Free The Balanced Scorecard: Translating Strategy Into Action by Robert S. Kaplan, David P. Norton

and Service Mix
    Extending this idea, businesses may choose to increase revenues by shifting their product and service mix. For example, a business may feel that it has a substantial cost advantage in selected segments, where it can win business away from competitors by offering significantly lower prices. If it is following this low-cost strategy, it should measure the growth of sales in the targeted segments. Alternatively, a business may choose a more differentiated strategy, deemphasizing low-price offerings and attempting to shift its product and service mix more toward premium priced items. This business could choose to measure the growth in sales and the percentage of total sales in the premium segment. Metro Bank, for example, adopted a strategy to increase the number of fee-based products it sold and tracked the success of this strategy with a measure of revenue growth from these products and services.
New Pricing Strategy
    Finally, revenue growth, especially in mature, perhaps harvest-stage business units, may be realized by raising prices on products, services, and customers where revenues are not covering costs. Such situations are now much easier to detect as companies implement activity-based cost (ABC) systems that trace costs, profits, and even assets employed down to individual products, services, and customers. Some companies have discovered, especially for specialized, niche products or particularly demanding customers, that prices can be increased, or, equivalently, large discounts eliminated, without losing share, to cover the costs of features and services on currently unprofitable products and customers. Profitability by product, service, and customer, or the percentages of unprofitable products and customers, provide signals (not necessarily the only signals) on the opportunity for repricing, or the success and failure of past pricing strategies. For highly homogeneous products and services, a simple price index, such as net revenue per ton, price per call, or price per unit, will reveal the trends in pricing strategy for the company and the industry.
C OST R EDUCTION /P RODUCTIVITY I MPROVEMENT
    In addition to establishing objectives for revenue growth and mix, a business may wish to improve its cost and productivity performance.
Increase Revenue Productivity
    Business units in the growth stage are unlikely to be heavily focused on cost reduction. Efforts to reduce costs through dedicated automation and standardized processes may conflict with the flexibility required to customize new products and services for new markets. Therefore, the productivity objective for growth-stage businesses should focus on revenue enhancement—say revenue per employee—to encourage shifts to higher-value-added products and services and to enhance the capabilities of the organization’s physical and personnel resources.
Reduce Unit Costs
For sustain-stage businesses, achieving competitive cost levels, improving operating margins, and monitoring indirect and support expense levels will contribute to higher profitability and return-on-investment ratios. Perhaps the simplest and clearest cost reduction objective is to reduce the unit cost of performing work or producing output. For firms with relatively homogeneous output, supplying a simple target for reducing cost per unit can suffice. A chemical company can establish targets for cost per gallon or cost per pound produced; a retail bank can aim for a lower cost per transaction (processing a deposit or a withdrawal) and a decreased cost per customer account sustained; and an insurance company can measure cost per premium processed or per claim paid. Since the cost of performing activities or producing outputs may use resources and activities from many different departments in an organization, an activity-based process-oriented costing system will likely be required for accurate measurement of the unit cost of processing transactions and producing output.
Improve Channel