Balanced Scorecard REPORT
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Choose the Right Measures,

Choosing the Right Measures (continued)
               Figure 2. Post-Analysis Customer Satisfaction Tracking Report      ...
Choosing the Right Measures (continued)

and smaller increases in customer           where service improvements           ...
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Choose The Right Measures, Drive The Right Strategy


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Choose The Right Measures, Drive The Right Strategy

  1. 1. Balanced Scorecard REPORT I N S I G H T, E X P E R I E N C E & I D E A S F O R S T R AT E G Y - F O C U S E D O RG A N I Z AT I O N S Article Reprint No. B0605D Choose the Right Measures, Drive the Right Strategy By Dennis Campbell HARVARD BUSINESS SCHOOL PUBLISHING
  2. 2. For a complete list of Harvard Business For reprint and subscription information For customized and quantity orders of reprints: School Publishing newsletters: for Balanced Scorecard Report: Call 617-783-7626 Fax 617-783-7658 Call 800-988-0866 or 617-783-7500 For permission to copy or republish: Call 617-783-7587
  3. 3. Choose the Right Measures, T E C H N I Q U E S banks in Canada, undertook a merger with a relatively small Drive the Right Strategy trust company, Canada Trust (CT), which was known for exceptional By Dennis Campbell, Assistant Professor, Harvard Business School customer service. To assuage the concerns of regulators, consumer Metrics overload is a common problem that can have groups, and the customers newly serious consequences: specifically, it can make it difficult for acquired through the acquisition employees to see what actions they should take to execute of CT, the bank made several strategic objectives. Having too many metrics dilutes the focus public pronouncements promising & and invariably means many are irrelevant. Here, accounting to maintain its high customer ser- T O O L S and performance measurement expert Dennis Campbell vice standards and deliver a “com- traces a major Canadian bank’s experience in overhauling its fortable” and convenient banking customer satisfaction metrics to make them meaningful— experience. and actionable—to frontline employees. The results say it all. Executives at the bank took this Could someone who has never Consider the case of Toronto- promise seriously, but were now heard of your company pick Dominion Bank (TD Bank). In faced with the task of translating up your Balanced Scorecard and a banking market where consumers their service strategy of “comfort- articulate your strategy? How and regulators were typically able banking” into operational about someone within your com- hostile to mergers and acquisi- terms. To appreciate their chal- pany who is actually responsible tions, TD Bank, one of the largest lenge, consider the customer for implementing your strategy at an operational level? A hallmark Figure 1. The Bank’s Original Customer Satisfaction Tracking Report of a good Balanced Scorecard is that it translates strategy into understandable operational terms. Scorecards can fail to achieve this objective if they include too many or potentially irrelevant metrics. Too many metrics can dilute the focus on your strategic objectives, making it difficult to communicate a coherent implementation plan to the employees responsible for achieving those objectives. Moreover, an abundance of metrics that do not have clear linkages to your overall strategic objectives may be symptomatic of a larger problem: the lack of strategic focus at the top of the organization. Measures selected for inclusion in your scorecard should have clear and demonstrable links to your overall customer and financial performance objectives. Understanding the relative importance of different metrics in driving these objectives is a necessary condition for providing good, actionable information at the operational level, where strategy is actually implemented. With an abundance of data but little information on the relative importance of these 25-plus metrics, this report was not very helpful to branch-level employees. Copyright © 2006 by Harvard Business School Publishing Corporation. All rights reserved. 3
  4. 4. Choosing the Right Measures (continued) Figure 2. Post-Analysis Customer Satisfaction Tracking Report Statistical analysis was then used to estimate the impact Performance of measures of each service Teller CSI YTD levels attribute on customer satisfaction 1 2 3 and branch profitability.2 For 1. CSI score 86.9 example, the analysis revealed, among other things, that: 2. Satisfied (bottom 3 box) 1.9 3. Likely to recommend 79.8 • Each increase of 1% in mea- sures related to “comfortable 4. Likely to continue 90.7 banking” (e.g., the percentage 5. Make you feel like they appreciate your business 91.6 of customers who were satisfied 6. Process your transaction quickly 96.3 that the teller made them feel their business was appreciated) 7. Have the ability to handle your request 96.3 led to a 1.7% increase in 8. Wait time acceptable 91.6 customer satisfaction, which 9. Greet you pleasantly 97.2 in turn led to a 0.4% increase 77.6 in branch profitability. 10. Address you by your name 11. Give you his or her undivided attention 96.3 • Similarly, a 1% increase in measures related to “speed 12. Thank you for your business 86.9 of service” (e.g., the percentage 13. Process your transactions accurately 97.2 of customers satisfied that 14. Treat you in a respectful manner 98.1 their transaction was processed 93.5 quickly) led to only a 0.8% 15. Conduct your banking privately increase in customer satisfaction, 1= Need to improve; 2 = Room to improve; 3 = Maintain which in turn led to a 0.2% increase in branch profitability. By streamlining metrics, presenting them in order of relative importance, and coding performance, this new report helped employees be more effective in their customer satisfaction • Many service attributes tracked efforts. The bank also gained customers and boosted customer satisfaction— a rare achievement following a merger. in the branch scorecard showed only a marginal or even no satisfaction tracking report in relative importance in driving relationship to overall cus- Figure 1. This periodic report customer satisfaction. tomer satisfaction and branch was meant to provide information profitability. to tellers and branch management Overhauling Customer about their performance against Satisfaction Metrics Armstrong and his team were various service attributes that are now able to understand precisely The EVP of marketing, Chris regarded as drivers of the overall how much it was worth to Armstrong, and his team under- branchwide objectives of high increase performance in each took a rigorous and systematic customer satisfaction and loyalty.1 dimension of service; they knew approach to analyzing which But were there too many mea- which aspects of service were dimensions of service warranted sures? And were they the right most important and which further investment and which measures to include in the branch ones could be de-emphasized. should be de-emphasized. Their scorecard? Without the answer Moreover, they found that most approach began with ensuring to these questions, how would service measures showed a high-quality data and metrics. operational-level employees know highly nonlinear “S”-shaped rela- Surveys of customers’ experiences which service attributes to focus tionship to customer satisfaction. with each dimension of service their efforts on to achieve higher Improvements in service did not were taken shortly after a cus- customer satisfaction? The score- yield incremental increases in tomer’s actual service interaction card in Figure 1 contains a lot customer satisfaction until mea- at a branch. Individual customer of data, but very little information sured service levels were above surveys were aggregated up to that would help branch-level minimum thresholds, after which the branch level to form average employees implement the bank’s they yielded dramatic increases branch satisfaction scores with customer service strategy. There in customer satisfaction. However, each dimension of service only are more than 25 performance once service levels climbed above after a sufficient number of metrics included in this scorecard upper thresholds, further improve- customers had been surveyed and no information on their ments in service yielded smaller for each branch. 4 Balanced Scorecard Report May–June 2006
  5. 5. Choosing the Right Measures (continued) and smaller increases in customer where service improvements mance measurement data over satisfaction. began yielding diminishing time, although you may need returns, was coded green; and 20 to 30 periods’ worth to ensure Armed with these insights, execu- performance between these valid results. A second option: tives at the bank were now in thresholds was coded yellow. be creative about how you define a position to provide high-quality your unit of analysis. Many impor- information and feedback to This new reporting tool and tant performance measures are operating units in the form of the the measurement and analysis defined at the individual customer customer satisfaction tracking it was built on served as the or employee level. The key to report shown in Figure 2. Several linchpin for translating the bank’s focusing on measures that matter, features distinguish this new report service strategy into operations. and avoiding metric overload, is from that shown in Figure 1: Branch-level employees, whose to take a systematic approach to compensation was linked to • The number of metrics tracked selecting measures that have clear customer satisfaction, now had was reduced from 26 to 15. and demonstrable links to your high-quality information about Eleven performance metrics overall customer and financial where to focus their efforts to that showed either a marginal performance objectives. If the achieve the largest gains in cus- or no relationship to the objec- data is just not available to make tomer satisfaction and, ultimately, tives of customer satisfaction these links “demonstrable,” then branch profitability. Fewer mea- and branch profitability were managers across organizational sures kept the focus on those dropped. The remaining metrics units and at different organiza- that mattered most in driving were identified as strong drivers tional levels should have exten- the bank’s strategic objectives of these objectives. sive discussions and come to of increasing satisfaction and some consensus on which of • Measures of service performance profitability in its branch network. these links are at least most are listed on the scorecard in Targets that indicated where “defensible.” Putting this kind of order of their relative impor- service improvements would have effort into the design of your tance in driving customer satis- the largest impact on satisfaction scorecard can provide strategic faction and branch profitability, and profitability allowed branch- clarity at the top of the organiza- starting with the attribute “appre- level employees to allocate their tion and allow you to provide ciate your business,” which was effort more effectively among the good, actionable information at found to be the strongest driver. remaining metrics included in the the operational level where strategy scorecard. The net result? The • Current performance against is actually implemented. I bank was able to deliver on its each of these metrics is now promise of high customer service. 1. Customer satisfaction was measured as the coded as red, yellow, or green percentage of customers rating themselves Better yet, in its post-merger as “satisfied” or “highly satisfied.” Similarly, corresponding to whether climate, where many banks performance on each service attribute was that metric is in immediate measured as the percentage of customers rating experience customer attrition rates themselves as “satisfied” or “highly satisfied” need of improvement, has with that particular aspect of service. For of 5% to 10%, the bank increased room to improve, or is at an example, the measure corresponding to the its net customer acquisitions. Its service attribute “appreciate your business” acceptable level. Targets indicat- captured the percentage of customers rating customer satisfaction index rose ing red, yellow, and green themselves as “satisfied” or “highly satisfied” from 81.5% to 84.5%. with the tellers’ making them feel appreciated. levels of performance (in Figure 2, indicated in numbered 2. A combination of factor analysis and multiple The type of statistical analysis regressions were used to estimate the relation- columns) were established for described here requires data on ships between measures of service attributes, customer satisfaction, and branch profitability. each individual metric based on performance measures across the thresholds identified in the comparable operating units, T O L E A R N M O R E “S”-curve analysis. Performance across time, or both. Banks are below the lower threshold, particularly amenable to this Dennis Campbell is author of which needed to be crossed type of analysis because they are “Putting Strategy Hypotheses to before service improvements decentralized and have multiple the Test with Cause-and-Effect could yield incremental benefits, comparable branches. But other Analysis,” BSR September–October was coded red; performance options exist. You can wait until 2002 (Reprint #B0209E). above the upper threshold, you have amassed enough perfor- Balanced Scorecard Report May–June 2006 5