try to increase this indicator to 75%.

Such reasoning should not undermine belief in efficiency of research in general.  This is rather a reason to think about interpretation of research results.  Besides, this stresses the importance of the right choice of the indicator and accuracy of its evaluation.

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation

Performance measurement is the core of all improvements that humans can do in all spheres of life.  If something can be measured it can be certainly improved, as an individual possesses certain knowledge about what needs to be done to obtain better results.  Moreover, it is very important to determine cause and effect relationships in order to understand strong and weak points in any activity.

Business is not an exception here.  Big and small companies use different performance management tools to evaluate efficiency and productivity of their businesses.  But some companies have truly remarkable measurement systems while others are still in the Stone Age when it concerns the ability of managers to understand the evaluation mechanics of their business.  Many managers cannot answer the question why their company is performing as it is and how it can perform better.  When it concerns cause and effect ties nothing is better than measurement, which is also true for business.  But what should the company measure besides traditional financial data?

Performance measurement systems

Without any doubt Balanced Scorecard is the most popular performance evaluation tool and at the same time it is the most controversial system.  However, there are other effective performance management systems like the Quantum Performance Management Model, Performance Prism and the Tableau de Bord.  All system are helpful and useful but none of them can provide top managers and business owner with all the answers to all of their questions.  By combining elements of different measurement systems will have the following model:

1. Strategies primarily depend on demands, expectation and needs of shareholders and customers.  Stakeholders are shareholders and employees.  At the same time, the community, suppliers and government bodies, as well as other organizations may play the role of important stakeholders.
2. Strategy is not only about financial results.  The strategy defines the customers a company wants to have and how the company intends to compete for customers.  The company general strategy consists of various individual strategies which imply certain actions company should make to implement goals.
3. All direct and support business activities to execute strategies and produce products/services must be included to operations.
4. Company’s organization and infrastructure must make it possible for its operations to meet customers and stakeholders needs.
5. Contributions of stakeholders may include services and products which are very important to operations, for example tech support.
6. Products and services sold to customers lead to certain financial results for shareholders, and very often for other stakeholders.

What questions need to be answered by top executives?

In order to correctly measure performance of the company and its progress on the way to implementation of strategic goals every top manager should be able to answer a certain set of questions, namely:

Customers

1. Do we satisfy our customers?

• Customer satisfaction and dissatisfaction
• Retention indicator of customers

Stakeholders

1. Do we satisfy shareholders?

• Financial results for shareholders

1. Do we satisfy stakeholders?

• Retention and behavior of stakeholders
• Satisfaction and the satisfaction of stakeholders

Strategies

1. What is about our customer base?

• Potential of market
• Market growth rates

1. If the company strategy really effective?

• Market share
• Number of new customers
• Average customer profitability
• Profitability of products/services
• What external factors influence customers?

1. Are all individual strategies being implemented in a proper way?

• Strategic goals and on the line objectives to implement them

Operations

1. Does the company serve customers and stakeholders in an effective way?

• Quality of products and services

1. Do we operate in an inefficient way?

• Waste
• Costs for products and services
• Quality of process and productivity

Capabilities

1. Do we have or develop the capabilities we require in order to implement strategic goals?

• Infrastructure capabilities
• Organization capabilities
• Stakeholder capabilities

Of course, this is only a simplified scheme of what can and should be measured at the top management level of any company.  Of course, every company is individual and thus requires individual approaches, but this all were view is more or less correct and applicable to modern business.

Why is it important to measure market share?

Market share is a tricky thing indeed.  It will never provide you with a solution to the problem, but it will always tell you that you’re about to get into trouble.  The problem is that if you’re losing your market share it will not remain unconquered.  It means that if you lose than someone else acquires it.  This is called loss of competitive advantage.  A classical example of market share loss is Kmart and Wal-Mart.  Back in the 1970s Kmart started to lose share to Wal-Mart.  Management of Kmart did not pay too much attention to this fact of the company was developing and making profits.  Very few changes to the strategy were introduced.  But it was too late.  Now chances of returning market share for Kmart equal zero.

About performance evaluation and success in business

The above indicators are widely used by the most successful world companies that have received various awards.  Of the companies have comprehensive and effective performance management systems which includes some of the above key performance indicators.  It has been estimated that the companies that use performance management systems on a regular basis operate 2-3 times better than companies without such systems in terms of operating income, cash flow, sales growth etc. The logic of how company measures its performance represents top management concept and understanding of the way business must be run.

How to determine what to measure?

Is it easy to find what you company should measure in order to evaluate its progress?  As we have already mentioned, there are several performance management systems widely used in the business world.  Sure thing, all of them have advantages and drawbacks, as well as relations to common practices in business.  But perhaps, the best performance management system currently available in the market is Balanced Scorecard.  It is recommended to use this system in combination with the robust perspectives of the Performance Prism.

Balanced Scorecard is a very effective tool that vividly demonstrates company success or failure to implement strategic goals.  At the same time, discipline is a must when implementing BSC.  Lack of discipline is one of the most common mistakes that make Balanced Scorecard fail.  Implementation of Balanced Scorecard is a many stage process, and each stage should be given due attention.  Balanced Scorecard will provide your organization with strategy maps and targets.  At the same time key performance indicators, performance measures strategic goals, innovative ideas and initiatives are still to be developed by company management or even ordinary employees.

Balanced Scorecard gives no guarantees that the chosen strategy will work.  But key performance indicators will provide top management with timely feedback and information on how successful the strategy is being implemented at the time and what needs to be improved to completely implement goals.  Balanced Scorecard can alert company management about the problems even before they appear.  Without such measures, company management would be blind for a certain period of time and then shocked with sudden problems and obstacles.

Having a good strategy gives no guarantees for success as well.  Of what is really important is operation excellence.  In other words the ways strategic goals are implemented matter a lot.  In order to implement goals the company should keep high level of product quality, customer service, performance and productivity.  Measures as well as goals should be constantly reconsidered and if necessary reviewed.  Markets are very changeable and external changes should lead to organization changes inside the company.  This is why Balanced Scorecard is so much popular, as any goals and indicators can be amended and total performance percentage will be re-calculated.

Cascading measures

Measures on the company level are extremely important but they will appear useless unless they are properly cascaded all the way down to ordinary/front line employees who directly contact with customers and who in fact earn money for the company.  The reason to implement cascading system is very simple – it would be great if 100% of your personnel will be working towards the company strategic goals.  Statistics show that only 20% of managers directly participate in strategic planning and have the right concept of the company strategy.  Ordinary employees are sometimes ignorant of strategic goals or have the wrong interpretation of the company strategy.

The exception is market share that should be measured only on the top level, and in all other cases measures should be introduced at all levels.  Of course, they will vary from level to level depending on job functions and organization structure.  Different managers need different information to measure critical success factors.  Through introduction of key performance indicators and all structural levels company strategy is communicated with operational management which is the key goal and primary advantage of Balanced Scorecard.  As you descend the organization structure the focus of measures must be on processes and operations.  In such a way the company strategy is transferred into action.

Implementation of performance measures

Looking for key performance indicators and measures is not an easy task which requires 1/3 of total implementation time for Balanced Scorecard.  In order to create winning key performance indicators much information must be collected.  Besides it is imperative to train personnel to work with Balanced Scorecard.  Moreover, measures must be understood for ordinary employees.

One of the greatest problems with implementation of Balanced Scorecard and creation of key performance indicators is to change the way managers and employees acting think.  This is about changes in company corporate culture.  Some people are happy to accept these changes, but certain all school managers are reluctant to abandon their beliefs.

In order to overcome these problems strong leadership is a must.  Even the best performance management system will fail unless the company uses its knowledge, skills and values.  Balanced Scorecard must become an inseparable part of the company but not just an interface element in it.  Once implemented and properly maintained the Balanced Scorecard will reward the company.  Major benefits of Balanced Scorecard are:

• It is possible to see what causes problems in sales and profits (strategy, operations etc.)
• Timely location of problems and business opportunities
• Improved product quality, customer service and productivity
• Ability to see cause and effect ties between goals and measures, as well as company strategy

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation

Does your business have a strategy that does not conflict with your strategic vision?  Do all departments and business units of your company have the same strategic goals?  Are personal goals of your employees aligned with the company goals and mission?  How do you measure efficiency and productivity of your business?  And how do you know that your company is on the right track to implement strategic goals?

Different business owners and top managers have different answers to these questions.  But these are not “yes-no” questions, as the answer “no” means that such business cannot stand tough competition and is doomed to fail.  The point is HOW to answer “yes!”

Balanced Scorecard system may be the answer.  If you still do not know how to align operational and strategic management in your company, communicate internal and external performance, then Balanced Scorecard is exactly what you need.

Different people have different concepts of Balanced Scorecard.  For some managers this is just a performance management tool.  These are simple dashboards with the categories of indicators used by executives and managers.  Management based scorecards very often have little strategic component.

On the other hand, Balanced Scorecard can be also used as a strategic system for planning, measurement and management.  In such a case BSC aligns goals, measures and actions of all employees departments in the company with the generally accepted strategy.  In other words, such systems puts strategy into action, rather than controls company performance.

This article will focus on implementation and peculiarities of Balanced Scorecard in technology companies that are characterized by shrinking product cycles, importance of recruitment, retainment and reward of talents, constant innovation, high customers’ demands etc.

The first and the most important step in BSC implementation is strategy development and understanding of customers and shareholders needs.  It is important to identify so-called strategic themes that include strategic objectives and are associated with strategic results.  Typical examples of strategic themes are market driven excellence, customer focused operational excellence, strategic planning, innovation and growth.  Then, based on strategic themes and strategic objectives, a set of key performance indicators is developed.  These indicators are divided among four perspectives: financial, customer, internal business processes, learning and growth.

Financial perspective

Strategic objective: increase return on investment (ROI)

A technology company dealing with numerous operational disciplines may be not doomed to failed even if decisions related to development of products are wrong. Technology companies make product management decisions based on product development expenses.  It is imperative to analyze return on investment and use it in the process of making decisions.  As such, this process may have two directions – vertical and horizontal.  This is a very important requirement for decision making in technology companies.

As a rule, managers in technology companies are usually satisfied with how they can determine return on product development expenses and technology.  But traditional approaches to return on investment, like discounted cash flow analysis, can be hardly applied in the field of technology and thus are not very popular with managers, marketers and shareholders of technology companies.  Such analysis is often performed by team of financers.  Decisions on how much to spend, what to spend on, and when to spend are made by someone else, which results in dissonance between contributions of profitability in product development and various support efforts.

However, there is an alternate option to analyze return on investment in technology companies:

• Unified financial indicators for management purposes and product planning;
• Measurable EBIT, operating income or EBITDA;
• Scaling from the level of project up to the product line, department and company/corporation;

A unified financial metric will facilitate decision-making as to investments as well as help to decide what not to invest.  In its turn this will help to run projects and programs that have the highest revenue potential.  In such a way, technology company increases profits and revenue which are direct results of proper product development and efficient innovation.  There may be some other strategic objectives like increasing revenue and profits which are, however, typical for any business area.  These goals are inseparable parts of any financial perspective.

Customer perspective

Strategic objective: intensify customer relations

Technology customers are really special.  Usually they have very strong preferences on what brands and products they buy.  That’s why they require a special dialogue and special relations.  Thus, front line managers in technology companies who directly contact with customers (either sales of support) have a prior task of maintaining strong and positive relationships with customers.

So, front line employees have to pay a special attention to the following issues:

• All issues are continuously monitored;
• It is necessary to identify high priority issues and find necessary resources to deal with them;
• Use model revolution indicators are obtained from stream of issues.

If front line employees pay due attention to the above issues then there seems to be little problems with customer satisfaction and retention of existing customers.

It is not a secret that technology customers expect, request and very often demand upgrade and improvement in products features and quality of services.  Moreover, they are ready to pay for these upgrades and improvements.  It seems ridiculous but customer satisfaction improves even if a customer failed to have an upgrade but he is aware that such option is available.  Recent touchscreen device revolution has proved this fact.  If we look at the “iPhone and iPad boom” we will easily understand this trend, as most users barely use 1/3 of all functions and features offered by the above devices, but customers still know they can use them, which makes them satisfied.

Interaction with customers is about asking their opinions and analyzing their offers.  Do not throw to the trash bin such proposal as “I want my cell phone to chat with me when I have beer”.  Who knows, maybe in some years this will be top cell phone feature.  So, all proposals and offers have to be analyzed.

Internal business processes perspective

Strategic objectives: make improvements in a market evaluation procedure

Technology market is changeable as it is regularly hit by a variety of new products.  The company may be busy developing as they think a revolutionary device, but when it is introduced to the market it becomes clear that such device is already old-fashioned and has very strong competitors.  Market evaluation and monitoring should be never stopped.  It is impossible to base product development on one point in time measurement.

Let’s view a very simple example of the iridium satellite phone.  Initially, it was meant to be a sensation as making a call from any place was a great idea.  But with appearance of cell phones which are cheaper and lighter, iridium satellite phones were doomed to fail.  At the same time, it would be wrong to say that development of a iridium phones was a bad idea.  It was a mistake in the market evaluation.

Forecasting is extremely important before and after launch of the new product.  The key mistakes in predictions are:

• Failure to accurately define customers buying cycle;
• Variations in buying cycles throughout different customer groups, market segments and geographic regions;
• Wrong predictions as two timing of customer purchases.

Improvement of product life cycle management is another important strategic goal.  The sooner innovative products are developed and introduced to the market, the greater market share will be obtained.  It is also an excellent opportunity to position the company as a leader in certain markets.  Latest Apple products are very vivid examples.

Learning and growth perspective

As already said above, innovative technologies are a critical success factor.  There are many ways to obtain such technologies without huge risk and enormous expenses.  So, if the company wants to stay a leader in certain markets one of the strategic goals will be continuous identification and application of innovative technologies.  There are several ways to get innovative technologies such as:

• Partnership with universities
• Consortium in industry
• Funding from government

It is very important to pay a special attention to human factor.  All innovative ideas and technologies are developed by people.  That’s why it is imperative to retain most talented employees and collaborate with the brightest talents from universities.

It should be noted that traditional organization structure fails to work in technology companies.  Top-down structure slows down development and production process which may result in losing competitive advantage in the market.  It is recommended to form cross functional teams that have a relative freedom in decision-making as to innovative ideas and funding.  This will shrink product life cycle and cross functional teams will become core elements in the development and production process.  It is also important for top management to keep pace with cross functional teams otherwise there will be no purpose in their creation.

Summary

Technology companies achieve success through innovation and introduction of innovative products to the market.  As said above, it is extremely important to maintain relations with customers and ask them what features they want to have in the new products.  A strategy based Balanced Scorecard will measure objectives and show cause and effect ties between them, so that top managers and ordinary employees can actually see what needs to be done to implement financial goals.

bsc_ideas Articles, BSC implementation

The concept of Balanced Scorecard is used not only in the area of commercial business, but it can be also applied to measure personal goals.  Personal Balanced Scorecard is widely used by individuals who want to develop themselves and reach strategic goals in life.  Personal scorecard motivates individuals, develops self discipline, tolerance etc.  You can read about personal balanced scorecard, its four perspectives and examine a set of indicators at the following page, while this article focuses on top 10 reasons to use Balanced Scorecard for personal development.

Reason #1

Personal Balanced Scorecard helps you distance from norms and beliefs instilled by education and upbringing, and listen to own inner voice.  It also makes it possible to change own conduct and build own future.  This can be achieved in two ways: 1) adjust external circumstances to personal goals and 2) change own perception of external circumstances so that they fit your personal goals. Both strategies are components of Personal Balanced Scorecard.  Practice has shown that if an individual has clear personal goals he follows them in his life.  As a result, he becomes a dedicated and resolute individual.  Personal goals include different tasks, objectives and ethical norms which add sense to your actions.  Having formulated own Personal Balanced Scorecard and having worked on it, you’ll better understand your life and yourself, which in its turn will result in improvement of your self-consciousness.

Self-consciousness is your inner voice which reacts on everything happening to you nervous system (inner world) and to everything that surrounds you (external circumstances).  They say that in order to change a person it is necessary to change his self-consciousness.  Experience proves that individual coaching with personal Balanced Scorecard enables people to get the right concept about themselves and find their true ego.  Personal Balanced Scorecard offers stimulus for development and self improvement, it makes it possible to broaden horizons and improve mood.

Reason#2

Self-knowledge and self education based on Personal Balanced Scorecard will make it possible for you to work in a more efficient way, instead of working intensely.  Having studied your inner world, your character, spiritual processes and motives, you become more creative.  When you better understand your life your ability for education will improve.  You will gain inner harmony which will make it possible to change own conduct and get rid of bad habits.  Personal changes and improvements will inevitably result in organization changes.  If company wants to develop its employees the top management should better learn themselves.  The recent surveys have shown that many European managers have the wrong concept of own inner world.  Subconsciously, they negatively affect personnel of their companies.  About half of European employees have changed job at least once because of their bosses’ conduct.  Use of Personal Balanced Scorecard will help employees understand what it means to be a person.

Thanks to such education we rebuild our characters and gain skills that we thought we would never gain.  Such education helps develop creative side of our characters and ability to create rather than destroy.  If you will regularly use Personal Balanced Scorecard, obtained knowledge will make you wiser.  We admire people who achieved great success in life, and think they are exception from the rules.  But everyone can develop own skills, as we already have everything to succeed.  We only have to make the right use of own knowledge and skills.  We have to win the war against own laziness, superstitions etc.

Effective job implies well balanced work of left and right brain cerebral hemispheres.  You can achieve that with Personal Balanced Scorecard.  Most of us use only left cerebral hemispheres, while enormous potential of the right one remains unused.

Reason #3

Conformity of your conduct and your goals will make it possible to gain peace with yourself, make fewer efforts and listen to your inner voice.  All this will make your charisma more attractive.  Those who succeeded in it are respected and trusted by friends, colleagues and family.  Moreover, you’ll be able to make people who surround you dedicated to work.

Reason #4

Use of personal scorecards is very profitable for companies and organizations.  Harmony between interests of individual employees and organization’s interests results in higher performance of personnel.  The secret is personal motivation which makes any job enjoyable for an employee.  Personal and organization goals are formed simultaneously.  When we ask ourselves what we want for the company and where we want to drive at, we also ask what we want to achieve for ourselves and under what circumstances. Completion of our personal goals  automatically mean implementation of company strategic goals.  

Personal Balanced Scorecard makes it possible to bridge the gap between work and private life.  There are employees who hope that their job will help them find new friends, new ways of entertainment and rest.  Many employees treat their colleagues as family members.  There is a necessity to re-educate top managers and restore ties of their job with the normal life.  There has always been a great difference between how people treat colleagues and their friends/family members.  When we’re talking to friends and family members we do not view friendship and tolerance as sentiments.  Moreover, we think that friendship and tolerance are necessary to maintain good relations.  Why not use the same approach in our business life?

Reason #5

Having integrated Personal Balanced Scorecard to the training and education process and having unified it with the Organization Balanced Scorecard, it is possible to improve talent retention and human resource management.  Employees should always set new tasks for themselves and obtain knowledge necessary to implement these tasks.  As a result, learning and education process will not become a fiction as it often happens in many companies.  Integration of personal Balanced Scorecard into this process will make talent management more effective, which will increase employee roles in it.

Machines and computers do not make any company successful, but people do. That’s why no theory or plan will bring the company success, compared to how company employees can benefit it.  This is a core principle of human resource management nowadays.  And recent economic crisis proved this statement – companies with great intellectual potential managed to survive and even gain competitive advantage.

Reason #6

Personal Balanced Scorecard stimulates education in teams.  When employees share their goals and viewpoints they begin to the value and understand each other which results in improvement of respectful and reliable relations.  Regular use of personal Balanced Scorecard results in the lifestyle characterized by “freedom.” An individual pays attention to self discipline only when he feels free, and only self discipline promotes true personal development.  If an individual feels free in a certain area, this encourages him to look for freedom in other spheres of life.  Freedom implies responsibility and freedom intensifies it. If an individual is offered carte blanche (freedom of actions) he will be able (and moreover you will be eager) to assume responsibility.  The freedom of choice and the freedom of decision-making can do magic.

Reason #7

Personal Balanced Scorecard will help effectively use and manage own time by performing everything according to the plan.  Personal Balanced Scorecard is an action plan on implementation of your most important personal goals which represent your priorities.  It will help you become muster of your time. If something unpleasant happens or someone attempts you to change the course, you’ll quickly restore the chosen path, being aware that you are going in the right direction, set by personal Balanced Scorecard.  Time management is especially important for organization discipline.  Very often employees receive poor performance results just because they cannot efficiently manage their time, but not because they are incompetent.

Reason #8

Personal Balanced Scorecard will help employees get rid of fear to discuss their personal goals with their bosses and top management. Ordinary employees have from time to time to discuss their personal goals and personal Balanced Scorecards with managers.  It goes without saying that such talks should be held in private, and they should be 100% confidential.  Employees should feel that they are valued and respected. If an employee really feels that he is treated like a person but not like a small element in the business mechanism he will have additional motivation to show high performance.  This creates an atmosphere of trust and mutual respect which is necessary for personal growth and development of creative skills.  In general, positive organization climate has a direct impact on company and individual employee performance.

Reason #9

Personal Balanced Scorecard is a great tool to decrease stress and avoid physical and nervous exhaustion of employees by harmonizing their personal goals with strategic goals of organization.  The stress experienced by employees at work is defined as negative physical and emotional reaction which appears when employees face requirements which do not meed their demands, capabilities and skills.

Physical and nervous exhaustion is physical, mental and emotional reaction on a regular stress.  Physical and nervous exhaustion creates feelings of despair, importance, non-satisfaction, cynicism, offense, expectancy of failure which surely results in low performance.  Surveys have shown that employees having strained relations with management are more likely to experience severe stresses.  Regular use of personal Balanced Scorecard restores interest to job and harmony in labor relations, as well as decreases stress and helps avoid physical and nervous exhaustion.  It is not a secret that employees show their best performance only when they believe in something they do or have a keen interest in the job.  By the way, let’s not forget that a good mood decreases the risk of heart attack.  In other words, personal Balanced Scorecard helps find harmony own inner world and external environment.

Reason #10

Personal Balanced Scorecard helps human resource managers find a perfect candidate for a certain position.  Personal scorecard shows conformity of candidate’s abilities, motivation and skills to position requirements and company goals.  Personal goals of the candidate characterize him in a more complete way, as compared to a resume. It often happens that a person is perfect for a certain position, judging from his resume and biography, but his personal goals conflict with company goals.

If personal goals are well integrated in the system of strategic goals and position requirements, this will help improve customer satisfaction.  Recruitment of personnel is especially important now as headhunting is so much popular.  The right choice of personnel is a remarkable success factor for any business.  That’s why don’t waste your time for trying traditional and barely effective methods of self improvement.  Instead of complaining, start using personal Balanced Scorecard with its unlimited opportunities for personal growth and improvement of organization climate.

Summary

Personal Balanced Scorecard makes it possible to reformulate your personal goals, objectives, principals, norms and moral values, and then make your family, friends and colleagues familiar with them (in fact, all people whose opinion is important to you).  If organization takes into account personal goals and objectives of employees, it turns from from enslaving machine into a mechanism for their self-actualization.  Some all school managers think that if they let employees express their personal goals this will result in anarchy and chaos in the company.  However, these fears have nothing to do with reality, and most employees sincerely wish to align their personal goals with the company strategy.

If you want to improve relations with your environment, start with yourself.  If you want to achieve success in the external world, first succeed in your private life!  Before promising anything to anyone, learn to keep your own word.

At a first glance,  Balanced Scorecard can be hardly used to implement individual goals.  Some people think that this system turns human beings into machines.  Indeed, it is quite weird to count number of quarrels with your wife and amount of consumed alcohol.  However, in course of time use of personal Balanced Scorecard will become an inseparable procedure of your daily routine.  Moreover, when you start enjoying first results you will never regret you started your own personal Balanced Scorecard.  If this system works for best businesses in the world, why wouldn’t it work for you?

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation

Reasons for emergence of strategic performance evaluation tools

Business management issues are most important in any business.  In the early stages of business development it was enough to organize simple bookkeeping system which made it possible for business owners and shareholders to adequately evaluate business value, perform efficiency analysis, identify revenue, organize necessary managerial actions etc.  But as competition was becoming tougher and with development of technologies there appeared new important business factors – growing volumes of intangible assets that had a great impact on business efficiency and value.  Thus, if 20 years ago nonmaterial assets constituted only 38% from total assets volume, now this figure is approaching 85.  Moreover, even those assess that cannot be directly evaluated are considered to be primary assets.  For example, the fighting spirit of the company is referred to intangible assets.  Although they cannot be directly evaluated making bring quite real revenue and losses for the company.  Business evolution and progress required implementation of more effective management systems.

During the last several decades business owners started to ask themselves whether the reach their goals and how they do that.  Emergence of such questions is accounted for the following reasons:

• The scope of business ventures have incredibly grown as the business turned international;
• There is very little time for decision making (if 50 years ago the company had six years to construct a new automobile, now car producers have only two years in order to stand tough competition in the market);
• Decision-making is based not on the prime data but expected future results.

In such a way, modern business requires effective system to manage strategy implementation and communicate strategy, tactics and operational management.

BSC model

Balanced scorecard as a compass for modern business

Modern company requires a compass that would show the right direction in the changeable and sometimes violent business world.  Balanced scorecard system created by Norton and Kaplan is such a compass.  The idea of BSC is based on two statements:

• The right implementation of strategies is more important than the strategy quality;
• Use of financial indicators only in company management will not make it possible to fully reach the goal of increasing company value.

Balanced scorecard is implemented in companies with the aim of putting strategy into action.  The key mission of balanced scorecard is strengthening of business strategy, formalization of strategy, explanation of strategy to every company employee, establishment of monitoring and feedback systems. BSC is a management tool aimed at implementation of a long-term strategy.  It transfers strategic goals developed by top managers into a set of interrelated and balanced indicators which are capable of representing critical success factors of current and future state of the company.  Balanced scorecard can show implementation degree of a strategy through evaluation of financial and nonfinancial indicators.

Classical model by Norton and Kaplan of includes four groups (categories) of key performance indicators connected with cause and effect ties:

• Financial;
• Customer;
• Internal business processes;
• Learning and growth.

These four categories are applied in most organizations.  At the same time, it is always recommended to take into account specific character of every individual company, and amend this model with indicators and perspectives relevant to a certain company.

Balanced scorecard modal developed by Norton and Kaplan makes it possible for top managers to focus on those areas which are really important for strategy implementation, as well as use most important information having the greatest influence on company efficiency.  Moreover, BSC represents the idea of the so-called “responsible organization”, i.e. organization in which everyone knows his roles and responsibilities.  Of one of the greatest advantages of balanced scorecard is that it is based on both past, present and future events, thus becoming a “three dimension” model.

A few words about BSC advantages

Balanced scorecard is quite universal and can be applied to manage every business aspect, including nonmarket processes.  This is not another mathematic-economic model, but an entirely new approach to business management, superior level of business thinking, advanced logic of strategic decision making.  Balanced scorecard can be called an accounting system.  It is an inseparable part and sometimes even the nuclear of organization management system.  BSC can measure things that cannot be evaluated in terms of accounting.  Of course, financial indicators in balance scorecard are key elements, but at the same time they cannot give a complete characteristic of the entire business.

In the age of information and IT technologies implementation efficiency is playing the most important role, as all key managerial decisions will be made based on the obtained data. Will lack or distortion of information have a negative impact on BC implementation?  Without any doubt, the answer is YES!  That means that BC model should include indicators representing the quality and efficiency of IT system implementation.  In general, it should be noted that a set of key performance indicators in balance scorecard, their structure and priority is defined according to company strategy.  Sometimes, financial indicators may not have a supreme priority.

Balanced scorecard in combination with other management systems

Balanced scorecard can be successfully used with other management systems and methodology is implemented in various organizations.  First and foremost, these are budgeting system, quality management system (QMS) and reengineering.

There is a misbelief that budgeting can fully substitute balanced scorecard.  But budgeting system is the technology for operational management, and really focuses on results and strategic goals, while balanced scorecard makes it possible for an organization to communicate strategic planning with budgeting.  The maximum effect from combination of budgeting and balanced scorecard in strategic and operational management is obtained through automation of these processes based on a shared IT platform.  At that, it is necessary to include started values of balanced scorecard financial indicators in the annual budget.

Requirements to implementation of quality management system are partially relevant to implementation of balanced scorecard.  Above all, this is necessity to integrate top management in the process of quality management.  In such a way this requirement directly refers to strategic management area.  Scorecard with support of quality management system implementation must perform functions which are supported by BSC as well:

• Understanding of quality strategy at all levels of an organization;
• Ties between different projects of a company;
• Communication of selected quality strategy outside the company.

As a result, we can see interrelation of these systems which makes it possible for the company to improve quality management system and implement balanced scorecard at the same time.

Interrelation of balanced scorecard and reengineering is especially interesting.  Usually strategic goals set by business owners or shareholders seem unachievable or non realistic to linear managers.  That’s why implementation of balanced scorecard without reengineering methods is almost impossible.  Thus, top managers of very far from every day operations in the company, and their views on company management are based on financial indicators which represent past events.  Reengineering makes it possible for top managers to understand business processes and factors in depth which helps them reach strategic goals.

Reengineering of business processes changes almost everything in the company because personnel, intellectual capital, management and values are interrelated.  We call them for elements of business system diamond.  The key element is company business processes or the ways in which job is done, the second one is intellectual capital in organization structure, the third is management evaluation system, and the last is organization culture – values and personnel attitude.  Relations between these elements play a key role.

Reengineering in BSC implementation enables company management to effectively review existing business processes and integrate them in full.  At the same time, using a range in Erie methods, balance scorecard helps business shift from “Brownian motion” to “ordered motion”, intensify synergy effect etc.

As a result of this process, balanced scorecard becomes an effective tool to stimulate and motivate employees who would aim at implementation of specified goals.  It can force an employee to use a previously identified path.  Statistics show that 88% of companies using balanced scorecard to motivate employees consider this system extremely effective.

What is necessary to implement balanced scorecard?

It is impossible to implement balanced scorecard without proper preparation.  This looks exactly like the house built without foundation.  Such a house will not last for long and will collapse every next second.  The foundation of balanced scorecard is:

• Readiness of top management to develop a strategy and objectives (competent and professional personnel should be in charge of BSC implementation);
• Introduction of managerial accounting, budgeting and controlling system;
• Effective system to collect information, prompt analysis of financial and nonfinancial operations;
• Education of personnel, formation of appropriate corporate culture;
• Successful functioning of qualities management system (as already said above, BSC and QMS supplement each other).

Does immature business need BSC?

Not all companies need balanced scorecard.  In other words, balanced scorecard implementation would not be reasonable for any company.   In order to implement balanced scorecard the company should mature or reach a certain level.  This is the highest degree of business culture, a new stage of development.

BSC and reengineering

There a special systems and standards identifying maturity of the company, like People-CMM model (People Capability Maturity Model) which can be easily used in balanced scorecard.  This model is based on identification of key processes and related practice elements, successful implementation of which signals about relevant maturity level of the company.  At that, processes and practice elements of the same level become the basis for implementation of processes and practice elements of the higher level. People-CMM scale is composed of evolution stages which the company undergoes as it becomes mature:

• Initial;
• Managed;
• Defined;
• Predictable;
• Optimizing;

An organization will be considered immature in case all processes depend on certain performers and managers, and decisions are made spontaneously.  In a mature company management procedures are clearly defined.  As a rule, it is recommended for the companies at the fourth level of maturity to implement balanced scorecard.

Benefits of balanced scorecard implementation

If all preparations for BSC implementation are made and the company has reached required maturity level, such a company will enjoy the benefits of balanced scorecard implementation.  If properly implemented and maintained balanced scorecard will make it possible to:

• Managed business as one single whole;
• Fully communicate company strategy with operational management;
• Make business transparent;
• Optimize balance of interests for customers, shareholders and personnel;
• Communicate balanced scorecard with management methods aimed at increase of company value;
• Increase growth potential for short and long-term success;
• Timely locate problematic areas;
• Integrate balanced scorecard with controlling system;
• Executive effective control over linear managers;
• Decrease volumes of corporate reports;
• Help ordinary employees better realize development prospects and company value system.

Implementation of balanced scorecard is recommended for huge companies with a complex organization structure.  BSC implementation is additional positive indicator for investors.  It means that the business is under control.  BSC is also viewed as intangible asset which increases company value in the market.

If the wrong strategy was chosen, business owner can timely locate mistake and introduce necessary corrections long before such a mistake will cause massive losses.

But sometimes happens that BSE signals on successful strategy implementation, but in fact there are no positive results.  Well, perhaps the wrong implementation model was chosen.  In such a case it is recommended to perform an expertise of BSC model by competent specialists.  In addition, it is necessary to remember that balanced scorecard system is a mechanism for strategy implementation, and it does not substitute strategy.

As already said, in today’s business the ability to implement strategy matters more than the strategy itself.  IT technologies can do that, but one should not forget that these are just tools.  People interested in company success stand behind all managerial decisions.

Implementation of balanced scorecard in the company signals about business success.  As improvement of the strategy and indicators in the system is a continuous process, it is recommended to review its model and introduce amendments according to changes in external and internal environment.

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation

The use of Balanced Scorecard methodology to measure implementation of projects for corporate information system will make it possible not only to ground automation projects but also integrate them into the plans for organization’s strategic development, both at strategic and operational (budget) of the levels.

Recently, corporate information systems stopped to be attempts to follow the fashion.  They have become an inseparable part of organization management system.  That’s why the process of information system implementation (automation of management system) is viewed as inseparable part of the company strategy, optimization of its performance etc.  Optimization and automation are interrelated and implemented through completion of several stages belonging to one big project.  Implementation costs for such projects usually count thousands of dollars.  That’s why most business owners and top managers are worried about possible effect from investment into IT technologies.

It should be noted that every top manager has certain vision for development of his business.  Some managers have formalized documents (mission, objectives, strategy, business plan) while others take notes on paper or even keep everything in their minds only.  It doesn’t matter what development path a company chooses, but IT strategy should comply with it or at least have no conflicts with it.  Otherwise, IT technologies will do more harm than good.

As with implementation of any strategy, implementation of IT projects requires certain resources, both material and nonmaterial.  That’s why implementation of projects should be integrated into the budgeting system.  So, before making a final decision to implement IT project, a top manager should perform thorough analysis.

Efficiency evaluation of IT projects

There are different ways to evaluate project efficiency.  However, only two of them would work the best: financial (measuring profitability of a project) and mixed (measuring financial and nonfinancial profits generated by the project).  Their key difference is that financial approach measures only those results which can be formulated in terms of monetary gains.  However, such approach has its drawbacks since it is not always possible to evaluate advantages of a project in monetary (financial) terms.  In the modern world of business intangible assets are most valued for major companies.  For example, only 20-25% of an automobile price is comprised of physical component.  All the rest is various licenses, know how etc.

Or imagine such a situation.  Your company is on the rise.  Sales are 100% up in this month!  You have exceeded the budget, and your employees received bonuses.  But in several months sales have suddenly dropped, customers went to competitors, dealership chain is glitching.  Having analyzed situation, you found out that the amount of products has decreased during the past months, while you customers are not satisfied with the support.  Dealers are not regularly supplied with products, and sometimes receive even wrong products.  If you paid attention not only to finance but also other factors such as customer and dealer loyalty you could have avoided such a situation.  Delivery of quality products and high quality of customer support service could win customer loyalty which cannot be evaluated in monetary terms.  That’s why it would be incorrect to evaluate company success by measuring financial indicators only.  And that is why, Balanced Scorecard (BSC) system created by Norton and Kaplan has gained tremendous popularity since BSC takes into account financial and nonfinancial indicators.  This also concerns implementation of information systems.  Much has been written about Balanced Scorecard, so let’s give a brief overview of the four BSC perspectives:

• Customer (shows how customers view the company)
• Finance (shows how shareholders view the company)
• Internal business processes (shows internal resources)
• Innovation, learning and growth (shows competitive advantage and future prospects)

Very often business owners are very skeptical towards IT technologies since they do not see direct financial results behind implementation of IT projects.  But without proper automation systems Balanced Scorecard is very difficult to implement.  Let’s explain why.

Balanced Scorecard gives positive results only in case an effective and fast feedback system is established.  It is also very important to timely collect, analyze and share information.  This is important both for top management and front line managers who directly contact customers.  The problem with many companies is that employees are not properly motivated since they are untimely rewarded for implementation of personal and strategic goals of the company because of problems with communication and feedback system.  This is where IT solutions can help.

Balanced Scorecard consists of numerous indicators which should be timely evaluated, and evaluation results need to be used in decision making to respond to challenges and strategic problems.  At a first glance, implementation of a reliable information system will imply no financial gains.  However, in the long term such a system will become inseparable instrument in implementation of a company strategy.

In relations with customers, managers are to be armed with all possible tools to give customers all possible information on products and services, special offers, discounts, tech information, warranty issues etc.  As said above, customer loyalty cannot be measured in dollars, but still customer satisfaction and loyalty brings financial gains in the long-term.  A loyal customer becomes a regular customer for the company, and thus, a regular source of income. With excellent IT support a manager can offer his customers the most complete information on products and services.  Besides, an effective IT solution makes it possible to serve a larger number of customers and potential customers which is also an important indicator in evaluation of customer relations.

When implementing Balanced Scorecard, it is imperative to align strategic goals of all departments and business units of a large company with its general strategy.  This is where an effective communication and feedback system can help.  Automation of business processes results in optimization of key performance indicators for business processes.  Improvements in key performance indicators lead to critical success factors that make it possible to implement strategic goals.

Summary

Use of Balanced Scorecard to evaluate efficiency of information system implementation makes it possible to measure conformity of such project with strategic goals of an organization.  At that, financial and nonfinancial goals of a company should be evaluated to make this measurement complete and objective.

Implementation of IT projects is necessary for functioning of Balanced Scorecard itself as well as to supplement existing strategy of the company.  In other words, Balanced Scorecard may be used to evaluate efficiency of IT project and its conformity with strategic goals, and IT project can be used to make work of Balanced Scorecard effective.

bsc_ideas Articles, BSC implementation

Balanced Scorecard system is a management and strategy evaluation tool that transfers mission and strategy of an organization into that balanced complex of integrated performance indicators.  Such indicators give a short but at the same time a full picture of how organization approaches its goals and implements tasks.  Companies using Balanced Scorecard report differently on implementation success.  This article reviews 2 practical case studies.

In the first case study automobile company has successfully implemented Balanced Scorecard and integrated it in the everyday work of employees.  The second case study reviews the bank that substituted BSC with an alternative method, having considered Balanced Scorecard inappropriate for creation of a corporate culture.

The role of BSC in both organizations is being contrasted in order to answer the question “Why do implementation results and satisfaction of companies’ management differ?”

What is the role of BSC?

As said above, Balanced Scorecard is a system that translates strategy and mission into a set of key performance indicators.  One of the greatest advantages of Balanced Scorecard is that encouragement and reward for employees is based both on financial and non-financial indicators (of course, in case such employees contribute to implementation of company strategic goals).

Creators of BSC Robert Kaplan and David Norton claim that new skills and methods need to be used to survive in a tough competition of today’s markets: customer relationships, innovation and individualization of projects, education and motivation of personnel, enhancement of IT technologies.  By the inclusion of all key success factors to the Balanced Scorecard, the organization will have a clearer picture and ways to reach objectives.

Balanced Scorecard adds non-financial indicators to financial ones.  These are indicators referred to customer relations, internal business processes, learning and growth.  Lagging indicators are mixed with the leading indicators, as according to Kaplan and Norton, “without leading indicators, lagging indicators will tell nothing on how results were achieved.”

Balanced Scorecard tells a short but at the same time full story of company achievements and the process of goals implementation.  This is a full picture describing everything that happens inside and outside the company.  Use of Balanced Scorecard with a fair bonus and compensation system for employees improves their motivation, encourages them to participate in decision-making, create innovative projects etc.

BSC implementation

Balanced Scorecard may be used to reach such objectives as:

• Clarification of adopted strategy
• Making employees familiar with company strategy
• Agreement of strategic goals for departments and personal tasks for employees
• Integration of strategic tasks to strategic goals and budget
• Identification and coordination of strategic initiatives
• Periodical and systemic strategy review
• Establishment of a reliable and flexible feedback system to correct strategy, if necessary

BSC implementation often begins with development of corporate strategy and identification of its implementation results such as:

• Choice of indicators (selecting the most important key performance indicators)
• Identification of cause and effect ties
• Development of hierarchy in strategic maps
• Development of a clear bonus and compensation system to motivate employees
• Development of infrastructure and information systems (tools to collect and analyze information)
• Development of feedback system (regular meetings or sessions two analyze communication and feedback tools)

Case study number one. Automobile enterprise LMN

During the survey representatives from the top management of the two organizations (bank and automobile enterprise), responsible for implementation of BSC, were asked questions.  2 hour meeting included an interview on current problems and a freestyle conversation, the topic of which could be chosen by respondent.  Managers were to fill in questionnaires on stages and problems of BSC implementation.

LMN enterprise first started using Balanced Scorecard before 1993.  But it was not until 1995 when this system was implemented in full.  At first, administration made production departments familiar with indicators, but managers did not understand what to do with the obtained information.  In several years a standard evaluation process was established based on five key indicators: security, quality, profitability, personnel, finance/costs.  Cause and effect relations could be hardly identified, and that was one of the major problems in BSC implementation.

BSC System helped LMN focus on customer needs.  If there is too much information and indicators often conflict with one another, it is very difficult for company management to pick the most important KPIs.  As one of the respondents said, “there is always compromise between quality and quantity.”

With the help of Balanced Scorecard enterprise management organized production and management process in such a way so that when employees faced the question “what to do”, they always had a clear answer.  If a certain action has no impact on Balanced Scorecard, then taking such an action may be quite unnecessary.

The company used only a limited number of clear indicators at all production enterprises.  Chairmen of all plants wanted to make sure they are all evaluated according to one metric system and they can influence decision-making process.

Results of BSC implementation

BSC was successfully integrated in the corporation everyday activity.  Financial analyst working for this company says: “BSC adds constancy of focus and objective to corporate vision.  Even ordinary employees tend to understand it.”

In order to familiarize employees with BSC implementation results and motivate them, the company used “traffic light” reports.  Once a month the management measured indicators to see whether or not annual plan is being fulfilled.  Red light warned company management that the enterprise is far from objective, red light signaled about risk of non fulfillment, while green light demonstrated that the plan will be fulfilled.

Existing IT infrastructure made it possible to develop an efficient feedback system.  It became possible to see what has happened in the previous month and what the company should expect in future.

Balanced Scorecard helped review compensation and reward system for employees which was based on financial indicators.  However, non-financial indicators were also taken into account due to cause and effect ties.

BSC helped employees at all levels understands impact of their work on the total results for the company.  Plans for departments and enterprises were corrected and amended if necessary.  Identification of cause and effect ties appeared to be a major problem.  But it is this sphere that underwent most changes, and it is in this sphere that most positive results were achieved.

According to respondents, Balanced Scorecard had three obvious disadvantages:

• Every production enterprise in the company used own program and interpreted all indicators in own way
• Indicators were not related to company objectives
• They formulation of standards and indicators resulted in their various interpretations and manipulations

However, BSC helped everybody realize responsibility and create feedback/reporting system.  One of company production managers says: “I have never felt so much responsibility for results of my work.  I know exactly what I am expected to do and what I should do.”

Case study number two. Bank XYZ

In 1995 XYZ bank armed itself with Balanced Scorecard and the system of bonuses and rewards for employees.  The program was based on evaluation of work results (once a quarter) with further possible payment of bonuses which depended on performance of certain branches, departments and employees in such areas as finance, personnel (serving customers, relationships between employees, public relations) and operations (audit and control).

To control financial and nonfinancial indicators the Bank used different systems.  Financial indicators were monitored by computer system, while non-financial indicators like customer satisfaction were measured through survey of customer opinion which was carried out by Gallup Poll company.

Balanced Scorecard offered XYZ bank a number of advantages:

• BSC is employee oriented.  Company goals are clearly formulated, and those who work well will be rewarded
• BSC helps management educate personnel and make them familiar with company goals
• BSC is a fair system since it can differentiate good and bad employees

However, despite these advantages the bank rejected BSC System and substituted it with compensation plans program.  A number of problems have appeared, and Balanced Scorecard turned ineffective due to changes in regulation policy for banks, insurance sector and stock market.

Problem number one. Regional branches and apartments interpreted Balanced Scorecard in their own way.  In some regional branches  top managers conducted meetings and discussed Balanced Scorecard in public, while others made all decisions privately.  Some departments faced certain problems with share of bonus pool.  One of the main obstacles was that employees received different bonuses for extra work, innovative and creative ideas etc.

The second problem was that head of branches considered BSC an ineffective management tool.  Those who worked better did not necessarily get fair compensation.

Thirdly, BSC failed to secure a high level of customer service.  Gallup Poll company could only measure customer satisfaction at a certain time and in relation to a certain customer group.  The bank has found out that if there are unsatisfied customers it would be wrong to think of the negative trends of customer satisfaction in general.

The 4th problem was additional responsibilities and duties for bank top management.  Head of departments and branches have to collect and summarize indicators for each employee, so that bonus pool could be fairly shared.  Top managers also have to devote at least one hour to each employee and discuss BSC indicators.  As a result, payment of bonuses was quite delayed (2-3 months after accounting period).

Summary

The case study lead to interesting conclusions.

Firstly, speed of feedback system has a great impact on BSC efficiency.  Delays in feedback and communication in XYZ bank forced management of this organization give up on BSC implementation.

Secondly, BSC Works better if employees are involved in the process of selecting key performance indicators and measures. XYZ management introduced all indicators on the top level. In LMN management offered me you evaluation systems, but employees were free to decide how to use them.

Thirdly, BSC is most effective during the period of organization changes.

Finally, due attention should be given to the number and types of key performance indicators.  A set of indicators should not cause problems with their evaluation otherwise BSC will consume much time and become quite expensive. In XYZ bank implementation of the system was quite a lengthy process and when the bank had to reorganize, changes of Balanced Scorecard appeared to be quite complicated and costly.

bsc_ideas Articles, BSC implementation, Case Studies

Balanced Scorecard management system arouses keen interest of top managers of various companies.  However, often those who start implementing BSC fail because they forget about the first and the most important step which is working out of a company strategy.  One should understand that BSC does not substitute strategy but only serves as implementation tool.  That’s why it is imperative to identify company strategy in detail and only then proceed to its formalization with the help of BSC and creation of implementation/control mechanisms.

This article focuses on the work which needs to be done before creation and implementation of Balanced Scorecard.  This serves as a future key success factor for any project.

What is strategy development?

Strategy is a many-sided notion.  Often strategy implies action plan, business concept, conduct principles.  Creators of Balanced Scorecard David Norton and Robert Kaplan defined a strategy as a set of theories on causes and consequences.  This definition makes it possible to present a strategy in the form of a map on which strategic objectives at different levels are linked with cause and effect ties.  What can be more understood and comprehensive than the visual are representation?  Such an approach encourages the strategy to come down from the academic level and makes it a real working tool for ordinary managers.  However, it is not easy to make such a transformation and turn the strategy into a comprehensive strategy map.  Before designing such a map you need to formulate the concept of the strategy.

There are four basic elements of a strategy:

• Strategic benchmarks (mission, values, vision) which answer questions like “Why do we run this business?” or “What are our goals?”
• Strategic positioning (market and customer concept) answers questions like “What needs to be done in the market?”
• Organizational concept which implies necessary changes in the company
• Basic strategic development direction identifies ways and methods to implement goals

So, if company management has answers to all the questions implied by these strategy elements it is possible to say that such a company has defined its strategy.  In case there are no answers, then all those complex plans and analytical materials will never help since such a company has no strategy.

What is your strategic problem?

This is the key question to be answered before development of a strategy.  Problem is an existing or potential obstacle for company development.  Very often top managers say: “We have got no problems!” This means that they have not yet faced problems.  Smart managers solve problems before they break out in the form of sales decrease, revenue sinking and other catastrophes for any business.  These are strategic problems.  They have not come yet, but there are certain warnings for managers.  It is possible to analyze these signals and understand what changes must be introduced to get company prepared for problems.

Hypothetical case study

Let’s analyze development of a strategy in case study of a general contract building company “X” which offers services of general contractor for projects priced between $0,5-50 million.  On average, the company simultaneously implements 10-12 projects.  The annual amount of work completed by the company is about $90 million.  The company personnel counts 200 employees.  Company “X” is well known in the construction market of its region; it is successfully developing and constantly participating in tenders.

Company owners are worried about lack of stability and pauses between projects.  To avoid idleness the company is often forced to take unprofitable projects and lower tender bids.

Usually, general contractor gets 15% from total project cost (in case of profitable projects).  In fact this figure goes down to 10% which is not suitable for company owners.  They want higher profitability and stability of results.

Managers (who are at the same owners) of the company directly participate in the operational management.  They are not happy with this fact.  As soon as their business reaches certain stability level they want to shift away from management process.

Interests and key problems are identified.  However, it is difficult to find solutions.  This is quite a typical and even normal situation.  In order to formulate a strategy it is imperative to transfer from visible problems to real ones.

Problem analysis, as well as analysis of internal and external environment made it possible to conclude the following:

1. The market is overwhelmed by price competition.  Consequently there are opportunities for differentiation.
2. There are “marketing complex” problems (see figure below)
3. Suitable interest margin is offered in the projects with foreign contractors or in huge construction projects.  However, such projects are often taken by foreign or huge national construction companies.
4. Quantitative growth is not attractive to founders of the company.  They want an effective midsize company.
5. There are many spontaneous expenses in the projects caused, among others, by quality problems.
6. Key causes of quality problems are lack of experienced managers, lack of attention to customers, low quality work of sub-contractors.
7. Sales related problems:

• The company is participating a large number of tenders (usually 24 in a quarter) while contracts are concluded only with 2;
• The company receives most tender invitations not from the customers but through monitoring of construction market;
• At the initial stages of work with customers a qualitative selection of contacts (identifying non-promising contacts) is not performed which results in overloading of sales department employees and project directors.  This also leads to lack of attention to really promising customers;
• Lack of interest of project directors in sales (when they have an opportunity to do construction management work they do so), and their low qualification as salespeople.
• Poor teamwork, misunderstanding between sales department employees and project directors which is evident and understood customers.
• Weak management when participating in tenders makes it impossible to evaluate risks related to customers and their projects and timely reject the project.
• There is no analysis of success and failures in tenders which makes it impossible to improve sales process.  That is why tender wins are quite accidental.

8. The company has no clear positioning in the market, and that’s why it does not differ from dozens of similar construction firms in the eyes of customers.

"Marketing complex" problems

All these problems make it impossible to create a well balanced portfolio of profitable projects, and that’s why a company is forced to work with unqualified customers.

Find an effective solution

Since we have formulated the problem, there certainly should be solution.  For company “X” this solution is correct positioning.

Top managers posed the most important question: “What is the value of general contracting services for the customer?” before answering this question it was necessary to analyze the entire customer base and experience on previously constructed projects.  As a result, the following conclusion was made: the most successful and profitable projects were implemented when the customer was represented by the organization with no experience in construction business but which has clearly defined its business goals and objectives.  Such an organization needs an experienced general contractor that will help implement creative ideas and at the same time minimize risks related to construction.  The answer to the question on service value looked like this: “General contractor provides customers with a controlled risk level for investment project (for a customer without experience in construction but with a comprehensive business idea)”.  That’s why in such a case the key position in idea is risk management in construction project.

Having identified problems and solution principles it is necessary to make the next step and answer the question: “Why do we run this business and what are our goals?” Sure, there can be just one answer for a commercial organization: “Make money!” However, this answer is not enough to develop a strategy.  Every company consists of people and it has strong ties with external environment.  Developing strategic benchmarks is about understanding who we are and where we go.  This is where mission, vision and values can help.

Key positioning idea

Set strategic benchmarks

Mission is a company destination, its role in the society, an ideal to which it strives for.

Company “X” has formulated its mission in the following way: “Our job is provision of general contractor services.  Our priorities are about decreasing investment risks for customers.  We achieve the best combination of quality terms and costs through professional project management and exceptional attention to customer needs.”

Vision is a future picture with the certain timing.  A company should fully identify position in the market, its internal processes an organizational structure, characterize key resources.  Company “X” strategic vision looks like this: “In 5 years the company will enter the top five group of leading construction companies in the region “Y” that are engaged in construction and reconstruction of the largest and most prestigious housing and industrial objects.  The bulk of portfolio would consist of projects priced $50-500 million.  Company success in the market is based on its reputation of the highly professional management capable of controlling risks for complex projects, avoid losses among investors.  The company possesses highly qualified personnel which values traditions of excellence and effective team work. Company “X” will become an active player in the local and national construction market. The company will direct investments in human resources, creative methods and technologies for effective work, establishment of long lasting relationships with customers and subcontractors.”

Identification of key success values sets goals and benchmarks for employees: continuous learning, commitment to excellence, leadership, innovation etc.

Formulate concept of conduct in the market

So, now we have strategic benchmarks.  It is imperative to understand how we will implement goals.  In the first place, one should ask a question: “What needs to be done in the market?” Most specialists suggest using methods and activities different from those used by competitors.

Strategic positioning

In our case this will look in the following way.

Market concept:

• Distinctive feature of company service is professional risk management
• Service cost is above average for the market
• Company works only with target customers
• Establishment of long lasting and mutually profitable relationships with customers is a key priority

Target customers

Develop key organizational principles

Having clarified market policy, it is necessary to look inside the organization and think of the possible changes in the internal environment.  The following questions can help here:

• What strategic business areas does the company cover?
• What business units does the company consist of?
• What is the synergy of different business units and business areas?
• On what principles are relations between corporate center and business units based?
• What are key management principles?

Here are key organizational principles for Company “X”:

• Project director is the “process owner” of relationships with customers throughout the entire implementation of a project and even after it.
• Marketing director is responsible for acquisition of new customers.  His goal is to make customers queue up at the company office door.
• When potential customer is found responsibility is transferred to project director who makes a decision on possible cooperation.  In case of a positive decision sales project starts.
• Project director manages sales process, personally holds all meetings with customers and makes key decisions.  Project director is aided by specialists from sales and marketing departments.
• A after signing of the contract project director personally tracks construction process and informs customer on possible unforseen situations, manages customer expectations and demands.  It is very important to keep balance in relationships with a customer.  Project director should not be under customer’s thumb, but at the same time he should avoid conflicts and timely solve current and possible problems.  Project director should form customer’s correct attitude to what is going on at the construction site.  Often, conflicts are caused not by problems but lack of information and understanding between contractor and customer.
• After completion of construction project director does not lose relationships with the customer, fighting for his loyalty and looking for new contracts.

Identifying directions for strategic changes

Company “X” has formulated directions of the development in such a way:

• From attempts to be helpful for everybody to work with target customers
• From construction management to risk management
• From heroic fight against difficulties to unsurpassed skill

Summary

Having summarized the above said will have a presentation consisting of several slides which, however, will tell us much more about company strategy than endless theoretical works.

So, we have clarified our strategy.  Now it is clear what needs to be changed and what needs to be achieved.  It is possible to formalize strategy by creating Balanced Scorecard.  But let’s summarize key principles that lay down the foundation of strategy development process:

• Teamwork should imply participation of both top management and front line managers who directly contacts customers.
• Collective mind approach.  It is necessary to attract as many special ease in different areas as possible to work out a comprehensive and well balanced strategy.  Such approach is better than expensive market research.
• Using employee creative potential.  Company management should encourage free exchange of ideas, initiatives and analyze any proposals offers from personnel.
• Strategy development process should be well controlled, divided into stages, every participant should have certain tasks.  Creativity and discipline are two complementary elements of such work.
• Focus on a common strategic vision.  The final document with the company strategy should not be the key goal.  Company management should focus on a common strategic vision and methods of its implementation through discussions, brainstorms, exchange of ideas and initiatives.  This is the key value of strategy development process.

Article in the source language

bsc_ideas Articles, BSC implementation, Case Studies

Nowadays implementation of newest management systems in business processes is very acute and popular.  But the question “what needs to be done?” raised by top managers and answered in specialized literature, special management courses and universities, is followed by the question “how to implement it?” What steps are to be taken to achieve planned objectives?

Theoretical literature fails to give answer on “know how”, i.e on the way to set a company on the new track without harming it.  Well-known professors and lecturers prefer to avoid answering this question, getting away with general and sometimes very general phrases.

Today, Balanced Scorecard System has become especially popular among different organizations and businesses.  This system is based on four key categories of indicators called perspectives:

• Financial
• Customer
• Internal processes
• Learning and growth

The book by Robert Kaplan and David Norton, who are known as creators of BSC, helps systemize isolated attempts to implement different indicators representing cause-effect relationship between operational management and company strategic goals.

This article dwells on implementation of customer related indicators and evaluation of customer relationships.  Perhaps, you have often heard from your boss: “Increase the number of regular and key customers!”, “intensify work with a particular customer group”, “be polite with customers” and so one and so forth.  At a first glance these are standard phrases stressing necessity to reach prosperous future of an organization as soon as possible.  These are just slogans.  But let’s deeper investigate the problem.

Question number one.  In fact, who is a regular customer for an organization?  And who is non-regular?  80% of managers would find it difficult to answer such question.  We can often hear such an answer: “these are those customers who purchase a lot”.  Some managers would say so: “those who regularly purchase a lot.” But in the modern age of information it is not enough.  Every employee in organization can understand these criteria in his or her own way.  It may turn out that that top manager thought about one customer group, the department chairman has his own understanding, and a front line manager has interpreted the situation in an absolutely another way…

Let’s analyze the concept of different customer types.  First of all we can divide customers by the amount and frequency of purchases they make.  There a three basic customer types:

• Potential
• Real
• Regular

Potential customers of those in need of products/services offered by the company, but they have not made a single purchase for the accounting period. “Why accounting period?” –  you might ask.  In fact this is a very important issue since total sales volume is calculated for a certain period.  The right choice of period is imperative.  We recommend one year, although every company adjusts this period according to their strategic goals and operational tasks.  It is possible to use such a formula to identify potential customer:

Potential customer = sales volume per period = 0 or

Potential customer = number of purchases per period = 0

It is very important for the organization to have information about potential clients, save this information to databases because these customers may turn into real customers under certain conditions.

Real customers are those who have made at least one purchase for the accounting period.  Very often managers talking about customers in general mean exactly this category of customers.  The formula will look in such a way:

Real customer = sales volume per period > 0 or

Real customer = number of purchases per period > 0

Real customers are valued since under certain conditions every customer from this category may become a regular customer, and consequently a regular source of income for the company.

Regular customers are those who make regular purchases from organization, and the purchase amount exceeds a certain limit for the accounting period.  Here 2 conditions are linked with a logical operator .AND. It means that regular customers should meet both conditions.

Regular customer = sales volume per period >A . AND. number of purchases per period >B, where

A is equivalent sales volume

B is equivalent number of purchases

This formula contains both sales volumes and their frequency.  Of course, it would be easier to take into account only sales volumes, but it may happen that the first time customer makes a huge single purchase, and it wouldn’t be reasonable to consider him a regular customer.

Now, when managers are aware with the principles of identifying customer types, it is possible to assign them with the task of implementing company strategic goals.  What tasks can be set?  Let’s review the most typical ones.

Task #1

• Filling database with information on potential customers

Sub-tasks

a)      Search for customers who are in a need of products/services offered by the company

b)      Saving information on potential customers in database (creating customer profiles)

c)      Identifying need for products/services expressed in numerical indicators

Implementation criteria for this goal

• Number of potential customers added to the database per manager, department or Financial Accounting Center (FAC)
• Accuracy of entering information in the customer profile

Most organization should also identify customer need for products/services which will make possible to further divide potential customers according to their needs, as well as identify priority potential customers who should enjoy a greater attention from managers.

Task #2

• Increase the number of real customers in the accounting period

It is interesting that the number of real customers may vary if report on customers is regularly completed at a certain time (for example once a month).  If we take one year as the accounting period the diagram will look like this

Identifying number of customers for the accounting period

When the first report was made there were 100 real customers, while the second report counts 105 real customers.  At a first glance the increase counts only 5 customers, but in fact this number equals 15, while 10 customers were lost.  Thus, 100+15-10=105

Implementation criteria for this goal:

• Identifying number of me you real customers per manager, department or FAC for the accounting period
• Identify in the number of lost real customers per manager, department or FAC for the accounting period

It is very important to compare estimated customer need for products/services with actual sales volume for such a customer.  If the figures look very different it is necessary to introduce amendments in the evaluation of customer needs.

Task #3

• Increase the number of regular customers in the accounting period

As already said in description for Task#2, it is necessary to make calculations for the whole accounting period of one or two years.

Implementation criteria for this task

• Identifying number of customers per manager, department or FAC for the accounting period
• Identify in the number of new regular customers per manager, department or FAC for the accounting period

As every regular customer is a regular source of income it is imperative to find out reasons for losing regular customers.  It is even possible to create such a group of customers “lost regular customers” and track any changes in their relations with the company.

It is necessary to understand that all customers in all reports are interrelated.  The logic chain suggests that a customer first becomes a potential one, then real and then regular.  Unfortunately, this chain can work backwards, and a regular customer may turn into real and then potential one (for example, such a customer fails to make purchases for a certain period).

In addition to reports on the number of customers in each category it is highly recommended to introduce indicator representing the number of visits/contacts/calls to a certain target customer group.

Summary

Different customer groups required different attention.  Thus, it is recommended to make regular visits to regular customers at least once a week, for real customers at least two times a month, for potential customers once a month.

In such a way objectives and tasks at all managerial levels become clear and comprehensive.  It is important to identify quantitative indicators to implement strategic goals of the company.

Such a system covers all possible relations between different customer groups and accompany.  Sure, it is possible to make a more complex system.  That one should remember that this will increase expenses related to implementation of indicators system in a company.

bsc_ideas Articles, BSC implementation