Benchmarking, Balanced Scorecard and Marketing Performance

When companies announce their annual results, there always seems to be criticism by the media and politicians about the level of profits. It does not seem to matter whether it is British Airways, BAE, Tesco, the Banks or indeed any company. It would seem that profit is only acceptable provided that the level is discrete. Yet those politicians and journalists who criticize large profits seem to forget that the purpose of any business is the generation of profit and profit only. The current vogue that seems to suggest that businesses have social and community responsibility, “green Agenda”, charitable aid and tax liability, tend to ignore the fact that these aspects rely entirely on the ability of a business to make sustainable profits.

To make sustainable profits for the continuance of any business requires the executives to successfully balance and maintain the satisfaction of the very different requirements of the customers, employees and shareholders. Customers, employees and shareholders are equally important, because the business cannot continue without the continuous satisfaction and co-operation of all three. While the principles of business remain the same, as businesses grow so the successful management of large organizations becomes more complex.

As managers have sought to improve the overall management of increasingly large and complex organization, there has been an increasing demand for management systems that hopefully would improve business efficiency and effectiveness. Two principle systems in recent years have been that of “Benchmarking” and “Balanced Scorecard”.

“Benchmarking is defined by David Kearns, Chief Executive of Xerox Corporation as being “the continuous process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders”. The objective of using Benchmarking is to ensure that the best of proven practices are incorporated into an organization’s procedures. The definition covers all possible business endeavours whether a product, service, or support process.

While “Benchmarking” requires the search for those industry best practices that lead to superior performance, its perceived value is as a continuous process of measuring against the best. However, it is only by the change of its current practices and business processes that a business will achieve overall effectiveness through Benchmarking. But to be effective, such change requires effective leadership and decision making.

Benchmarking is potentially useful but not foolproof. To assume that successful companies use the best and most successful practices is dangerous. What are the best practices and how do you know? Every company is different, even in the same industry and market. They all work slightly differently, having different cultures and business drivers. The principle danger with benchmarking, is that while it is interesting to note methods and processes that appear to work in “successful “ businesses, slavish copying of such methods does not guarantee similar success and may be counter productive.

The Balanced Score Card is a strategic planning and management system that is used extensively in business, industry, government as well as non profit organizations worldwide to align business activities to the vision and strategy of the organization. Designed to improve internal and external communications, and monitor organization performance against strategic goals, it was originated by Drs Robert Kaplan and David Norton of the Harvard Business School.

The first requirement of the Balanced Score Card (BSC), as described by Kaplan and Norton is for a company to define its “Vision and Strategy”. Having defined Vision and Strategy, the BSC suggest that the business is viewed from four perspectives namely: Finance, Customer, Learn and Growth and Internal Processes, and that the collection and analysis of data as well as the development of metrics, should be relative to these perspectives.

In the Kaplan and Norton model of BSC, in order to answer the questions specific to each perspective, the perspectives are all viewed in terms of objectives, measurements, targets and initiatives. For the Customer perspective, the specific question is, “how should we appear to customers to achieve the corporate “Vision?” For the Financial perspective, the question is, “how to appear to shareholders to succeed financially?” For Learning and Growth, “How to sustain change and improvement to achieve Vision and Strategy?”. The key question For Internal Processes, is“What Business processes must be excelled at to satisfying customers and share-holders?”

At the centre of BSC is the corporate Vision and Strategy. For many businesses this is the opportunity to define the company position in terms of social commitment, environmental responsibilities and general good works. However, not many Vision and Strategy statements mention, that the purpose of a commercial organization is to develop a self sustaining profitable business, which is essential for a company’s future.

Regardless of the Vision statement, the objective of those in charge of getting and retaining business is to maximize sustainable profitable revenue. Applying this to the four perspectives requires the Chief Marketing Officer (CMO) to be involved with at least 3 of the 4 perspectives. CMOs will be involved with the Customer perspective primarily through the Customer Relationship Management (CRM) system. The Finance perspective requires inputs from the CMO in terms of budgets, investments and return, while Internal Business processes area requires the CMO’s inputs from management systems of control and measurement. The ability of the CMO to identify and interpret results and trends will determine the input into the Learning and Growth perspectives.

To use BSC and Benchmarking effectively, requires the CMO to be able to measure and quantify performance across all the marketing based activities involved in getting and retaining business.
Chief Executives Officers (CEO) need to know how much profitable revenue their business makes, whether it is sustainable, where it comes from and what it costs to get it, as well as considering their overall level of gross and net profit. In assessing how the company performance rates against competitors, the CEO will rely on the CMO to provide the best data to use in the Balanced Score Card and for comparison in Benchmarking.

The key to the success of using BSC and Benchmarking, is to use the systems as a guide to help the CMO achieve the objective of maximizing sustainable profitable revenue. Measuring marketing performance is essential for the effective management of all the various business getting and retaining activities. The danger for many businesses is, that in seeking to comply with the requirements of BSC and Benchmarking, they loose sight of their true purpose as a management tools to maintain a self sustaining profitable business, and see compliance as an objective in itself.

© N.C.Watkis, Contract Marketing Service 02 Jun 08
Contract Marketing Service, (Specialists in Measuring Marketing Management Performance)

June 2, 2008   Posted in: marketing management

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