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.
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.
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.
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.