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  • 1. Building an Adaptive Enterprise through Customer Focus A New Business Framework and Approach October 27, 1999
  • 2. Contents I. The Sears Story II. Business Imperatives in the Connected Society III. The New Business Paradigm IV. Gap Analysis V. Actions and Implementation Plan VI. Key Success Factors
  • 3. The Sears Transformation Story Provides a Valuable Lesson for Samsung 1886 1945 1982 1992 1997 2000
    • Founded in 1886, it essentially starting the retail concept of large department stores with a full line of merchandise and catalog business
    • Core competencies: its adaptive ability to understand and serve changing consumer needs
    • Grew rapidly reaching $1B in sales in 1945 and $41B by 1985
    • Became the dominant U.S. department store
    • Created “brand power”
    • Became too inward-focused, self-absorbed
    • Began diversifiying
    • Centralized and bureaucratic policies
    • Ignoring new breed of competitors
    • Results: Losing market share, financial performance declining, shareholder losing confidence
    • Brought in a new CEO
    • Embarked on a turnaround program :
      • focus on core business
      • customer focus
      • greater local market focus
      • improved cost structure and productivity
      • organizational and cultural renewal
    • Despite huge success, continue to renew and adapt to changing environment, e.g., the connected economy
    • Continue to finetune its customer focus
    • Continue to refine its value proposition and go-to-market strategies
    Birth Growth Leadership Transformation Continuous Renewal Inflection Point Sears & Industry Industry Sears Sears Sears ?
  • 4. Sears Defined the American Retail Industry Source: Company web site, Hoovers, HBR Sears, Roebuck and Co. Stanford Business School Case , 1997, EY Analysis
    • First broad scope retailer offering products not readily available to the general public
    • Set the “Gold standard” of retailing in US, offering unheard of money-back guarantees and free trial offers
    • Grew rapidly reaching $1B in sales in 1945 ($9B in 1998 dollars) and $41B by 1985 ($63B in 1998 dollars)
    • One in five Americans shopped at Sears regularly
    • Employees were extremely loyal, and were rewarded with the best profit-sharing programs in the country
    • Created the catalog industry in US
    • Undercut profit margin of the “general store” to save money for consumers
    • Created “Brand Power” -- Sears became a household name standing for high quality at a fair price
    • Sears developed popular private label brand names including Kenmore appliances, Craftsman Tools and Diehard batteries
    “ Sears is the paragon of retailers. It is number one, in the United States, and number two, three, four and five” - Fortune Magazine, 1960s Retailer Catalog Brand
  • 5. Success Has Made Sears Complacent, However, and it Grew Out of Touch with the Changing Retail Marketplace
    • Customer-distant decision making
    • Headquarters controlled stores, yet did not work closely enough with them to understand their environment
    • Bulletins were written about every process--employees were not allowed to make any decisions
    • Distracted
    • Owned a conglomerate of unrelated companies including Allstate Insurance, Dean Witter Investments, Coldwell Banker Real Estate & Discover Credit Card
    • Ignored true competition
    • Sears was stuck in the past -- they did not catch on to emerging retailing trends
    • Did not see Wal*Mart & K-Mart entering into their retail space
    • Considered only JC Penney & Montgomery Wards as its competitors
    • Misjudged target customers
    • Thought its target customers were male
    • Targeted advertising and promotions towards men
    • Ineffective performance management
    • Employee compensation did not align with corporate objectives
    • Confused positioning
    • Unfocused response to new competition left Sears with an undefined strategy -- it was not a discounter (e.g., Wal*Mart) or a high end department store (e.g., Nordstrom)
    • “ We didn’t know if we wanted to be a discounter, a department store, a specialty store or a mass merchant” - Arthur Martinez, CEO
    Source: Home Furnishings Network, 9/30/96, EY Analysis
  • 6. Consequently, by the Early 90’s, Sears Had Lost Its Historically Dominant Position *S&P Retail Index CAGR from 1990-1992 Source: Dow Jones, Bloomberg ($ Billions) Profit Revenue Indexed Stock Price ($ Billions) CAGR 89-92 23% 43% -1% -2% N/A Sears Wal-mart JC Penney K-mart Dayton- Hudson CAGR 89-92 29% -0.4% 4% 3% 10% Sears Wal-mart JC Penney K-mart Dayton- Hudson CAGR 89-92 42% 16%* 12% 6% 6% 2% Sears Wal-Mart JC Penney K-mart D-H S&P Retail Index In 1992, Sears Hired a New CEO, Arthur Martinez, To Turn Around the Company
  • 7. Under Martinez, Sears Embarked on a Three-Phased Transformation Process Transformation (1993-1997) Growth (Ongoing) Source: Harvard Business Review, Sears Roebuck & Co. Turnaround , 1998, Company Web Site, EY Analysis
    • Hired a new CEO
    • Stabilized operations to stop losses
    • Refocused on core business
    • Created a new corporate vision
    • Determined target customer and designed value proposition
    • Launched new ad campaigns
    • Instituted a new performance measurement system
    • Implemented comprehensive corporate wide change management programs
    • Continue to refine value proposition and go-to-market strategies
    • Continue to improve transformation programs
    • Began a new renewal process incorporating new environment--ecommerce
    1992 1993 1994 1995 1996 1997 Revenues declined 9% to $52b, net loss of $3.9 B Sears moved from downtown Chicago to suburban Hoffman Estates Hired new CEO Recruited new Senior Executive Committee Began 100 days evaluation period Closed catalog business Reorganized around its appliance, home & automotive business Closed 113 department stores & reduced workforce by 50,000 people Identified target customer as a middle aged female Hired new employees from outside Sears & the industry Began selling off non-retail businesses Began new marketing campaign, “The Softer Side of Sears,” which was targeted at women Executives’ “Phoenix Team” created Committed to remodel stores & gain additional selling floor space Solidified mission & vision statements Created Total Performance Indicator (TPI’s) to measure achievement of market focus strategy Formed Sears University to educate executives on business practices Began 360° reviewing process of all managers Began “Learning Map” program to train all associates about the need and reason for transformation Simplified policy & reduced bureaucracy by introducing “Freedom & Obligations” TPI measures became part of top 200 associates’ compensation Began goal sharing program Began “Holistic Retailing” strategy to meet the needs of homeowners through a variety of retail & service formats Increased number of full line mall stores Developed neighborhood furniture & hardware stores Started e-Commerce through sears.com Launch second revolution Subsegmented market to target more specific ethnic customer segments (e.g., Hispanics) Granted incentives to all store-line managers Integrated TPI measures into part of all manager’s above store level compensation Turnaround (1992)
  • 8. The Transformation Began With a New Vision: A Compelling Place to Shop, Work, and Invest C ompelling Place to Shop C ompelling Place to Work C ompelling Place to Invest Satisfied employees influence the shopping experience Loyal customers increase top line growth Employees rewarded for performance P assion for the customer Source: EY Analysis P eople add value P erformance leadership 3 C s and 3 P s Employees Financial Results Customer
  • 9. The Initial Vision Was Then Translated into Specific Objectives and Measures Employees Financial Results Customer Source: EY Analysis
    • Environment for personal growth and development
    • Support for ideas and innovation
    • Empowered and involved teams and individuals
    • Personal growth and development
    • Empowered teams
    • Great merchandise at great value
    • Excellent customer service from the best people
    • Fun place to shop
    • Customer loyalty
    • Customer needs met
    • Customer satisfaction
    • Customer retention
    • Revenue growth
    • Superior operating income growth
    • Efficient asset management
    • Productivity gains
    • Revenue growth
    • Sales per square foot
    • Inventory turnover
    • Operating income margin
    • Return on assets
    Objectives Measures
  • 10. Sears Rediscovered Its Target Customer
    • Management perception of target customer:
      • Thought target customers were male
      • Targeted advertising and promotions towards males
    • Core customer:
        • female
        • middle class (annual income of $25,000 - $60,000/yr.)
        • middle age (24-54 yrs. old)
        • head of household
        • mostly mothers
    Source: HBR Sears, Roebuck and Company Turnaround , 1998; EY Analysis “ This was a big discovery. Unless we made the store more attractive to her, we weren’t going to break out of the box we were in.” - Arthur Martinez, CEO Before Discovery “ We had a company run by guys who thought they were in the “dirty fingernails” business of autos and hardware. There was no singular view of Sears target customer.” - Arthur Martinez, CEO
  • 11. Sears Then Refined Its Value Proposition to Meet the New Target Customer Product/Services
    • Added new departments such as cosmetics and jewelry for women
    • Expanded apparel offerings
    • Increased national brand products
    • Improved underdeveloped sections such as petites
    • Increased customer wallet share by offering multiple types of services and products to target customer
    Image
    • Rolled out the “Softer Side of Sears” advertising campaign, targeting the female customer
    • Communicated that Sears is changing--it offers more merchandise than just appliances and hardware
    • Renovated fixtures and lighting to give a more classy appearance
    Relationship
    • Redesigned stores to provide a more contemporary environment
    • Expanded selling floor space in stores by redesigning back rooms
    • Increased touch points with customers by expanding stores into neighborhoods with hardware and furniture stores
    + + Source: HBR Sears, Roebuck and Company Turnaround , 1998; EY Analysis Value Proposition
  • 12. Believing That Employees Are an Important Part of the New Strategy, Sears Invested Heavily in Employees Communicate Strategy Help Improve Performance Match Compensation with Performance Source: HBR Employee-Customer Profit Chain , 1998 ; HBR Sears, Roebuck and Company Turnaround , 1998; EY Analysis Employees
    • Town Hall Meetings
      • Held sessions in which all employees met in small groups of around ten
      • Learned about the industry, Sears and why Sears needed to transform
    • Improved Employee Selection
      • Developed interview selection tools to help managers hire employees with the correct skill sets
      • Determined new skills and attitudes needed to realize the new vision and revised new hire profiles accordingly
    • Decision-making/Empowerment
      • Gave front-line employees more authority to act on their own discretion to provide more responsive service to customers
    • Improved Training
      • Opened Sears University to teach courses essential for the operation of the transformation
      • Courses available to managers and above
    • Decreased Bureaucracy
      • Decreased bureaucracy by eliminating cumbersome policies and replaced with broad guidelines called “Freedoms and Obligations”
    • Stock purchases
      • CEO was required to invest five times his salary in Sears stock, and executive board was expected to invest three times their salary
      • Top 200 managers had to purchase their salary in stock
      • Total Performance Indicators (TPIs)
      • Compensation based on TPIs initially rolled out to top 200 managers
      • Eventually all managers above store level had compensation based on TPIs
      • TPIs were broken down with 1/3 based on each of employee, customer & financials
      • Goal sharing
      • Associates given the opportunity to earn variable incentive pay based on customer satisfaction
  • 13. To Monitor Progress, Sears Developed a Comprehensive Performance Measurement System
      • Defined a balanced portfolio of strategic objectives along three critical and complementary perspectives: employee, customer, and shareholder
      • Developed a cause-and-effect model of how those objectives influence each other
      • Made sure that the model included drivers of future growth (“leading indicators”)
      • Used that model to develop key measures (Total Performance Indicators - TPIs) so that measurement would influence behavior
      • Wherever possible, defined a quantitative metric for each TPI, and where possible, confirmed statistical correlations in the cause-and-effect change
      • Monitored progress against TPIs using individual and shared goals, and used the results to finetune the list of TPIs
      • Linked performances against TPIs to compensation, using both individual and group goals and incentives. Compensation was linked to non-financial as well as financial performance, and the three perspectives were given equal emphasis
      • Cascaded compensation link from top management (Phoenix team, then top 200 execs, then down through middle management above store level, and finally to management teams in the stores as the TPIs proved themselves). Goal sharing was tried on a test-basis to cascade compensation links to the salesperson level
    Measuring Rewarding Source: EY Analysis
  • 14. Sears’ New Performance Metrics Measured Impact of Employee and Customer Satisfaction on Financial Results Legend Source: HBR Employee-Customer Profit Chain of Sears , 1998; HBR Sears Roebuck & Co. Turnaround , 1998; EY Analysis Employee-Customer Profit Chain Focus on Employees Focus on Customers Financial Results Attitude about the job Attitude about the company Employee behavior Employee retention Service ----------- Helpfulness Customer Impression Customer retention Customer Recommend- ations Return on assets Operating margin Revenue growth Merchandise ------------ Value 5 unit increase in employee attitude surveys Example: 1.3 unit increase in customer impression surveys 0.5% unit increase in revenue growth DRIVES DRIVES
    • Rectangles represent survey information
    • Ovals represent hard data
    • Shading represents measurements collected in the form of Sears total performance indicators
    • Solid arrows represent statistically established correlations
    • Dotted arrows represent hypothetical relationships
  • 15. This Intense Effort Has Dramatically Improved Results for Employees, Customers, and Investors Sears Wal-mart JC Penney K-mart Dayton Hudson Scores Total Performance Indicators Employee Scores 2 Share Price Market Share S&P Retail Index 1992 = 1
  • 16. Despite Success, Sears Continues to Renew itself to Adapt to the Changing Environment, e.g., Connected Economy
    • Entered into e-Commerce
      • Launched Sears.com
      • Focusing on appliances first, then will expand into hardware & tools, lawn & garden, and consumer electronics
      • Sears aims to be the definitive online source for the homeowner
    • Reorganized Executive Office
      • Created a chief executive office composed of current CEO Martinez and two finance/merchandise specialists
      • Will allow Martinez to focus on full line store needs and reduce the number of people reporting to him
    • Increased Store Sovereignty
      • Shifting more control of stores from headquarters to the local stores, so they can better react to their customers’ individual needs
    • Altered Store Environment
      • Hired one of the country’s top fashion photographers to create displays and specialty shops within the department stores
    Source: Context Magazine The Cyberside of Sears , Sept/Oct 1999, Chicago Tribune 9/19/99, Crain’s Chicago Business 9/6/99, Dow Jones, EY Analysis
  • 17. The Sears Story: Redefinition of Core Business Vision Strategy Go-to-Market Strategy Value Propositions Customer Performance Management Performance Management Employee Training & Empowerment Processes Knowledge Management Communication Communication
  • 18. Key Success Factors Leadership Complete Internal Alignment Around Strategy Tireless Execution Measurement System Brand Power Long-Term Perspective Customer Focus SEARS
  • 19. Contents I. The Sears Story II. Business Imperatives in the Connected Society III. The New Business Paradigm IV. Gap Analysis V. Actions and Implementation Plan VI. Key Success Factors
  • 20. XXX Has Achieved Market Leadership in Consumer Electronics Worldwide
    • Fortune magazine ranks XXX as the #5? consumer electronics company in the world
    Birth Expansion Leadership Revenue & Profit Growth Market Cap Growth Global Market Share Leadership
  • 21. This Success Was Driven Primarily by Superior Operational Excellence Based on the“Make-and-Sell” Approach
    • Organized to produce large quantities of products efficiently and sell them to customers whose needs could be assumed, predicted, and controlled
    • Characterized by replaceable parts and economies of scale
    • Focus on products and processes
    • Emphasis on planning and control
    Profits Through Product Sales Volume & Cost Cutting Service Distribute Advertise/ Promote Sell Price Make Design Product Procure R&D Make Product Sell Product Market
  • 22. Fundamental Changes Occurring in the Marketplace Are Requiring Samsung to Redefine its Basis for Competition Time ? Birth Renewal Growth Leadership Decline Value New Business Model Globalization Example: GE 80-81 86/87 91/92 99/00 Market Share Leadership Productivity Services and Solutions Digital Inflection Pt Business Model Active Inertia Value Convergence Internet Digital Virtual Community eCommerce Open Standard
  • 23. The Connected Society Marks the Transition To a New Era of Human History Industrial Revolution (Age of Civilization) Transportation Revolution (Age of National Scale Transportation) Information Processing Revolution (Data Processing Age) Connected Society Revolution (Networked Society Age) STEAM ENGINE URBANIZED AND INDUSTRIAL SOCIETY LINEARITY & LIFE CYCLEs TRANSNATIONAL RAILROAD BLURRING INTEGRATED CIRCUIT ACCELERATION AND COMPRESSION INTERNET AND DIGITAL COMMUNICATION GLOBALLY CONNECTED SOCIETY AND ECONOMY SYNCHRONICITY “ We are in for a revolution” Source: E&Y The Leadership Connection TM Interviews REGIONAL SPECIALIZATION AND INTER-REGIONAL TRAVEL KNOWLEDGE WORKER-BASED ECONOMY Evolution of Business Social Implication Defining Application 2000 1950 1860 1750
  • 24. The Connected Economy Is Characterized by Three Key Forces Intangibles Services Products Customer Speed Connection Source: Blur, 1998
  • 25. These Three Forces Are Destroying Old Solutions. . .
    • Markets and industries will be defined in terms of CUSTOMERS rather than products
    • Market power will shift from suppliers toward CUSTOMERS
    • More reliance will be placed on flexible, customized marketing and INTANGIBLE elements of the value proposition
    • Product life cycles will shorten
    • The need to choose between a high volume/low cost strategy and a niche/differentiation strategy will disappear
    • Maximizing the number of transactions with the same loyal customer by offering a diverse array of products and services will become increasingly important
    • The most productive business strategies will be cooperative, not competitive
    • Organizations will rely more on decision teams and parallel information processing and less on individual decision-making and sequential information processing
  • 26. . . . Leading to Six Rules for Success in the Connected Society. 1 Source: E&Y Analysis Focus on desired customers 2 Focus on competencies 3 Leverage partnerships 4 Identify differentiators 5 Create hybrid models 6 Be flexible and agile
  • 27. The New Organizational Premise is “Sense-and-Respond.” Source: Hackel, Stephen, Adaptive Enterprises , Boston:Havard Business School Press, 1999. MAKE-AND-SELL Assumption: Predictable change Goal: Become an Efficient Enterprise Mission and Policy Strategy - objective - plan Structure functional hierarchy Command and Control management system A Closed System SENSE-AND-RESPOND Assumption: Unpredictable change Goal: Become an Adaptive Enterprise Context - purpose and bounds - adptative structure Coordination of Capabilities - commitment management An Open System Internal Feedback External Signals Adapting
  • 28. Transitioning to a Sense-and-Respond Organization Requires a Fundamental Shift Source: Hackel, Stephen, Adaptive Enterprises , Boston:Havard Business School Press, 1999. Make-and-Sell Sense-and-Respond Continuum Mindset behind Strategic Intent Know-How Process Organizational Priority Profit Focus Operational Concept and Governance Mechanism Information Architecture Information Technology Architecture Market Leader Criteria Articulation of Strategy Business as an efficient mechanism for making and selling offers to defined market segments with predictable needs Embedded in products Mass Production Efficiency and predictability Profit margins on products and economies of scale Functional and sequential activity Functionally managed and optimized Host-centric: hierarachical top-down command and control mgmt system Share of products and services Strategy as plan Business as an adaptive system for responding to unanticipated requests in unpredictable environments Embedded in people and processes Modular customization Invested in capailities and system Return on investmens and economies of scope Networked and paralleled activity and teams Enterprise management of essential information Network-centric: shadowing the dynamic network of people and teams Share of customer spending Strategy as adaptive business design
  • 29. Contents I. The Sears Story II. Business Imperatives in the Connected Society III. The New Business Paradigm IV. Gap Analysis V. Actions and Implementation Plan VI. Key Success Factors
  • 30. The Primary Business Objective for Samsung Is to Increase the Ultimate Value of the Company Market Value Multiple ($) Time Full Potential Typical Financial Performance Non-financial Performance
  • 31. The Challenge is to Determine How to Manage Company Resources to Create Maximum Financial Outcomes = Earnings Revenues Revenues Invested Capital Market Value Earnings x x (Profit Margin) (Capital Efficiency) (Growth / Reliability) Financial Performance Market Value Multiple ($) Time Full Potential Typical Non-Financial
  • 32. Increasingly, Investors Take Non-Financial Measures into Account When Valuing Companies Market Value Multiple ($) Time Full Potential Typical Financial Non-financial
    • Nearly 40% (50% for high tech firms) of the market valuation of the average company was missing from its balance sheet (1996 Study)
    • Non-financial criteria constitute on average 35% of the investor’s decisions
    • The more non-financial measures analysts use, the more accurate are their earnings forecasts
    Key Findings from Market Studies Non-Financial Metrics Investors Value Most
    • 1. Execution of corporate strategy
    • How well does management:
      • leverage its skills and experience?
      • gain employee commitment?
      • stay aligned with shareholder interests?
    • 2. Quality of strategy
      • Does management have a vision for the future?
      • Can it make tough decisions and quickly seize opportunities?
      • How well does it allocate resources?
    • 3. Ability to innovate
      • Is the company a trendsetter or a follower?
      • What is in the R&D pipeline?
      • How readily does the company adapt to changing technologies and markets?
    • 4. Ability to attract talented people
      • Is the company able to hire and retain the very best people?
      • Does it reward them?
      • Is it training the talent it will need tomorrow?
    • 5. Market share
      • Is the company capturing the value of the current market?
      • Is it well-positioned to expand that value in the future?
    • 6. Quality of executive compensation
      • Is executive pay tied to strategic goals?
      • How well is it gauged to the creation of shareholder value?
    • 7. Quality of major processes
    • 8. Research leadership
      • How well does management understand the link between creating knowledge and using it?
  • 33. Non-Financial Data Have a Direct Impact on Valuation A one unit improvement in the perception of quality of management could represent a 13.2% price premium on share value Source: Ernst & Young’s Measures That Matter , 1997 Computer Industry Pharmaceuticals Food Industry Oil and Gas Non-Financial Criteria Quality of Management Quality of Products and Services Level of Customer Satisfaction Strength of Corporate Culture Quality of Investor Communications Effectiveness of Executive Compensation Policies Effectiveness of New Product Development Strength of Market Position 1.4% 1.4% 0.0% 0.0% 1.3% 0.3% 1.3% 0.0% 7.6% 13.2% 2.4% 9.6% 0.0% 4.8% 0.0% 2.1% 0.8% 1.8% 0.9% 2.5% 0.0% 3.2% 3.1% 7.1% 2.6% 4.9% 0.9% 3.9% 0.0% 0.0% 3.0% 0.5% 2.8% 0.6% 2.9% 0.3% 4.2% 8.8% 5.8% 7.2% 0.0% 1.3% 0.0% 0.9% 1.1% 2.5% 5.3% 7.3% 3.1% 2.5% 2.7% 1.5% 0.4% 1.2% 0.9% 1.8% 1.2% 6.1% 4.6% 4.4% 1.6% 4.1% 7.3% 9.3% % Increase in P/E Ratio given a one-unit change in…. Influence On Price Short Term Long Term 15% 0% 15% 0% 15% 0% 15% 0%
  • 34. Therefore, a Compelling New Business Paradigm Should Focus on Measures That Matter, both Financial and Non-Financial Stock Price Constituency Behaviors Operating Model VEM SYSTEMS KNOWLEDGE C E S I TIME PRICE ? ? Allocation of Time and Money A C B F E D 4 TIME/MONEY CAUSAL MODEL Value Invested Value Returned Value Invested 3 Management Philosophy/ Point of View Cutomer Focus
    • Calibrate Stock Value Gap
    • Model Profile Constituency/ Behaviors that Matter
    • Create Causal Model/VE Optimization Capability
    • Redesign Enterprise Processes/ Overall Architecture
    • Transition Enterprise to a Customer Focus Point of View
    Customer Investor Supplier Employee
    • Buy
    • Price
    • Etc.
    • Buy
    • Hold
    • Etc.
    • Cost
    • Stocking
    • Etc.
    • Productivity
    • Wage
    • Etc.
    1 2 5
  • 35. The New Business Paradigm Development Proceeds with the Following Five Steps Company Vision Business Strategy Value Propositions
    • Who are we and what do we do?
    • Where should we go?
    • What are our “promises” to:
      • customers
      • employees
      • partners
      • investors
    Strategic Operation Model
    • How will we get there?
      • Business Structure
      • Business System
      • Organization Structure
    Portfolio of Initiatives
    • How will we deliver it?
    1 2 3 4 5
  • 36. This Effort Addresses Four of the Five Components Where should we go? How do we get there? How do we deliver it? Business Strategy Operating Model Portfolio of Initiatives
    • A definition: The intentional choice of where, how, and when to compete…
    • … resulting in significant (or largely irreversible) commitments of resources — capital or human
    • Effective strategy considers marketplace and internal issues, is fact-based, and owned by those responsible for implementation
    Framework which defines internal business structures, processes and systems:
    • Implementation initiatives focused on improving current business process performance...
    • … while maintaining the benefit of a high-touch environment
    • … and enabled by information technology, measurement systems, and infrastructure
    • High level business unit structure and process structure design
    • Business system definition
    • Organization structure
    What are our “promises”? Value Propositions
    • Develop comprehensive offering for target customers
    • Define compelling reasons:
      • for employees to work at Samsung
      • for partners to work with Samsung
      • for investors to invest in Samsung
  • 37. A Customer Driven Organization Performs Six Key Customer Processes Identify Target Customers Develop Offerings Define go-to-market strategy Fulfill Promises Determine Customer Lifetime Value Manage customer relationship Customer Strategy Customer Behaviors Customer Economics Outcome Measures Delivery Strategy Know Who Are Your Customers Know What Your Customers Do Know What Your Customers Are Worth Know What You Can Get Back Decide What to Give Your Customers Determine How to Deliver Understand Your Relationship with the Customer Exchange Value with Your Customers Capability Specifications Opportunity Design Opportunity Identification
  • 38. Customer Driven Business Framework Vision Business Strategy Offer Development Communication Service & Support Customer Strategy Competencies Go-to-Market Strategy Pricing Channel Promotion Product Design Brand Strategy SCM NPD Customer Care Salesforce Ad Campaign Field Services Processes Organization Design Customer Knowledge Management Performance Metrics Value Proposition Development CRM Op Model
  • 39. What Will It Look Like When Samsung Has Transformed into a Customer Driven Organization? Product-Focused Customer-Focused Product Manager Customer Portfolio Manager Volume, product profitability, market share, customer satisfaction Lifetime value, product mix, customer profitability, share of wallet, customer retention Managed by sales region Managed by customer segment or portfolio of individual customers Manager Role Measures Managerial Scope Required Knowledge
    • Market growth
    • Pricing studies
    • Assessment of competitive landscape
    • Customer satisfaction
    • Geographic sales breakdown
    • Brand perception/perception of quality
    • Customer’s Lifetime Value
    • Customer’s current product portfolio
    • Customer’s point in lifecycle (customer needs)
    • Customer’s history with company
    • Customer’s preferred access channel
    • Cost to acquire, serve and retain
    Source: E&Y Analysis
  • 40. What Will It Look Like When XXX Is Customer-Driven?
    • Activities and Behaviors
    • Value propositions defined by key customers/segments for product/service offerings
    • Globally integrated and shared customer knowledge management
    • Metrics developed to track degree of customer focus
    • Customer-focused measures & targets shared by different functions in XXX value chain
    • Customer attraction & retention rates tracked
    • Share of wallet defined and tracked for key segments
    • Customer profitability captured & used to manage customer portfolio
    • Pricing & channel actions are no longer reactive, but based on CRM strategy
    • New product/service development includes market research, customer and field input, and cross-functional team approach
    • Results
    • Price parity with leading brands for comparable products
    • Brand parity in terms of recognition and positive image
    • Increased brand equity reflected in above-average performance of XXX stock relative to peer competitors
    • Customer attraction & retention rates increase
    • Share of wallet increases for key segments
    • Customer profitability increases
    • XXX profitability, EVA, and ROA increase
  • 41. Measuring Customer Focus in the New Environment Adapted from: The Balanced Scorecard , Kaplan & Norton, 1996 Leading Indicators (Drivers): Customer Value Proposition Customer Acquisition Customer Profitability Customer Retention Customer Satisfaction Market and/or Wallet Share Lagging Indicators (Outcomes): Customer Response Lead To Value to Customer Product/Service Attributes Image Relationship = + + Functionality Price Time Brand Quality (Examples of measures:) (Examples of measures:) (Brand survey rating) (Share points) (% new customers in target segments) (Fully-costed margin in target segments) (# of repeat sales in target segments) (CSI) (Back order rate) (Relative price ratio) (Warranty) claims After-Sales Service Examples of attributes: (External product ratings) (Response time, problem resolution rate)
  • 42. Contents I. The Sears Story II. Business Imperatives in the Connected Society III. The New Business Paradigm IV. Gap Analysis V. Actions and Implementation Plan VI. Key Success Factors
  • 43. Marketing IQ Test 1. Businesses in America were reasonably successful during the 1980s, enjoying real growth in sales of 2 percent or more per year. 2. During the coming decade, marketers will earn more profits from new brands than from existing ones. 3. A high share of market in a product category generally leads to economies of scale that result in a high level of profitability. 4. There is little agreement among marketers about what the hot new concept “brand equity” means. 5, A reasonable way to set the marketing budget is to take last year’s figure and adjust for inflation. 6. Line extensions are a very risky way to introduce new products. 7. Focus group interviews are a serious marketing research tool that a manager can safely use to help make serious marketing decisions. 8. Business today invest more money in finding new customers than in further developing current customers. 9. The most profitable customers of a firm are usually its biggest customers. 10. Big companies generally make their marketing decisions after evaluating many alternatives in terms of profitability. True False Don’t Know
  • 44. Marketing IQ Test (Cont’d) 11. The more appealing a new product concept is to prospective buyers, the more likely it is it will be a success. 12. Every company should strive to hold on to all of its customers. 13. Location is the most important determinant of success for a new retail business. 14. One-hundred percent customer satisfaction is not an intelligent business objectives. 15. Media planners at major advertising agencies know a great deal about the relative effectiveness of print, television, and radio advertising. 16. Because pricing is such an important component in the marketing mix, most big companies have a serious pricing strategy based on pricing research. 17. Nielsen’s television rating service--especially the new “people meter”--provides valid information about the number of people watching a particular television program. 18. Consumer and trade promotional programs tend to be more profitable than advertising. 19. Companies cannot quantify the effects of public relations programs. That's one reason why PR is a less valuable components of the marketing mix than advertising or the sales force. 20. Most marketing and advertising programs usually are measured in terms of their profitability. True False Don’t Know Total:
  • 45. What is Your Marketing IQ?
    • If you scored: You are:
    150 - 160 130 - 149 110 - 129 90 - 109 70 - 89 50 - 69 30 - 49 11 - 29 1 - 10 A marketing genius A guru, a maven An up-and-coming consultant A seasoned professional A typical marketer A death-wish marketer An incompetent Dangerous to your company Guilty of malpractice
  • 46. Contents I. The Sears Story II. Business Imperatives in the Connected Society III. The New Business Paradigm IV. Gap Analysis V. Actions and Implementation Plan VI. Key Success Factors
  • 47. An Operating Model Is the Primary Mechanism for "Operationalizing" Business Strategy Where should we go? How do we get there? How do we deliver it? Business Strategy Portfolio of Initiatives What are our “promises”? Value Propositions Operating Model
    • Develop comprehensive offering for target customers
    • Define compelling reasons:
      • for employees to work at Samsung
      • for partners to work with Samsung
      • for investors to invest in Samsung
  • 48. An Operating Model Is the Primary Mechanism for "Operationalizing" Business Strategy Where should we go? How do we get there? How do we deliver it? Business Strategy Operating Model Portfolio of Initiatives Framework which defines internal business structures, processes and systems:
    • High level business unit structure and process structure design
    • Business system definition
    • Organization structure
    What are our “promises”? Value Propositions
  • 49. Operating Models Consist of Three Primary Components
    • Identification of business unit structure, organized around customers, markets, products, geographies, etc.
    • Delineation of dedicated and shared services across business units
    • Preliminary evaluation of profit & loss responsibility, revenue responsibility, and cost centers
    • Articulation of “rules of engagement” — A.K.A. “How things really get done”
    • Organizational Structure describes at a high level all elements of:
      • reporting structures
      • roles & responsibilities
      • jobs & skills
    • Design of an organizational structure that is aligned with the strategy and other operating model components
    Business Structure Strategic Operating Model Competencies Performance Management Business Processes Knowledge Management Regulatory (Lobbying) Legal Services Human Resources Finance External Affairs Business Planning Administration Engineering Environmental Compliance Transaction Management Regulatory Compliance Energy Generation Unit (Genco) Customer Operations Unit (Disco) Energy Delivery Unit (Transco) Low Cost Differentiated Services By-Product (Ash) Management Maintenance Operations Maintenance Operations Customer Service Product Development Marketing Sales 1 Business System 2 Organization Structure 3
    • Clearly identified and defined business system components that support the strategy and the high level business structure
    Our focus Sales Marketing Call Center (Service) Billing Operators Remittance Processing System Control Center Ops Generation Engineering and Construction Environmental Regulatory (Lobbying) Legal Services Human Resources Finance External Affairs Business Planning Administration One Operating Business Unit
  • 50. Operating Model Development: Business System Competencies (Staffing, Training, Development) Performance Management Business Processes Knowledge Management & Information Systems Change Management Business Processes
  • 51. Operating Model Development Competencies (Staffing, Training, Development) Performance Management Business Processes Knowledge Management & Information Systems Change Management Business Processes
  • 52. Competency Modeling and Assessment Methodology Universal Competency Modeling Process Job/Role Assessment Gap Analysis HR Link Tactical Organizational Design Stage 1 Stage 2 Stage 3 Stage 4 Documentation Review/ Current State Understanding LINKAGE Succession/ Career Planning Selection Training and Development Performance Appraisal Compensation Recruitment Validation
  • 53. Operating Model Development Competencies (Staffing, Training, Development) Performance Management Business Processes Knowledge Management & Information Systems Change Management Business Processes
  • 54. Operating Model Development Competencies (Staffing, Training, Development) Performance Management Business Processes Knowledge Management & Information Systems Change Management Business Processes
  • 55. Performance Management is the Vital Link Between a Company’s Ability to Define its Strategy and Implement It. Strategy Vision Performance Management Execution Concrete initiatives to operationalize a firm’s strategy Execution at all levels consistent with strategy Measurement Motives What you measure is what you get. It’s not what you expect … it’s what you inspect. If you can measure it, you can manage it.
  • 56. Effective Performance Measurement Systems Capture Both Financial and Non-Financial Value Creation Strategic Decisions Financial Markets Investor Estimates of Future Cash Flows Strategy Execution Capital Allocations Share Price Financial Performance Measurement Non-Financial Performance Measurement Company Market Feedback Loop: Measuring Value Value Creation
  • 57. Performance Measurement Has Become a Highly Effective Management Tool for Aligning Performance With Strategy, Especially in Rapidly Changing Industries
    • communicates the company’s strategic vision down through the organization
    • provides a management tool for decision-making
    • promotes accountability and follow-up
    • provides a mechanism for learning and feedback
    • promotes alignment of effort up and down the organization
  • 58. The Balanced Scorecard Has Proven to be a Highly Effective Approach for Both Performance Management and Business Transformation
    • As of 1999, more than 50% of Fortune 1000 companies had adopted some version of the Balanced Scorecard (BSC).
    • The early adopters of the Scorecard in the early 1990’s have reported satisfaction with what the Scorecard accomplished for them.
      • About half used the Scorecard to focus and improve their pursuit of already established financial goals (“run a tighter ship”)
      • About half used the Scorecard to bring about a more fundamental business or cultural transformation (“turn the ship around”)
      • At least half of the companies viewed the Scorecard as a “resounding success,” and nearly all called their efforts generally successful. All believed the Scorecard helped employees focus on strategic priorities and the leading indicators of financial success and better manage their company’s value chain.
    • This compares favorably with failure rates between 65% and 80% for business transformation initiatives with a significant information systems component.
    Sources: Balanced Scorecard Collaborative, press release dated February 25, 1999, at www.bsccollaborative.com; Sarah Mavrinac and Michael Vitale, “Where Are They Now? Revisiting the Original “Balanced Scorecard” Firms,” Perspectives on Business Innovation (Ernst & Young Center for Business Innovation), Issue 2, p. 29., Gartner Group.
  • 59. A “Good” Scorecard Tells the Story of Your Strategy A Strategy is a set of hypotheses about cause and effect Criteria for a Good Balanced Scorecard
      • Cause and Effect Relationships:
        • Every measure is a link in a chain of cause and effect linkages that represent the strategy
      • Linkage to Financials:
        • Every measure ultimately ties to financial results/EVA
      • Emphasis on Performance Drivers:
        • Focus on factors which create long term value
        • Establish a balance between leading and lagging indicators
      • Measures that create change
        • Measures which communicate objectives not prescribe actions
        • Measures which cause the organization to redefine a process or change behavior
  • 60. At a Personal Level, Understand How Their Actions Impact Economic Value ILLUSTRATIVE Capital Expense Production Expense Raw Materials Ordering Costs Errors Clerical Errors Revenue Ability Administration Expense Facilities Rents/Occupancy Expense Expensed Capital Transportation People Expense Confidence NOPAT Sales Marketing New Product Development Inputs EDI Inventory Spoilage Bad Data Errors Staffing Constraints Equipment Technical Errors Education Intellectual Aptitude Reporting Warehousing Cost Of Capital EVA
  • 61. The Balanced Scorecard Is the Most Comprehensive and Flexible Measurement Framework Available and Best Addresses Today’s Challenges in Performance Measurement and Management
    • A complete Balanced Scorecard has four fundamental components:
    The Balanced Scorecard Framework Of Complementary Business Perspectives A Cause-&-Effect Model That Explains How The Company’s Strategic Objectives Together Create Value Supporting Processes & Infrastructure To Implement The Scorecard As A Business Discipline A Set of Key Measures, Targets, and Accounta- bilities To Guide Progress Toward Those Objectives
    • Four perspectives:
    • Financial
    • Customer
    • Business Processes
    • People (Organizational Learning and Growth)
    • The model helps ensure:
    • That the underlying busiess vision is shared by the management team and communicable to the organization
    • That the set of strategic objectives that form the basis for the Scorecard work together toward the same strategic goals
    • That the Scorecard’s various objectives ultimately contribute to improved financial performance
    • For each strategic objective:
    • One or more Key Performance Indicators (KPIs)
    • A target for each KPI
    • One or more groups or individuals charged with achieving each target
    • Where relevant, designated initiatives to help achieve those targets
    • Process examples:
    • Management Review
    • Budgeting
    • Performance Review
    • Compensation
    • Infrastructure examples:
    • Decision support & reporting systems
    • Communication
    • Training
  • 62. The BSC Links Strategic Objectives to Measurements Across Four Perspectives Business Process To satisfy our customers, in which internal business processes must we excel? Customer To satisfy our shareholders, what financial objectives must we accomplish? The Strategy Financial To achieve our strategy, which customer needs must we satisfy? People To achieve our strategy, how must the people learn and innovate? The Balanced Scorecard translates the strategy of a firm into statements of “things the firm needs to do well to be successful.” In its standard form, the Balanced Scorecard defines success across at least four perspectives: Financial, Customer, Business Process, and People. Most Scorecards also seek a balance between indicators of current growth (often financial and business measures) and indicators of future growth (typically in the “customer” and “people” perspectives) *Based on the original concepts proposed by David Norton and Robert Kaplan in their 1992 Harvard Business Review article
  • 63. The Balanced Scorecard Defines Strategy As a Set of Hypotheses About Cause and Effect Increase Customer Confidence in Our Financial Advice Broaden Revenue Mix Improve Returns Understand Customer Segments Cross-Sell the Product Line Develop the Offering Achieve Employee Satisfaction Improve Customer Information Broaden Skills (Financial Planner) Align Reward System Partial Revenue Strategy Illustrative
  • 64. This Cause and Effect Model Ensures That All Measures Ultimately Drive Financial Indicators Increase Customer Confidence in Our Financial Advice Broaden Revenue Mix Improve Returns Understand Customer Segments Cross-Sell the Product Line Develop the Offering Achieve Employee Satisfaction Improve Customer Information Broaden Skills (Financial Planner) Align Reward System Partial Revenue Strategy
    • Financial
      • Return on Investment
      • Revenue mix
      • Revenue growth
    • Customer
      • Customer satisfaction survey
      • Customer retention
      • Depth of relationship
      • Share of segment
    • Business Processes
      • Product development cycle
      • Revenue from new products
      • Hours with customers
      • Cross-sell ratios
    • People
      • Employee satisfaction
      • Revenue per employee
      • Strategic info availability
      • Strategic job coverage
      • Personal goals alignment
  • 65. For example, a Large Beverage Company People Continue to Attract and Retain Highly-Effective Workforce Continue to Attract and Retain Highly-Effective Workforce Foster Culture of Innovation and Risk Taking Foster Culture of Innovation and Risk Taking Eliminate Silos and Ceilings Eliminate Silos and Ceilings Provide Challenging and Rewarding Work Provide Challenging and Rewarding Work Create a Work Environment of Trust, Teamwork, and Integrity Create a Work Environment of Trust, Teamwork, and Integrity Financial Customer Business Process Retailer Push Consumer Pull “ Profitable Share Growth” “ Be Consumer Brand-of-Choice and Retailer Preferred Supplier” “ Provide High Quality, Enhanced Margin” “ New Ideas, Good Team Work” Maximize Total Return to Shareholders Strategically Manage Market Share Strategically Manage Market Share Meet or Exceed Long-Term Corporate Earnings Goals Meet or Exceed Long-Term Corporate Earnings Goals Achieve Productivity and Cost Advantage Achieve Productivity and Cost Advantage Enhance Profitability of Business Partners (Wholesaler, Retailer) Enhance Profitability of Business Partners (Wholesaler, Retailer) Be Perceived by Consumers as Having the Best Value Be Perceived by Consumers as Having the Best Value Enhance Brand Equity, esp. Budweiser Trademark Enhance Brand Equity, esp. XXX Trademark Ensure and Promote High Product Quality and Freshness as a Competitive Advantage Ensure and Promote High Product Quality and Freshness as a Competitive Advantage Help Partners Manage Product Mix and Availability Help Partners Manage Product Mix and Availability Partner with Retailers to Execute Win/Win/Win Activities Partner with Retailers to Execute Win/Win/Win Activities Strengthen use of information across the extended supply chain, including 2nd and 3rd tier Strengthen use of information across the extended supply chain, including 2nd and 3rd tier Understand Customer Trends to Design Targeted Pricing, Packaging, and Advertising/Merchandising Understand Customer Trends to Design Targeted Pricing, Packaging, and Advertising/Merchandising Maintain Best-in-Class Master Scheduling and Distribution Capability Maintain Best-in-Class Master Scheduling and Distribution Capability Maintain Consistency in Production and Procurement Processes Maintain Consistency in Production and Procurement Processes Develop Creative Production Innovations Develop Creative Production Innovations Maintain Best-in-Class Innovative Marketing Capability Maintain Best-in-Class Innovative Marketing Capability “ Manage and Measure Across Value Chain” Incorporate Leading Edge Decision Support Systems into Effective Decision Making Incorporate Leading Edge Decision Support Systems into Effective Decision Making Provide Right Product/ Package at Right Place, at Right Time, at Right Price and Margin
  • 66. A XXX Cause-and-Effect Model Should Show How its Strategic Objectives in All Four Perspectives Business Processes People Growth Customer/ Consumer Understand & respond to customer needs Create a knowledge- sharing culture Reduce inventory & current assets Increase unit volume Maximize shareholder value Hire & develop customer-focused employees Make what you sell, don’t sell what you make Empower employees to make decisions closer to the customer Increase EVA Increase price relative to market leader Increase customer acquisition & share of wallet Increase customer retention & lifetime value Build brand equity Target key customer segments Develop customer knowledge management infrastructure Increase sales-to-asset ratio Illustrative XXX Cause-&-Effect Model Increase customer profitability Measure & reward customer-focused behavior Organize around the customer Leverage R&D to develop innovative digital products that ad- dress customer needs
  • 67. A Balanced Scorecard Includes Objectives, Measurements, and Targets That Promote Change Example: Owner/ Accountability
    • Finance Director
    • CEO
    • Business Development Manager
    Targets
    • Top 10% of FTSE companies each year
    • RPI + X% annually
    • 25% in three years
    Measurements
    • % dividend growth
    • Operating Margin
    • Revenue from new services
    Business Objectives
    • Shareholder value
    • Profit
    • New revenue
    Perspective Shareholder Requirements
    • Marketing Director
    • Business Development Manager
    • Marketing Director
    • Number one customer rating
    • $Xm in five years
    • Number one customer rating
    • Value for money
    • Profits from alliances
    • Customer satisfaction
    • Differentiation
    • Strategic alliances
    • Customer service
    Industry/ Customer Positioning
    • Chief Operating Officer
    • Research and Development Manager
    • Marketing Director
    • Best-in-class within five years
    • Reduced by 50% in two years
    • 60% within one year
    • Revenue/work hour
    • Product development cycle time
    • Number of initiatives targeted at profitable segments
    • Productivity
    • New product development
    • Segmentation
    • Human Resources Director
    • Business Development Manager
    • CEO
    • Treble in three years
    • 10 in five years
    • 20% in two years
    • Management span of control
    • Number of “learning partnerships”
    • % management time interfacing with customers
    • People policy
    • Alliance management
    • Customer focus
    Business Processes People
  • 68. A Properly Designed Process Will Avoid the Common Pitfalls of Most “Home Grown” Balanced Scorecards Institutionalizing a Dysfunctional Process Failing to Articulate Strategic Intent Creating Unbalanced Measurement Establishing a Rigid Management Philosophy
      • Industry generic, not strategic
      • “ Unintegrated’ perspectives
      • What customer values are not defined
      • Missing internal, operational link
      • Too many measures
      • Unrealistic, unrepeatable
      • Activities instead of measures
      • Misleading
      • All financial
      • No executive consensus—not top down
      • Roll out before completion
      • Tie to incentives prematurely
      • Too many people, too long
      • Lose momentum
      • Control, not communication
      • Strategic report vs. strategic learning agenda
      • For management only
  • 69. In Sum, The Balanced Scorecard Determines:
      • What is strategically critical
      • What needs to be measured
      • How it is to be measured
    It also links the boardroom to the back office
  • 70. The Balanced Scorecard’s Metrics and Supporting Processes Are Cascaded Down Through The Organization As Far As Needed, Often to the Individual Hourly Worker Design Scorecard Implement Scorecard Cascade Level n: Dept. or Team Design Scorecard Implement Scorecard Cascade Level I: Corporate Design Scorecard Implement Scorecard Cascade Level II: Business Unit Design Scorecard Implement Scorecard Cascade Level n+1: Individual
  • 71. XXX Performance Management: Major Tasks to Perform Objective: Major Activities: Results: Ownership:
    • Design enterprise-wide Scorecard framework
    • Evaluate XXX vision & strategy
    • Define short list of strategic objectives
    • Develop cause-&-effect model
    • Define measures
    • Establish targets
    • Develop implementation plan
    • XXX- level Scorecard defined and launched for executive team
    • XXX President
    • Implement enterprise-wide Scorecard framework
    • Provide additional training
    • Integrate use of Scorecard into management review, budgeting, and planning processes for executive team
    • Launch “missing measures” program to develop & collect new measures
    • Review and refine model, measures, & targets
    • Link to executive compensation
    • Communicate Scorecard to rest of organization
    • XXX -level Scorecard fully institutionalized
    • XXX President
    • Design Scorecard framework for each GPM
    • Apply XXX vision & strategy
    • Define short list of strategic objectives
    • Develop cause-&-effect model
    • Define measures
    • Establish targets
    • Develop implementation plan
    • Scorecards defined and launched for each GPM executive team
    • Global Product Managers
    • Implement Scorecard framework for each GPM
    • Provide additional training
    • Integrate use of Scorecard into management review, budgeting, and planning processes for executive team
    • Launch “missing measures” program to develop & collect new measures
    • Review and refine model, measures, & targets
    • Link to executive compensation
    • Identify additional IT requirements
    • XXX -level Scorecard fully institutionalized
    • Global Product Managers
    • Establish full support for automated scorecard & complete cascade to rest of XXX
    • Develop & implement executive information system to automate Scorecard mgmt. & reporting
    • Confirm how far to cascade the Scorecard (level & geography)
    • Launch communication & training program
    • Complete the cascade
    • Fine-tune measures & targets through use
    • Link to compensation
    • Full Balanced Scorecard implementation
    • Functional & depart-mental managers
    Cascade Level I: Cascade Level II: Expanded Implementation Design XXX -Level Paper-Based Balanced Scorecard Implement Basic XXX -Level Paper-Based Balanced Scorecard Design GPM-Level Paper-Based Balanced Scorecard Implement Basic GPM-Level Paper-Based Balanced Scorecard Expand Process Support for Balanced Scorecard
  • 72. Why Does The Balanced Scorecard Make Sense for XXX ?
        • The Scorecard measures a business’s performance from customer, business process, and employee development perspectives as well as from a financial one.
          • Until now, XXX has measured itself primarily along financial lines, and to a lesser extent by process measures. However, it now recognizes that it needs to adopt a customer-based perspective, and transform its organization’s and employee’s capabilities to better support a customer focus.
        • The Scorecard also tries to balance emphasis on drivers of current performance with emphasis on drivers of future growth.
          • XXX has been very successful recently, but recognizes that it needs to shift its focus to new sources of future growth, and that this will entail changes in how it does business.
        • The Scorecard is one of the most effective tools available for accomplishing cultural change and business transformation.
          • XXX realizes that shifting from a product focus to a customer focus will require a fundamental reorientation in company culture, as well as a transformation in the business processes by which XXX develops, positions, and sells its products and responds to its customers’ needs.
        • The Scorecard is one of the most effective means of communicating a company’s strategic vision down through the ranks of an organization so that each employee understands the strategy and understands how his or her actions should contribute to achieving that vision.
          • For XXX to become a customer-focused organization, management will have to communicate--continually and consistently--what that will actually mean for day-to-day operations throughout the company.
  • 73. Why Does The Balanced Scorecard Make Sense for XXX (continued)?
        • The Scorecard is holistic: it provides a balanced set of measures for an entire company or business unit, not just for a single initiative or business process.
          • XXX will need to make changes throughout its entire organization--not just in its marketing process--to focus successfully on its customers. The Scorecard can help each part of the organization understand its role within a customer-driven business.
        • The Scorecard encourages sharing cross-functional objectives and measures by different groups that need to work together toward a common goal. It discourages distinct parts of an organization from “owning” one key measure and ignoring others as “belonging” to someone else.
          • To achieve a customer-driven culture in an organization where P&L responsibility is allocated along product lines (GPMs), XXX will need a performance management framework that unites GPMs, Global Marketing, and overseas offices as a team with a common focus on the customer and a shared vision of how to meet customer needs.
        • The Scorecard assumes that strategic objectives will change over time or need to be fine-tuned, and provides a management review process for doing so.
          • XXX is entering an era of increased market volatility and shortened strategic planning horizons, and will have to adjust its customer strategy as the connected economy evolves.
  • 74. Operating Model Development Competencies (Staffing, Training, Development) Performance Management Business Processes Knowledge Management & Information Systems Change Management Business Processes
  • 75. Contents I. The Sears Story II. Business Imperatives in the Connected Society III. The New Business Paradigm IV. Gap Analysis V. Actions and Implementation Plan VI. Key Success Factors