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How can a balanced scorecard approach benefit customer management?


MyCustomer interviews Howard Rohm, co-founder and president of the Balanced Scorecard Institute, about the benefits of a balanced scorecard approach to customer relationship management. 

28th Jun 2007
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The concept of using a set of measurements to improve corporate efficiency has deep roots. In fact, you can trace it back to the time of the industrial revolution in France, where a ‘tableau de bar’ concept was established, providing an instrument panel of efficiency measures.

More recently, work by General Electric in the 1950s created dashboards of measures to track performance of the manufacturing process. Nonetheless it is generally agreed that the concept of using such measurements was popularised in the 1990s by Dr Robert Kaplan of the Harvard Business School and Dr David Norton.

Acknowledging the inherent weaknesses or ambiguity of existing management approaches, Norton and Kaplan crafted a clear outline of what organisations should measure to ‘balance’ their financial perspective – the ‘balanced scorecard’. The balanced scorecard is a management system (although in some circles it is perceived as only a performance measurement system for executives and managers) that allows businesses to become more aligned and strategy-focused and then translate this into action. It enables strategy mapping, linking benefits and determining the key performance indicators needed to manage it.

The approach views the organisation from four strategic performance areas, called perspectives – ‘employee’ (or ‘learning and growth’), ‘customer’, ‘financial’ and ‘business process’ – against which metrics are developed and data is collected and analysed. A typical balanced scorecard divides each perspective into between four to six measures (or success factors) that drive performance in that perspective and, collectively, influences overall enterprise strategic performance.

As co-founder and president of the Balanced Scorecard Institute, an independent, nonprofit source of information about the approach, few are as knowledgeable about the topic as Howard Rohm. Howard has over 35 years of experience as a performance management trainer, consultant and technologist, and has helped dozens of organisations around the world build balanced scorecard systems including those adopted by the US House of Representatives and the Canada Passport Office. Speaking to, Howard lifts the lid on the balanced scorecard's role in creating value for customers - and ultimately financial results for organisations.

ND. What is the basic premise underlying the balanced scorecard approach?

HR. The original idea was that there are non-financial performance measures that drive financial performance. The idea of an organisation is that if you improve the knowledge and skills of your employees and give them adequate tools and technology and a safe and comfortable environment to work in, that will lead to more efficient processes. If your processes are more efficient, you will have customer satisfaction. And if your customer satisfaction increases then you will have better financial results. So in the simplest incarnation, the balanced scorecard is a logical way of looking at what an organisation should be doing to create customer value and therefore financial results.

ND. Does it translate to public sector bodies also?

It was originally built for the private sector. But of course the framework would not work for the government sector because financial profitability is not the top of the value chain for them – citizen satisfaction/support is the highest order. So you have to change the logic of the scorecard development process if it is for a public agency and similarly if it is a not for profit. So there are a number of different frameworks and they are also scaleable to any size of organisation.

ND. Perhaps you could tell me a little about how the balanced scorecard approach actually influences strategic performance?

HR. Probably the area that gets the most attention is how it aligns the organisation – its ability to take a disjointed organisation and make the dots connect. It creates a shared vision of an organisation and then breaks that vision down into smaller components to make strategy actionable for people throughout the organisation, right down to the guy on the shop floor. So we have a direct, line of sight relationship between the shared vision of the goal of the organisation and what they are trying to accomplish and what they do on a day to day basis to be successful.

Another benefit is focus on strategy and in particular on the results that you want from the business. Managers can work so hard at doing things right that they hardly have time to ask themselves if they are doing the right things. Most businesses worry about the efficiency of process and most of the product quality management and business process management systems are designed around process efficiency. This makes sense as one of the perspectives on the balanced scorecard - but only if you are doing the right thing.

Businesses need to talk about what they are trying to accomplish and what results they want, then they can work backwards to what they need to do, day to day, to get there. It is a forward-backward look, which is what strategic planning should be about. However, in most organisations it is nothing more than taking the current work they are doing, finding some strategic goals, writing a mission vision statement, claming success and moving on. Time after time we have seen organisations that have benefited from balanced scorecard as a fresh way of doing strategic planning by starting from a shared vision and then working down.

ND. Customer management is obviously at the forefront of our members’ concerns. The balanced scorecard approach seems to follow the logical path of focusing on processes, functions and employees to create better customer experiences. But are there any more direct ways in which the approach improves customer value?

HR. It gives you the ability to better understand customer needs and create customer value. One of the components of the balanced scorecard is what we call the ‘customer value proposition’ which looks at value through the eyes of direct beneficiaries of products/services that the business produces for its customers. The customer value proposition has three parts to it: the relationship we want with our customers, the image that we want in the community and the functionality of the products/services in terms of cost, price, quality, timeliness and so on. So understanding how to create value for customers is a key benefit.

ND. Where else can the approach transform strategic performance?

It makes it very easy to communicate why we are doing the things we’re doing and how we can measure success along the way. It also builds and deploys accountability – to build a balanced scorecard is to build in change management and interactive communications. Done right, the scorecard system is more about changing hearts and minds than it is about dashboard and performance measures. It is a huge opportunity to fix things that are wrong internally.

ND. Organisations today are looking for approaches that help guarantee the success of their customer relationship management initiatives and some firms are turning to the balanced scorecard approach. How can the scorecard be applied to customer relationship management?

HR. The questions you need to ask are: how do I satisfy my customers, retain them and grow the business through more satisfied customers? And what initiatives do I need to have in a strategy that is more customer-focused? And that is where CRM shows up – as a strategic initiative that ties the customer perspective pieces together. It falls in to the step of the framework where you identify the strategic initiatives that you need to be successful.

But you don’t get there until you pass the other steps – strategy development, strategy mapping, performance measurement and development of strategic objectives. If you start with the initiative all of a sudden you will end up with merely a collection of things that you are interested in. Strategy is not the sum of what you’re currently doing – it is your game plan to implement a shared vision with targeted action so that you can be successful.

ND. What general advice would you give to any organisation that is considering employing the approach?

HR. Ensure you have engaged leadership at the top of the organisation – don’t try to do this as a project buried in the bowels of the business. Also, plan on interactive communications – ensure the leaders stay involved, which means cross functional team sharing information. But the number one piece of advice is build it with a cross functional slice of the organisation’s talent to ensure that you missionaries for this and therefore when the consultants leave a new planning management system can take root within the company and grow based on shared learning and experiences.

The key is to win everybody over and get alignment through strategy. Get the performance measures and then link them together throughout departments right down to the desktop. In other words, make the balanced scorecard something that is not separate from your normal job. In the organisations that do it best, you will never hear them mention ‘the balanced scorecard’ because they have figured out a way to internalise it so that it is not a framework, it is a lightning rod for people to react.

ND. Measurement systems have a long history and it seems the balanced scorecard will continue this heritage. Why does it have such staying power?

HR. A big benefit of the system is that it hangs together as a holistic story of how an organisation creates value for its customers. Frankly that is the reason it has been around for as long as it has. It has huge sticking power when you compare it to the over 100 different planning and management systems that have been developed over the course of the last 35 years.


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