cover story
‘It’s easy to measure customer retention and customer loyalty and satisfaction – the challenge is whether all those customers are making money for the company’
Leading business strategist Robert Kaplan is the inventor of the ‘balanced scorecard’, and adviser to President Barack Obama. Ann O’Dea caught up with himon a recent trip to Dublin
BUSINESS
able to trace the cost right down to individual orders, individual products and customers. “This becomes particularly noticeable during a down-
turn when the revenues and the market start to decline, but the companies don’t adapt to see whether in fact the features and services they’re offering are still being cov- ered by the margins and the revenues that they cur- rently are experiencing.”
Taking stock It is easy for companies to see why this is important in a downturn, but Kaplan stresses that companies need to be making these measurements on an ongoing basis, as part of their business processes. “I mean technically we should be doing this continually; you shouldn’t just be doing this in bad times,” he says. “Given the technologies that now exist, the combina-
tion of first hardware, where you can actually track products and orders as they go through your system very well; then software which is able to capture the data that comes from these transactions, whether pro- duction or customer delivery; and the third part is the analytic thinking – which is the model that I’ve con- tributed on activity-based costing, where you aggregate
all the very detailed transaction data into measuring a cost and linking it to prices and revenue, and therefore profitability. “This should really be part of a company’s ongoing
management systems, that two to four times a year they should be calculating the profit and loss on every prod- uct and every customer. I’m not saying you drop prod- ucts or fire customers based on losing money in a three- month period, but you want to be able to highlight where in fact you are losing money, because often you fall into these situations, and they’re correctable. Once you see the drivers of the loss, there’s a set of actions that the managers can take that will enable you to transform unprofitable products and customers into profitable ones.”
Quick results The results come very quickly, says Kaplan. “It’s about changes like improved processes in order to create the differentiation, sometimes it’s about getting an appro- priate level of customisation in a product or service, or it could be about price changes,” he says. “ And it’s not only price increases. Often you discover, some of your high-volume, somewhat standard products are the most
Winter 2010 Irish Director 15
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