The Balanced Scorecard is recognised as the world’s leading management tool for enterprise performance management and strategy deployment.
With the current economic challenges, designing and implementing a Balanced Scorecard (BSC) that helps rapidly and successfully implement a cost reduction and risk management strategy is worth serious consideration.
The BSC has 4 perspectives that when linked provide a strategic framework for a firm, Right at the top is the financial perspective where financial objectives are defined. In order to meet one’s financial objectives, what are the customer objectives to be met? This is the customer perspective. In order to meet customer expectations, what processes must we excel at? This is the process perspective.
And lastly, in order that we excel at key processes, what should our organisation and technology look like? This is the learning and growth perspective.
Every Strategy Map/BSC has a revenue growth leg, and a cost control leg linking objectives that address both of these themes across the perspective. So in a BSc focusing on cost reduction and risk management, there are a larger number of objectives across all 4 perspectives focused on cost.
For example, the financial objectives would focus on significant cost reduction, risk management, working capital management, reduction of risk and improvement of asset utilization.
In order to achieve those financial cost objectives, in the customer perspective the focus would be on calculating product and customer profitability, better serving more profitable employees, and eliminating or increasing prices on low profitability, better serving more profitable employees, and eliminating or increasing prices on low profitability customers. It could also focus on aggressive cross-sell of profitable products and the elimination of unprofitable products.
To meet the above customer expectations, the process perspective could significantly focus on productivity, efficiency, and lowest cost/transaction. Determining the most effective way of selling and marketing one’s products, and also carefully measuring the productivity of the individuals involved in that channel. The process perspective will also focus on delivering the product cost effectively. Measures here focus on lowest cost per transactions with the lowest rejection/error rates. It may also force shutting down of branches/plants.
Delivering the above process gains may mean downsizing the organisation, changing roles, expanding management responsibility to reduce manager numbers, and freezing compensation/bonus. The overall idea is the use both people and technology to improve processes and productivity.
The benefit of using the BSc for this is that one will be able to identify the key cost related financial and non-financial drivers that are linked, set aggressive targets to manage cost, assign ownership within the management team, and track success in this area on a monthly basis. It also eliminates the randomness that often emerges in cost control efforts, resulting from bouts of panic.
Some companies eliminate cost by stopping coffee service to visitors, don’t worry – it won’t get to this if you use the Scorecard.
Sanjiv Anand, Chairman, IBS Intelligence and Cedar , is an author, management consultant and an alumni of NYU Stern and Harvard Business School. Sanjiv can be reached at SanjivA@ ibsintelligence.com