Session Outline Review Exam 1 Strategy introduction Balanced Scorecard Strategic analysis of operating income
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Strategy How can we create value for customers while differentiating ourselves from competitors? Porters 5 forces 1. Competitors 2. Potential entrants 3. Equivalent products 4. Bargaining power of customers 5. Bargaining power of input suppliers
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Basic Strategies Product differentiation 1. Superior and unique products / services 2. Brand loyalty results in pricing power 3. Develop differentiation through R&D, brand promotion, service, and being first to market Cost leadership 1. Offer similar products, but at a lower price 2. Focus on productivity, elimination of waste, and tight cost control
ACT 5733 - Chapter 12 - Felo
Balanced Scorecard An integrated set of performance measures derived from a units strategy and that support the units strategy. Translates mission and strategy into goals and measures (or metrics) Continuous improvement Forward-looking measures
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Common Characteristics Financial - How do shareholders see us?
Customer - How do customers see us?
Internal - What must we excel at?
Learning and growth - Can we continue to
learn, improve, innovate, & create value?
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Key Points The performance measures used must be
relevant to the strategy of the unit
Strategy maps can be used to illustrate the
expected causal relationships
The BSC can be used to test managements
strategy (theory)
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Financial Perspective How do shareholders see us? Approximately 5 metrics Traditional metrics (EPS, CFO, etc.) Revenue from new customers Revenue from new products Cost reduction
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Customer Perspective How do customers see us? What is our value proposition? Approximately 5 metrics Customer satisfaction Customer retention Customer loyalty New customers Customer profitability (linked to ABC) Market share Wallet share (account share)
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Internal Perspective What must we excel at to achieve our (financial and customer) goals? How will we deliver our value proposition to customers? How will we achieve productivity improvements for financial objectives? Approximately 8-10 metrics
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Principal Internal Processes What processes have largest impact on
customer satisfaction? Innovation processes
Operations processes
Post-sales service processes
Social and regulatory processes (all firms)
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Innovation Processes Create products and services to meet customer needs Focus is on identifying new markets (including market attributes) and new customers Metrics may include market size, price sensitivity (elasticity), time to market, target costs, and R&D productivity
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Operations Processes Produce and deliver existing products and services to customers Focus is on efficient, consistent, & timely delivery Firms competing on cost focus here Metrics may include efficiency measures, down-time, supplier reliability, quality measures, cycle time measures, and cost
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Post-Sales Service Processes Customer service after original sale or delivery of goods and services Attract customers, generate revenue, or efficiently provide required services Warranty and repairs Training of customer employees Billing and collection Returns Disposal costs
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Social & Regulatory Processes Environment
Health & safety
Employment practices
Community investment
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Learning & Growth Perspective Can we continue to learn, improve, innovate, & create value? What skills and capabilities must our employees possess to achieve our (financial, customer, & internal) objectives? Do we have the infrastructure we need? Approximately 5 metrics
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Learning & Growth Metrics Training spending Employee retention % employees with particular skill Employee satisfaction Technology deployment
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Pitfalls of the BSC Too many financial measures (not balanced) Lack of forward-looking metrics Metrics not aligned with strategy Metrics not incorporated into performance evaluation system Senior management not committed
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Pitfalls Continued Over-acceptance of linkages Inadequate participation across disciplines Treating the BSC as a one-time event BSC treated as a systems project Lack of IS infrastructure
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BSC for Nonprofits & Government Organizations Financial objectives are typically not the ultimate goal of these organizations However, the basic structure (strategy- driven measures of performance linked together) is still valid
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Strategic Analysis of OI Technique for comparing change in OI from one period to another Look at performance on product differentiation, cost leadership, and growth Changes in OI due to change in quantity sold, changes in prices of inputs and outputs, and changes in quantity of inputs used
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Growth Component Measures increase in revenue and costs from selling more units in 2015 vs 2014 Primary focus is on the revenue effect change in revenue from selling more units
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Price-Recovery Component Measures increase in revenue and costs from changes in prices from 2014 to 2015 Primary focus is on revenue effect change in revenue from increase in selling price
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Productivity Component Measures changes in cost caused by productivity changes from 2014 to 2015 Primary focus is on variable cost effect change in cost due to improved productivity
Digital Banking Transformation - Application of Artificial Intelligence and Big Data Analytics For Leveraging Customer Experience in The Indonesia Banking Sector