The customer perspective within the Balanced Scorecard
The customer perspective within the Balanced Scorecard – BSC for short, enables organizations to target the market segments in which they have chosen to succeed. Correctly pinpointing the right market segment an organization wants to address helps the same organization develop strategies that maximize outcomes, and, ultimately, financial rewards.
In the past, the customer perspective was not a focal point of the Balanced Scorecard, as companies believed product performance and technology innovation to be the backbones of business success. Nevertheless, customer behavioral trends have gradually emphasized the necessity for understanding what customers need.
The customer is always right
There are many circumstances in which organizations find it critical to create the best product in the industry, or achieve peerless financial performance, but the truth of the matter is that the customer rules over all other things, when it comes to business. An organization cannot achieve any unmatched performances if it does not look at its customers’ needs.
As much as a customer loves an end product he has never experienced before, he/she can also find a million reasons not to purchase it. It may be that this customer finds the product too expensive, too unreliable, too pretentious, or simply too colorful. It may also be that this customer does not like the way he/she was counseled into buying it or that the same customer does not appreciate its functionality.
It all leads to creating value that clients can be satisfied with. Satisfied clients are one of the key components of a company’s strategy for performance.
The question is: How do we keep customers satisfied, in order for them to buy our products, so that the company increases its profitability? Ultimately, profitability is about growth, and with growth, processes can be advanced and improved, while employees are incentivized into developing skills for performance.
Another issue that an organization must tackle is retaining customers that are profitable and attracting new customers that can help maintain financial gain.
Developing loyalty from all perspectives
Before building its Balanced Scorecard, an organization must define the segment of the industry’s market it wants to tackle. Market research can be a very useful tool in developing customer strategy.
Out of the entire population purchasing our product, market research helps us identify those clients that are beneficial to our organization. Once a business has identified its market segments it can set up the objectives and indicators to be monitored within the Balanced Scorecard.
According to Kaplan and Norton, customer perspective indicators can be divided into two categories: the customer core group and the differentiators. The customer core indicators are the ones that all companies want to use, namely: % Market share, % Customer satisfaction, % Customer retention, % Customer acquisition and, last but not least, $ Customer profitability.
The differentiators are performance driver indicators, the ones that the company monitors in order to maximize the value of the core indicators. The latter indicators focus on product attributes, customer relationship, the image and reputation of the company. The selection of the performance driver indicators, as opposed to the customer core indicators, is more sensitive to strategy authenticity.
There is no balance scorecard that standardizes differentiators. These indicators have to be determined and optimized in direct accordance to one particular organization’s unique customer strategy. These indicators, ultimately, focus on providing value to customers while nurturing the competitive advantage an organization has over the other.
The Balanced Scorecard is not a standardized template. Organizations have to put it to work independently. Effective use of the customer perspective can contribute to maximizing the benefits of all other perspectives within the BSC.