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Building an Adaptive Enterprise through Customer Focus A New Business Framework and Approach. October 27, 1999 . Contents. I. The Sears Story II. Business Imperatives in the Connected Society III. The New Business Paradigm IV. Gap Analysis V. Actions and Implementation Plan

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Building an adaptive enterprise through customer focus a new business framework and approach l.jpg

Building an Adaptive Enterprise through Customer Focus

A New Business Framework and Approach

October 27, 1999


Contents l.jpg
Contents

I. The Sears Story

II. Business Imperatives in the Connected Society

III. The New Business Paradigm

IV. Gap Analysis

V. Actions and Implementation Plan

VI. Key Success Factors


The sears transformation story provides a valuable lesson for samsung l.jpg
The Sears Transformation Story Provides a Valuable Lesson for Samsung

Industry

Sears ?

Sears

Sears & Industry

Sears

1992

1997

2000

1945

1982

1886

Birth Growth Leadership

Inflection Point

Transformation

Continuous Renewal

  • Founded in 1886, it essentially starting the retail concept of large department stores with a full line of merchandise and catalog business

  • Core competencies: its adaptive ability to understand and serve changing consumer needs

  • Grew rapidly reaching $1B in sales in 1945 and $41B by 1985

  • Became the dominant U.S. department store

  • Created “brand power”

  • Became too inward-focused, self-absorbed

  • Began diversifiying

  • Centralized and bureaucratic policies

  • Ignoring new breed of competitors

  • Results: Losing market share, financial performance declining, shareholder losing confidence

  • Brought in a new CEO

  • Embarked on a turnaround program :

    • focus on core business

    • customer focus

    • greater local market focus

    • improved cost structure and productivity

    • organizational and cultural renewal

  • Despite huge success, continue to renew and adapt to changing environment, e.g., the connected economy

  • Continue to finetune its customer focus

  • Continue to refine its value proposition and go-to-market strategies


Sears defined the american retail industry l.jpg
Sears Defined the American Retail Industry for Samsung

  • First broad scope retailer offering products not readily available to the general public

  • Set the “Gold standard” of retailing in US, offering unheard of money-back guarantees and free trial offers

  • Grew rapidly reaching $1B in sales in 1945 ($9B in 1998 dollars) and $41B by 1985 ($63B in 1998 dollars)

  • One in five Americans shopped at Sears regularly

  • Employees were extremely loyal, and were rewarded with the best profit-sharing programs in the country

  • Created the catalog industry in US

  • Undercut profit margin of the “general store” to save money for consumers

  • Created “Brand Power” -- Sears became a household name standing for high quality at a fair price

  • Sears developed popular private label brand names including Kenmore appliances, Craftsman Tools and Diehard batteries

Retailer

Catalog

Brand

“Sears is the paragon of retailers. It is number one, in the United States,

and number two, three, four and five” - Fortune Magazine, 1960s

Source: Company web site, Hoovers, HBR Sears, Roebuck and Co. Stanford Business School Case, 1997, EY Analysis


Slide5 l.jpg
Success Has Made Sears Complacent, However, and it Grew Out of Touch with the Changing Retail Marketplace

Customer-distant decision making

  • Headquarters controlled stores, yet did not work closely enough with them to understand their environment

  • Bulletins were written about every process--employees were not allowed to make any decisions

    Distracted

  • Owned a conglomerate of unrelated companies including Allstate Insurance, Dean Witter Investments, Coldwell Banker Real Estate & Discover Credit Card

    Ignored true competition

  • Sears was stuck in the past -- they did not catch on to emerging retailing trends

  • Did not see Wal*Mart & K-Mart entering into their retail space

  • Considered only JC Penney & Montgomery Wards as its competitors

    Misjudged target customers

  • Thought its target customers were male

  • Targeted advertising and promotions towards men

    Ineffective performance management

  • Employee compensation did not align with corporate objectives

    Confused positioning

  • Unfocused response to new competition left Sears with an undefined strategy -- it was not a discounter (e.g., Wal*Mart) or a high end department store (e.g., Nordstrom)

  • “We didn’t know if we wanted to be a discounter, a department store, a specialty store or a mass merchant” - Arthur Martinez, CEO

Source: Home Furnishings Network, 9/30/96, EY Analysis


Consequently by the early 90 s sears had lost its historically dominant position l.jpg
Consequently, by the Early 90’s, Sears Had Lost Its Historically Dominant Position

Profit

Revenue

Indexed Stock Price

($ Billions)

($ Billions)

CAGR

89-92

42%

16%*

12%

6%

6%

2%

CAGR

89-92

29%

-0.4%

4%

3%

10%

CAGR

89-92

23%

43%

-1%

-2%

N/A

Wal-mart

Wal-Mart

Sears

Wal-mart

K-mart

JC Penney

Dayton-Hudson

K-mart

S&P Retail Index

K-mart

Sears

JC Penney

D-H

Dayton-Hudson

JC Penney

Sears

*S&P Retail Index CAGR from 1990-1992

Source: Dow Jones, Bloomberg

In 1992, Sears Hired a New CEO, Arthur Martinez, To Turn Around the Company


Under martinez sears embarked on a three phased transformation process l.jpg
Under Martinez, Sears Embarked on a Three-Phased Transformation Process

Turnaround

(1992)

Transformation

(1993-1997)

Growth

(Ongoing)

  • Hired a new CEO

  • Stabilized operations to stop losses

  • Refocused on core business

  • Created a new corporate vision

  • Determined target customer and designed value proposition

  • Launched new ad campaigns

  • Instituted a new performance measurement system

  • Implemented comprehensive corporate wide change management programs

  • Continue to refine value proposition and go-to-market strategies

  • Continue to improve transformation programs

  • Began a new renewal process incorporating new environment--ecommerce

Began selling off non-retail businesses

Executives’ “Phoenix Team” created

Solidified mission & vision statements

Began 360° reviewing process of all managers

Began goal sharing program

Granted incentives to all store-line managers

Increased number of full line mall stores

Began “Holistic Retailing” strategy to meet the needs of homeowners through a variety of retail & service formats

Created Total Performance Indicator (TPI’s) to measure achievement of market focus strategy

TPI measures became part of top 200 associates’ compensation

Reorganized around its appliance, home & automotive business

Integrated TPI measures into part of all manager’s above store level compensation

Hired new employees from outside Sears & the industry

Subsegmented market to target more specific ethnic customer segments (e.g., Hispanics)

Simplified policy & reduced bureaucracy by introducing “Freedom & Obligations”

Began “Learning Map” program to train all associates about the need and reason for transformation

Committed to remodel stores & gain additional selling floor space

Sears moved from downtown Chicago to suburban Hoffman Estates

Formed Sears University to educate executives on business practices

Closed 113 department stores & reduced workforce by 50,000 people

Began new marketing campaign, “The Softer Side of Sears,” which was targeted at women

Developed neighborhood furniture & hardware stores

Identified target customer as a middle aged female

Revenues declined 9% to $52b, net loss of $3.9 B

Recruited new Senior Executive Committee

Started e-Commerce through sears.com

Began 100 days evaluation period

Launch second revolution

Closed catalog business

Hired new CEO

1992

1993

1994

1995

1996

1997

Source: Harvard Business Review, Sears Roebuck & Co. Turnaround, 1998, Company Web Site, EY Analysis


The transformation began with a new vision a compelling place to shop work and invest l.jpg

Customer Transformation Process

Financial

Results

Employees

The Transformation Began With a New Vision: A Compelling Place to Shop, Work, and Invest

Compelling Place to Shop

Passion for the customer

Loyal customers increase

top line growth

Satisfied employees influence

the shopping experience

3 Cs and 3 Ps

People add value

Performance leadership

Employees rewarded for

performance

Compelling Place to Work

Compelling Place to Invest

Source: EY Analysis


The initial vision was then translated into specific objectives and measures l.jpg
The Initial Vision Was Then Translated into Specific Objectives and Measures

Financial Results

Employees

Customer

  • Environment for personal growth and development

  • Support for ideas and innovation

  • Empowered and involved teams and individuals

  • Great merchandise at great value

  • Excellent customer service from the best people

  • Fun place to shop

  • Customer loyalty

  • Revenue growth

  • Superior operating income growth

  • Efficient asset management

  • Productivity gains

Objectives

  • Personal growth and development

  • Empowered teams

  • Customer needs met

  • Customer satisfaction

  • Customer retention

  • Revenue growth

  • Sales per square foot

  • Inventory turnover

  • Operating income margin

  • Return on assets

Measures

Source: EY Analysis


Sears rediscovered its target customer l.jpg
Sears Rediscovered Its Target Customer Objectives and Measures

Discovery

Before

  • Management perception of target customer:

    • Thought target customers were male

    • Targeted advertising and promotions towards males

  • Core customer:

    • female

    • middle class (annual income of $25,000 - $60,000/yr.)

    • middle age (24-54 yrs. old)

    • head of household

    • mostly mothers

“We had a company run by guys who thought they were in the “dirty fingernails” business of autos and hardware. There was no singular view of Sears target customer.”

- Arthur Martinez, CEO

“This was a big discovery. Unless we made the store more attractive to her, we weren’t going to break out of the box we were in.”

- Arthur Martinez, CEO

Source: HBR Sears, Roebuck and Company Turnaround, 1998; EY Analysis


Sears then refined its value proposition to meet the new target customer l.jpg
Sears Then Refined Its Value Proposition to Meet the New Target Customer

Value Proposition

+

+

Product/Services

Image

Relationship

  • Added new departments such as cosmetics and jewelry for women

  • Expanded apparel offerings

  • Increased national brand products

  • Improved underdeveloped sections such as petites

  • Increased customer wallet share by offering multiple types of services and products to target customer

  • Rolled out the “Softer Side of Sears” advertising campaign, targeting the female customer

  • Communicated that Sears is changing--it offers more merchandise than just appliances and hardware

  • Renovated fixtures and lighting to give a more classy appearance

  • Redesigned stores to provide a more contemporary environment

  • Expanded selling floor space in stores by redesigning back rooms

  • Increased touch points with customers by expanding stores into neighborhoods with hardware and furniture stores

Source: HBR Sears, Roebuck and Company Turnaround, 1998; EY Analysis


Slide12 l.jpg
Believing That Employees Are an Important Part of the New Strategy, Sears Invested Heavily in Employees

Employees

Help Improve Performance

Match Compensation with Performance

Communicate Strategy

  • Town Hall Meetings

    • Held sessions in which all employees met in small groups of around ten

    • Learned about the industry, Sears and why Sears needed to transform

  • Improved Employee Selection

    • Developed interview selection tools to help managers hire employees with the correct skill sets

    • Determined new skills and attitudes needed to realize the new vision and revised new hire profiles accordingly

  • Decision-making/Empowerment

    • Gave front-line employees more authority to act on their own discretion to provide more responsive service to customers

  • Improved Training

    • Opened Sears University to teach courses essential for the operation of the transformation

    • Courses available to managers and above

  • Decreased Bureaucracy

    • Decreased bureaucracy by eliminating cumbersome policies and replaced with broad guidelines called “Freedoms and Obligations”

  • Stock purchases

    • CEO was required to invest five times his salary in Sears stock, and executive board was expected to invest three times their salary

    • Top 200 managers had to purchase their salary in stock

    • Total Performance Indicators (TPIs)

    • Compensation based on TPIs initially rolled out to top 200 managers

    • Eventually all managers above store level had compensation based on TPIs

    • TPIs were broken down with 1/3 based on each of employee, customer & financials

    • Goal sharing

    • Associates given the opportunity to earn variable incentive pay based on customer satisfaction

Source: HBR Employee-Customer Profit Chain, 1998 ; HBR Sears, Roebuck and Company Turnaround, 1998; EY Analysis


To monitor progress sears developed a comprehensive performance measurement system l.jpg
To Monitor Progress, Sears Developed a Comprehensive Performance Measurement System

Measuring

Rewarding

  • Defined a balanced portfolio of strategic objectives along three critical and complementary perspectives: employee, customer, and shareholder

  • Developed a cause-and-effect model of how those objectives influence each other

  • Made sure that the model included drivers of future growth (“leading indicators”)

  • Used that model to develop key measures (Total Performance Indicators - TPIs) so that measurement would influence behavior

  • Wherever possible, defined a quantitative metric for each TPI, and where possible, confirmed statistical correlations in the cause-and-effect change

  • Monitored progress against TPIs using individual and shared goals, and used the results to finetune the list of TPIs

  • Linked performances against TPIs to compensation, using both individual and group goals and incentives. Compensation was linked to non-financial as well as financial performance, and the three perspectives were given equal emphasis

  • Cascaded compensation link from top management (Phoenix team, then top 200 execs, then down through middle management above store level, and finally to management teams in the stores as the TPIs proved themselves). Goal sharing was tried on a test-basis to cascade compensation links to the salesperson level

Source: EY Analysis


Slide14 l.jpg
Sears’ New Performance Metrics Measured Impact of Employee and Customer Satisfaction on Financial Results

Employee-Customer Profit Chain

Legend

Focus on Employees

Focus on Customers

Financial Results

  • Rectangles represent survey information

  • Ovals represent hard data

  • Shading represents measurements collected in the form of Sears total performance indicators

  • Solid arrows represent statistically established correlations

  • Dotted arrows represent hypothetical relationships

Customer

Recommend-

ations

Attitude

about

the job

Service

-----------

Helpfulness

Return on assets

Operating margin

Revenue growth

Employee

behavior

Customer

Impression

Attitude

about the

company

Merchandise

------------

Value

Employee

retention

Customer

retention

Example:

DRIVES

DRIVES

5 unit increase

in employee

attitude surveys

1.3 unit increase

in customer

impression surveys

0.5% unit increase

in revenue

growth

Source: HBR Employee-Customer Profit Chain of Sears, 1998; HBR Sears Roebuck & Co. Turnaround, 1998; EY Analysis


This intense effort has dramatically improved results for employees customers and investors l.jpg
This Intense Effort Has Dramatically Improved Results for Employees, Customers, and Investors

Market Share

Total Performance Indicators

Employee Scores2

Share Price

1992 = 1

Sears

Dayton Hudson

Scores

JC Penney

S&P Retail Index

Wal-mart

K-mart


Slide16 l.jpg
Despite Success, Sears Continues to Renew itself to Adapt to the Changing Environment, e.g., Connected Economy

  • Entered into e-Commerce

    • Launched Sears.com

    • Focusing on appliances first, then will expand into hardware & tools, lawn & garden, and consumer electronics

    • Sears aims to be the definitive online source for the homeowner

  • Reorganized Executive Office

    • Created a chief executive office composed of current CEO Martinez and two finance/merchandise specialists

    • Will allow Martinez to focus on full line store needs and reduce the number of people reporting to him

  • Increased Store Sovereignty

    • Shifting more control of stores from headquarters to the local stores, so they can better react to their customers’ individual needs

  • Altered Store Environment

    • Hired one of the country’s top fashion photographers to create displays and specialty shops within the department stores

Source: Context Magazine The Cyberside of Sears, Sept/Oct 1999, Chicago Tribune 9/19/99, Crain’s Chicago Business 9/6/99, Dow Jones, EY Analysis


The sears story l.jpg
The Sears Story: the Changing Environment, e.g., Connected Economy

Redefinition of

Core Business

Vision

Strategy

Customer

Value

Propositions

Go-to-Market

Strategy

Communication

Communication

Performance Management

Performance Management

Employee Training & Empowerment

Processes

Knowledge Management


Key success factors l.jpg
Key Success Factors the Changing Environment, e.g., Connected Economy

Leadership

Brand Power

Long-Term Perspective

SEARS

Customer Focus

Tireless Execution

Complete Internal Alignment Around Strategy

Measurement System


Contents19 l.jpg
Contents the Changing Environment, e.g., Connected Economy

I. The Sears Story

II. Business Imperatives in the Connected Society

III. The New Business Paradigm

IV. Gap Analysis

V. Actions and Implementation Plan

VI. Key Success Factors


Xxx has achieved market leadership in consumer electronics worldwide l.jpg
XXX the Changing Environment, e.g., Connected Economy Has Achieved Market Leadership in Consumer Electronics Worldwide

Fortune magazine ranks XXX as the #5? consumer electronics company in the world

Birth

Expansion

Leadership

Global Market Share Leadership

Revenue & Profit Growth

Market Cap Growth


Slide21 l.jpg
This Success Was Driven Primarily by Superior Operational Excellence Based on the“Make-and-Sell” Approach

  • Organized to produce large quantities of products efficiently and sell them to customers whose needs could be assumed, predicted, and controlled

  • Characterized by replaceable parts and economies of scale

  • Focus on products and processes

  • Emphasis on planning and control

Profits Through Product Sales Volume & Cost Cutting

Make Product

Sell Product

Design

Product

Advertise/

Promote

Market

R&D

Procure

Make

Price

Sell

Distribute

Service


Slide22 l.jpg

eCommerce Excellence Based on the“Make-and-Sell” Approach

Convergence

Internet

Digital

Value

Virtual Community

Open Standard

Fundamental Changes Occurring in the Marketplace Are Requiring Samsung to Redefine its Basis for Competition

Renewal

Globalization

New Business Model

?

Active Inertia

Leadership

Value

Growth

Decline

Birth

Time

Example: GE

80-81 86/87 91/92 99/00

Inflection Pt

Business Model

Market Share Leadership Productivity Services and Solutions Digital


The connected society marks the transition to a new era of human history l.jpg

1750 Excellence Based on the“Make-and-Sell” Approach

1860

1950

2000

Defining

Application

Social

Implication

Evolution of

Business

The Connected Society Marks the Transition To a New Era of Human History

Transportation Revolution

(Age of National Scale

Transportation)

Information Processing Revolution

(Data Processing Age)

Connected Society

Revolution

(Networked Society Age)

Industrial Revolution

(Age of Civilization)

“We are in for a revolution”

STEAM

ENGINE

TRANSNATIONAL

RAILROAD

INTERNET AND DIGITAL COMMUNICATION

INTEGRATED

CIRCUIT

URBANIZED AND INDUSTRIAL SOCIETY

REGIONAL SPECIALIZATION AND INTER-REGIONAL TRAVEL

KNOWLEDGE

WORKER-BASED

ECONOMY

GLOBALLY CONNECTED SOCIETY AND ECONOMY

BLURRING

ACCELERATION

AND

COMPRESSION

SYNCHRONICITY

LINEARITY

&

LIFE CYCLEs

Source: E&Y The Leadership ConnectionTM Interviews


The connected economy is characterized by three key forces l.jpg
The Connected Economy Is Characterized by Three Key Forces Excellence Based on the“Make-and-Sell” Approach

Connection

Speed

Products

Services

Customer

Intangibles

Source: Blur, 1998


These three forces are destroying old solutions l.jpg
These Three Forces Are Destroying Old Solutions. . . Excellence Based on the“Make-and-Sell” Approach

  • Markets and industries will be defined in terms of CUSTOMERS rather than products

  • Market power will shift from suppliers toward CUSTOMERS

  • More reliance will be placed on flexible, customized marketing and INTANGIBLE elements of the value proposition

  • Product life cycles will shorten

  • The need to choose between a high volume/low cost strategy and a niche/differentiation strategy will disappear

  • Maximizing the number of transactions with the same loyal customer by offering a diverse array of products and services will become increasingly important

  • The most productive business strategies will be cooperative, not competitive

  • Organizations will rely more on decision teams and parallel information processing and less on individual decision-making and sequential information processing


Leading to six rules for success in the connected society l.jpg
. . . Leading to Six Rules for Success in the Connected Society.

1

Focus on desired customers

2

Focus on competencies

3

Leverage partnerships

4

Identify differentiators

5

Create hybrid models

6

Be flexible and agile

Source: E&Y Analysis


The new organizational premise is sense and respond l.jpg
The New Organizational Premise is “Sense-and-Respond.” Society.

SENSE-AND-RESPOND

Assumption:

Unpredictable change

Goal:

Become an Adaptive Enterprise

MAKE-AND-SELL

Assumption:

Predictable change

Goal:

Become an Efficient Enterprise

Context

- purpose and bounds

- adptative structure

Mission

and Policy

Strategy

- objective

- plan

Coordination

of Capabilities

- commitment

management

An Open System

Command

and Control

management

system

Adapting

A Closed System

Internal

Feedback

Structure

functional

hierarchy

External

Signals

Source: Hackel, Stephen, Adaptive Enterprises, Boston:Havard Business School Press, 1999.


Transitioning to a sense and respond organization requires a fundamental shift l.jpg
Transitioning to a Sense-and-Respond Organization Requires a Fundamental Shift

Make-and-Sell

Sense-and-Respond

Continuum

Business as an efficient mechanism for making and selling offers to defined market segments with predictable needs

Mindset behind Strategic Intent

Business as an adaptive system for responding to unanticipated requests in unpredictable environments

Embedded in products

Mass Production

Efficiency and predictability

Profit margins on products and economies of scale

Functional and sequential activity

Functionally managed and optimized

Host-centric: hierarachical top-down command and control mgmt system

Share of products and services

Strategy as plan

Know-How

Embedded in people and processes

Modular customization

Invested in capailities and system

Return on investmens and economies of scope

Networked and paralleled activity and teams

Enterprise management of essential information

Network-centric: shadowing the dynamic network of people and teams

Share of customer spending

Strategy as adaptive business design

Process

Organizational Priority

Profit Focus

Operational Concept and Governance Mechanism

Information Architecture

Information Technology Architecture

Market Leader Criteria

Articulation of Strategy

Source: Hackel, Stephen, Adaptive Enterprises, Boston:Havard Business School Press, 1999.


Contents29 l.jpg
Contents Fundamental Shift

I. The Sears Story

II. Business Imperatives in the Connected Society

III. The New Business Paradigm

IV. Gap Analysis

V. Actions and Implementation Plan

VI. Key Success Factors


The primary business objective for samsung is to increase the ultimate value of the company l.jpg

Full Potential Fundamental Shift

Market

Value

Multiple($)

Financial Performance

Non-financial Performance

Typical

Time

The Primary Business Objective for Samsung Is to Increase the Ultimate Value of the Company


The challenge is to determine how to manage company resources to create maximum financial outcomes l.jpg
The Challenge is to Determine How to Manage Company Resources to Create Maximum Financial Outcomes

Full Potential

Market

Value

Market

Value

Multiple($)

Financial Performance

Earnings

Revenues

x

x

=

Invested

Capital

Revenues

Earnings

Non-Financial

Typical

Time

(Profit

Margin)

(Growth /

Reliability)

(Capital

Efficiency)


Increasingly investors take non financial measures into account when valuing companies l.jpg
Increasingly, Investors Take Non-Financial Measures into Account When Valuing Companies

Non-Financial Metrics Investors Value Most

Full Potential

  • 1. Execution of corporate strategy

  • How well does management:

    • leverage its skills and experience?

    • gain employee commitment?

    • stay aligned with shareholder interests?

  • 2. Quality of strategy

    • Does management have a vision for the future?

    • Can it make tough decisions and quickly seize opportunities?

    • How well does it allocate resources?

  • 3. Ability to innovate

    • Is the company a trendsetter or a follower?

    • What is in the R&D pipeline?

    • How readily does the company adapt to changing technologies and markets?

  • 4. Ability to attract talented people

    • Is the company able to hire and retain the very best people?

    • Does it reward them?

    • Is it training the talent it will need tomorrow?

  • 5. Market share

    • Is the company capturing the value of the current market?

    • Is it well-positioned to expand that value in the future?

  • 6. Quality of executive compensation

    • Is executive pay tied to strategic goals?

    • How well is it gauged to the creation of shareholder value?

  • 7. Quality of major processes

  • 8. Research leadership

    • How well does management understand the link between creating knowledge and using it?

Market

Value

Multiple($)

Financial

Non-financial

Typical

Time

Key Findings from Market Studies

  • Nearly 40% (50% for high tech firms) of the market valuation of the average company was missing from its balance sheet (1996 Study)

  • Non-financial criteria constitute on average 35% of the investor’s decisions

  • The more non-financial measures analysts use, the more accurate are their earnings forecasts


Slide33 l.jpg

0% Account When Valuing Companies

15%

0%

15%

0%

15%

0%

15%

Non-Financial Data Have a Direct Impact on ValuationA one unit improvement in the perception of quality of management could represent a 13.2% price premium on share value

% Increase in P/E Ratio given a one-unit change in….

Computer Industry Pharmaceuticals Food Industry Oil and Gas

Non-Financial Criteria

1.4%

2.6%

Quality of Management

7.6%

4.2%

13.2%

4.9%

2.5%

8.8%

0.9%

2.4%

1.4%

Quality of Products and

5.8%

2.7%

9.6%

3.9%

7.2%

Services

Level of Customer

0.0%

0.0%

0.0%

0.0%

Satisfaction

4.8%

2.5%

1.5%

1.3%

Strength of Corporate

0.0%

0.0%

0.0%

0.0%

6.1%

2.1%

3.0%

1.3%

Culture

Quality of Investor

0.3%

0.8%

0.5%

0.9%

Communications

1.8%

2.8%

4.6%

1.3%

Effectiveness of Executive

0.4%

0.9%

0.6%

1.1%

4.4%

2.5%

2.9%

Compensation Policies

1.2%

0.9%

5.3%

0.0%

1.6%

Effectiveness of New

7.3%

3.2%

4.1%

1.8%

Product Development

0.3%

0.0%

7.3%

3.1%

Strength of Market Position

7.1%

9.3%

3.1%

1.2%

Influence On Price

Short Term

Long Term

Source: Ernst & Young’s Measures That Matter, 1997


Slide34 l.jpg

Investor Account When Valuing Companies

Customer

  • Buy

  • Price

  • Etc.

  • Buy

  • Hold

  • Etc.

Supplier

Employee

  • Cost

  • Stocking

  • Etc.

  • Productivity

  • Wage

  • Etc.

1

2

5

Therefore, a Compelling New Business Paradigm Should Focus on Measures That Matter, both Financial and Non-Financial

Stock Price

Allocation of Time and Money

Operating

Model

Management Philosophy/

Point of View

Value Invested

VEM

A

B

Constituency

Behaviors

F

C

E

D

?

C

E

S

I

TIME/MONEY

PRICE

?

Value Returned

Value Invested

Cutomer

Focus

SYSTEMS

TIME

KNOWLEDGE

CAUSAL MODEL

3

4

  • Calibrate Stock Value Gap

  • Model Profile Constituency/Behaviors that Matter

  • Create Causal Model/VE Optimization Capability

  • Redesign Enterprise Processes/ Overall Architecture

  • Transition Enterprise to a Customer Focus Point of View


The new business paradigm development proceeds with the following five steps l.jpg
The New Business Paradigm Development Proceeds with the Following Five Steps

1

Company Vision

2

Business Strategy

  • Who are we and what do we do?

3

Value Propositions

  • Where should we go?

4

Strategic Operation Model

  • What are our “promises” to:

    • customers

    • employees

    • partners

    • investors

5

Portfolio of Initiatives

  • How will we get there?

    • Business Structure

    • Business System

    • Organization Structure

  • How will we deliver it?


This effort addresses four of the five components l.jpg
This Effort Addresses Four of the Five Components Following Five Steps

Where should we go?

How do we get there?

How do we deliver it?

What are our “promises”?

Business Strategy

Operating Model

Portfolio of Initiatives

Value Propositions

  • A definition: The intentional choice of where, how, and when to compete…

  • …resulting in significant (or largely irreversible) commitments of resources — capital or human

  • Effective strategy considers marketplace and internal issues, is fact-based, and owned by those responsible for implementation

Framework which defines internal business structures, processes and systems:

  • Implementation initiatives focused on improving current business process performance...

  • …while maintaining the benefit of a high-touch environment

  • …and enabled by information technology, measurement systems, and infrastructure

  • Develop comprehensive offering for target customers

  • Define compelling reasons:

    • for employees to work at Samsung

    • for partners to work with Samsung

    • for investors to invest in Samsung

  • High level business unit structure and process structure design

  • Business system definition

  • Organization structure


A customer driven organization performs six key customer processes l.jpg

Customer Following Five Steps

Strategy

Know Who Are Your Customers

Customer Behaviors

Outcome

Measures

Know What Your Customers Do

Understand Your Relationship with the Customer

Know What Your Customers Are Worth

Exchange Value with Your Customers

Customer Economics

Delivery

Strategy

Determine How to Deliver

Know What You Can Get Back

Decide What to Give Your Customers

Capability Specifications

Opportunity

Identification

Opportunity

Design

A Customer Driven Organization Performs Six Key Customer Processes

Identify Target Customers

Manage customer relationship

Determine Customer Lifetime Value

Fulfill Promises

Define go-to-market strategy

Develop Offerings


Customer driven business framework l.jpg
Customer Driven Business Framework Following Five Steps

Customer Knowledge Management

CRM

Development

Customer Strategy

Field

Services

Ad

Campaign

NPD

SCM

Offer

Development

Business

Strategy

Service &

Support

Vision

Communication

Go-to-Market Strategy

Value Proposition

Pricing

Channel

Promotion

Product

Design

Brand

Strategy

Customer

Care

Salesforce

Competencies

Processes

Op Model

Organization Design

Performance Metrics


What will it look like when samsung has transformed into a customer driven organization l.jpg
What Will It Look Like When Samsung Has Transformed into a Customer Driven Organization?

Product-Focused

Customer-Focused

Manager

Role

Product Manager

Customer Portfolio Manager

Managerial

Scope

Managed by customer segment

or portfolio of individual customers

Managed by sales region

Volume, product profitability, market share, customer satisfaction

Lifetime value, product mix, customer profitability, share of wallet, customer retention

Measures

Required Knowledge

  • Market growth

  • Pricing studies

  • Assessment of competitive landscape

  • Customer satisfaction

  • Geographic sales breakdown

  • Brand perception/perception of quality

  • Customer’s Lifetime Value

  • Customer’s current product portfolio

  • Customer’s point in lifecycle (customer needs)

  • Customer’s history with company

  • Customer’s preferred access channel

  • Cost to acquire, serve and retain

Source: E&Y Analysis


What will it look like when xxx is customer driven l.jpg

Activities and Behaviors Customer Driven Organization?

Value propositions defined by key customers/segments for product/service offerings

Globally integrated and shared customer knowledge management

Metrics developed to track degree of customer focus

Customer-focused measures & targets shared by different functions in XXX value chain

Customer attraction & retention rates tracked

Share of wallet defined and tracked for key segments

Customer profitability captured & used to manage customer portfolio

Pricing & channel actions are no longer reactive, but based on CRM strategy

New product/service development includes market research, customer and field input, and cross-functional team approach

Results

Price parity with leading brands for comparable products

Brand parity in terms of recognition and positive image

Increased brand equity reflected in above-average performance of XXX stock relative to peer competitors

Customer attraction & retention rates increase

Share of wallet increases for key segments

Customer profitability increases

XXX profitability, EVA, and ROA increase

What Will It Look Like When XXX Is Customer-Driven?


Measuring customer focus in the new environment l.jpg
Measuring Customer Focus in the New Environment Customer Driven Organization?

Leading Indicators (Drivers): Customer Value Proposition

=

+

+

Value to Customer

Product/Service Attributes

Image

Relationship

Functionality

Quality

Price

Time

Brand

After-Sales Service

Examples of attributes:

(Examples of measures:)

(External product ratings)

(Warranty) claims

(Relative price ratio)

(Back order rate)

(Brand survey rating)

(Response time, problem resolution rate)

Lead To

Lagging Indicators (Outcomes): Customer Response

Market and/or

Wallet Share

(Examples of measures:)

(Share points)

Customer Acquisition

Customer Profitability

Customer Retention

(% new customers in target segments)

(Fully-costed margin in target segments)

(# of repeat sales in target segments)

Customer Satisfaction

(CSI)

Adapted from: The Balanced Scorecard, Kaplan & Norton, 1996


Contents42 l.jpg
Contents Customer Driven Organization?

I. The Sears Story

II. Business Imperatives in the Connected Society

III. The New Business Paradigm

IV. Gap Analysis

V. Actions and Implementation Plan

VI. Key Success Factors


Marketing iq test l.jpg
Marketing Customer Driven Organization? IQ Test

True

False

Don’t

Know

1. Businesses in America were reasonably successful during the 1980s, enjoying real growth in sales of 2 percent or more per year.

2. During the coming decade, marketers will earn more profits from new brands than from existing ones.

3. A high share of market in a product category generally leads to economies of scale that result in a high level of profitability.

4. There is little agreement among marketers about what the hot new concept “brand equity” means.

5, A reasonable way to set the marketing budget is to take last year’s figure and adjust for inflation.

6. Line extensions are a very risky way to introduce new products.

7. Focus group interviews are a serious marketing research tool that a manager can safely use to help make serious marketing decisions.

8. Business today invest more money in finding new customers than in further developing current customers.

9. The most profitable customers of a firm are usually its biggest customers.

10. Big companies generally make their marketing decisions after evaluating many alternatives in terms of profitability.


Marketing iq test cont d l.jpg
Marketing Customer Driven Organization? IQ Test (Cont’d)

True

False

Don’t

Know

11. The more appealing a new product concept is to prospective buyers, the more likely it is it will be a success.

12. Every company should strive to hold on to all of its customers.

13. Location is the most important determinant of success for a new retail business.

14. One-hundred percent customer satisfaction is not an intelligent business objectives.

15. Media planners at major advertising agencies know a great deal about the relative effectiveness of print, television, and radio advertising.

16. Because pricing is such an important component in the marketing mix, most big companies have a serious pricing strategy based on pricing research.

17. Nielsen’s television rating service--especially the new “people meter”--provides valid information about the number of people watching a particular television program.

18. Consumer and trade promotional programs tend to be more profitable than advertising.

19. Companies cannot quantify the effects of public relations programs. That's one reason why PR is a less valuable components of the marketing mix than advertising or the sales force.

20. Most marketing and advertising programs usually are measured in terms of their profitability.

Total:


What is your marketing iq l.jpg
What is Your Marketing IQ? Customer Driven Organization?

If you scored: You are:

150 - 160

130 - 149

110 - 129

90 - 109

70 - 89

50 - 69

30 - 49

11 - 29

1 - 10

A marketing genius

A guru, a maven

An up-and-coming consultant

A seasoned professional

A typical marketer

A death-wish marketer

An incompetent

Dangerous to your company

Guilty of malpractice


Contents46 l.jpg
Contents Customer Driven Organization?

I. The Sears Story

II. Business Imperatives in the Connected Society

III. The New Business Paradigm

IV. Gap Analysis

V. Actions and Implementation Plan

VI. Key Success Factors


An operating model is the primary mechanism for operationalizing business strategy l.jpg
An Operating Model Is the Primary Mechanism for "Operationalizing" Business Strategy

Where should we go?

How do we get there?

How do we deliver it?

What are our “promises”?

Value Propositions

  • Develop comprehensive offering for target customers

  • Define compelling reasons:

    • for employees to work at Samsung

    • for partners to work with Samsung

    • for investors to invest in Samsung

Portfolio of Initiatives

Business Strategy

Operating Model


An operating model is the primary mechanism for operationalizing business strategy48 l.jpg
An Operating Model Is the Primary Mechanism for "Operationalizing" Business Strategy

Where should we go?

How do we get there?

How do we deliver it?

What are our “promises”?

Operating Model

Framework which defines internal business structures, processes and systems:

  • High level business unit structure and process structure design

  • Business system definition

  • Organization structure

Portfolio of Initiatives

Business Strategy

Value Propositions


Operating models consist of three primary components l.jpg

One Operating Business Unit "Operationalizing" Business Strategy

Sales

Marketing

Call Center (Service)

Billing Operators

Remittance Processing

System Control Center Ops

Generation

Engineering and Construction

Environmental

Regulatory (Lobbying)

Legal Services

Human Resources

Finance

External Affairs

Business Planning

Administration

Operating Models Consist of Three Primary Components

Strategic Operating Model

Business Structure

1

Business System

2

Low Cost

Differentiated Services

Energy Generation Unit (Genco)

Transaction Management

Organization Structure

3

Energy Delivery Unit (Transco)

Customer Operations Unit (Disco)

By-Product (Ash) Management

Regulatory Compliance

Sales

Competencies

Environmental Compliance

Maintenance

Maintenance

Marketing

Operations

Operations

Product Development

Engineering

Customer Service

Regulatory (Lobbying)

Legal Services

Human Resources

Finance

External Affairs

Business Planning

Administration

Business

Processes

  • Identification of business unit structure, organized around customers, markets, products, geographies, etc.

  • Delineation of dedicated and shared services across business units

  • Preliminary evaluation of profit & loss responsibility, revenue responsibility, and cost centers

  • Articulation of “rules of engagement” — A.K.A. “How things really get done”

Knowledge Management

Performance Management

  • Organizational Structure describes at a high level all elements of:

    • reporting structures

    • roles & responsibilities

    • jobs & skills

  • Design of an organizational structure that is aligned with the strategy and other operating model components

  • Clearly identified and defined business system components that support the strategy and the high level business structure

Our focus


Operating model development business system l.jpg
Operating Model Development: Business System "Operationalizing" Business Strategy

Competencies (Staffing, Training, Development)

Change

Management

Business

Processes

Business

Processes

Knowledge Management & Information Systems

Performance Management


Operating model development l.jpg
Operating Model Development "Operationalizing" Business Strategy

Competencies (Staffing, Training, Development)

Change

Management

Business

Processes

Business

Processes

Knowledge Management & Information Systems

Performance Management


Competency modeling and assessment methodology l.jpg

Tactical Organizational Design "Operationalizing" Business Strategy

Stage 1

Stage 2

Stage 3

Stage 4

Competency

Modeling

Gap

Analysis

Assessment

HR Link

Succession/Career Planning

Selection

Training and Development

Performance Appraisal

Compensation

Recruitment

Universal

LINKAGE

Documentation Review/

Current State Understanding

Process

Job/Role

Validation

Competency Modeling and Assessment Methodology


Operating model development53 l.jpg
Operating Model Development "Operationalizing" Business Strategy

Competencies (Staffing, Training, Development)

Change

Management

Business

Processes

Business

Processes

Knowledge Management & Information Systems

Performance Management


Operating model development54 l.jpg
Operating Model Development "Operationalizing" Business Strategy

Competencies (Staffing, Training, Development)

Change

Management

Business

Processes

Business

Processes

Knowledge Management & Information Systems

Performance Management


Slide55 l.jpg
Performance Management is the Vital Link Between a Company’s Ability to Define its Strategy and Implement It.

Concrete initiatives to operationalize a firm’s strategy

Performance

Management

Strategy

Vision

Execution

Execution at all levels consistent with strategy

Measurement Motives

It’s not what you expect … it’s what you inspect.

What you measure is what you get.

If you can measure it, you can manage it.


Effective performance measurement systems capture both financial and non financial value creation l.jpg
Effective Performance Measurement Systems Capture Both Financial and Non-Financial Value Creation

Market Feedback Loop: Measuring Value

Financial Markets

Company

Value Creation

Share Price

Strategic Decisions

Investor Estimates of Future Cash Flows

Capital Allocations

Financial Performance Measurement

Strategy Execution

Non-Financial Performance Measurement


Slide57 l.jpg

Performance Measurement Has Become a Highly Effective Management Tool for Aligning Performance With Strategy, Especially in Rapidly Changing Industries

  • communicates the company’s strategic vision down through the organization

  • provides a management tool for decision-making

  • promotes accountability and follow-up

  • provides a mechanism for learning and feedback

  • promotes alignment of effort up and down the organization


Slide58 l.jpg
The Balanced Scorecard Has Proven to be a Highly Effective Approach for Both Performance Management and Business Transformation

  • As of 1999, more than 50% of Fortune 1000 companies had adopted some version of the Balanced Scorecard (BSC).

  • The early adopters of the Scorecard in the early 1990’s have reported satisfaction with what the Scorecard accomplished for them.

    • About half used the Scorecard to focus and improve their pursuit of already established financial goals (“run a tighter ship”)

    • About half used the Scorecard to bring about a more fundamental business or cultural transformation (“turn the ship around”)

    • At least half of the companies viewed the Scorecard as a “resounding success,” and nearly all called their efforts generally successful. All believed the Scorecard helped employees focus on strategic priorities and the leading indicators of financial success and better manage their company’s value chain.

  • This compares favorably with failure rates between 65% and 80% for business transformation initiatives with a significant information systems component.

Sources: Balanced Scorecard Collaborative, press release dated February 25, 1999, at www.bsccollaborative.com; Sarah Mavrinac and Michael Vitale, “Where Are They Now? Revisiting the Original “Balanced Scorecard” Firms,” Perspectives on Business Innovation (Ernst & Young Center for Business Innovation), Issue 2, p. 29., Gartner Group.


A good scorecard tells the story of your strategy l.jpg
A “Good” Scorecard Tells the Story of Your Strategy Approach for Both Performance Management and Business Transformation

Criteria for a Good Balanced Scorecard

  • Cause and Effect Relationships:

    • Every measure is a link in a chain of cause and effect linkages that represent the strategy

  • Linkage to Financials:

    • Every measure ultimately ties to financial results/EVA

  • Emphasis on Performance Drivers:

    • Focus on factors which create long term value

    • Establish a balance between leading and lagging indicators

  • Measures that create change

    • Measures which communicate objectives not prescribe actions

    • Measures which cause the organization to redefine a process or change behavior

A Strategy is a set

of hypotheses about

cause and effect


At a personal level understand how their actions impact economic value l.jpg
At a Personal Level, Understand How Their Actions Impact Economic Value

EVA

ILLUSTRATIVE

Cost OfCapital

NOPAT

Capital

AdministrationExpense

Expense

Revenue

Facilities

ProductionExpense

Expensed Capital

Rents/Occupancy Expense

Marketing

Warehousing

Sales

New ProductDevelopment

People Expense

RawMaterials

Inputs

Transportation

InventorySpoilage

Equipment

OrderingCosts

EDI

TechnicalErrors

Reporting

Errors

StaffingConstraints

ClericalErrors

Bad DataErrors

Education

Ability

Confidence

Intellectual Aptitude


Slide61 l.jpg

The Balanced Scorecard Is the Most Comprehensive and Flexible Measurement Framework Available and Best Addresses Today’s Challenges in Performance Measurement and Management

A complete Balanced Scorecard has four fundamental components:

The Balanced

Scorecard

Framework Of

Complementary

Business Perspectives

A Cause-&-Effect

Model That Explains

How The Company’s

Strategic Objectives

Together Create Value

A Set of Key Measures,

Targets, and Accounta-

bilities To Guide

Progress Toward Those

Objectives

Supporting Processes

& Infrastructure

To Implement The

Scorecard As A

Business Discipline

  • Four perspectives:

  • Financial

  • Customer

  • Business Processes

  • People (Organizational Learning and Growth)

  • The model helps ensure:

  • That the underlying busiess vision is shared by the management team and communicable to the organization

  • That the set of strategic objectives that form the basis for the Scorecard work together toward the same strategic goals

  • That the Scorecard’s various objectives ultimately contribute to improved financial performance

  • For each strategic objective:

  • One or more Key Performance Indicators (KPIs)

  • A target for each KPI

  • One or more groups or individuals charged with achieving each target

  • Where relevant, designated initiatives to help achieve those targets

  • Process examples:

  • Management Review

  • Budgeting

  • Performance Review

  • Compensation

  • Infrastructure examples:

  • Decision support & reporting systems

  • Communication

  • Training


The bsc links strategic objectives to measurements across four perspectives l.jpg
The BSC Links Strategic Objectives to Measurements Across Four Perspectives

The Balanced Scorecard translates the strategy of a firm into statements of “things the firm needs to do well to be successful.” In its standard form, the Balanced Scorecard defines success across at least four perspectives: Financial, Customer, Business Process, and People.

The Strategy

Financial

To satisfy our shareholders, what financial objectives must we accomplish?

Customer

To achieve our strategy, which customer needs must we satisfy?

Business Process

To satisfy our customers, in which internal business processes must we excel?

People

To achieve our strategy, how must the people learn and innovate?

Most Scorecards also seek a balance between indicators of current growth (often financial and business measures) and indicators of future growth (typically in the “customer” and “people” perspectives)

*Based on the original concepts proposed by David Norton and Robert Kaplan in their 1992 Harvard Business Review article


The balanced scorecard defines strategy as a set of hypotheses about cause and effect l.jpg
The Balanced Scorecard Defines Strategy As a Set of Hypotheses About Cause and Effect

Improve Returns

Partial Revenue Strategy

Broaden Revenue Mix

Illustrative

Increase Customer Confidence in Our Financial Advice

Understand Customer Segments

Cross-Sell

the Product Line

Develop

the Offering

Achieve

Employee Satisfaction

Improve Customer Information

Align Reward System

Broaden Skills (Financial Planner)


This cause and effect model ensures that all measures ultimately drive financial indicators l.jpg
This Cause and Effect Model Ensures That All Measures Ultimately Drive Financial Indicators

  • Financial

    • Return on Investment

    • Revenue mix

    • Revenue growth

Partial

Revenue

Strategy

Improve Returns

Broaden Revenue Mix

  • Customer

    • Customer satisfaction survey

    • Customer retention

    • Depth of relationship

    • Share of segment

Increase Customer Confidence in Our Financial Advice

Understand Customer Segments

Cross-Sell

the Product Line

Develop

the Offering

  • Business Processes

    • Product development cycle

    • Revenue from new products

    • Hours with customers

    • Cross-sell ratios

Achieve

Employee Satisfaction

  • People

    • Employee satisfaction

    • Revenue per employee

    • Strategic info availability

    • Strategic job coverage

    • Personal goals alignment

Improve Customer Information

Align

Reward System

Broaden Skills (Financial Planner)


Slide65 l.jpg

Maximize Ultimately Drive Financial Indicators

Financial

“Profitable Share Growth”

Total Return

to

Shareholders

Meet or Exceed

Meet or Exceed

Strategically

Strategically

Long-Term

Long-Term

Manage Market

Achieve

Manage Market

Achieve

Corporate Earnings

Corporate Earnings

Share

Productivity and

Share

Productivity and

Goals

Goals

Cost Advantage

Cost Advantage

Consumer Pull

Retailer Push

“Be Consumer Brand-of-Choice

Enhance Profitability

Customer

Enhance Profitability

Be Perceived by

Be Perceived by

of Business Partners

of Business Partners

and Retailer Preferred Supplier”

Consumers as Having the

Consumers as Having the

(Wholesaler,

(Wholesaler,

Best Value

Retailer)

Best Value

Retailer)

Provide Right

Product/

Package at

Ensure and Promote High

Enhance Brand

Right Place,

Ensure and Promote High

Enhance Brand

Partner with

Product Quality and

Equity, esp.

Partner with

Help Partners

at Right

Product Quality and

Equity, esp.

Help Partners

Retailers to Execute

Freshness as a

XXX

Time, at

Retailers to Execute

Manage Product Mix

Freshness as a

Budweiser

Manage Product Mix

Win/Win/Win

Right Price

Competitive Advantage

Trademark

Win/Win/Win

and Availability

Competitive Advantage

Trademark

and Availability

Activities

and Margin

Activities

“Provide High

Quality, Enhanced

Strengthen use of

Understand Customer

Maintain Best-in-Class

Maintain Consistency in

Maintain Best-in-Class

Strengthen use of

Understand Customer

Maintain Best-in-Class

Maintain Consistency in

Maintain Best-in-Class

Develop Creative

information across the

Trends to Design Targeted

Develop Creative

information across the

Trends to Design Targeted

Master Scheduling and

Production and

Innovative Marketing

Master Scheduling and

Production and

Innovative Marketing

Margin”

extended supply chain,

Pricing, Packaging, and

Production Innovations

extended supply chain,

Pricing, Packaging, and

Production Innovations

Distribution Capability

Procurement Processes

Capability

Distribution Capability

Procurement Processes

Capability

including 2nd and 3rd tier

Advertising/Merchandising

including 2nd and 3rd tier

Advertising/Merchandising

“Manage and

Business

Measure Across

Process

Incorporate Leading Edge Decision Support Systems into Effective Decision Making

Incorporate Leading Edge Decision Support Systems into Effective Decision Making

Value Chain”

“New Ideas,

Foster Culture of

Continue to Attract and

Foster Culture of

Continue to Attract and

Eliminate Silos and

People

Eliminate Silos and

Innovation and Risk

Retain Highly-Effective

Innovation and Risk

Retain Highly-Effective

Ceilings

Good Team

Ceilings

Taking

Workforce

Taking

Workforce

Work”

Provide Challenging and Rewarding Work

Provide Challenging and Rewarding Work

Create a Work Environment of Trust, Teamwork, and Integrity

Create a Work Environment of Trust, Teamwork, and Integrity

For example, a Large Beverage Company


A xxx cause and effect model should show how its strategic objectives in all four perspectives l.jpg
A Ultimately Drive Financial IndicatorsXXX Cause-and-Effect Model Should Show How its Strategic Objectives in All Four Perspectives

Illustrative XXX Cause-&-Effect

Model

Maximize shareholder

value

Increase EVA

Increase

sales-to-asset ratio

Increase customer

profitability

Increase price relative

to market leader

Growth

Increase unit

volume

Increase customer

acquisition & share of wallet

Customer/

Consumer

Leverage R&D to

develop innovative

digital products that ad-

dress customer needs

Increase customer

retention & lifetime value

Target key

customer segments

Build brand equity

Business

Processes

Reduce inventory

& current

assets

Make what you sell,

don’t sell what you

make

Understand & respond

to customer needs

Develop customer

knowledge management

infrastructure

Organize around

the customer

People

Hire & develop

customer-focused

employees

Measure & reward

customer-focused

behavior

Empower employees to

make decisions closer

to the customer

Create a knowledge-

sharing culture


A balanced scorecard includes objectives measurements and targets that promote change l.jpg
A Balanced Scorecard Includes Objectives, Measurements, and Targets That Promote Change

Example:

Perspective

Business

Objectives

Measurements

Targets

Owner/

Accountability

Shareholder

Requirements

  • Shareholder value

  • Profit

  • New revenue

  • % dividend growth

  • Operating Margin

  • Revenue from new services

  • Top 10% of FTSE companies each year

  • RPI + X% annually

  • 25% in three years

  • Finance Director

  • CEO

  • Business Development Manager

  • Differentiation

  • Strategic alliances

  • Customer service

  • Value for money

  • Profits from alliances

  • Customer satisfaction

  • Number one customer rating

  • $Xm in five years

  • Number one customer rating

  • Marketing Director

  • Business Development Manager

  • Marketing Director

Industry/

Customer

Positioning

  • Productivity

  • New product development

  • Segmentation

  • Revenue/work hour

  • Product development cycle time

  • Number of initiatives targeted at profitable segments

  • Best-in-class within five years

  • Reduced by 50% in two years

  • 60% within one year

  • Chief Operating Officer

  • Research and Development Manager

  • Marketing Director

Business

Processes

People

  • People policy

  • Alliance management

  • Customer focus

  • Management span of control

  • Number of “learning partnerships”

  • % management time interfacing with customers

  • Treble in three years

  • 10 in five years

  • 20% in two years

  • Human Resources Director

  • Business Development Manager

  • CEO


A properly designed process will avoid the common pitfalls of most home grown balanced scorecards l.jpg
A Properly Designed Process Will Avoid the Common Pitfalls of Most “Home Grown” Balanced Scorecards

Failing to Articulate Strategic Intent

Creating Unbalanced Measurement

  • Industry generic, not strategic

  • “Unintegrated’ perspectives

  • What customer values are not defined

  • Missing internal, operational link

  • Too many measures

  • Unrealistic, unrepeatable

  • Activities instead of measures

  • Misleading

  • All financial

Institutionalizing a Dysfunctional Process

Establishing a Rigid Management Philosophy

  • No executive consensus—not top down

  • Roll out before completion

  • Tie to incentives prematurely

  • Too many people, too long

  • Lose momentum

  • Control, not communication

  • Strategic report vs. strategic learning agenda

  • For management only


In sum the balanced scorecard determines l.jpg
In Sum, The Balanced Scorecard Determines: of Most “Home Grown” Balanced Scorecards

  • What is strategically critical

  • What needs to be measured

  • How it is to be measured

It also links the boardroom to the back office


Slide70 l.jpg

Cascade Level I: Corporate of Most “Home Grown” Balanced Scorecards

Design Scorecard

Implement

Scorecard

Cascade Level II: Business Unit

Design Scorecard

Implement

Scorecard

Cascade Level n+1: Individual

Design Scorecard

Implement

Scorecard

The Balanced Scorecard’s Metrics and Supporting Processes Are Cascaded Down Through The Organization As Far As Needed, Often to the Individual Hourly Worker

Cascade Level n: Dept. or Team

Design Scorecard

Implement

Scorecard


Xxx performance management major tasks to perform l.jpg

Design of Most “Home Grown” Balanced Scorecards

XXX-Level

Paper-Based

Balanced

Scorecard

Implement

Basic XXX-Level

Paper-Based

Balanced

Scorecard

Design

GPM-Level

Paper-Based

Balanced

Scorecard

Implement

Basic GPM-Level

Paper-Based

Balanced

Scorecard

Expand

Process Support

for Balanced

Scorecard

XXX Performance Management: Major Tasks to Perform

Cascade Level I:

Cascade Level II:

Expanded

Implementation

Objective:

  • Design enterprise-wide Scorecard framework

  • Evaluate XXX vision & strategy

  • Define short list of strategic objectives

  • Develop cause-&-effect model

  • Define measures

  • Establish targets

  • Develop implementation plan

  • XXX-level Scorecard defined and launched for executive team

  • XXX President

  • Implement enterprise-wide Scorecard framework

  • Provide additional training

  • Integrate use of Scorecard into management review, budgeting, and planning processes for executive team

  • Launch “missing measures” program to develop & collect new measures

  • Review and refine model, measures, & targets

  • Link to executive compensation

  • Communicate Scorecard to rest of organization

  • XXX-level Scorecard fully institutionalized

  • XXX President

  • Design Scorecard framework for each GPM

  • Apply XXX vision & strategy

  • Define short list of strategic objectives

  • Develop cause-&-effect model

  • Define measures

  • Establish targets

  • Develop implementation plan

  • Scorecards defined and launched for each GPM executive team

  • Global Product Managers

  • Implement Scorecard framework for each GPM

  • Provide additional training

  • Integrate use of Scorecard into management review, budgeting, and planning processes for executive team

  • Launch “missing measures” program to develop & collect new measures

  • Review and refine model, measures, & targets

  • Link to executive compensation

  • Identify additional IT requirements

  • XXX-level Scorecard fully institutionalized

  • Global Product Managers

  • Establish full support for automated scorecard & complete cascade to rest of XXX

  • Develop & implement executive information system to automate Scorecard mgmt. & reporting

  • Confirm how far to cascade the Scorecard (level & geography)

  • Launch communication & training program

  • Complete the cascade

  • Fine-tune measures & targets through use

  • Link to compensation

  • Full Balanced Scorecard implementation

  • Functional & depart-mental managers

Major Activities:

Results:

Ownership:


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Why Does The Balanced Scorecard Make Sense for of Most “Home Grown” Balanced ScorecardsXXX?

  • The Scorecard measures a business’s performance from customer, business process, and employee development perspectives as well as from a financial one.

    • Until now, XXX has measured itself primarily along financial lines, and to a lesser extent by process measures. However, it now recognizes that it needs to adopt a customer-based perspective, and transform its organization’s and employee’s capabilities to better support a customer focus.

  • The Scorecard also tries to balance emphasis on drivers of current performance with emphasis on drivers of future growth.

    • XXX has been very successful recently, but recognizes that it needs to shift its focus to new sources of future growth, and that this will entail changes in how it does business.

  • The Scorecard is one of the most effective tools available for accomplishing cultural change and business transformation.

    • XXX realizes that shifting from a product focus to a customer focus will require a fundamental reorientation in company culture, as well as a transformation in the business processes by which XXX develops, positions, and sells its products and responds to its customers’ needs.

  • The Scorecard is one of the most effective means of communicating a company’s strategic vision down through the ranks of an organization so that each employee understands the strategy and understands how his or her actions should contribute to achieving that vision.

    • For XXX to become a customer-focused organization, management will have to communicate--continually and consistently--what that will actually mean for day-to-day operations throughout the company.


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Why Does The Balanced Scorecard Make Sense for of Most “Home Grown” Balanced ScorecardsXXX (continued)?

  • The Scorecard is holistic: it provides a balanced set of measures for an entire company or business unit, not just for a single initiative or business process.

    • XXX will need to make changes throughout its entire organization--not just in its marketing process--to focus successfully on its customers. The Scorecard can help each part of the organization understand its role within a customer-driven business.

  • The Scorecard encourages sharing cross-functional objectives and measures by different groups that need to work together toward a common goal. It discourages distinct parts of an organization from “owning” one key measure and ignoring others as “belonging” to someone else.

    • To achieve a customer-driven culture in an organization where P&L responsibility is allocated along product lines (GPMs), XXX will need a performance management framework that unites GPMs, Global Marketing, and overseas offices as a team with a common focus on the customer and a shared vision of how to meet customer needs.

  • The Scorecard assumes that strategic objectives will change over time or need to be fine-tuned, and provides a management review process for doing so.

    • XXX is entering an era of increased market volatility and shortened strategic planning horizons, and will have to adjust its customer strategy as the connected economy evolves.


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Operating Model Development of Most “Home Grown” Balanced Scorecards

Competencies (Staffing, Training, Development)

Change

Management

Business

Processes

Business

Processes

Knowledge Management & Information Systems

Performance Management


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Contents of Most “Home Grown” Balanced Scorecards

I. The Sears Story

II. Business Imperatives in the Connected Society

III. The New Business Paradigm

IV. Gap Analysis

V. Actions and Implementation Plan

VI. Key Success Factors