BSC - Customer perspective

Based on the long-term financial objectives, the Customer Perspective translates the vision, corporate objectives and general strategy into specific customer objectives and market segments.
1.- Market segmentation:
1.1 - Identify the market segments where the company wants to compete: The market research must reveal the different market segments and their preferences in attributes such as price, quality, functionality, image, prestige, relations and services.  

Once the market and customer segments are selected, they must provide the turnover stated as objective in the financial perspective. The market segmentation must provide performance focus, as it is impossible to satisfy all market segments with excellence.

1.2 - Define customer performance indicators: As said, they depend on the long-term financial objectives and they will be the objective for processes associated to marketing, operations or logistics. The main customer indicators involve: Market share, number of customers increase, customer satisfaction, customer retention, or customer profitability as to put some examples…

1.3 - Compare customer performance indicators: The BSC provides the appropriated framework for the comparison between current and expected results, and company’s and average values of selected market segments.

2.- State the value proposals: 
2.1 - Identify the drivers of specific segments: Starting with the strategic customers, these key factors determine what’s necessary for the products and services to satisfy customer’s preferences and needs and to what extend our customers will remain loyal or, by contrast, will change suppliers. Some examples are: Quality, low costs, response time, functionality, maintenance, after sales services, innovating products or services..
2.2 - Define product and services attributes: Base on the research done in the previous point, the company must state the tangible and intangible attributes for their products and services. If the company continuously supplies innovating products or services with an added value that is appreciated by their customers, that will helps to create competitive advantages and stable turnovers. 

2.3 - State and communicate the company’s corporate image and values.

2.4 - State in what the company bases its relationships with the customers.

2.5 - Evaluate the market segment profitability.

2.6 - Measure the customer excellence: The BSC evaluates to what extend the customers expectances are being properly fulfilled or even exceeded, key factor for customer retention and engine of long-term stable returns.


3.- Performance drivers for customer satisfaction: The BSC helps to define and control de evolution of drivers that contribute to customers satisfaction. Some remarkable ones are time, quality and price.

3.1.- Time:

Time is a great competitive weapon that can help to generate and maintain a competitive advantage that stands the company from their competitors. Being that so, it is a key factor towards customer excellence as it contributes to their satisfaction, retention and loyalty. 
  • Response time: It is essential as affects the company’s operating efficiency. Its duration affects the sales potential, the assets turnover, the grade of activity or sub activity, financing, the safety stock value and therefore the inventories value, the cash transformation cycle and so the needs for operating funds or Net Working Capital. Ultimately, it affects the grade of customer excellence and the company’s competitive index.
  • The response time is determined by the operating cycle: Especially if the company operates without stock or by projects, the total length will be determined by multiple processes. The cause-effect relationships with other areas of the company are, therefore, evident.The company’s response time might affect the operating cycle time of our customers as well, improving or extending it, with the related important economic impact. This beyond being a key factor, can become the crucial variable for the customer to continue doing business.
  • Reliability in processing lead times: Not only the ability to produce products and services in a short period of time is important. Keeping the processing lead times low and stable becomes essential in many industries which operate barely without stocks. The well-known concept of “Just in time” requires short times of response and maximum reliability as a failure might mean stopping the production process.
  • Time to market: The time required to introduce new products or services into the market is another time measure that becomes essential in mature markets in where the products lifecycle is often reduced. The company’s ability to provide a continuous flow of new products will be essential in order to not only survive, but to gain the confidence of expert and informed customers.
  • The BSC manages the company’s obsolescence & substitution planning and programs. Through the Learning & Growth perspective, the BSC manages the investigation, innovation and development processes. A short-term time to market of products and services not only helps the sort-term sales and market share, it also improves the company’s corporate image and its consideration of being a strategic supplier and it reduces the risk of obsolescence and subsequent financial risk. 
  • Time and other financial cause-effect relationships: The objectives linked to time become a driver for many financial indicators. One of the most obvious cause-effect relations with regards to time is its link to the Capital Employed, for what concerns to tangible assets (machinery and equipment with better efficiency or turnover), for what concerns to intangible assets (organizational capacities, information technologies and qualified employees and investments in R&D with better time to market rates) as well as the effect the time has with the Cash Flow Transformation Cycle and Net Working Capital.

The desirable reduction in response time will necessarily involve balanced investments in both intangible and tangible assets. A strong investment in machinery and equipment can lead to improvements in production efficiency that contributes to reduce days of stock and, therefore, the needs for operating funds. However, this still might be insufficient to cope for the reduction of the necessary Net Working Capital related to days of receivables. Furthermore, a more efficient ERP will certainly reduce the operating times in areas beyond production, something that can also affect the NWC needed.       

The way how this should be balanced will depend on the market segments, on the industry where the company operates, on the available technology, etc.

Some time performance indicators could be:

-       Average time to market (Learning & growth perspective)
-       % of “on time deliveries” (customer perspective)
-       Average processing time (customer or internal perspective)


3.2.- Quality:

Nowadays, quality has become a strategic and competitive need but, due to the increase in competitiveness in developed markets, this attribute is taken for granted. Therefore, although it is a necessity, quality understood as a product or service that complies with specifications and fulfils customer’s expectations is no longer providing a competitive advantage.

However, for quality it is also understood the supply of products and services in an appropriated manner and agreed time. In that sense, the response times, the procurement reliability in deliveries and as a continuous flow of products and services are also seen as quality attributes.

The quality concept comprehends a large number of cause-effect relationships which are taken into account at the different perspectives of the BSC. The quality of supplied products and services can be measured with indicators like the following ones:


Financial perspective: Quality can be measured in cost-benefit terms by indicators such as:

-       Percentage of complains.

-       Reworks costs / maintenance costs

-       Guarantees executed / Sales.

-       Maintenance costs / sales

-       Maintenance costs / depreciation.  

Customer perspective: The quality can be understood in broader sense and measure by:

-       Average delivery times

-       Percentage of “just in time” deliveries  

Internal perspective: From the classic and physical point of view, quality can be measured by:

-       PPM: Percentage of defective Parts Per Million.

-       FTT: First Time Through or ratio of initial compliance

-       RTY: Rolled Throughput Yield. Probability that the process produces zero defects.

-       OEE: Overall Equipment Effectiveness

-       Orders compliance cycle 

Learning & Growth perspective: Quality can be measured in terms of project management and the flow of new products and services to market:

-       Avg variance in project planning: Current time / Planned time

-       ROII: Return On Innovation Investment

-       Average time to market

3.3.- Price:

Price continues to be a business driver and a key factor for customer satisfaction. Whether the company adopts a competitive strategy based on costs an low prices, or if the company adopts a strategy of differentiation based on delivering a bigger added value than its competitors, price keeps remaining as an fundamental variable of the “customer satisfaction” equation.
However, a difference between price and real effective cost must be reminded.
A low price might be associated to certain purchase conditions where such as bigger volumes or a bigger delivery time. That can involve financial costs associated to bigger NWC or bigger storage and handling costs. 
Furthermore, a low price might not guarantee a sufficient quality level to compile with the final customer specifications and expectations, what could involve unplanned inspection, devolution, handing, transport costs or even downtime costs associated with stop lines. 
Even further, if the low price supplier does not guarantee reliability in deliveries, this might force the customer to pace orders in advance and increase the safety stocks.
Summarizing, it is essential to analyse what does the supplier include eneach price as the base point from where to calculate the real cost of procurement.
The following table intends to be an example of what have been said



4 - Examples of customer performance indicators:



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