TagKPIs

Developing Objectives for the Strategy Map Customer Perspective

Not all prospective customers will support your revenue and profitable growth or find your offerings worthwhile. Because of this, many organizations face the challenge of determining which factions represent the best market for their particular products and services and focusing their strategy map objectives on that group of customers. Although many organizations profess to serve a subset of core customers, in reality, they are following “same-for-all” approach, attempting to serve a broad landscape of customers. As a result, they end up doing little for anyone.

When developing objectives for the customer perspective of the strategy map, it is important to ask two questions:

  1. Who are your target customers?
  2. What is your value proposition in serving them?

To answer the first question, it is necessary to conduct a customer profitability analysis of existing and potential customers. Some customers might appear profitable on face value, whereas in reality they are resource suckers and are not aligned with your strategy. Thus you need to come up with a strategy that enables you identify particular customer segments that have greater growth and profitability potential.

The second question helps you express how you will differentiate yourself and, subsequently, what markets you will serve. In other words, your organization’s value proposition helps you define your customer strategy by describing the distinctive blend of product, price, service, relationship and image that your organization offers its target customers. The value proposition should communicate what the organization expects to do for its customers better or differently than its rivals.

The value proposition you select will greatly influence the objectives you choose since each will entail a different emphasis. It is also important to note that the objectives and measures for a specific value proposition define the organization’s strategy. By developing objectives and measures that are explicit to its value proposition, the organization will be able to convert its strategy into tangible measures that are easily understood by all employees and capable of being improved.

Depending on your organization’s mission, vision and strategy, below are four customer value propositions you can choose to follow:

  • Operational excellence: Following this value proposition means your focus is on lowest total cost, convenience and often ‘”no extras”. Your objectives for operational excellence should underscore attractive prices, excellent and consistent quality, short lead times, ease of purchase and good selection. Possible objectives under this value proposition include:
    • Attractive prices – Ensure lowest prices, Offer lower prices than competitors and Offer best value to the consumer.
    • Excellent and consistent quality – Reduce manufacturing defect rates and Eliminate service errors.
    • Convenience – Reduce customer complaints relating to service or delivery.
    • Good selection – Maximise inventory turns, Ensure product availability and Minimize stockouts.
  • Product innovation and leadership: For you to be able to deliver on this value proposition, your products must offer superior functionalities that leading-edge customers value and are prepared to pay more for them. Being a product leader means you should be prepared to promote your organization’s brand image and build strong brand awareness to ensure the market recognizes your innovative new products. The objectives you may include in your customer perspective are:
    • Monitor help line calls per product. This will help you determine the level of interest in your latest products or services.
    • Increase number of customer needs satisfied. This enables you ensure expectations are being met.
  • Customer intimacy: The organization must completely understand its customers and be able to provide them with customized products and services bespoke to their needs. Thus you must strive to offer a complete solution that ensures the customer receives the greatest benefit from the products offered. Should you follow the customer-intimate approach, below are some of the customer-intimate attributes and objectives you might use:
    • Customer knowledge– You need to possess a deep and detailed knowledge of your customers. Using an objective such as “Increase training hours on products and services offered” enables you to determine staff knowledge and see if more training is required.
    • Solutions offered – It is important to note that customers turn to you because you are offering them an unmatched total solution. You may therefore include as an objective within the customer perspective”Increase total number of solutions offered per client”.
    • Customer data – In order to deliver complete customer total solutions, organizations require abundant and insightful data on their customers. “Increase % of employees with access to customer information” may be stated as an objective to ensure this key differentiator of success will be monitored.
    • Customer relationships – As a customer-intimate organization, your goal should be to build long-lasting relationships with your customers. “Provide staff at client locations” could be an objective illustrating the deep relationships your organization maintains with its clients.
  • Lock-in: This arises when companies create high switching costs for their customers by making their products the standard of the industry. “Create barriers to entry and high switching costs” may be stated as an objective to ensure the organization remains as one of the dominant suppliers.

Watch out for my next post on developing objectives for the strategy map internal process perspective.

Developing Objectives for the Strategy Map Financial Perspective

In my previous blog post, I touched on why your organization needs a strategy map. I discussed what a strategy map is and how it helps organizations translate their strategy. The strategy map provides the visual framework for integrating the organization’s objectives in the four perspectives of a BSC. It shows the cause-and-effect relationships that link desired outcomes in the customer and financial perspectives to exceptional performance in key internal processes. Furthermore, the strategy map highlights the precise capabilities in the organization’s intangible assets that are essential for delivering outstanding performance in the critical internal processes. In this post I will turn my attention on developing objectives for the financial perspective.

The balanced scorecard was developed to help organizations overcome their reliance on financial measures of performance. Proponents of the BSC argued that an excessive focus on any particular area of measurement often led to poor overall results. In order to successfully measure, manage and deliver performance, organizations must find a balance between financial and non-financial measures. The BSC provides this much needed balance. The tool balances the accuracy and integrity of financial measures with the drivers of future financial performance of the organization.

Although some criticism has been levied against the overabundant use of financial measures, a question that is normally raised is, “Should organizations include a financial perspective when developing their strategy map and BSC?” Despite their evident weaknesses, the answer is yes. Financial indicators represent a vital component of the scorecard process. Without financial objectives and measures of performance, even a well-built strategy map and BSC is incomplete. Financial performance measures show whether the company’s strategy, including its implementation and execution, are contributing to the bottom line improvement.

For profit-seeking organizations, the ultimate aim is to create greater long-term value for shareholders. To achieve this, the company must improve its revenue growth and productivity. Profitable revenue growth can be achieved through selling completely new products, selling to customers in entirely new segments and deepening relationships with existing customers. Strengthening existing relationships enables the company to sell more of its existing product or service, or additional products and services.

Enhancing productivity is achieved through improved cost structure and increased asset utilization. Implementing ABC/M enables you to gain complete visibility about your product, service, customer, channel and segment costs. This in turn will help you eliminate defects, reduce cash expenses and improve yields. Such cost reductions enable the organization to produce the same quantity of outputs while spending less on people, materials, energy and supplies.

Improving asset utilization is often achieved through managing capacity from existing assets and reducing the working capital and fixed capital needed to support a given level of business. For example, suppose you are a manufacturing organization or retailer, utilizing techniques such as just-in-time gives you the opportunit

    y to support a given level of sales with fewer inventories. Also, reducing unscheduled downtime on equipment provides you with an opportunity to produce more without experiencing an unnecessary increase in fixed assets investment.

    Thus when developing the objectives of the financial perspective, the challenge is achieving a balance between the short-term and long-term objectives. Actions to improve revenue growth normally take longer to create value than actions to improve productivity. Under the day-to-day pressure to show financial results to shareholders, the norm is to favour the short-term over the long-term.  As an organization you have to ask yourself, “How much further can you grow without overspending?” At the same time, “If you decide to focus more on austerity as a business model, what is the risk of distancing your company from customers who are hungry for innovative new products and services?”

    Developing the first layer of the strategy map forces the organization to address this tension. Thus in order to drive shareholder value, the financial component of the strategy must include both revenue growth and productivity objectives. Balancing these two dimensions will ultimately set out the framework for the remainder of the strategy map.

    Watch out for my next post on developing objectives for the strategy map customer perspective.

Why You Need a Strategy Map

Rated as one of the most popular management tools, the balanced scorecard has been in use for more than two decades and the benefits gained by organizations that use the tool are widely evident. Initially designed as a measurement tool, the balance scorecard has transitioned into a useful strategic management tool.

Over the years, organizations that have adopted the balanced scorecard have managed to effectively measure performance and implement their strategies successfully.

In many organizations, very few employees have knowledge of the strategy being pursued. How is it possible then to effectively execute strategy if the very people charged with the responsibility of implementing it do not even understand it?

Without a complete description of strategy, it is very difficult for executives to easily communicate the strategy among themselves or to their employees. Furthermore, if there is no shared understanding of the strategy, it is also difficult for the executives to create alignment around it.

This lack of alignment often impedes successful strategy execution.

Strategy execution is far more important than strategy formulation. Working in harmony with the BSC, the strategy map helps executives to communicate the organization’s strategy clearly and briefly to all the stakeholders and execute it successfully.

It is therefore imperative for executives to understand strategy and be able to bring clarity to everyone in the organization that is charged with carrying it out.

For any strategy to be effective, it must contain descriptions of financial aspirations, market to be served, processes to be excelled in and the people who will be responsible for carrying it out. The strategy map achieves this. It provides the visual framework that integrates the organization’s objectives into the four perspectives of the BSC.

Furthermore, the strategy map helps you determine what you must do well in each of the BSC perspectives in order to successfully execute your strategy. It helps you describe your strategy in a uniform and consistent way that enables objectives and measures to be established and managed.

In other words, the strategy map provides the missing link between strategy formation and strategy execution. It illustrates the cause-and-effect relationships that link desired outcomes in the customer and financial perspectives to outstanding performance in critical internal processes.

So how can you successfully develop your strategy map? One important aspect to consider when building a strategy map and BSC measures is how many and which perspective you will choose. Depending on the nature of your organization it might be worthwhile for you to consider additional perspective to the four original perspectives – Financial, Customer, Internal Processes and Employee Learning and Growth.

Additional perspectives might be in the areas of innovation, R&D, environment, suppliers, CSR and governance. When choosing the perspectives of your strategy map and BSC it is important to ensure that your chosen perspectives communicate the complete story of your strategy and create a competitive advantage for your organization.

It is also important to capture the key stakeholders contributing to your organization’s success. However, take note that you do not need to include every possible contributor otherwise your map will become cluttered.

Since the main purpose of the strategy map and the BSC is to communicate clearly and briefly the organization’s key drivers, it is important that you select the perspectives that enable you to capture the organization’s key stakeholders and describe how you are going to serve each of them and thereby successfully implement your strategy.

Questions such as – What value propositions will ensure that our customers are satisfied and remain loyal? What processes must we excel at in order to drive this customer valued proposition, and what competences must our employees possess? – will help you develop a strategy map and BSC that clearly communicates your strategy and demonstrate how you plan to execute that strategy.

The success and credibility of your strategy map and BSC also depends on the pool of information used to develop them. You need to gather and review as much background material as you can find for each perspective.

Sources of material that can be used to gather information include annual reports, the organization’s mission statement, strategic plan, project plans, competitor data, analyst reports, benchmarking reports, trade journals and news articles. Since the sources of information vary, it is critical to ensure that the source documents provide a single view of your organization’s mission, core values, vision and strategies. Any discrepancies identified should be resolved.

To sum up, the strategy map is a one-page graphical representation of what you must do well in each of the four BSC perspectives in order to effectively execute your strategy. It helps you outline the critical objectives necessary for the success of your organization.

Remember, the essence of strategy is doing different things than your rivals to create value. Therefore, avoid copying the objectives and metrics of your competitors as these may prove counterproductive to your efforts.

Rather, first determine your organization’s value proposition and then seek to all value chain processes because it is the determination of the key drivers of your own organization that differentiates you from your rivals.

Identifying Your Organization’s Critical Success Factors

In the previous post I touched on the benefits of understanding your organization’s critical success factors. In this post i will look at the key tasks involved in identifying organization wide CSFs. In order to establish the CSFs, management need to first identify and list all the success factors. Normally, this initial process of investigating the business success factors often results in a long list of issues deemed critical for the continued success of the organization. However, analysis of better performing organizations has revealed that these organizations have between five and ten CSFs that they focus more on.

After identifying all the organizational success factors, it is important to trim down the list as this is key to successful   enterprise performance management and the alignment of daily operational activities to the business strategy. Since the relationship between CSFs and KPIs is vital, if you get the CSFs right, it becomes easy to identify and establish organization wide KPIs that are linked to the business strategy.

There is a difference between success factors and CSFs. Critical success factors have the following characteristics:

  • They are worded in a way that is easy for employees to comprehend and deduce what is expected of them.
  • They apply to more than one balanced scorecard perspective and impact nearly all the BSC perspectives of the business.
  • They have a great influence on other success factors.
  • They are focused on a specific area of the business as opposed to being broad statements that lack any form of clarity.

When identifying the organization’s CSFs the following is key to success:

  • Determine the existing identified success factors. This can be done through reviewing and analyzing all the strategic documents in the organization as well as interviewing all the knowledgeable employees across the business and all the senior management team. You can also utilize the services of outside consultants who possess valuable knowledge about your organization’s industry, sector, products or services to come up with a list success factors. Success factors and CSFs must link back to the organization’s strategic issues and initiatives.
  • Conduct a CSFs workshop. This workshop plays a critical role of developing the organization’s CSFs and establishing the way to use them in order to successfully execute the overall strategy of the business. All the knowledgeable employees from the different functions of the organization, senior management team, KPI project team and the external facilitator (if one is appointed) should attend this workshop. The benefits of conducting such a workshop is that it helps the organization to revisit its success factors, map the cause-and-effect relationship between the various success factors, identify the critical few success factors that link back to strategy, brainstorm the relevant performance measures on the CSFs and determine how these performance measures will be reported.
  • Consult with all the organizational stakeholders before finalization. The CSFs workshop is a platform to identify the organization’s CSFs and prepare drafts for wider review by the other stakeholders who did not attend. These stakeholders include senior management team members, board of directors, key customers, key suppliers, employee focus groups, employee union representatives etc. A wider consultation on the organization’s CSFs helps stimulate discussion and facilitate agreement. Without entity wide buy-in, successful strategy execution is compromised because various stakeholders will focus only on certain areas of the business they think are critical for the continued success of the organization and exploit others. This lack of agreement on the organization’s CSFs often leads to resource wastage, duplication of effort and sub-optimal performance.
  • Communicate the CSFs to all employees. Once the final CSFs have been agreed on, they must be communicated to all management teams and their subordinates. If staff members know what is important, they can align their daily activities and maximise their contribution towards successful strategy execution.

I welcome your thoughts and comments.

Benefits of Understanding Your Organization’s Critical Success Factors

In today’s competitive environment knowing and understanding your organization’s CSFs is key to survival and success. Critical success factors (CSFs) and their performance measures play an important role of linking daily operational activities to the organization’s strategies. Without thorough and complete knowledge of its CSFs, the organization’s performance management system will not produce the expected results.

Although most organizations are aware of their success factors, few of them have identified and defined their critical success factors appropriately; separated success factors from their strategic objectives and communicated the CSFs to all employees. Identifying and understanding CSFs will help the organization to focus and allocate resources on those activities that create and add long lasting value.

On the contrary, a lack of comprehending the CSFs will result in performance measurement, monitoring and reporting becoming just another random process that produces a long list of measures and reports not aligned to the overall business strategy.

When selecting the critical success factors of the business, it is important to have senior management commitment to ensure the effectiveness and usefulness of the chosen CSFs. In other words, active leadership by senior management is not an option but mandatory.

Knowing, communicating and evaluating the progress of the organization’s CSFs has the following advantages:

  • It helps the organization to discover the most important KPIs that are aligned to the organization’s strategies.
  • It helps eliminate performance measures that are unrelated to the organization’s CSFs or those measures that do not positively impact the CSFs.
  • CSFs help senior management and their employees to prioritize their actions and resource allocations which in turn help align performance management and strategy.
  • By focusing on the critical success factors, performance measurement; monitoring and reporting will become more focused on what matters most. This therefore means senior management will not be bombarded with numerous or irrelevant reports.
  • It encourages clearer summary reports to the board and those charged with governance based on progress in the CSFs.

Although the selection of the CSFs is very subjective exercise, the effectiveness and usefulness of the chosen CSFs are highly dependent on the analytical skill of the team involved. It is important to ensure that the wording of the CSFs is clear and easily understandable to all employees. Avoid using broad statements whose meaning is not clear to employees.

Watch out for my next post on identifying organization-wide critical success factors.

I welcome your thoughts and comments.

 

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