According to what we see daily, “Customer” is one of the most problematic perspectives of the Balanced Scorecard framework. And it is not customer KPIs that cause strategists the most problems… One needs to clearly understand:
- Who is the “customer” in customer perspectives
- How to come up with objectives for customer perspectives
- How to not confuse customer objectives and desired business outcomes
Let’s have a look at “Customer” perspectives and discuss the details.
Who is the customer?
Authors of the BSC concept  formulate the question of the customer perspective as:
- To achieve my vision, how must I look to my customer?
But who is the customer in this case? The answer is not always obvious. The Balanced Scorecard is strategy execution framework (not a CRM), so here we are talking not only about those who pay for your products or services, but about your partners as well.
On the Customer perspective of the Balanced Scorecard you need to reflect expectations of:
- Partners (dealer, distributor), and
For example, in health care industry you put here not only expectations of patients, but of physicians as well. In some cases (for example, non-profit organization), customer perspectives might also include stakeholders.
Customer expectation vs. business response
Another typical difficulty is formalizing the expectations of the customers. A company strategist starts formalizing the response that a company plans; this approach converts your strategy into a complex list of things to do.
Phil Jones in his Excitant blog  illustrates this idea on the example with Strategic Balanced Scorecard in Hospices:
“It (the customer perspective) should contain “what they want.” It should not contain what you are planning to do to deliver what they want, but should clearly state their needs from their perspectives.”
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Vague objectives vs. specific ones
The idea is clear, but sometimes it is really difficult to formulate “what they want.” In “The Strategy Focused Organization”  authors share an example of Charlotte City Council’s Strategy Map, where one of the objectives in customer perspectives is formulated as an “Increase perception of safety.”
It is obvious that Charlotte City habitants don’t want to see a change in the perception of safety, but in the safety itself. The issue here is that one needs to find a balance between the abstract idea of safety (“Increase safety” objective) and more specific ideas of safety perception (“Increase perception of safety” objective).
It’s hard to be specific when we are talking about relationship with partners. For that very reason we often see on the customer perspectives such objectives as “Build strong relationship with partners.” This vague definition need to be decompiled into specific factors of a successful partnership.
Let’s see what a typical customer perspective looks like.
A template for customer perspective
Basing on 3 generic strategies we can formulate three generic objectives:
- Product quality (Product leadership strategy)
- Customer (shopping) experience (Customer intimacy strategy)
- Price, Time (Operational excellence strategy)
Don’t forget that among customers you have partners as well; you can mark in customer perspective two umbrella-objectives:
- Add and retain high-value customers. We need to support (see below how) this objective with customer value proposition details, such as product quality, shopping experience and other.
- Achieve and retain win-win partner relations. This umbrella objective need to be supported with the specific objectives that form the value for the partners, for example reduced product price, product availability, and a partner support program.
Now, let’s discuss how to come up with specific objectives for customer perspectives.
Converting management outcomes into customer objectives
Here are some generic customer-related outcomes of business management:
- Customer acquisition
- Customer satisfaction
- Customer retention
- Customer profitability
- Market share
Let’s compare this list to the question of the perspective:
“To achieve my vision, how must I look to my customer?”
These outcomes are not objectives yet, so we need to go ahead and build a strategy hypothesis around a question like:
What customer’s need do we have to satisfy in order to achieve this outcome?
- Your customers might be expecting better quality, and timely service (strategic objectives) and these objectives are connected to the “customer retention” outcome.
- Your customer might need a community to learn from each other, and that might help you to increase your market share.
Converting customer value into objectives
Another approach is based on formulating objectives via customer value propositions. It is formed by:
- Attributes of products, such as functions, price, quality (derived from Product leadership strategy).
- Customer relationships (derived from Customer Intimacy strategy).
- Product brand (image and reputation) is also often mentioned among customer value propositions.
These parts of customer value proposition can be used on a strategy map directly and later be supported by specific initiatives.
Cascading exercise for product quality
Let’s do an exercise for one of the objectives from a customer perspective.
We can start with the question: “To achieve my vision, how must I look to my customer?” And go directly to the answer: “Provide high product quality.”
Or we could start with the desired outcome (“Customer retention”) and then ask “What customer’s need do we need to satisfy to achieve better customer retention? Which might obviously bring us to the same strategy hypothesis of “Provide high product quality.”
Or, we could have looked at customer value propositions, and selected a “Quality” aspect that we want to address.
In this or another way, we have an objective for a top level scorecard:
- Provide a high product quality
Before continuing, we need to come up with leading and lagging measures, and with strategic initiatives:
- Lagging: product return rate, %
- Leading: quality control & assurance, hours (I’m using a generic one)
- Initiative: quality management.
Let’s translate this objective to the Research and Development department:
- Lagging: critical problems reported, %
- Leading: repeat problems, % (this will actually show the quality of the quality process itself)
- Leading: quality control & assurance, hours (I’m using a generic one)
- Initiative: analyze quality problems, suggest an appropriate quality control plan
Finally, this might be translated to a particular engineer in this form:
- Lagging: the number of cases when A problem appeared, #
- Leading: repeat A-type problem, %
- Initiative: analyze and prepare quality control measures for A-type problems
Doing all this I’m implying that in a real business situation top managers and R&D specialists will pass through several strategy definition steps, e.g.:
- Discuss current business challenge (can be “Low returning customers rate”), and
- Come up with a hypothesis that product quality is the reason, and then
- Build another hypothesis about how quality can be addressed.
Respective strategy definition can be described in a separate strategy document.
- Your “customers” are those who buy your products and your partners (sales representatives, distributors)
- In customer perspective think about their problems, not your actions (yet)
- To come up with an objective use one of these approaches:
- Start with desired outcomes. Ask: what customer’s need e have to be satisfied to achieve this outcome?
- Start with customer value propositions.
- Be sure to align customer objectives with respective metrics and initiative.
Other perspectives of the Balanced Scorecard
Did you find this article useful? Feel free to share your opinion and thoughts in the comments.
- ^ The Strategy Focused Organization, Robert S. Kaplan, David P. Norton, Harvard Business School Press, 2001
- ^ Strategic Balanced Scorecard in Hospices: Some advice from experience, Phil Jones, 2014, http://www.excitant.co.uk/2014/09/strategic-balanced-scorecard-in-hospices-some-advice.html