The internal process chain value: The core business processes that are part of the chain value must by identified.
Furthermore, the innovation becomes the fundamental element not only to satisfy the customer’s needs but also to exceed their expectations. In this way, the innovation provides competitive advantages that will lead to bigger operating margins, longer product life cycles and it is of vital importance when the capacity to reduce production costs in the daily operations is limited, especially in mature markets.
Innovation consists of two components:
- Market identification: The size, customer preferences, target prices for each product. This process also includes studying possible opportunities for emerging needs that can lead to completely new markets. In these cases, the advance presence in the market can give an advantage in brand and leadership.
- Product/service creation: The information about markets and current and emerging customer preferences are the key inputs for the product design and development process. In this stage, it is important to distinguish between:
The cost-benefit analysis on innovation: The cost-benefit relationships in the innovation and development processes are not so obvious as the ones in the manufacturing processes where, through the standards, these conversion is much easier.
Some examples of indicators related to innovation could be:
- % of sales of new products
- Average time to market
- Product EBITDA / Total development cost.
- Research costs / Sales.
- % of products in compliance with specifications.
- Average number of design reviews per product.
- Average number of days per product review -à potential sales
2 - Operations: After the innovation stage, the next ones in the chain value are operations. The key factors of the operating processes must be determined in accordance with the product specifications with regards to functionality and needs that must satisfy, the engineering specifications and parts specifications.
Beyond a right control and operating process execution which lead quality products, whose guarantee is taken for granted in mature markets, the BSC determinates the key factors to success, that is, the operational drives that will have effect on customer’s satisfaction or, ultimately, ensure exceeding customer’s expectations.
In other words, the BSC identifies the cause-effect relationships between the daily internal processes and its translation into economic results. That is, which are the distinctive features of each product or service that will lead to accomplish customer’s and shareholder’s expectations?
The excellence in operations (times, productivity, quality) and cost reductions are still important factors, but might not be the only ones. The traditional financial and cost controlling performance measures together with quality, productivity and time performance indicators must be complemented with the correct Key Performance Indicators (KPI).
3 - After-sales service: Within the framework of a waste definition of the concept product or service, the chain value continues with the sales logistics and after-sales service. These post-production processes might become extremely important for what they provide of added value to the final product or service. Therefore, they could very well mean the difference between a standard product supply and a distinct product with bigger added value.
The sole use of internal indicators which refer to production costs, cycle times, performance or quality can lead to small improvements that might not be big enough to achieve competitive advantages or the corporate objectives. The BSC links the internal indicators with the financial and customer indicators. All they must report to two main objectives, the satisfaction of shareholders and the selected customer segment respectively.
In this sequential and vertical process (finance, customer, and internal processes) it is likely that the company needs to consider a process reengineering in lots of its internal areas. Only significant changes in all processes, in performance, quality, time and costs can lead to achieve sustainable competitive advantages drive the company towards the customer excellence.
The BSC monitors the excellence in the current operating processes (short-term and traditional chain value) with innovation processes (long-term and long chain value) which include entirely new products and services that satisfy the needs of current and new customers.