Chapter 7 Enhanced Version
Metrics
Exhibits / Tables
October 22, 2000
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Exhibit 7-1: The Balanced Scorecard - Strategy Into Operational Terms
FINANCIAL
To succeed financially, how should we appear to our
shareholders?
INTERNAL BUSINESS PROCESS
To satisfy our shareholders and customers, what businesses
must we excel at?
CUSTOMER
To succeed financially, how should we appear to our
shareholders?
LEARNING AND GROWTH
To succeed financially, how should we appear to our
shareholders?
Visionand
Strategy
Source: Kaplan, Robert S. and David P. Norton. 1996. Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review 74 (January-February): 76.
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Exhibit 7-2: The Performance Dashboard
FinancialMetrics
FinancialMetrics
STEPS OF STRATEGY
CustomerInterface
CustomerInterface
Branding &Implementation
Branding &Implementation
PERFORMANCE DASHBOARD
MarketOpportunityAssessment
MarketOpportunityAssessment
BusinessModel
BusinessModel
Branding &Implementation
Metrics
Branding &Implementation
Metrics
CustomerInterface &OutcomeMetrics
CustomerInterface &OutcomeMetrics
BusinessModel Metrics
BusinessModel Metrics
OpportunityMetrics
OpportunityMetrics
EvaluationEvaluation
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Supporting Slide 7-A: Introducing the Performance Dashboard
FinancialFinancial
Steps of Strategy:
Customer InterfaceCustomer Interface Implementation and Branding
Implementation and Branding
Performance Dashboard:
Areas Addressed:
Size of market opportunity
Attractiveness of target segments
Competitive landscape
Customer acquisition
Changes in customer behavior
Site experience and usability
Branding
Technology infrastructure
Internal organization
Relationship with suppliers and partners
Fulfillment capability
Revenue
Profit
Cost
Balance sheet
Market OpportunityMarket Opportunity Business ModelBusiness Model
Implementation & Branding
Implementation & Branding CustomerCustomerBusiness ModelBusiness ModelMarket OpportunityMarket Opportunity
Uniqueness of value proposition
Attractiveness of offering
Firm capabilities relative to competition
Sustainability of competitive position
EvaluationEvaluation
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Exhibit 7-3: Life Cycle of a Company
STARTUP/BETA
STARTUP/BETA
CUSTOMERACQUISITION
CUSTOMERACQUISITION MONETIZATIONMONETIZATION MATURITYMATURITY
Develop a platform for rapid growth by building a strong team and creating a flexible site.
Build market share as quickly as possible by aggressively spending on partnerships and promotion.
Increase revenues and customer lock-in by developing new revenue streams.
Control costs and optimize marketing expenditures to achieve profitable growth.
6 Months- 1 Year 1 Year - 2 Years 2 Years - 5 years > 5 Years
Strategy
Business.com TNBT.com
Mvalue.com Paypal.com Evite.com
Yahoo.com Amazon.com
Schwab AOL
Examples*
* At time of writing (3/2000)
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Table 7-1: POV: Bill Gurley on the Power of Conversion Rates
Conversion Rate 2% 4% 8%
Advertising Spend 10,000$ 10,000$ 10,000$
Visitors 5000 5000 5000
Transactions 100 200 400
Cost/Transaction 100$ 50$ 25$
Revenue 10,000$ 20,000$ 40,000$
Marketing/Revenue (%) 100% 50% 25%
Average transaction size = $100 Source: J William Gurley
Source: Gurley, J. William. 2000. The Most Powerful Metric of All. CNET News.com, 21 February. URL: http://www.news.com/Perspectives/Column/0,176,403,00/html?tag=st.ne.
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Exhibit 7-4: Blueprint to the Performance Dashboard
Step One: Articulate Business Strategy
Step One: Articulate Business Strategy
Step Two: Translate
Strategy Into Desired
Outcomes
Step Two: Translate
Strategy Into Desired
Outcomes
Step Three: Devise Metrics
Step Three: Devise Metrics
Step Four: Link Metrics To Leading
And Lagging Indicators
Step Four: Link Metrics To Leading
And Lagging Indicators
Step Five: Calculate
Current And Target
Performance
Step Five: Calculate
Current And Target
Performance
Def
ine
goal
s an
d va
lue
prop
ositi
onD
efin
e go
als
and
valu
e pr
opos
ition
Market Opportunity•Opportunity size?•Competitive environment?
Market Opportunity•Opportunity size?•Competitive environment?
Customer•How to acquire customers?•How will customers change?•The customer experience?
Customer•How to acquire customers?•How will customers change?•The customer experience?
Implementation and Branding
•How to develop brand?•How to go to market?
Implementation and Branding
•How to develop brand?•How to go to market?
Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?
Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?
Market Opportunity•Market size and growth•Average age and income•Competitor concentration
Market Opportunity•Market size and growth•Average age and income•Competitor concentration
Customer•Market share•Purchases / year•Success rate•Service requests / customer
Customer•Market share•Purchases / year•Success rate•Service requests / customer
Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders
Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders
Financial•Revenue•Profit•Earnings per share•Debt to Equity ratio
Financial•Revenue•Profit•Earnings per share•Debt to Equity ratio
•For each metric, determine the metrics that it affects and that affect it
•Map the linked set of metrics, indicating leading and lagging indicators
•Ensure that there is a balance between leading and lagging indicators
•For each metric, determine the metrics that it affects and that affect it
•Map the linked set of metrics, indicating leading and lagging indicators
•Ensure that there is a balance between leading and lagging indicators
Dev
elop
res
ourc
e sy
stem
req
uire
d to
del
iver
the
stra
tegy
Dev
elop
res
ourc
e sy
stem
req
uire
d to
del
iver
the
stra
tegy
•For each metric, calculate current level of performance
•Determine target level required to meet outcomes described in Step 2
•Ensure that targets are consistent with each other
•For each metric, calculate current level of performance
•Determine target level required to meet outcomes described in Step 2
•Ensure that targets are consistent with each other
Business Model•Unique value proposition?•Capabilities vs. competition?
Business Model•Unique value proposition?•Capabilities vs. competition?
Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vs competition
Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vs competition
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Table 7-2: U.S. Top 25 Web & Digital Media Properties (March 2000)
Source: Media Metrix (www.mediametrix.com/usa/press/releases/20000424.jsp) March 31, 2000
Rank Digital Media/Web Unique Visitors (000)1 AOL Network 59,8582 Yahoo Sites 48,3363 Microsoft Sites 46,5814 Lycos 32,8995 Excite @ Home 28,5716 Go Network 23,0067 NBC Internet 17,1698 Amazon 15,2179 Time Warner Online 13,636
10 Real.com Network 13,48211 Go2Net Network 13,04112 AltaVista Network 12,55713 About.com Sites 12,32914 Ask Jeeves 12,26915 eBay 11,15516 LookSmart 10,55717 ZDNet Sites 10,22618 CNET Networks 10,02319 eUniverse Network 9,19820 JUNO/JUNO.COM 9,17721 EarthLink 8,52622 Infospace Impressions 8,30523 Viacom Online 8,13924 FortuneCity Network 7,80925 CitySearch-TicketMaster
Online7,689
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Exhibit 7-5: Market Research Source - Bizrate.com
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Exhibit 7-6: Analyst Source - Forrester
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Exhibit 7-7: Financial Information Source - Hoovers Online
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POINT-COUNTERPOINT
Off-Line Research On-Line Research
Advantages Allows richer interactions, such as focus groups
and in-depth phone interviews Can address an unbiased group of respondents
- does not only address on-line respondents
Disadvantages Labor and time intensive - questions asked in
person by telephone or by filling out surveys Data collection is costly and not scalable - very
difficult to conduct extensive survey at the pointof purchase
Data must be entered for analysis – resourceintensive process, subject to human error
Cannot measure people’s behavior – onlyopinions
Only allows for low or highly costly interactivity -interactivity requires highly trained phoneinterviewers
Advantages Fixed cost with almost no variable cost and
hence is highly scalable Automatic data entry, eliminating unnecessary
labor, cost and potential for human error Easy-to-conduct point of purchase research Can ensure higher level of data completeness
and accuracy by performing automatic error andgap checks
Disadvantages Selection bias for people with Internet access Concerns over privacy, since many users are
not aware of how their data can or will be used
Supporting Slide 7-B: Which is Better? Online or Off-line Datasources
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POINT-COUNTERPOINT
User-Based Research Content Expert-Based Research Content
Users buy, use and rate often, keeping reviewsup to date
Extensive customer base reaches and rates asignificantly larger number of sites than limitedgroup of experts
Users tend to trust the opinion of other usersmore than the opinion of experts
Bias may be introduced because users aremost likely to complete a survey if they have astrongly positive or negative opinion
Can analyze all aspects of interface experience,including features that users might be unawareof
Consistent rating scheme, ensuring that samecriteria are enforced when comparing betweenweb sites
Supporting Slide 7-C:
Which is Better? User-Based or Expert-Based Research Content
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Exhibit 7-8: Mapping Internet Research Onto The Performance Dashboard
Market
Implementation
Customer
Financial
Market Research AnalystFinancial
Information
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Exhibit 7-9: Metrics for Seamless On-line / Off-line Customer Purchase Process
Awareness of off-line offer vs awareness of on-line offer
Perceived benefits of web vs off-line offer
InformationAvailable offering information on-line vs off-lineCurrency of information on-line vs off-line
Security and privacy associated with purchasing
Customer serviceResponse time on-line vs off-line
Customer loyalty incentive programs on-line vs off-line
Exchange policies on-line vs off-line
AWARENESSAWARENESS
KNOWLEDGEKNOWLEDGE
EVALUATION OF ALTERNATIVES
EVALUATION OF ALTERNATIVES
PURCHASEPURCHASE
SATISFACTIONSATISFACTION
LOYALTYLOYALTY
DISPOSALDISPOSAL
Pre
-Pur
chas
eP
ost-
Pur
cha
seP
urch
ase
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Table 7-3: Metrics for Seamless Internal Business Processes and
Operations
Ability to open accounts on-line and off-line
Ability to access accounts on-line and off-line
Integrated customer databases
InformationSharing
InformationSharing
FulfillmentSystems
FulfillmentSystems
Seamless order processing
Seamless order tracking
Integrated inventory keeping
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Exhibit 7-10: Charles Schwab -- Customer Acquisition Stage
Step 1: Articulate the Business Strategy
“Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”
Schwab Learning Center Live Events Principles of Investing Understanding Market
Cycles “Did You Know” Q&A
Schwab Signature Services
Schwab AdvisorSource Options Service Global Investing
Service
Online chat with Customer Service Representatives
Customer Service via phone Customer Service via email Customer Service at Branch My Watch List
Margin Loans Money Transfers Automatic
Investing Options Service After Hours
Trading Account
Protection Bill Payment
Overall General Goal
Planner Investor Profile Sample
Investment Plans
Retirement Retirement
Planner IRA Analyzer
Product Offering
On-Line Investment Process
Get educated about
investing
Plan investments
Decide on Investment
Perform Investment
Post Investment Support
Perform Research
Estate Estate Tax and
Probate Calculator Alternatives
ComparisonCollege College PlannerTax Tax Strategies IRS Withholding
Calculator
Overall Quotes and Charts Analyst CenterStocks and Options Stock AnalyzerBonds and Treasuries Schwab BondSource
ServicesCDs and Money Markets SchwabOne
Annuities Schwab Select
AnnuityLife Insurance Insurance Needs
Calculator
1. Value Proposition
2. Marketspace Offering
High quality Investment Information
High quality Investment Information
Innovative productsInnovative products
Low priceLow price
Technology LeadershipTechnology Leadership
Superior serviceSuperior service
3. Resource System
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Exhibit 7-11: Schwab Desired Outcome Summary
MARKET OPPORTUNITY
•Significant Opportunity•Financially Attractive Segment•Competitively Attractive Segment
BUSINESS MODEL
•Value Proposition vs. Competition•Offer vs. Competition•Capabilities vs. Competition•Sustainability of Value Proposition
CUSTOMER INTERFACE & OUTCOMES
•Lower Customer Acquisition Costs•Transition Customer Base•Outperform competition on Interface Perceptions
•Customer Satisfaction & Loyalty
IMPLEMENTATION & BRANDING
•Brand Associations vs. Competition•Best-in-class IT Infrastructure•Ability to Deliver Brand Promise
FINANCIAL EVALUATION
•Revenue•Profit•Cost•Balance Sheet
BusinessModel
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Exhibit 7-12: Charles Schwab -- Customer Acquisition Stage
BusinessModel
BusinessModel
Implementation& Branding
Implementation& Branding CustomerCustomer FinancialFinancial
Build brand
Build brand
Increase system uptime
Increase system uptime
Train branch
staff
Train branch
staff
Improve customer service
Improve customer service
Increase customer
loyalty
Increase customer
loyalty
Increase profit
Increase profit
Optimize cost
Optimize cost
Increase revenue
Increase revenue
Investin
technology
Investin
technology
Increase number of
IT staff
Increase number of
IT staff
Increase customer satisfactio
n
Increase customer satisfactio
n
Increase usage
Increase usage
Acquire new
customers
Acquire new
customers
MarketOpportunity
MarketOpportunity
Avoid crowded markets
Avoid crowded markets
Play in attractive market
Play in attractive market
Target attractive segments
Target attractive segments
Leverage capabilitie
s to deliver offering
Leverage capabilitie
s to deliver offering
Provide unique
VP
Provide unique
VP
Provide attractive offering
Provide attractive offering
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Table 7-4: Charles Schwab -- Customer Acquisition StageCurrent and Target Levels for Select Metrics
Revenue 1997 Actual 1998 Target CommentTotal revenue $2,299 2,529$
Revenue growth 24% 10%
Despite the decrease in Schwab's pricing for trades, increases in the number of accounts and number of trades per account should produce revenue growth, albeit at a reduced rate
Revenue breakdownTrading 62%Non-Trading 38%
Trading 59%Non-Trading 41%
An additional driver of revenue growth will be increases in margin loans to account holders. This will outpace the growth in trading revenues
Total trading volume 106m/day 132m/dayLower trading prices will result in a 25% growth in trading volume
Average fee per trade 64.27$ $51.41
1998 will be a year of transition for Schwab as customers migrate towards the web platform. Average fees per trade will drop by 20%
Profit
Post tax proft margin 19.50% 19.50%
Investments in technology will be offset by branch staff reductions and lower trade fulfillment costs
Pre tax profit growth 14% 10%Profit breakdown
Earnings per share 0.99$ 1.07$ Option packages granted to key staff will cause some EPS dilution
Earnings per share growth 14% 8%
*Source: Tempest, Nicole and Warren McFarlan. 1999.Charles Schwab Corporation (B). Case no. 9-300-507, 13 September. Boston: Harvard Business School Publishing.
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