Misbalanced Scorecard

Have you ever thought about ultimate business values and their systematic classification? In my opinion, all can be grouped under four simple ideas:

• grow the revenues (top line growth)
  
• reduce cost (bottom line efficiency)
  
• improve time to market (business agility)
  
• increase quality (reduce number of defects in business process or product)
  

At first glance everything seems fine, and I guess, everybody could agree. But let's have a look at their interdependencies.

Cost and revenues - Those two KPIs are directly opposed to each other. In order to generate more revenues, you need to invest additional resources (headcount, marketing, coverage, etc...), what is finally deteriorating your bottom line. Of course, company needs to find a balanced approach in order to invest less and earn more. We can even split the cost side into capital expenses and operating costs and add some additional accounting complexities to the equation, but let's stick to the initial simple idea of cost and revenues.

Time To Market and Quality are de facto worst enemies to each other. Faster TTM necessarily means lower quality. It basically means less testing and less strategic thinking about the potential product or process behavior once it is in the production.

If we are OK with the recent statements, let's move to the main stakeholders of this simple scorecard.

• Sales – responsible for revenues and doesn't really care a lot about the cost side (only when Cost of Sales is calculated)
  
• Finance – responsible for cost and not really caring a lot about customers or revenues (especially true for controlling)
  
• Marketing (product development) – measured mostly by TTM and sometimes by product profitability. Very often they tend to compensate the product quality by quantity and in the game of big numbers looking for the perfect killer product
  
• Production (Technology and IT) – thinking more about the quality than customers or cost. Greater the quality is, less work later in production on fault repairs and bug fixing.
  

Looking from the very top, success formula is simple – you need to be good in all of these dimensions and you'll achieve great success. Even some formal tools have been introduced (Balanced Scorecard for example) to help companies manage all different dimensions simultaneously. Now is easy to realize that success of the company is based on careful management of conflicts between different sides of business or organizational units. In some wanna be pragmatic way, companies try to achieve success at all of these measures.

Then you often can hear sentences like these: We need to grow our revenues while keeping the costs down!…. or…. We need to launch product faster with greater quality!. ….. Or... We need to focus us on the 10 following priorities!J I think it's not possible, at least not in the short run. Although you will never hear a senior person in the company talking about short term goals but always about strategic, long term initiatives, believe me – they all think about the current fiscal year results.

Such approach is wrong. Companies need to decide what are they sacrificing in a given period. Or even, what they are sacrificing for good. When someone is pulling together a strategic development plan for the company, naturally focuses on strengths. Even when the weaknesses are realized (what's not very easy), management is inclined to fix the issues and improve the weak areas so they become strengths one day. It's a natural strive for perfection that can very often mislead even the great companies.

I believe that part of such plan should also be a formal decision about what you are not good at. It is lot harder decision to make and very often it's a political issue that only rare people dare to tackle, but it can be a salvation formula when shit hits the fan or when companies are just starting their market quest. I think that some of the greatest competitive advantages are created when those decisions on weak areas are taken deliberately and publicly articulated. It's not possible to be everything to all the people but it's very lucrative to be preferred choice to some people. So talking about focusing on something usually means to forget about something else.

Conclusion:

Product Development – either launch less products with greater quality or forget about the quality and seek for early adopters market by serving numerous product of questionable quality.

Sales – don't accept serious quota increases without prior discussions on your sales costs or marketing investments.

Finance – set the financial strategy but don't create a paradox situation (like Microsoft advertisement – Do more with less), because end of the day, you will do less with moreJ

Technology, IT – if you don't know what to do, don't break what's already working by pretending that you can do more with less.