Balanced Scorecard   Intro To Basic Concepts
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Balanced Scorecard   Intro To Basic Concepts Balanced Scorecard Intro To Basic Concepts Presentation Transcript

  • BUILDING A STRATEGY FOCUSED ORGANIZATIONWITH THE BALANCED SCORECARDIntroduction to Basic ConceptsNg Aung SanVice President & Head (Strategy & Organization) 1
  • QUOTE… “ Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. ” Sun Tzu The Art of War 2
  • Content 1.  Overview of BSC 3.  Customizing BSC to Architecture Strategy 2.  Closer look at Internal Process Clusters 3
  • BSC Perspectives #1 - Financial §  Defines the tangible outcome of strategy in traditional Financial terms §  How does success look like? #2 - Customer (External) §  Defines the Value Proposition for target existing and potential customers segments §  How can we become a Magnet company? #3 - Channel Partners (Int. Customers) §  Defines the Value Proposition for existing and potential channel partners/ agents §  How can we become a Magnet company? #4 - Business Model/ Int. Processes §  Defines the Vehicle for delivering the Value Proposition §  How can deliver on our promise? #5 - Organization Learning & Growth §  Defines the organization s intangible assets §  How can we align assets to support Business Model and Mobilize and sustain change? 4
  • #1 Financial Perspective Elaboration on Financial Perspective §  Summarizes readily measurable economic consequences of actions already taken. §  Typically comprise two broad drivers: §  Productivity driver (Improve cost structure/ Enhance asset yield) §  Revenue Growth driver (Expand revenue opportunities / Enhance customer value) #1 - Financial §  Defines the tangible outcome of strategy in Financial Measures traditional Financial terms Two distinct categories of Measures §  How does success look like? §  Productivity measures §  Revenue growth measures Examples of Productivity measures §  Total Assets §  Return on net assets/ total assets §  Gross margin/ NPAT §  Profit as % of Sales §  Profit/ Value added per employee §  Return on Equity/ Return on investments §  Market capitalization/ Share price/ Dividends §  Credit Rating Examples of Revenue Growth measures §  Total/ New Business Premiums (existing/ new sources) §  New Business Embedded Value (existing/ new sources) 5
  • #2 Customer Perspective Elaboration on Customer Perspective §  Identifies the markets and customer segments that organization will serve and compete §  Identifies the differentiated Value Propositions that the organization will offer to target market and customer segment #2 - Customer (External)§  Defines the Value Proposition for target existing Customer Measures and potential customers segments Two distinct categories of Measures§  How can we become a Magnet company? §  Measures of performance in markets and target customers §  Measures of Value Propositions organization will offer to target customers Examples of Customer Performance Measures §  Share in target Market and Customer segments §  Market and Customer segment profitability §  Sales Volume/ Sales Volume per channel §  No. of Customers §  Target customer acquisition/ retention rates §  Percentage of revenue from New Customers §  Target customer segments complaints/ compliments §  Brand recognition/ awareness in target customer segments Customer Value Proposition Measures §  Measures of elements of value propositions to be delivered 6
  • #3 Channel Partner Perspective Elaboration on Channel Partner Perspective §  Identifies the channel partners which organization can partner and work with §  Identifies the differentiated Value Propositions that the organization will offer to channel partners #3 - Channel Partners (Int. Customers) §  Defines the Value Proposition for existing Customer Measures and potential channel partners/ agents Two distinct categories of Measures §  How can we become a Magnet company? §  Measures of performance in target channels §  Measures of Value Propositions organization will offer to channel partners Examples of Channel Partner Performance Measures §  Channel product volume/ product mix §  Channel productivity/ profitability §  Channel market share §  Channel customer acquisition/ retention rates §  Channel development/ growth §  Percentage of revenue from new channels §  Channel complaints/ compliments §  Channel scorecard/ survey feedback Channel Partner Value Proposition Measures §  Measures of elements of value propositions to be delivered 7
  • #4 Business Model Perspective Elaboration on Business Model Perspective §  Describes how organization will deliver its customer and channel partner value propositions §  Identifies related process clusters that make up the organization. Broadly grouped into three process clusters: §  Operations Management cluster - Producing and delivering products to customer §  Customer Management cluster - Establishing and #4 - Business Model/ Int. Processes leveraging relationship with customers §  Innovation processes cluster - Developing new §  Defines the Vehicle for delivering the Value products, services, processes and relationships Proposition §  How can deliver on our promise? Business Model/ Internal Process Measures Examples of Operations Management measures §  Cost of key operating processes §  Marketing, selling, administrate expense as % of total costs §  No. of processes with substantial improvements §  Cycle time Examples of Customer Management measures §  No. of referrals/ Percentage of leads converted §  Customer response rate to campaigns §  No. of products per customer/ Depth of relationship §  Costs per new customer acquired Examples of Innovation measures §  Time to Market/ Percentage of product launches on-time §  No. of new products first-to-market §  No. of new applications from platform products §  No. of joint collaborative new product projects 8
  • #5 Learning & Growth Perspective Elaboration on Learning & Growth Perspective §  Defines organization s intangible asset and their role in strategy. Intangible assets classified into three categories: §  Human capital - Skills, talents and know how to perform activities, required by strategy §  Information capital - Information systems and infrastructure required to support the strategy §  Organization capital - Culture, Leadership, #5 - Organization Learning & Growth Alignment and Teamwork§  Defines the organization s intangible assets§  How can we align assets to support Business Model and Mobilize and sustain change? Business Model/ Internal Process Measures Examples of Human Capital readiness measures §  Training investment per employee/ Training hours §  Competency coverage ratio §  % of employees with advanced degrees §  Number of cross-trained employees §  Best practice sharing Examples of Information Capital readiness measures §  Strategic information ratio §  Knowledge management index Examples of Organizational Capital readiness measures §  Span of control per manager §  Quality of work environment §  Motivation index §  Turnover rate/ Absenteeism §  Strategic awareness 9
  • BSC comprise two main related elements – Strategy Map andScorecard Strategy Map Scorecard §  Visual representation of the cause-and-effect §  Translates objectives in strategy map into relationships that connects desired Financial, measures of success and targets, across Customer and Channel Partner outcomes respective financial/ non financial and with the Business Model drivers that will internal/ external perspectives. transform intangible assets into these outcomes §  Organizes in a structured way, bundles of aligned strategic initiatives – action plans and scarce resources e.g. people, funding §  Functions as a checklist for strategy s and capacity – required to meet targets for granular components and interrelationships respective measures, and achieve objectives – Missing components usually indicate incomplete or flawed strategy §  Functions as a checklist and resource deployment decision tool for strategic §  Provides an uniform and consistent way to initiatives – emphasis/ coverage of action describe strategy, so that objectives across plans and targeted allocation of resources. all perspectives and measures can be established and managed – through the §  Provides a cohesive, integrated and Scorecard systematic way to manage effective implementation of strategy 10
  • BSC Strategy Map depicts chain of cause-and-effectrelationships VISION Guided by and to achieve our Vision…… To achieve #1 - Financial Top-downour financialsuccess, and …What is the desired financial Thinking & Logic §  Defines the tangible outcome of goals we have to achieve…our Vision strategy in traditional Financial terms §  How does success look like?… And, togetherwith Channel #2 - Customer (External) …What is the unique set of benefits we willPartners, to our §  Defines the Value Proposition for target offer to customers for their patronage...Customers… existing and potential customers segments §  How can we become a Magnet company? #3 - Channel Partners (Int. Customers) …And our channel partners for … Needed to deliver their partnership... Value Proposition to §  Defines the Value Proposition for existing Channel Partner,… and potential channel partners/ agents §  How can we become a Magnet company? #4 - Business Model/ Int. …What do we have to do to … To build strategic ensure consistent delivery of capabilities to effectively Processes value propositions… execute the processes … §  Defines the Vehicle for delivering the Value Proposition §  How can deliver on our promise? Bottom-Up #5 - Organization Learning & Growth Test & Linkage §  Defines the organization s intangible …And what assets do we Align and enhance our Organizational Assets… assets have to develop §  How can we align assets to support Business Model and Mobilize and sustain change? 11
  • Financial perspective provides definition of success or valuein tangible financial termsFinancialPerspective Sustain growth in Shareholder Value Productivity Strategy Revenue Growth Strategy §  NPAT §  ROE/ ROI §  NBEV/ Premiums from new §  NBEV/ Premiums §  Expenses §  Investment returns products, markets & segment §  NBEV/ Prems. per Customer Improve Cost Enhance Expand Revenue Enhance Structure Asset Yield Opportunities Customer Value Typical Objectives §  Lower direct and §  Reduce working and fixed §  Tap into new sources of §  Deepen relationship with indirect expenses capital needed to support revenue (new products, existing customers business markets, segments) §  Improve investment yield §  Tap into new channels 12
  • Customer perspective identifies value proposition to be amagnet company to External Customers Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Enhance Expand Revenue Enhance Structure Asset Yield Opportunities Customer ValueCustomer (External) §  Customer profitability §  Market Share §  Customer §  CustomerPerspective §  Segment profitability §  Segment Share Acquisition Retention CUSTOMER VALUE PROPOSITION Product/ Service Attributes Relationship Image Price Quality/ Selection Functionality/ Reputation Returns Availability Features Service §  Product Price/ §  Bonus Levels §  Distribution §  Range of §  Product §  Quality & §  Brand Strength & Pricing §  Yields/ Channels/ Product Lines Features/ Coverage of §  Financial Strength Investment Reach Quality Support/ & Ratings Returns Service §  Identifies the customer and market segments in §  Unique configuration of seven pillars of Customer which organization will serve and compete Value Proposition differentiates organization: §  Identifies two distinct types of measures: §  What company expects to do for its customers better or differently than its competitors §  Measures of value propositions organization will deliver to target customers §  What draws customers to our company §  Measures of performance in the target segments §  Customers perceive where company stands, in relation to each of seven pillars, and decides on patronage 13
  • Channel partner perspective identifies value proposition tobe a magnet company to Channel Partners Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Enhance Expand Revenue Enhance Structure Asset Yield Opportunities Customer ValueCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Quality/ Functionality/ Price Availability Selection Service Reputation Returns FeaturesChannel Partner (Agency) §  Agent Business Volume/ Mix §  Agents Recruited §  No. of Agents onPerspective §  Agent Productivity §  Agent Attrition Management Path CHANNEL VALUE PROPOSITION Sales Production Support Growth & Development Support Product Range Sales Support Brand Support Career & Agency Admin Support Comp. Mgmt. Support §  Identifies the channel partners which §  Unique configuration of six pillars of Channel Value organization can partner and work with Proposition differentiates organization: §  Identifies two distinct types of measures: §  What company expects to do for its channel partner better or differently than its competitors §  Measures of value propositions organization will deliver to target §  What draws existing partners/ agents to stay with channel partners/ agents us and new partners/ agents to join us. §  Measures of performance in the target channels §  Channel partners/ agents perceive where company stands, in relation to each of six pillars, and decides on partnership 14
  • Internal Processes/ Business perspective defines vehicle todeliver on Value Propositions… Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Enhance Expand Revenue Enhance Structure Asset Yield Opportunities Customer ValueCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Quality/ Functionality/ Price Availability Selection Service Reputation Returns FeaturesChannel Partner Channel Value PropositionPerspective Sales Production Support Growth & Development Support Product Range Sales Support Brand Support Career & Agency Admin Support Comp. Mgmt. SupportInternal ProcessPerspective Customer Mgmt. Innovation Processes Operations Mgmt. Regulatory & Social Processes Processes Processes Process which expand and Processes which develop new products, Basic, day to day processes by Processes which help organizations deepen relationships with processes and services, to enable which companies produce their continually earn the right to targeted customers company to penetrate new markets existing products and deliver operate in communities and and customer segments them to customers countries in which they operate §  Identifies Four Process clusters that make §  Business Model enables organization to deliver on up the organization elements of value propositions. §  Changes to value propositions requires corresponding changes to business model 15
  • … And groups Organization s myriad existing and newprocesses into four Clusters Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Enhance Expand Revenue Enhance Structure Asset Yield Opportunities Customer ValueCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Quality/ Functionality/ Price Availability Selection Service Reputation Returns FeaturesChannel Partner Channel Value PropositionPerspective Sales Production Support Growth & Development Support Product Range Sales Support Brand Support Career & Agency Admin Support Comp. Mgmt. SupportInternal ProcessPerspective Customer Mgmt. Innovation Processes Operations Mgmt. Regulatory & Social Processes Processes Processes Process which expand and Processes which develop new products, Basic, day to day processes by Processes which help organizations deepen relationships with processes and services, to enable which companies produce their continually earn the right to targeted customers company to penetrate new markets existing products and deliver operate in communities and and customer segments them to customers countries in which they operate §  Customer Selection §  Opportunity Identification §  Supply §  Environment §  Customer Acquisition §  R&D Portfolio §  Production §  Safety and Health §  Customer Retention §  Design/ Develop §  Distribution §  Employment §  Customers Growth §  Launch §  Risk Management §  Community 16
  • Learning & Growth perspective defines and alignsorganization s intangible assets, completing Strategy Map Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Enhance Expand Revenue Enhance Structure Asset Yield Opportunities Customer ValueCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Quality/ Functionality/ Price Availability Selection Service Reputation Returns FeaturesChannel Partner Channel Value PropositionPerspective Sales Production Support Growth & Development Support Product Range Sales Support Brand Support Career & Agency Admin Support Comp. Mgmt. SupportInternal ProcessPerspective Customer Mgmt. Innovation Processes Operations Mgmt. Regulatory & Social Processes Processes Processes §  Customer Selection §  Opportunity Identification §  Supply §  Environment §  Customer Acquisition §  R&D Portfolio §  Production §  Safety and Health §  Customer Retention §  Design/ Develop §  Distribution §  Employment §  Customers Growth §  Launch §  Risk Management §  CommunityLearning & GrowthPerspective Organization s Intangible Assets Human Capital Information Capital Organizational Capital §  Skills/ Talent §  Systems §  Culture §  Knowledge §  Databases §  Leadership §  Capabilities §  Networks §  Alignment/ Teamwork 17
  • Closer look at Human Capital Readiness – Strategic JobFamilies, Headcount, Knowledge, Skills & Capabilities Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Enhance Expand Revenue Enhance Structure Asset Yield Opportunities Customer ValueCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Quality/ Functionality/ Price Availability Selection Service Reputation Returns FeaturesChannel Partner Channel Value PropositionPerspective Sales Production Support Growth & Development Support Product Range Sales Support Brand Support Career & Agency Admin Support Comp. Mgmt. SupportInternal Process Perspective Customer Mgmt. Innovation Processes Operations Mgmt. Regulatory & Social Processes Processes ProcessesLearning & GrowthPerspective (illustrative for Human Capital Readiness – Identify Strategic Job Families) Operations Marketing BD Underwriters Executives Underwriters Executives BD Executives (No.) (No.) Executives (No.) ??? ??? ??? (No.) (No.) (No.)Competency Profile§  Knowledge List the Knowledge & Skills Required by various Strategic Job Families identified above§  SkillsReadiness Assessment (Assess HC Readiness in terms of adequacy of Headcount, required level of Knowledge & Skills) XX% XX% XX% XX% XX% XX% XX% XX% XX% 18
  • Strategy comprise complementary strategic themes that cutacross respective perspectives Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Enhance Expand Revenue Enhance Structure Asset Yield Opportunities Customer Value Strengthen franchise for sustainable growthCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Quality/ Functionality/ Price Availability Selection Service Reputation Returns FeaturesChannel Partner Channel Value Proposition Transform Product MixPerspective Sales Production Support Growth & Development Support Product Range Sales Support Brand Support Career & Agency Admin Support Comp. Mgmt. Support Deliver profitInternal ProcessPerspective Customer Mgmt. Innovation Processes Operations Mgmt. Regulatory & Social Processes Processes Processes §  Customer Selection §  Opportunity Identification §  Supply §  Environment §  Customer Acquisition §  R&D Portfolio §  Production §  Safety and Health §  Customer Retention §  Design/ Develop §  Distribution §  Employment §  Customers Growth §  Launch §  Risk Management §  CommunityLearning & GrowthPerspective § Organization s Intangible Assets Human Capital Information Capital Organizational Capital §  Skills/ Talent §  Systems §  Culture §  Knowledge §  Databases §  Leadership §  Capabilities §  Networks §  Alignment/ Teamwork 19
  • BSC Scorecard translates Strategy objectives into Measures,Targets and Owners… Strategy Map (Strategic Business Unit) ScorecardTheme: TRANSFORM PRODUCT MIX Objectives PI/ KPIs Target Owner §  Deliver targets §  NBEV/ Premiums §  $ XXX §  ABCPerspective Financial NB EV §  Increase new §  Market share §  $ XXX §  DEF segment revenues §  Premiums from new segments §  GHJ Desired Desired §  $ XXX §  Increase wallet share §  Share of wallet §  KLM Volume Mix §  $ XXX §  Increase # of §  Depth of customer relationship §  $ XXX §  ABC Competent competent planners §  DEFPerspective §  % of premiums from referrals §  $ XXX Customer Planners §  Deliver consistent/ §  Returns/ bonus §  GHJ §  $ XXX Competitive Innovative competitive returns/ §  # of NTM features §  KLM §  $ XXX Returns features bonus §  NTM product features §  Enhance product §  # of NTM Products §  $ XXX §  ABCBusiness Model Channel Partner Innovative range §  # of Sales Leads §  $ XXX §  DEF Perspective Products/ Range §  Provide Customer §  % selling Linked/ NP products §  $ XXX §  GHJ knowledge §  KLM Sales Brand §  Linked/ NP Case Count & Size §  $ XXX §  Increase channel Support Support focus & productivity May be delivered also by §  Strengthen brand Shared Support Units Channel §  Enhance Operations/ §  Service levels §  $ XXX §  ABC Reliability Innovation Perspective Partner Asset Mgmt. reliability §  Investment returns §  $ XXX §  DEF §  Enhance consistency §  Peer/ Industry product rankings §  $ XXX §  GHJ Product Product Product of investment returns §  KLM §  Various process indicators §  $ XXX Fulfillment Dist. Innovation §  Develop Product Innovation process May be delivered also by FOCUS Shared Support Units §  Develop/ hire to §  HC readiness §  $ XXX §  ABCPerspective Strategic Job Cross Function obtain capabilities §  Product creation effectiveness §  $ XXX §  DEF Families Alignment L&G §  Align product creation §  Segment knowledge §  $ XXX §  GHJ §  Tap CRM §  Partner value add §  $ XXX §  KLM Strategic IT Strategic Systems collaborations §  Extend through collaborations 20
  • ...And Business Model and Organizational Assets Initiativesto deliver on Strategy Objectives and Targets Strategy Map (Strategic Business Unit) Scorecard InitiativesTheme: TRANSFORM PRODUCT MIX Objectives PI/ KPIs Target Owner Initiatives/ Activities §  Deliver targetsPerspective OUTCOME OF BUSINESS Financial NB EV §  Increase new segment revenues MODEL & ORGANIZATIONAL Desired Desired §  Increase wallet share ASSET INITIATIVES & Volume Mix ACTIVITIES §  Increase # of CompetentPerspective competent planners OUTCOME OF BUSINESS Customer Planners §  Deliver consistent/ MODEL & ORGANIZATIONAL Competitive Innovative competitive returns/ ASSET INITIATIVES & Returns features bonus ACTIVITIES §  NTM product features §  Enhance productBusiness Model Channel Partner Innovative range Perspective Products/ Range OUTCOME OF BUSINESS §  Provide Customer knowledge MODEL & ORGANIZATIONAL Sales Brand ASSET INITIATIVES & Support §  Increase channel Support focus & productivity ACTIVITIES §  Strengthen brand May be executed also by Shared Support Units Channel §  Enhance Operations/ §  Product Fulfillment Process Reliability Innovation Perspective Partner Asset Mgmt. reliability Initiative #1, #2, #3 §  Enhance consistency §  Product Distribution Process Product Product Product of investment returns Initiative #1, #2, #3 Fulfillment Dist. Innovation §  Develop Product §  Product Innovation Process FOCUS Innovation process May be executed also by Initiative #1, #2, #3 Shared Support Units §  Develop/ hire to §  HC Initiative #1, #2, #3Perspective Strategic Job Cross Function obtain capabilities §  IT Initiative #1, #2, #3 Families Alignment L&G §  Align product creation §  Alignment Initiative #1, #2, #3 Strategic IT Strategic §  Tap CRM §  Strategic Collaboration Systems collaborations §  Extend through Initiative #1, #2, #3 collaborations 21
  • Resources are then planned and committed to implementBusiness Model and Organizational Asset Initiatives Strategy Map (Strategic Business Unit) Scorecard Initiatives ResourcesTheme: TRANSFORM PRODUCT MIX Objectives PI/ KPIs Target Owner Initiatives §  Deliver targetsPerspective Financial NB EV §  Increase new segment revenues OUTCOME N.A. Desired Desired §  Increase wallet share Volume Mix §  Increase # of CompetentPerspective competent planners Customer Planners §  Deliver consistent/ competitive returns/ OUTCOME N.A. Competitive Innovative Returns features bonus §  NTM product features §  Enhance productBusiness Model Channel Partner Innovative range Perspective Products/ Range §  Provide Customer knowledge OUTCOME N.A. Sales Brand Support §  Increase channel Support focus & productivity §  Strengthen brand May reside in/ committed by Shared Support Units Channel §  Enhance Operations/ §  Initiative #1 §  $ XXX/ Reliability Innovation Perspective Partner Asset Mgmt. reliability §  Initiative #2 Headcount §  Enhance consistency §  Initiative #3 §  $ XXX/ Product Product Product of investment returns Headcount §  Initiative #4 Fulfillment Dist. Innovation §  Develop Product §  $ XXX/ FOCUS Innovation process May reside in/ committed Headcount by Shared Support Units §  Develop/ hire to §  Initiative #1 §  $ XXX/Perspective Strategic Job Cross Function obtain capabilities Headcount §  Initiative #2 Families Alignment L&G §  Align product creation §  Initiative #3 §  $ XXX/ §  Tap CRM Headcount Strategic IT Strategic §  Initiative #4 Systems collaborations §  Extend through §  $ XXX/ collaborations Headcount 22
  • Content 1.  Overview of BSC 3.  Customizing BSC to Architecture Strategy 2.  Closer look at Internal Process Clusters 23
  • Closer look at Internal Processes - BSC groups anOrganization s myriad internal processes into four Clusters Cluster 1 - Customer Management Cluster Understanding customers and value proposition that attracts them is fundamental to any strategy. Customer Management Processes help company acquire, sustain, and grow long-term, profitable relationship with targeted customers, viz.: 1.  Customer Selection – Identifying customer segments attractive to the company; Craft the value proposition to appeal to these segments; Create a brand image that attracts customers in these segment to the companys products and services 2.  Customer Acquisition – Communicate the message to the market, secure prospects; Covert prospects to customers 3.  Customer Retention – Ensure quality, correct problems; Develop loyalty in customers. 4.  Growing Relationship with Customers – Get to know customers, build relationships with them; Increase the company s share of targeted customers purchasing activity Cluster 2 - Innovation Management Cluster Processes that help companies create competitive advantage by bringing innovative products – well matched to target customers needs – to the market fast and efficiently. Successful Innovation drive customer acquisition and growth and margin enhancement and customer loyalty and includes four important processes, viz. 1.  Identify opportunities for new product and services – Anticipating future customer needs; Developing more effective product and services 2.  Manage the research and development portfolio – Actively manage the product/ offer portfolio for superior innovation and customer positioning, performance and profitability; Extend current product platforms into new and existing markets; Extend product portfolio through collaboration 3.  Design and develop new products and services- Concept development; Product planning; Detailed product and process engineering 4.  Bring the new products and services to market – Rapid launch of new products; Effective production of new products; Effective marketing, distribution and sales of new products 24
  • Closer look at Internal Processes - BSC groups anOrganization s myriad internal processes into four Clusters Cluster 3 – Operations Management Cluster Operations Management Processes are the basic, day-to-day processes by which companies produce their existing products and services and deliver them to customers. Successful management of processes that deliver goods and services to customers vital in helping organizations improve the cost, quality and responsiveness of critical processes, and includes four processes, viz.: 1.  Develop and sustain supplier relationships 2.  Produce products and services 3.  Distribute and deliver products and services to customers 4.  Manage Risk Cluster 4 – Regulatory & Social Cluster Regulatory and social processes help organizations continually earn the right to operate in the communities and countries in which they produce and sell 25
  • Customer Management Processes Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Increase Expand Revenue Enhance Customer Structure Asset Utilization Opportunities ValueCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Price Quality/ Selection Functionality/ Reputation Returns Availability Features Service Channel Value PropositionChannelPartner Sales Production Support Growth & Development Support(Agency) Product Quality/ Sales Support Brand Support Agency Mgmt. Range Admin Support Career & Comp. SupportPerspectiveBusiness Model (Int. Process)Perspective Customer Mgmt. Innovation Processes Operations Mgmt. Regulatory & Social Processes Processes Processes §  Customer Selection §  Opportunity Identification §  Supply §  Environment §  Customer Acquisition §  R&D Portfolio §  Production §  Safety and Health §  Customer Retention §  Design/ Develop §  Distribution §  Employment §  Customers Growth §  Launch §  Risk Management §  CommunityLearning &Growth Perspective Human Capital Information Capital Organizational Capital - Culture, Leadership, Alignment, Teamwork 26
  • Closer look at Customer Management Processes Sustain growth in Financial Shareholder Value Perspective Productivity Strategy Revenue Growth Strategy Improve Cost Increase Expand Revenue Enhance Customer Structure Asset Utilization Opportunities Value Customer Customer Value Proposition (External) Product/ Service Attributes Relationship Image Perspective Price Quality/ Selection Functionality/ Reputation Returns Availability Features Service Channel Channel Value Proposition Partner Sales Production Support Growth & Development Support (Agency) Product Quality/ Agency Mgmt. Sales Support Admin Support Brand Support Career & Comp. Perspective Range Support Business Model (Int. Process) Perspective Customer Selection Customer Acquisition Customer Retention Customer Growth §  Understand segments §  Communicate Value Proposition §  Premium Customer Svc §  Cross-selling §  Screen unprofitable customers §  Customize mass marketing §  Sole-Source partnerships §  Solution selling §  Target high value customers §  Acquire/ convert leads §  Service excellence §  Partnering/ Integrated Mgmt. §  Manage the brand §  Loyal customers §  Customer educationLearning & Growth Perspective §  Market research §  Telemarketing §  Call centre protocols §  Consultative sales skills Human Capital §  Profitability analysis §  Product line knowledge §  Product line knowledge §  Customer/ Industry knowledge §  Market communication §  Customer communications §  Problem resolution §  Product line knowledge §  Partner management §  Customer feedback §  Customer database §  Database marketing §  Customer interaction centre §  Customer information feedback Information Capital §  Customer analytics §  Lead management §  Problem tracking system §  Portfolio planning models §  E-polling/ sampling §  Sales force automation §  Order Mgmt. System §  Integrated order management §  Customer profitability analysis §  Web site design §  Customer focused culture §  Customer focused culture §  Customer focused culture §  Customer focused culture Capital Org §  Personal goal alignment §  Personal goal alignment §  Personal goal alignment §  Personal goal alignment §  Best practice sharing §  Best practice sharing §  Best practice sharing §  Best practice sharing 27
  • Closer look at Customer Management Processes Perspective Objective Measure §  Create new sources of revenue §  Revenue from new customers §  Increase revenue per customer §  Share of wallet Financial §  Increase customer profitability §  Profits per customer (ABC) §  Improve sales productivity §  Cost of sales by channel §  Increase customer satisfaction with §  % customers highly satisfied (survey) value proposition §  Customer retention Customer §  Increase customer loyalty §  Depth of relationship §  % business from customer referrals §  Under customer segments §  Contribution by segment/ Market share in target segment §  Screen unprofitable customers §  Percentage of unprofitable customers Selection §  Target high value customers §  No. of strategic accounts §  Manage the brand §  Customer survey on Brand awareness/ preference §  Communicate value proposition §  Brand awareness (survey) §  Customer mass marketing §  Campaign response rate Internal Process Acquisition §  Acquire new customers §  No. of customer using promotions to sample product §  Cost per customer acquired/ Life time value (est.) of customer acquired §  No. of leads/ conversion rate §  Provide premier customer service §  No. of premier customers/ Time for customer to resolve concerns §  Create sole source partnerships §  No. of referrals to new customers Retention §  Provide service excellence §  No. of new customer acquired from referrals by existing customers §  Create highly loyal customers §  % revenue from sole source §  Service levels (by channel) §  Cross selling §  No. of products per customer §  Solution selling §  Cross market revenues Growth §  Partnering/ integrated management §  No. jointly developed service agreements §  Customer education §  No./ $ from gain sharing agreements §  Hours with customers 28
  • Closer look at Customer Management Processes Perspective Objective Measure §  Develop strategic competencies §  Human capital readiness Learning & Growth Human §  Attract and retain top talent §  Key employee turnover Capital §  Develop strategic CRM portfolio §  Application portfolio readiness Information §  Increase knowledge sharing §  No. of Customer Knowledge Mgmt. System employees Capital §  Create customer focused culture §  Customer survey Organization §  Create personal goal alignment §  Employee objectives linked to BSC Capital 29
  • Innovation Management Processes Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Increase Expand Revenue Enhance Customer Structure Asset Utilization Opportunities ValueCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Price Quality/ Selection Functionality/ Reputation Returns Availability Features Service Channel Value PropositionChannelPartner Sales Production Support Growth & Development Support(Agency) Product Quality/ Sales Support Brand Support Agency Mgmt. Range Admin Support Career & Comp. SupportPerspectiveBusiness Model (Int. Process)Perspective Customer Mgmt. Innovation Processes Operations Mgmt. Regulatory & Social Processes Processes Processes §  Customer Selection §  Opportunity Identification §  Supply §  Environment §  Customer Acquisition §  R&D Portfolio §  Production §  Safety and Health §  Customer Retention §  Design/ Develop §  Distribution §  Employment §  Customers Growth §  Launch §  Risk Management §  CommunityLearning & GrowthPerspective Human Capital Information Capital Organizational Capital - Culture, Leadership, Alignment, Teamwork 30
  • Closer look at Innovation Management Processes Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Manage Total Life Revenue from Gross Margins: Cycle Production Costs New Products New ProductsCustomer Customer Value Proposition(External)Perspective High Performance First to Market Extend into Products New Markets Channel Value PropositionChannelPartner Sales Production Support Growth & Development Support(Agency) Product Quality/ Sales Support Brand Support Agency Mgmt. Range Admin Support Career & Comp. SupportPerspectiveBusiness Model (Int. Process)Perspective Identify Opportunity Manage the Portfolio Design & Develop Launch §  Anticipate customer needs §  Choose and manage mix of §  Supply §  Environment §  Discover new opportunities projects §  Production §  Safety and Health §  Extend products to new §  Distribution §  Employment applications §  Risk Management §  Community §  CollaborateLearning & GrowthPerspective Human Capital Information Capital Organization Culture Technology to explore, integrate Culture of Creativity Multi-disciplinary Skills and Speed to Market & Innovation 31
  • Closer look at Innovation Management Processes Perspective Objective Measure §  Revenue growth from existing customers §  Revenues and margins from existing customer from product released §  Revenue growth from new customers in last 12 months Financial §  Manage life cycle costs §  Percent growth in sales to existing customers §  Revenues and margins from new customers with new products §  Maintenance cost as percent of total manufacturing costs §  Offer enhanced product/ service §  Specific performance attribute of new product/ service functionality to customers §  Lead time relative to competitors §  First to market with new product service §  No. of new products/ service first to market Customer §  Extend products/ services to new segments §  Percent of products launches on time §  No. of new application from platform products §  Revenue from new markets and segments §  Anticipate future customer needs §  Time spent with key customers learning about their future §  Discover and develop new, more effective opportunities and needs Identify new products and services §  Number/ percent of new projects launched based on client input opportunities §  Number of nee projects or concepts presented for development §  Number of new value-added services identified Internal Process §  Actively mange the product portfolio for §  Actual vs. desired mix of projects (advanced development, platform, superior innovation and customer derivative and outsourced) positioning, performance and profitability §  Actual vs. desired spending on projects of each type §  Extend current product platforms into new and existing markets §  Technology ranking (independent peer review of current technology capabilities) §  Extend product portfolio through Manage the §  Net present value of products in project pipeline collaboration R&D Portfolio §  No. of project leveraged from existing platforms that are targeted at new markets §  No. of life cycle extension projects §  No. of licensed products §  No. of joint projects in new or emerging markets §  No. of technology or product partners 32
  • Closer look at Innovation Management Processes Perspective Objective Measure §  Manage the project portfolio §  No. of patents; No. of patent citations §  Reduce development cycle time §  Project yield (Percent of projects advancing from stage to stage) §  Manage development cycle cost §  No. of project entering each phase of product development process Design & Develop New §  No. of projects delivered on time Products & §  Average time spent by projects at the development, test, and launch Internal Process Services stages of the development process §  Total time (Concept to market) §  Actual vs. budgeted spending on projects at each development stage §  Rapid launch of new products §  Time from start of pilot production until full volume achieved §  Effective production of new products §  No. of re-design cycles §  Effective marketing, distribution, and sales §  No. of new products launched or commercialized Bring new of new products §  Manufacturing cost of new products (actual vs. targeted) Products to §  Manufacturing process yield for new products (successful vs. killed Market projects) §  Consumer satisfaction or complaints about new products launched §  Six month revenues from new products (actual vs. budgeted) §  Achieve deep functional expertise §  Strategic skill coverage in key R&D positions §  Develop effective interdisciplinary and §  Percent of R&D employees who work effectively in inter-disciplinary Learning & Growth Human cross-functional teams and multi-functional project development teams Capital §  Percent of R&D employees capable of effective project management leadership §  Use technology for rapid product launch §  No. of ideas from external sources Information §  Capture leading knowledge from global §  Peer review of current scientific and technological capabilities Capital industry Organization §  Foster a culture of innovation §  No. of suggestions for new products and capabilities Capital §  Employee culture survey for innovation and change 33
  • Operations Management Processes Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Improve Cost Increase Expand Revenue Enhance Customer Structure Asset Utilization Opportunities ValueCustomer Customer Value Proposition(External) Product/ Service Attributes Relationship ImagePerspective Price Quality/ Selection Functionality/ Reputation Returns Availability Features Service Channel Value PropositionChannelPartner Sales Production Support Growth & Development Support(Agency) Product Quality/ Sales Support Brand Support Agency Mgmt. Range Admin Support Career & Comp. SupportPerspectiveBusiness Model (Int. Process)Perspective Customer Mgmt. Innovation Processes Operations Mgmt. Regulatory & Social Processes Processes Processes §  Customer Selection §  Opportunity Identification §  Supply §  Environment §  Customer Acquisition §  R&D Portfolio §  Production §  Safety and Health §  Customer Retention §  Design/ Develop §  Distribution §  Employment §  Customers Growth §  Launch §  Risk Management §  CommunityLearning & GrowthPerspective Human Capital Information Capital Organizational Capital - Culture, Leadership, Alignment, Teamwork 34
  • Closer look at Operations Management Processes Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Maximize Use of New Revenue Increase Share Industry Cost Leader Sources of Customer Existing AssetsCustomer Customer Value Proposition(External) Product/ Service AttributesPerspective Competitive Low Perfect Speedy, Timely Excellent Prices Total Cost Quality Purchase Selection Channel Value PropositionChannelPartner Sales Production Support Growth & Development Support(Agency) Product Range Sales Support Brand Support Agency Mgmt. Admin Support Career & Comp. SupportPerspectiveBusiness Model (Int. Process)Perspective Develop Supplier Relations Produce Product & Services Distribute to Customers Manage Risk §  Lower Cost Of Ownership §  Lower Cost Of Production §  Lower Cost To Serve §  Financial Risk §  Just In Time Delivery §  Continuous Improvement §  Responsive Delivery Time §  Operating Risk §  High Quality Supply §  Process Cycle Time §  Enhance Quality §  Technological Risk §  New Ideas From Suppliers §  Fixed Asset Utilization §  Supplier Partnerships §  Working Capital Efficiency §  Outsource Mature Non- strategic ServicesLearning & GrowthPerspective Human Capital Information Capital Organization Culture Skills in Quality Management/ Technology that Facilitates Culture of Continuous Process Improvement Process Improvement Improvement 35
  • Closer look at Operations Management Processes Perspective Objective Measure §  Become Industry Cost Leader §  Cost per unit, benchmarked against competitors §  Maximize Use of Existing §  Percent of annual reductions in cost per unit of output Assets §  Percent of cost budget variance Financial §  Increase revenue from §  General selling, and administrative expenses per unit of output customers §  Investment efficiency (NPV of new projects to total commitment) §  Revenue from acquiring new customers §  Lower customers cost; Increase §  Price, relative to competitors customers profit §  Customers cost of ownership §  Deliver zero defect products §  No. of customer complaints and services to customers §  No. of incidents of warranty and field service repairs Customer §  Deliver products on time §  Percent on-time delivery §  Offer excellent selection §  Customer lead time (from order to delivery) §  Index of product or service offering measuring percent of customer needs covered §  Lower Cost Of Ownership §  Activity based costing of acquiring materials and services §  Achieve Just In Time supplier §  Cost of purchasing as percentage of total purchase price capability Internal Process §  Supplier ratings: Quality, delivery, cost §  Develop High Quality Supply §  Lead time from order to receipt capability §  On time deliver percentage Develop & §  Use New Ideas from Suppliers §  Percent of late orders Sustain Supplier §  Achieve Supplier Partnerships Relationships §  Percent of orders delivered directly to production process by suppliers §  Outsource Mature Non- §  PPM of defects/ incoming orders strategic Products/ Services §  Number of suppliers providing services directly to customers §  No. of outsourced relationship §  Benchmarked performance of outsourcing partnerships 36
  • Closer look at Operations Management Processes Perspective Objective Measure §  Lower Cost Of Production §  Activity based cost of key operating processes §  Continuous Improvement §  Marketing, selling, distribution & administration expense as percent of total costs §  Process Cycle Time §  No. of processes with substantial improvements Produce §  Fixed Asset Utilization §  No. of inefficient or non-value added processes eliminated Products & Services §  Working Capital Efficiency §  Cycle time (from start of production until product completed) §  Percent of capacity utilization §  Flexibility (range of products/ services that processes can produce and deliver) Internal Process §  Lower Cost To Serve §  Activity based costing of storage and delivery to customers §  Responsive Delivery Time §  Percent of customers reached via. Low cost-to-serve channels, e.g switching Distribute §  Enhance Quality customers from manual and telephone transactions to electronic ones Products & §  Lead time, from order to delivery Services to §  Time from completion of product until ready for use by customers Customers §  Percent of items delivered with no defects §  Number and frequency of customer complaints §  Manage Financial Risk/ §  Bad debt percentage Maintain high credit quality §  Percent of uncollectible receivables §  Manage Operating Risk §  Exposure of losses from interest rates, foreign exchange etc. Risk §  Manage Technological Risk §  Order backlog Management §  Percent of capacity from existing and backlogged orders §  Technology ranking of products and processes compared to competitors 37
  • Closer look at Operations Management Processes Perspective Objective Measure §  Develop skills in quality §  Percent of employees trained in quality management techniques management and process §  No. or percent of employees qualified in six sigma quality programs Human Capital improvement §  Percent of employees with knowledge and training in activity based management, just in time etc. Learning & Growth §  Technology that facilitates §  Percent of employees who obtain immediate feedback from operations Information process improvement and §  Percent of customers who can track order status electronically Capital customer satisfaction §  Culture for continuous §  Employee survey on culture for continuous improvement and knowledge sharing improvement §  Number of new process improvement ideas generated Organization §  Percent of employee process improvements suggestions adopted Capital §  No. of ideas for quality and process improvement shared across multiple organizational units §  Performance improvement from employees suggestions and action 38
  • Content 1.  Overview of BSC 3.  Customizing BSC to Architecture Strategy 2.  Closer look at Internal Process Clusters 39
  • Customizing BSC to strategy – Overview Strategy is about Making Choices and Keeping Focused… Strategy is Deciding What to Do, And more importantly, What Not to Do §  No organization can hope to excel at every single objective in the different Internal Process Clusters and/ or Learning and Growth perspective. §  The Value Proposition in the customer perspective, the critical internal processes, and intangible assets in the Learning and Growth perspective of a strategy map will be different for companies pursuing different strategies. §  Internal processes differ in priorities depending upon the strategy to be adopted by organization: §  Company competing on Complete Customer Solution Strategy should highlight Customer Management as most important §  Company competing on Product Innovation and Leadership Strategy – Focus on Innovation §  Company competing on Low Total Cost Strategy – Focus on Operations Management §  The Art of Strategy is to identify and excel at the critical few processes that are the most important to the Customer Value Proposition. In line with strategy, all processes selected should be managed well, but a few strategic processes must receive special attention and focus, since these processes create the differentiation of the strategy. §  All selected Internal Processes across four clusters should be aligned and integrated to enable the organization to deliver a Differentiated Value Proposition – one that is valued by its target customer segments – from its competitors 40
  • Closer look at Complete Customer Solutions strategy Companies pursuing Complete Customer Solutions Strategy: Value Proposition §  Emphasize building long lasting relationships with customers – Making customers feel that the company understands their business or personal issues, and they can trust the company to develop customized solutions tailored to them §  Emphasize Customer objectives relating to completeness of solution (selling multiple, bundled products and services), exception service (before and after sale) and the quality of relationship §  Often acquire customers through a single, entry level product, before deepening the relationship to encompass sale of multiple, related products to retain customers and produce high lifetime profitability Internal Processes §  Develop deep understanding about what their customer value, build strong, trusted relationships with customers, bundle existing products and solutions into individually customize solutions - Customer Management Processes Cluster is most important §  Do not have lowest Operations Management Processes. Instead they support the customer management processes by offering customers a broad product and service line, bundling products and services from suppliers, along with company s own offerings, allow customization of these products and services, and delivering these to customers through seamless distribution channels §  Have Innovation Management Processes that focus on finding new ways to create value for customers, understanding more about customers future needs, rather than fundamental product innovation. Also directed at finding new ways for customers to access and use company s offerings §  Have Regulatory and Social Processes that focus on gaining regulatory approval to offer services that cut across traditional industry barriers, getting regulatory approval to bundle new services to customers 41
  • Closer look at Complete Customer Solutions strategy Companies pursuing Complete Customer Solutions Strategy: Learning & Growth Processes §  Require Human Capital competencies that focus on skills and knowledge about the diverse products and services the company offers to its targeted customer segments. Employees must have excellent knowledge about and be highly sensitive to targeted customers and their preferences. §  Require Information Capital that focuses on data about customers and analytic capabilities to learn more about customer preferences and buying patterns. §  Extensive, preferably proprietary, Customer databases can provide a sustainable source of competitive advantage for customer focused companies. §  Robust CRM system enables company to have an integrated and comprehensive view of all transactions each customer has with the company. §  Data Mining capabilities enables company to unique insights into constructing customer segments and buying behavior. §  Knowledge Management systems enables transferring of knowledge gained from customers to develop new products and services offerings and to better serve customers §  Organizational Capital: §  Foster a customer-centric culture and climate among employees. §  Employees understand the primacy of customers and the value the company gains from developing and maintaining long-standing relationships with customers 42
  • BSC Strategy Map Template for Complete CustomerSolutions Strategy Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Manage Total Life Maximize Use of Revenue from Increase Account Cycle Product Costs Existing Assets New Customers Share with CustomersCustomer Customer Value Proposition(External) Product/ Service AttributesPerspective Quality of Solutions Customer Customer Lifetime No. of Products/ Services Provided to Customers Per Customer Retention Profitability Channel Value PropositionChannelPartner Sales Production Support Growth & Development Support(Agency) Product Range Sales Support Admin Support Brand Support Agency Mgmt. Career & Comp. SupportPerspectiveBusiness Model (Int. Process)Perspective Customer Mgmt. Innovation Mgmt. Operations Mgmt. Regulatory & Social §  Create customized solutions §  Identify new opportunities to §  Deliver broad product/ service §  Gain regulatory approval for §  Build strong customer serve customers line new offerings relationships §  Anticipate future customer §  Customize product/ service §  Contribute to community §  Develop knowledge about needs offerings customers §  Create network of suppliers for extended product/ service capabilitiesLearning & GrowthPerspective Human Capital Information Capital Organization Culture Diverse Product/ Customer databases Transfer of Services Skills Knowledge Customer Mgmt. CRM & Data Mining Customer Skills Capabilities Focused 43
  • Closer look at Product Innovation and Leadership strategy Companies pursuing Product Innovation and Leadership Strategy: Value Proposition §  Have Value Propositions that emphasizes particular features and functionality customers value and are willing to pay more to receive §  Are First-To-Market with innovative or enhanced features and functionality §  Strive to extend superior functionality of their products into multiple market segments Internal Processes §  Excel at anticipating customers needs and discovering new opportunities for superior products and services – Innovation Processes Cluster is most important §  Do not have lowest Operations Management Processes. Instead they emphasize robust and flexible processes to accommodate continual introduction of new products, changes in product characteristics based on feedback from marketplace and experimentation §  Have Customer Management Processes that focus on: §  Identifying leading-edge customers and learning from them §  Educating customer about the benefits from improved functionality §  Are vigilant at managing Regulatory and Social Processes associated with their new products and have good relationship with regulators so that new products and services receive necessary regulator approval, and that delays associated with regulatory approval are minimized 44
  • Closer look at Product Innovation and Leadership Strategy Companies pursuing Product Innovation and Leadership Strategy: Learning & Growth Processes §  Require High level of Human Capital competency and Effective interaction between Product Development Teams with employees from marketing, operations and finance etc. §  Exploit Information Capital/ Technology to Achieve rapid introduction of new products, Enhance communication of knowledge and project experiences across functions, departments and geography and Foster sharing of Best Practices §  Organizational Capital: §  Emphasize Teamwork amongst internal functions/ team and active involvement with external technical communities, conferences, leading universities to tune in to advances that can affect the companys products and services §  Emphasize/ Foster Culture of innovation, disruption and change; Foster acquisition of knowledge from outside the company 45
  • BSC Strategy Map Template for Product Innovation andLeadership Strategy Sustain growth in Shareholder ValueFinancialPerspective Productivity Strategy Revenue Growth Strategy Reduce Cost to Revenue from Gross Margins: Serve New Products New ProductsCustomer Customer Value Proposition(External) Product/ Service AttributesPerspective High Performance Products: First to Market New Customer Segments Better Quality/ More innovative Features etc. Channel Value PropositionChannelPartner Sales Production Support Growth & Development Support(Agency) Product Range Sales Support Brand Support Agency Mgmt. Admin Support Career & Comp. SupportPerspectiveBusiness Model (Int. Process)Perspective Customer Mgmt. Innovation Mgmt. Operations Mgmt. Regulatory & Social §  Educate customers about §  Disciplined high performance §  Flexible robust processes §  Rapid regulatory approvals complex new products/ product development §  Rapid introduction of new services §  Produce development time: products §  Capture customer ideas from idea to market §  Supply capacity for rapid growth from new products/ §  In-line experimentation and services improvementLearning & GrowthPerspective Human Capital Information Capital Organization Culture Deep functional Creative, Versatile Technology that facilitates Creativity & Employees/ Cross Functional expertise Teamwork Rapid Product Introduction Innovation 46
  • Closer look at Low Total Cost Strategy Companies pursuing Low Total Cost Strategy: Value Proposition §  Offer customers highly competitive prices combined with consistent quality, ease and speed of purchase, and reduced product selection §  Reduces customers total cost of acquiring and using company s products through consistent quality and reducing time required to purchase and receive the product §  Keeps own costs down by offering customers a selection that is somewhat limited, but that meets the needs of most of its targeted customers; Reducing range of offerings allows company to keep production and service delivery costs low, enabling a low total cost value proposition. Internal Processes §  Have highly efficient operating processes that are lowest cost in the industry and also be consistent, high quality and highly responsive, with short cycle times; Distribution processes to customers must also be low total cost and timely - Operations Management Process Cluster is most important §  Have Customer Management Processes that focus on providing convenience and ease of access for customers. Objectives include: §  Simple, accessible, ordering processes, such as Internet etc §  Superb post sales service on operational issues §  Robust Market Research to understand the most preferred limited set/ range of products, services and options desired by large segments of customers, and producing limited product and service line to keep operating costs down §  Are Product Followers (not Product Leaders) and hence do not invest a great deal in product and service Innovation Management. They require capabilities for replicating innovations done by Product Leaders. Main focus is on Process Innovation to increase efficiency and reduce cost 47
  • Closer look at Low Total Cost Strategy Companies pursuing Low Total Cost Strategy: Learning & Growth Processes §  Require Human Capital competencies that focus on process improvements – Knowledge of six sigma, just-in-time and activity-based-costing so that employees have the ability and knowledge to continually lower costs, reduce cycle times, and improve quality. §  Have Information Capital objectives that relate to: §  Enhancing the customers buying experience (ease of ordering) and lowering the company s and its customers costs of ordering and acquiring products and services §  Providing accurate and timely data to employees about the cost, quality, and cycle times of processes and the company s customers, to enable continuous improvement §  Enabling internal and external benchmarking of processes so that best practices can be identified and shared across organization §  Have Organizational Capital that emphasize process learning, continuous improvements and sharing of best practices across the organization. 48
  • BSC Strategy Map Template for Low Total Cost Strategy Sustain growth inFinancial Shareholder ValuePerspective Productivity Strategy Revenue Growth Strategy Become Industry Maximize Use of Revenue from Increase Account Cost Leader Existing Assets New Customers Share with CustomersCustomer Customer Value Proposition(External) Product/ Service AttributesPerspective Lowest Cost Consistent Supplier Speedy Purchase Appropriate Selection Quality Channel Value PropositionChannelPartner Sales Production Support Growth & Development Support(Agency) Product Range Sales Support Admin Support Brand Support Agency Mgmt. Career & Comp. SupportPerspectiveBusiness Model (Int. Process)Perspective Customer Mgmt. Innovation Mgmt. Operations Mgmt. Regulatory & Social §  Provide convenient order §  Process innovation §  Outstanding supplier §  Gain regulatory approvals for handling processes §  Manage capital projects relationships new low cost channels to market §  Provide desired variety of §  Efficient timely distribution §  Contribute to community products and services §  Manage risk §  Produce goods and services; Cost, Quality and TimeLearning & GrowthPerspective Human Capital Information Capital Organization Culture Process Improvement Facilitate Capabilities Better, Faster, Cheaper Knowledge Sharing Electronic Supplier/ Process Improvements Replicate Customer Relationships Best Practices 49
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