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Authors: Robert S. Kaplan, David P. Norton
Tags: Non-Fiction, Business
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functionality and customer value will likely command a higher margin than mature existing products.
Figure 3-1
Measuring Strategic Financial Themes
New Applications
Developing entirely new products can be very costly and time-consuming for companies, especially those in the pharmaceutical and agricultural chemical industries, with long product-development cycles, and whose products must pass through stringent governmental regulatory approval processes. Businesses in the sustain stage may find it easier to grow revenues by taking existing products and finding new applications for them—new diseases or ailments for which a drug is effective, or new crops for which a chemical offers comparable protection. Taking existing products to new applications requires that a company demonstrate effectiveness in the new application, but the basic chemistry does not have to be invented, its safety demonstrated, or its manufacturing process developed and debugged. If new product applications is an objective, the percentage of sales in new applications would be a useful BSC measure.
New Customers and Markets
Taking existing products and services to new customers and markets also can be a desirable route for revenue growth. Measures such as percentage of revenues from new customers, market segments, and geographic regions would emphasize the importance of investigating this source of revenue enhancement. Many industries have excellent information on the size of the total market and of relative market shares by participants. Increasing a unit’s share of targeted market segments is a frequently used metric; it also enables the unit to assess whether its market share growth is from improved competitive offerings or just growth in the total size of the market. Gaining sales but losing share may indicate problems with the unit’s strategy or the attractiveness of its products and services.
New Relationships
Some companies have attempted to realize synergies from their different strategic business units by having them cooperate to develop new products or to sell projects to customers. Whether the company strategy is to increase technology transfer across divisions or to increase sales to individual customers from multiple business units within the company, the objective can be translated into the amount of revenue generated from cooperative relationships across multiple business units.
For example, Rockwater was one of six engineering divisions within Brown & Root Energy Services. The other divisions all supplied engineering services of some type, typically to large oil and gas companies, with the services ranging across basic and applied engineering design, pipeline fabrication, pipeline installation (Rockwater), and pipeline maintenance and services. Historically, these divisions had operated as independent companies. When Norman Chambers was promoted from president of Rockwater to president of Brown & Root Energy Services, he asked that each company adopt, as a financial objective, an increase in the share of business won by collaboration. His long-term goal was to offer turnkey service to customers: from initial project design through long-term operations and maintenance of hydrocarbon pipeline facilities.
These examples mirror the experience of several businesses that are attempting to break away from undifferentiated commodity-like selling arrangements, driven principally by price, to offering products and services that satisfy particular customers’ needs. The businesses may state that their strategy is to move to a more differentiated strategy. But if their financial measurements are only aggregate sales, profits, and ROCE, they may be achieving short-term financial targets but not succeeding in their strategy. They need to distinguish how much of their sales is coming from competitively priced offerings versus the sales made at a premium or through long-term relationships because of value-added features and services.
New Product
Figure 3-1
Measuring Strategic Financial Themes
New Applications
Developing entirely new products can be very costly and time-consuming for companies, especially those in the pharmaceutical and agricultural chemical industries, with long product-development cycles, and whose products must pass through stringent governmental regulatory approval processes. Businesses in the sustain stage may find it easier to grow revenues by taking existing products and finding new applications for them—new diseases or ailments for which a drug is effective, or new crops for which a chemical offers comparable protection. Taking existing products to new applications requires that a company demonstrate effectiveness in the new application, but the basic chemistry does not have to be invented, its safety demonstrated, or its manufacturing process developed and debugged. If new product applications is an objective, the percentage of sales in new applications would be a useful BSC measure.
New Customers and Markets
Taking existing products and services to new customers and markets also can be a desirable route for revenue growth. Measures such as percentage of revenues from new customers, market segments, and geographic regions would emphasize the importance of investigating this source of revenue enhancement. Many industries have excellent information on the size of the total market and of relative market shares by participants. Increasing a unit’s share of targeted market segments is a frequently used metric; it also enables the unit to assess whether its market share growth is from improved competitive offerings or just growth in the total size of the market. Gaining sales but losing share may indicate problems with the unit’s strategy or the attractiveness of its products and services.
New Relationships
Some companies have attempted to realize synergies from their different strategic business units by having them cooperate to develop new products or to sell projects to customers. Whether the company strategy is to increase technology transfer across divisions or to increase sales to individual customers from multiple business units within the company, the objective can be translated into the amount of revenue generated from cooperative relationships across multiple business units.
For example, Rockwater was one of six engineering divisions within Brown & Root Energy Services. The other divisions all supplied engineering services of some type, typically to large oil and gas companies, with the services ranging across basic and applied engineering design, pipeline fabrication, pipeline installation (Rockwater), and pipeline maintenance and services. Historically, these divisions had operated as independent companies. When Norman Chambers was promoted from president of Rockwater to president of Brown & Root Energy Services, he asked that each company adopt, as a financial objective, an increase in the share of business won by collaboration. His long-term goal was to offer turnkey service to customers: from initial project design through long-term operations and maintenance of hydrocarbon pipeline facilities.
These examples mirror the experience of several businesses that are attempting to break away from undifferentiated commodity-like selling arrangements, driven principally by price, to offering products and services that satisfy particular customers’ needs. The businesses may state that their strategy is to move to a more differentiated strategy. But if their financial measurements are only aggregate sales, profits, and ROCE, they may be achieving short-term financial targets but not succeeding in their strategy. They need to distinguish how much of their sales is coming from competitively priced offerings versus the sales made at a premium or through long-term relationships because of value-added features and services.
New Product
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