The Balanced Scorecard: Translating Strategy Into Action (13 page)
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Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
One of the most interesting customer perspectives is illustrated by Pioneer Petroleum. Pioneer is representative of the many organizations that sell to retailers, distributors, and wholesalers. Such companies actually have two distinct groups of customers they must satisfy. The first group is their immediate customers—the organizations that purchase the products or services and then resell them to their customers. And it is the customers’ customers—often the ultimate consumer—that represent the second group of Pioneer customers. For such organizations, we have found it useful to split the customer perspective into two segments: the immediate customers and the ultimate consumer. For example, producers of consumer packaged goods, like Procter & Gamble, Coca-Cola, and Pillsbury, must understand and work well with their retailers, wholesalers, and distributors. But they also work very diligently to understand the tastes and preferences of the final purchaser of their products, the consumer.
Figure 4-5
The Customer Value Proposition (Tier 1)—Rockwater
Figure 4-6
The Customer Satisfaction Measure—Rockwater
For its consumer perspective, Pioneer had learned from its market research (described earlier in this chapter) that consumers in its targeted segments bought from a branded gasoline dealer because they expected the stations to be safe and clean and staffed with employees who were friendly and helpful. A second large segment valued speed of service highly. Pioneer measured consumer satisfaction (its core outcome measure) through a “mystery shopper” program, independent third parties who purchased products at the retail outlet and evaluated the experience relative to the strategic objectives of clean-friendly-fast. Performance drivers of the consumer satisfaction outcome measure included measures of clean and safe, friendly employees, and rapid service.
Figure 4-7
The Customer Value Proposition—Pioneer Petroleum
The case studies of Kenyon, Rockwater, and Pioneer Petroleum show how objectives can be established for the value propositions delivered to targeted customers. While each organization should develop its own set of value propositions that it wishes to capture in the customer perspective of its Balanced Scorecard, we have found that virtually all value propositions typically incorporate measures related to the response time, quality, and
price of customer-based processes. The
appendix
to this chapter presents a brief discussion of representative measures that can capture the time, quality, and price dimensions of its customer relationships.
At the conclusion of formulating the customer perspective, managers should have a clear idea of their targeted customer and business segments, and selected a set of core outcome measurements—share, retention, acquisition, satisfaction, and profitability—for these targeted segments. These outcome measures represent the targets for companies’ marketing, operational, logistics, and product and service development processes. But, these outcome measures have some of the defects of traditional financial measures. They are lagging measures—employees will not know how well they are doing with customer satisfaction or customer retention until it is too late to affect the outcome. Also, the measures do not communicate what employees should be doing in their day-to-day activities to achieve the desired outcomes.
Managers must also identify what customers in targeted segments value and choose the value proposition they will deliver to these customers. They can then select objectives and measures from among three classes of attributes that, if satisfied, will enable the company to retain and expand its business with these targeted customers. The three classes of attributes are:
- Product and service attributes: functionality, quality, and price
- Customer relationship: quality of purchasing experience and personal relationships
- Image and reputation
By selecting specific objectives and measures across these three classes, managers can focus their organization on delivering a superior value proposition to their targeted customer segments.
We discuss here representative measures that companies can use to develop time, quality, and price metrics for the customer perspective of their Balanced Scorecard.
Other customers may be more concerned with the reliability of lead times than with just obtaining the shortest lead times. For example, many shippers still prefer to use trucks rather than rail, not because trucks are cheaper or even faster for long-distance moves. But since many railroads cannot deliver reliably on time, within a one-day receiving window, the shippers (and their customers) prefer a more expensive, even longer, transport medium that can guarantee arrival within a desired time interval. Such reliability is especially important for manufacturers who operate without inventories under a just-in-time discipline. Honda and Toyota want deliveries to their assembly plants to arrive within a one-hour time window. Observers have noted delivery trucks driving around outside an automobile assembler’s facility until the production process is ready for the items being delivered. At the upper end of the receiving time window, a late delivery will shut down an entire production facility that operates with zero inventories of raw materials and purchased parts. For service companies, think about the frustration of a consumer who has taken time off from work to be at home, only to find that delivery or installation is not made at the scheduled time. If reliable delivery is vital for important customer segments, a measure of on-time delivery will be a useful performance driver for customer satisfaction and retention. The OTD measure should be based on the customer’s expectation. Telling Honda or Toyota that your definition of “on time” is
± 1 day, when their production process can tolerate a window no wider than ± 1 hour, will not likely win you much business from these demanding companies.
Hospitals and medical practices that have purchased or leased expensive diagnostic equipment demand high reliability and up-time from this equipment. One manufacturer developed two customer-based metrics for such customers: equipment up-time percentage and mean-time response to a service call. The focus on these objectives led the company to install fault detection circuitry in the equipment that could automatically page for a service call, in anticipation of an equipment failure.
Lead time is important not only for existing products and services. Several customers value suppliers that can offer a continual stream of new products and services. For such market segments, a short lead time for introducing new products and services could be a valued performance driver for customer satisfaction. This objective could be measured as the elapsed time from when a new customer demand has been identified to the time when the new product or service has been delivered to the customer. We explore this time-to-market measure when discussing the innovation process in the internal-business-process perspective (
Chapter 5
).
