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1. PART I CHAPTER 1 MEASUREMENT & MANAGEMENT IN THE INFORMATION AGE INTRODUCTION:  NAVIGATING TODAY’S ORGANIZATIONS THROUGH COMPLEX COMPETITIVE ENVIRONMENTS IS…
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  • 1. PART I CHAPTER 1 MEASUREMENT & MANAGEMENT IN THE INFORMATION AGE INTRODUCTION:  NAVIGATING TODAY’S ORGANIZATIONS THROUGH COMPLEX COMPETITIVE ENVIRONMENTS IS AS COMPLICATED AS FLYING A JET  WE NEED TO MONITOR THE ENVIRONMENT & PERFORMANCE OF THE ORGANIZATION FOR OBTAINING EXCELLENT FUTURE OUTCOMES  BSC IS THE KEY IN THIS JOURNEY  BSC TRANSLATES ORGANIZATION’S MISSION & STRATEGY INTO A COMPREHENSIVE SET OF PERFORMANCE MEASUREMENT  THE SCORECARD MEASURES ORGANIZATION PERFORMANCE ACROSS FOUR BALANCED PERSPECTIVES: o FINANCIAL o CUSTOMERS o INTERNAL BUSINESS PROCESS o LEARNING & GROWTH  BSC ENABLES COMPANIES TO TRACK FINANCIAL RESULTS, WHILE SIMULTANEOUSLY MONITORING PROGRESS IN BUILDING THE CAPABILITIES & ACQUIRING THE INTANGIBLE ASSETS THEY NEED FOR FUTURE GROWTH
  • 2. COMPETING IN THE INFORMATION AGE  THE INFORMATION AGE ENVIRONMENT FOR BOTH MANUFACTURING & SERVICE ORGANIZATIONS REQUIRES NEW CAPABILITIES FOR COMPETITIVE SUCCESS  THE ABILITY OF THE COMPANY TO MOBILIZE & EXPLOIT ITS INTANGIBLE ASSETS HAS BECOME FAR MORE DECISIVE THAN INVESTING & MANAGING PHYSICAL, TANGIBLE ASSETS  INTANGIBLE ASSETS ENABLE AN ORGANIZATION TO: o DEVELOP CUSTOMER RELATIONSHIPS THAT RETAIN THE LOYALTY OF EXISTING CUSTOMERS, & ENABLE NEW CUSTOMERS SEGMENTS & MARKET AREAS TO BE SERVED EFFECTIVELY / EFFICIENTLY o INTRODUCE INNOVATIVE PRODUCTS & SERVICES DESIRED BY TARGETED CUSTOMER SEGMENTS o PRODUCE CUSTOMIZED HIGH-QUALITY PRODUCTS / SERVICES AT LOW COST & WITH SHORT LEAD TIMES o MOBILIZE EMPLOYEE SKILLS / MOTIVATION FOR CONTINUOUS IMPROVEMENTS IN PROCESS CAPABILITIES, QUALITY, & RESPONSE TIMES o DEPLOY INFORMATION TECHNOLOGY, DATA BASES & SYSTEMS  INFORMATION AGE ORGANIZATION ARE BUILT ON A NEW SET OF OPERATING ASSUMPTIONS: o CROSS FUNCTIONS / LINKS TO CUSTOMERS & SUPPLIERS / CUSTOMER SEGMENTATION / GLOBAL SCALE / INNOVATION / KNOWLEDGE WORKER  AS ORGANIZATIONS ATTEMPT TO TRANSFORM THEMSELVES TO COMPETE SUCCESSFULLY IN THE FUTURE, THEY ARE TURNING TO A VARIETY OF IMPROVEMENT INITIATIVES LIKE: o TOTAL QUALITY MANAGEMENT o JUST IN TIME [PRODUCTION / DISTRIBUTION SYSTEMS]
  • 3. o TIME BASED COMPETITION o LEAN PRODUCTION / LEAN ENTERPRISE o BUILDING CUSTOMER-FOCUSED ORGANIZATIONS o ACTIVITY BASED COST MANAGEMENT o EMPLOYEE EMPOWERMENT o REENGINEERING  BREAKTHROUGHS IN PERFORMANCE REQUIRE MAJOR CHANGE, & THAT INCLUDES CHANGES IN MEASUREMENT / MANAGEMENT SYSTEMS USED BY ORGANIZATION  NAVIGATING TO MORE COMPETITIVE, TECHNOLOGICAL, & CAPABILITY DRIVEN FUTURE CANNOT BE ACCOMPLISHED MERELY BY MONITORING & CONTROLLING FINANCIAL MEASURES OF PAST PERFORMANCE TRADITIONAL FINANCIAL ACCOUNTING MODEL  THE TRADITIONAL FINANCIAL ACCOUNTING MODEL IS BEING USED BY INFORMATION AGE COMPANIES AS THEY ATTEMPT TO BUILD INTERNAL ASSETS & CAPABILITIES & TO FORGE LINKAGES & STRATEGIC ALLIANCES WITH EXTERNAL PARTIES  THE LIMITATION WITH THIS TRADITIONAL FINANCIAL ACCOUNTING SYSTEM IS DOES NOT INCORPORATE THE VALUATION OF A COMPANY’ S INTANGIBLE / INTELLECTUAL ASSETS, SUCH AS HIGH QUALITY PRODUCTS / SERVICES MOTIVATED & SKILLED EMPLOYEES. RESPONSIVE & PREDICTABLE INTERNAL PROCESSES, & SATISFIED & LOYAL CUSTOMERS  THIS VERY ASSET & CAPABILITIES ARE CRITICAL FOR SUCCESS IN TODAY’S & TOMORROW’S COMPETITIVE ENVIRONMENT
  • 4. THE BALANCE SCORE CARD  RETAINS TRADITIONAL FINANCIAL MEASURES  THESE FINANCIAL MEASURES ARE INADEQUATE FOR EVALUATING & GUIDING THE JOURNEY, THAT INFORMATION AGE COMPANIES MUST MAKE TO CREATE FUTURE VALUE THROUGH INVESTMENT IN CUSTOMERS / SUPPLIERS / EMPLOYEE / PROCESS / TECHNOLOGY / INNOVATION  BSC COMPLEMENTS FINANCIAL MEASURES OF PAST PERFORMANCE WITH MEASURES OF THE DRIVERS OF FUTURE PERFORMANCE  THE OBJECTIVES & MEASURES OF THE SCORECARD ARE DERIVED FROM ORGANIZATION’S VISION / STRATEGY  THE FOUR PERSPECTIVE PROVIDE THE FRAMEWORK FOR THE BSC  THE BSC REVEALS THE VALUE DRIVERS FOR SUPERIOR LONG TERM FINANCIAL / COMPETITIVE PERFORMANCE THE BSC AS A MANAGEMENT SYSTEM  BSC EMPHASIZES THAT THE FINANCIAL / NON FINANCIAL MEASURES MUST BE PART OF THE INFORMATION SYSTEM FOR EMPLOYEES AT ALL LEVELS OF THE ORGANIZATION  FRONT LINE EMPLOYEE MUST UNDERSTAND THE FINANCIAL CONSEQUENCES OF THEIR DECISIONS & ACTIONS, WHILE SENIOR EXECUTIVES MUST UNDERSTAND THE DRIVERS OF LONG TERM FINANCIAL SUCCESS  THE OBJECTIVES & THE MEASURES ARE DERIVED FROM TOP DOWN PROCESS DRIVEN BY THE MISSION & STRATEGY OF THE BUSINESS UNIT
  • 5.  THE BSC SHOULD TRANSLATE UNIT’S MISSION / STRATEGY INTO TANGIBLE, OBJECTIVES & MEASURES  THE MEASURES REPRESENT A BALANCE BETWEEN EXTERNAL MEASURES FOR SHAREHOLDERS & CUSTOMERS & INTERNAL MEASURES OF CRITICAL BUSINESS PROCESSES, INNOVATION, & LEARNING & GROWTH CONCLUSIONS:  TODAY ORGANIZATIONS OPERATE IN A TURBULENT ENVIRONMENT  SENIORS NEED FEEDBACK ABOUT THE STRATEGIES WHICH ARE BEING IMPLEMENTED  STRATEGIES THOUGH FORMULATED WITH GOOD INTENTIONS, SOMETIMES ARE NOT VALID IN CONTEMPORARY CONDITIONS  SENIORS SHOULD RECEIVE FEEDBACK FROM VARIOUS SOURCES TO TAKE ADVANTAGE OF ENVIRONMENTAL CHANGES & TO COUNTER COMPETITOR BEHAVIOR  WITH THE CHANGE IN ENVIRONMENTS, NEW STRATEGIES HAVE TO BE EVOLVED FOR CAPITALIZING ON OPPORTUNITIES OR TO COUNTER THREATS  ASSUMPTION ON WHICH STRATEGIES HAVE TO CONSTANTLY EXAMINED WHETHER IT IS VIABLE & VALID  THIS CAN BE DONE ONLY IF THOSE IMPLEMENTING THE STRATEGY GIVE A FEEDBACK  THIS IS KNOWN AS DOUBLE LOOP FEEDBACK  THE SCORECARD SHOULD BE BASED ON A SERIES OF CAUSE & EFFECT RELATIONSHIPS DERIVED FROM THE STRATEGY, INCLUDING ESTIMATES OF THE RESPONSE TIMES & MAGNITUDES OF THE LINKAGES AMONG THE SCORECARD MEASURES  THE OUTCOMES IS TO ADJUST THE QUANTITATIVE RELATIONSHIP AMONG STRATEGIC MEASURES ON THE BSC
  • 6. CHAPTER II WHY DOES BUSINESS NEED A BSC? INTRODUCTION:  MEASUREMENT SYSTEM AFFECTS THE BEHAVIOR OF INDIVIDUALS; BOTH INSIDE / OUTSIDE THE ORGANIZATION  THE BSC RETAINS ITS FINANCIAL MEASUREMENT, AS A CRITICAL SUMMARY OF MANAGEMENT, & BUSINESS PERFORMANCE, BUT IT HIGHLIGHTS A MORE GENERAL / INTEGRATED SET OF MEASUREMENTS THAT LINK CURRENT CUSTOMER, INTERNAL PROCESS, EMPLOYEE, & SYSTEM PERFORMANCE TO LONG TERM FINANCIAL SUCCESS FINANCIAL MEASUREMENT  FINANCIAL MEASURES ARE INADEQUATE FOR GUIDING / EVALUATING ORGANIZATIONS TRAJECTORIES THROUGH COMPETITIVE ENVIRONMENT  THEY TELL US ABOUT THE PAST ACTIONS; FAIL TO PROVIDE ADEQUATE GUIDANCE FOR THE ACTIONS TO BE TAKEN THE BSC  PROVIDES COMPREHENSIVE FRAMEWORK THAT TRANSLATES COMPANY’S VISION / STRATEGY INTO A COHERENT SET OF PERFORMANCE MEASURES  MISSION STATEMENTS ADDRESSES CORE BELIEFS & IDENTIFIES TARGET MARKETS & CORE PRODUCTS  MISSION STATEMENT SHOULD BE INSPIRATIONAL  THEY SHOULD SUPPLY ENERGY / MOTIVATION TO THE ORGANIZATION
  • 7.  BSC TRANSLATES MISSION / STRATEGY INTO OBJECTIVES & MEASURES  ORGANIZED INTO FOUR DIFFERENT PERSPECTIVES:  FINANCIAL / CUSTOMER / INTERNAL BUSINESS PROCESS / LEARNING & GROWTH  BSC SHOULD BE USED AS A COMMUNICATION, INFORMING, & LEARNING SYSTEM & NOT A CONTROL SYSTEM  USES MEASUREMENT TO INFORM EMPLOYEES ABOUT THE DRIVERS OF CURRENT & FUTURE SUCCESS  THE FOUR PERSPECTIVES OF THE SCORECARD PERMIT A BALANCE BETWEEN SHORT / LONG TERM OBJECTIVES, BETWEEN OUTCOMES DESIRED & THE PERFORMANCE DRIVERS OF THOSE OUTCOMES FINANCIAL PERSPECTIVE  FINANCIAL PERFORMANCE MEASURES INDICATE WHETHER A COMPANY’S STRATEGY, IMPLEMENTATION, & EXECUTION ARE CONTRIBUTING TO BOTTOM LINE IMPROVEMENT CUSTOMER PERSPECTIVE:  CORE OUTCOME MEASURES CUSTOMER SATISFACTION / RETENTION & NEW CUSTOMER ACQUISITION / CUSTOMER PROFITABILITY / MARKET / ACCOUNT SHARE IN TARGETED SEGMENTS  IT SHOULD ALSO INCLUDE SPECIFIC MEASURES OF VALUE THAT THE COMPANY WILL DELIVER TO ITS CUSTOMER IN TARGETED SEGMENTS INTERNAL BUSINESS PROCESS PERSPECTIVE  IDENTIFY THE CRITICAL INTERNAL PROCESS  THESE PROCESSES SHOULD ENABLE THE BUSINESS UNIT TO  DELIVER THE VALUE PROPOSITIONS THAT WILL ATTRACT & RETAIN CUSTOMERS IN TARGETED SEGMENTS &  SATISFY SHAREHOLDERS EXPECTATIONS  THESE PROCESS SHOULD HAVE GREATER IMPACT ON CUSTOMER SATISFACTION & IN ACHIEVING FINANCIAL OBJECTIVES
  • 8.  THE BUSINESS PROCESSES IS DIVIDED INTO TWO:  INNOVATION PROCESS  WHICH INCLUDES PRODUCT DESIGN / PRODUCT DEVELOPMENT  OPERATIONS PROCESS  WHICH INCLUDES MANUFACTURING / MARKETING / POST SALE SERVICE LEARNING & GROWTH PERSPECTIVE:  IT IDENTIFIES INFRASTRUCTURE THAT THE ORGANIZATION MUST BUILD TO CREATE LONG TERM GROWTH / IMPROVEMENT  ORGANIZATIONAL LEARNING / GROWTH COME FROM THREE PRINCIPLE SOURCES:  PEOPLE / SYSTEMS / ORGANIZATIONAL PROCEDURES  THE ABOVE THREE PARAMETERS WILL REVEAL LARGE GAPS BETWEEN THE EXISTING & REQUIRED CAPABILITIES TO ACHIEVE BREAKTHROUGH PERFORMANCE  TO CLOSE THESE GAPS BUSINESS WILL HAVE TO INVEST IN RE- SKILLING EMPLOYEES, ENHANCING INFORMATION TECHNOLOGY & SYSTEMS, & ALIGNING ORGANIZATIONAL PROCEDURES / ROUTINES LINKING MULTIPLE SCORECARD MEASURES TO SINGLE STRATEGY  THE MULTIPLE MEASURES ON A PROPERLY CONSTRUCTED BSC SHOULD CONSIST OF A LINKED SERIES OF OBJECTIVES /MEASURES THAT ARE BOTH CONSISTENT & MUTUALLY REINFORCING  THE SCORECARD SHOULD INCORPORATE THE COMPLEX SET OF CAUSE & EFFECT RELATIONSHIPS AMONG THE CRITICAL VARIABLES, INCLUDING LEADS, LAGS, & FEEDBACK LOOPS TRAJECTORY, THE FLIGHT PLAN OF THE STRATEGY
  • 9.  THE LINKAGES SHOULD INCORPORATE BOTH CAUSE & EFFECT RELATIONSHIP, & MIXTURES OF OUTCOME MEASURES & PERFORMERS DRIVERS CAUSE & EFFECT RELATIONSHIP  A STRATEGY IS A HYPOTHESIS OF CAUSE & EFFECT  THERE SHOULD BE A RELATIONSHIP AMONG THE OBJECTIVES & PERFORMANCE DRIVERS  THE CHAIN OF CAUSE & EFFECT SHOULD PERVADE ALL FOUR PERSPECTIVE OF A BSC  FOR EXAMPLE RETURN ON CAPITAL EMPLOYED MAY BE SCORECARD MEASURE IN THE FINANCIAL PERSPECTIVE  THIS DRIVER SHOULD EXPAND SALES FROM EXISTING CUSTOMERS  THIS WILL RESULT IN HIGH DEGREE OF LOYALTY AMONG THOSE CUSTOMERS  SO CUSTOMER LOYALTY IS INCLUDED IN SCORECARD INTO THE CUSTOMER PERSPECTIVE  NEXT FIND OUT WHAT IS VALUED BY A LOYAL CUSTOMER?  IT IS ON TIME DELIVERY OF ORDERS [OTD]  INCLUDE ON TIME DELIVERY IN SCORECARD INTO CUSTOMER PERSPECTIVE  NEXT FIND OUT SHOULD THE COMPANY DO IN ITS INTERNAL PROCESS TO ACHIEVE OTD?  TO ACHIEVE OTD; ORGANIZATION SHOULD ACHIEVE SHORT CYCLE TIME IN OPERATING PROCESSES  INCLUDE SHORT CYCLE TIME / QUALITY IN SCORE CARD INTO THE INTERNAL PROCESSES PERSPECTIVE  NEXT FIND OUT WHAT SHOULD THE ORGANIZATION DO TO REDUCE CYCLE TIME / HAVE HIGH QUALITY IN INTERNAL PROCESSES  TO ACHIEVE THIS THE ORGANIZATION SHOULD TRAIN & IMPROVE SKILLS OF ITS EMPLOYEES
  • 10.  INCLUDE TRAINING IN K / S IN SCORECARD INTO THE LEARNING / GROWTH PERSPECTIVE  THIS IS HOW AN ENTIRE CHAIN OF CAUSE / EFFECT RELATIONSHIPS ARE ESTABLISHED THROUGH THE FOUR PERSPECTIVE  EVERY MEASURE SELECTED FOR A BSC SHOULD BE AN ELEMENT IN A CHAIN OF C / E RELATIONSHIPS THAT COMMUNICATES THE MEANING OF THE BUSINESS UNIT’S STRATEGY TO THE ORGANIZATION PERFORMANCE DRIVERS:  A GOOD BSC SHOULD HAVE A MIX OF OUTCOME MEASURES & PERFORMANCE DRIVERS  PD PROVIDES INFORMATION AS TO HOW THE OUTCOMES ARE TO BE ACHIEVED  PD ARE INDICATORS WHETHER THE STRATEGY IS BEING IMPLEMENTED SUCCESSFULLY SHOULD FINANCIAL MEASURES BE SCRAPPED?  PERIODIC FINANCIAL STATEMENTS / FINANCIAL MEASURES MUST CONTINUE TO PLAY AN ESSENTIAL ROLE; FOR IMPROVEMENTS IN QUALITY / RESPONSE TIME / PRODUCTIVITY / NEW PRODUCTS ARE MEANS TO AN END; NOT THE END ITSELF  SUCH IMPROVEMENTS ONLY BENEFIT A COMPANY WHEN THEY CAN BE TRANSLATED INTO IMPROVED SALES, REDUCED OPERATING EXPENSES OR HIGHER ASSET UTILIZATION  NOT ALL LONG TERM STRATEGIES ARE PROFITABLE STRATEGIES  A FAILURE TO CONVERT IMPROVED OPERATIONAL PERFORMANCE INTO IMPROVED FINANCIAL PERFORMANCE, SHOULD MAKE THE EXECUTIVE RETHINK THE COMPANY’S STRATEGY OR ITS IMPLEMENTATION PLANS
  • 11.  THE BSC MUST RETAIN A STRONG EMPHASIS ON FINANCIAL OUTCOMES  ULTIMATELY ALL THE MEASURES ON SCORECARD SHOULD BE LINKED TO FINANCIAL OBJECTIVES FOUR PERSPECTIVES: ARE THEY SUFFICIENT?  THE FOUR PERSPECTIVE SHOULD BE CONSIDERED AS TEMPLATE, & NOT A STRAIT JACKET  NO MATHEMATICAL THEOREM EXISTS THAT FOUR PERSPECTIVES ARE BOTH NECESSARY / SUFFICIENT  THE SCORECARD OUTCOMES / PERFORMANCE DRIVERS SHOULD MEASURE THOSE FACTORS THAT CREATE COMPETITIVE ADVANTAGE, & BREAKTHROUGH FOR AN ORGANIZATION  THE BSC SHOULD TELL THE STORY OF THE BUSINESS UNIT’S STRATEGY ORGANIZATIONAL UNIT FOR A BSC  BSC ARE BEST DEFINED FOR STRATEGIC BUSINESS UNITS [SBUS]  AN IDEAL STRATEGIC BUSINESS UNIT FOR BSC CONDUCTS ACTIVITIES ACROSS AN ENTIRE VALUE CHAIN:  INNOVATION  OPERATIONS  MARKETING  DISTRIBUTION SELLING  SERVICE  SUCH A SBU HAS ITS OWN PRODUCTS & CUSTOMERS, MARKETING & DISTRIBUTION CHANNELS, & PRODUCTION FACILITIES  AND MOST IMPORTANT IT HAS A WELL DEFINED STRATEGY  ONCE A BSC HAS BEEN DEVELOPED FOR A SBU IT BECOME THE BASIS FOR BSC FOR DEPARTMENTS / FUNCTIONAL UNITS WITHIN A SBU
  • 12.  MISSION & STRATEGY STATEMENTS FOR DEPARTMENTS / FUNCTIONAL UNITS CAN BE DEFINED WITHIN THE FRAMEWORK ESTABLISHED BY THE BUSINESS MISSION / STRATEGY / SCORECARD  MANAGERS IN DEPARTMENTS / FUNCTIONAL UNITS CAN THEN DEVELOP THEIR OWN SCORECARDS THAT WILL BE CONSISTENT WITH & HELP DELIVER THE SBU MISSION / STRATEGY  IN THIS WAY THE SBU SCORECARD IS CASCADED DOWN TO LOCAL RESPONSIBILITY CENTERS WITHIN THE SBU ALLOWING ALL RESPONSIBILITY CENTERS TO WORK COHERENTLY TOWARD THE SBU OBJECTIVE  THE RELEVANT QUESTION FOR WHETHER A DEPARTMENT / FUNCTIONAL UNIT SHOULD HAVE A BSC IS  “WHETHER THAT ORGANIZATIONAL UNIT HAS / SHOULD HAVE A MISSION / STRATEGY / CUSTOMERS / INTERNAL PROCESSES THAT ENABLE IT TO ACCOMPLISH ITS MISSION / STRATEGY”  IF IT DOES THE UNIT IS A VALID CANDIDATE FOR A BSC  IT IS SIMPLER TO CONSTRUCT SCORECARDS FOR THE INDIVIDUAL SBUS DEFINED BY THEIR UNIQUE DISTRIBUTION CHANNELS  CORPORATIONS CONTAINING SEVERAL SOMEWHAT INDEPENDENT SBUS HAVE STARTED BY DEVELOPING A BSC AT THE CORPORATE LEVEL  SUCH A CORPORATE-LEVEL SCORECARD ESTABLISHES A COMMON FRAMEWORK, A CORPORATE TEMPLATE ABOUT THEMES & COMMON VISIONS THAT MUST BE IMPLEMENTED IN THE SCORECARDS DEVELOPED AT THE INDIVIDUAL SBUS  THE CORPORATE SCORECARD ALSO ESTABLISHES HOW THE CORPORATION ADDS VALUE BEYOND THE VALUE CREATED BY THE COLLECTION OF SBUS OPERATING AS INDEPENDENT UNITS  THIS VALUE CREATING ROLE OF THE CORPORATION IS CALLED AS “PARENTING ADVANTAGE”
  • 13.  INTEGRATE SBU SCORECARDS INTO THE BROADER CORPORATE FRAMEWORK STRATEGIC POSITIONING OR CORE COMPETENCIES / CAPABILITIES – DRIVEN:  STRATEGY FOCUSES AT MARKET / CUSTOMER SEGMENTS THE BUSINESS UNIT INTENDS TO SERVE, IDENTIFYING THE CRITICAL INTERNAL BUSINESS PROCESSES THAT THE UNIT MUST EXCEL TO DELIVER THE VALUE PROPOSITIONS TO CUSTOMERS IN THE TARGETED MARKET SEGMENTS & SELECTING THE INDIVIDUAL / ORGANIZATIONAL CAPABILITIES REQUIRED FOR THE INTERNAL CUSTOMER, & FINANCIAL OBJECTIVES  ALTERNATIVELY SOME COMPANIES COMPETE BY EXPLOITING UNIQUE CAPABILITIES / RESOURCES / CORE COMPETENCIES  COMPANIES DEPLOYING A STRATEGY BASED ON A CORE COMPETENCIES / UNIQUE CAPABILITIES MAY WISH TO START THEIR STRATEGIC PLANNING PROCESS BY IDENTIFYING THESE CRITICAL COMPETENCIES / CAPABILITIES FOR THEIR INTERNAL BUSINESS PROCESS PERSPECTIVE, & THEN FOR THE CUSTOMER PERSPECTIVE, SELECTING CUSTOMER & MARKET SEGMENTS WHERE THESE COMPETENCIES / CAPABILITIES ARE MOST CRITICAL FOR DELIVERING CUSTOMER VALUE  THE BSC IS PRIMARILY A MECHANISM FOR STRATEGY IMPLEMENTATION & NOT FOR STRATEGY FORMULATION  IT CAN ACCOMMODATE EITHER APPROACH FOR FORMULATING BUSINESS UNIT STRATEGY [STARTING FROM CUSTOMER PERSPECTIVE] OR START FROM EXCELLENT INTERNAL BUSINESS PROCESS CAPABILITIES  WHATEVER APPROACH THAT SBU USES TO FORMULATE THEIR STRATEGY THE BSC WILL PROVIDE AN INVALUABLE MECHANISM FOR
  • 14. TRANSLATING THAT STRATEGY INTO SPECIFIC OBJECTIVES, MEASURES, & TARGETS, & MONITORING THE IMPLEMENTATION OF THAT STRATEGY DURING SUBSEQUENT PERIODS MEASURING BUSINESS STRATEGY CHAPTER III FINANCIAL PERSPECTIVE INTRODUCTION:  IT SERVES AS THE FOCUS FOR THE OBJECTIVES & MEASURES IN ALL THE OTHER SCORECARD PERSPECTIVES  EVERY MEASURE SHOULD BE A PART OF A LINK OF CAUSE-AND- EFFECT RELATIONSHIPS THAT CULMINATE IN IMPROVING FINANCIAL PERFORMANCE  THE SCORECARD SHOULD TELL THE STORY OF THE STRATEGY, STARTING WITH THE LONG RUN FINANCIAL OBJECTIVES, & THEN LINKING THEM TO THE SEQUENCE OF ACTIONS THAT MUST BE TAKEN WITH THE FINANCIAL PROCESSES, CUSTOMERS, INTERNAL PROCESSES, & FINALLY EMPLOYEES & SYSTEMS TO DELIVER THE DESIRED LONG RUN ECONOMIC PERFORMANCE  IT WOULD BE UNLIKELY FOR ONE FINANCIAL METRIC & ESPECIALLY A SINGLE TARGET FOR A SINGLE FINANCIAL METRIC, TO BE APPROPRIATE ACROSS A WIDE RANGE OF BUSINESS UNIT  FINANCIAL OBJECTIVES & MEASURES MUST PLAY A DUAL ROLE:  DEFINE THE FINANCIAL PERFORMANCE EXPECTED FROM THE STRATEGY,  & THEY SERVE AS THE ULTIMATE TARGETS FOR THE OBJECTIVES & MEASURES OF ALL THE OTHER SCORECARD PERSPECTIVES
  • 15. LINKING FINANCIAL OBJECTIVES TO BUSINESS UNIT STRATEGY:  FINANCIAL OBJECTIVES CAN DIFFER CONSIDERABLY AT EACH STAGE OF A BUSINESS’S LIFE CYCLE  FOLLOWING ARE THE THREE STAGES:  GROWTH / SUSTAIN / HARVEST CONCLUSIONS:  A BUSINESS UNIT EVEN IN A MATURE HARVEST STAGE MIGHT UNEXPECTEDLY FIND ITSELF WITH A GROW OBJECTIVE  SUCH A TRANSFORMATION WOULD COMPLETELY SHIFT THE FINANCIAL / INVESTMENT OBJECTIVES FOR THE BUSINESS UNIT  THAT’S WHY THE FINANCIAL OBJECTIVES SHOULD BE REVIEWED PERIODICALLY, TO REAFFIRM / CHANGE THE UNIT’S FINANCIAL STRATEGY RISK MANAGEMENT  EFFECTIVE FINANCIAL MANAGEMENT ADDRESS RISK AS WELL AS RETURN  BUSINESS SHOULD BALANCE EXPECTED RETURNS WITH THE MANAGEMENT & CONTROL OF RISKS  RISK MANAGEMENT SHOULD BE AN ADDITIONAL OBJECTIVE THAT SHOULD COMPLEMENT WHATEVER EXPECTED RETURN STRATEGY THE BUSINESS UNIT HAS CHOSEN STRATEGIC THEMES FOR THE FINANCIAL PERSPECTIVE:  FOR EACH OF THE THREE STRATEGIES OF GROWTH / SUSTAIN / HARVEST; THERE ARE THREE FINANCIAL THEMES THAT DRIVE THE BUSINESS STRATEGY:  REVENUE GROWTH / MIX  COST REDUCTION / PRODUCTIVITY IMPROVEMENT  ASSET UTILIZATION / INVESTMENT STRATEGY
  • 16.  REVENUE GROWTH & MIX REFER TO EXPANDING PRODUCT / SERVICE OFFERINGS, REACHING NEW CUSTOMERS / MARKETS / CHANGING THE PRODUCT / SERVICE MIX TOWARD HIGHER VALUE ADDED OFFERINGS, & RE-PRICING PRODUCTS / SERVICES  THE COST REDUCTION / PRODUCTIVITY OBJECTIVE REFERS TO EFFORTS TO LOWER THE DIRECT COSTS OF PRODUCTS / SERVICES, REDUCE INTEREST COSTS, & SHARE COMMON RESOURCES WITH OTHER BUSINESS UNITS  FOR THE ASSET UTILIZATION THEME, REDUCE THE WORKING CAPITAL LEVELS REQUIRED TO SUPPORT A GIVEN VOLUME & MIX OF BUSINESS. IT CAN ALSO BE DONE BY DIRECTING NEW BUSINESS TO RESOURCES CURRENTLY NOT USED TO CAPACITY, USING SCARCE RESOURCES MORE EFFICIENTLY & DISPOSING OF ASSETS THAT PROVIDE INADEQUATE RETURNS ON THEIR MARKET VALUE  ALL THESE ACTIONS ENABLE THE BUSINESS TO INCREASE THE RETURNS EARNED ON ITS FINANCIAL / PHYSICAL ASSETS REVENUE GROWTH & MIX  THE MOST COMMON REVENUE GROWTH MEASURE, BOTH FOR GROWTH / HARVEST STAGE BUSINESS UNITS, WOULD BE SALES GROWTH RATES & MARKET SHARE FOR TARGETED REGIONS, MARKETS, & CUSTOMERS NEW PRODUCTS  GROWTH STAGE BUSINESS WILL USUALLY EMPHASIZE EXPANSIONS OF EXISTING PRODUCT LINES OR OFFERING ENTIRELY NEW PRODUCTS / SERVICES  A COMMON MEASURE FOR THIS OBJECTIVE IS THE % OF REVENUE FROM NEW PRODUCTS / SERVICES INTRODUCED WITHIN A SPECIFIED PERIOD.
  • 17.  THE PREFERRED WAY IS FOR THE NEW PRODUCT OR NEW PRODUCT EXTENSION TO BE A DRAMATIC IMPROVEMENT ON EXISTING OFFERINGS SO THAT IT CAPTURES NEW CUSTOMERS / MARKETS, NOT JUST REPLACES SALES OF EXISTING PRODUCTS
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