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Internal-Business-Process Perspective

For the internal business process perspective, managers identify the processes that are most
critical for achieving customer and shareholder objectives. Companies typically develop their
objectives and measures for this perspective after formulating objectives and measures for the
financial and customer perspectives. Most organizations existing performance measurement
system focus on improving existing operating processes. For the balanced scorecard, we
recommend that managers define a complete internal process value chain that starts with the
innovation process identifying current and future customers’ needs and developing new solutions
for these needs proceeds through the operations process, delivering existing products and services
to existing customers and ends with post sale service offering services after the sale that add to the
value customers receive from a company’s product and service offering.
All companies are new attempting to improve quality, reduce cycle times, increase yields,
and maximize throughput and lower costs for their business processes. Therefore, an exclusive
focus on improving the cycle time, throughput, quality, and cost of existing processes may not lead
to unique competencies. unless one can outperform competitors across the board on all business
process, in quality time, productivity, and cost, such improvements will facilitate survival, but will
not lead to distinctive and sustainable competitive advantage.
The Internal-Business-Process Perspective
Each business has a unique set of processes for creating value for customers and producing
financial results. This model encompasses three principal business processes:
 Innovation
 Operations
 Post sale service
In the innovation process, the business unit researches the emerging or latest needs of
customers and then creates the products or services that will meet these needs. The operations
process, the second major step in the generic internal value chain, is where existing products and
services are produced and delivered to customers. This process has historically been the focus of
most organizations’ performance measurement systems. The third major step in the internal value
chain is service to the customer after the original sale or delivery of a product or service. All this
activities add value to targeted customers’ use of the company’s product and service offerings.
The Innovation Process
Some formulations of a business unit’s value chain treat research and development as a
support process, not a primary element in the value creation process. In fact, in our early writings
on the balanced scorecard, we also separated the innovation process from the internal business
process perspective. The importance of the innovation process led us to modify our “geography”
of the balanced scorecard so that the innovation process could be recognized as an integral part of
the internal-business process perspective.

continuing in this long wave of value creation and growth. consistent patterns can be found that can be exploited in measurement process. BET is denominated in time. in contrast. also new product introduction versus plan  Manufacturing process capabilities  Time to develop next generation of products Measures for Product Development Despite the inherent uncertainty in many products development activities. and the engineering and latent needs of existing customers. An electronic company did a root cause analysis of the high time and cost of its new product development process. in which companies deliver existing products and services to existing customers. And third. Think of the innovation process as the long wave of value creation in which companies first identify and nurture new markets. Break Even Time (BET) brings together in a single measure three critical elements in an effective and efficient product development process. Then. The operation process. . First. its investment in the product development process must be recovered. represents the short wave of value creation. the second step in the innovation processes. Among the measures it used were:  Percentage of sales from new products  Percentage of sales from proprietary product  New product introduction versus competitors. Second. for the company to BET on its R&D process. The analysis revealed that the number one cause for long time to market of new devices was products that failed to function properly the first time they were designed and hence had to be redesigned and retested often several times. the organization’s research and development group:  Performs basic research to develop radically new products and services for delivering value to customers  Performs applied research to exploit existing technology for the next generation of products and services  Makes focused development efforts to bring new products and services to market Measures for Basic and Applied Research AMD many measures of its Balanced scorecard on the innovation process. During this step. BET stresses profitability. companies design and develop the new products and services that enable them to reach the new markets and customers and to satisfy customers’ newly identified needs. Information on markets and customers provides the input for the actual product/services design and development processes. new customers.

Merchandise availability 5. They intended to achieve this ambitious goal by providing: 1. Kenyon identified four subjectivies: 1. Store concept definition . Sourcing leadership 4. to their post-sale service processes. and the processing of payments. Great fashion. Category dominance 3. Positioning strategy 4. and quality merchandise at an attractive price. This process stresses efficient. Brand management 2. and 3. design. Specific Internal-Business-Process Perspectives Kenyon Stores Kenyon stores is a multibillion dollar retailer of clothing. Fashion leadership 3. Memorable shopping experience Brand Management Within brand management process. A premium brand image 2. Post sale Service Post sale services includes warranty and repair activities. Existing operations tend to be repetitive so that scientific management techniques can be ready applied to control and improve customer order receipt and processing and vendor. and timely delivery of existing products and services to existing customers. Kenyon also identified five critical internal-business process: 1. Kenyon senior executives an aggressive goal for sale growth of 150% over five years. It starts with receipt of a customer order and finishes with delivery of the product or service to the customer. described for operating processes. Brand concept definition 2. treatment of defects and returns. efficient service and excellent product availability. such as credit card administration. Companies attempting to meet their targeted customers’ expectations for superior post sale services can measure their performance by applying some of the same time. production and delivery processes. Quick. quality and cost metrics.The Operations Process The operation process represents the short wave of value creation in organizations. consistent.

Quality. Market share in selected categories 2. The measures selected for these subjectivies were: 1. Memorable Shopping Experience This measure occupied a position in both the customers and the internal business process perspective. In addition to this customized measure. New accounts Fashion Leadership Fashion leadership was defined as providing targeted customer segments with fashionable merchandise that supported the brand and influenced customers’ buying habits. measured as the time elapsed from when they place an order until the time when they receive the desired product or services. managers identify the critical processes at which they must excel if they are to meet the objectives of shareholders and of targeted customer segments. Brand recognition 3. Raw materials are ordered for the order of production batch . Kenyon solicited feedback from customers. and Cost Measurement. Sourcing Leadership Sourcing leadership stressed development and management of the supplier base so that desired volumes and mix of high quality merchandise could be rapidly produced and delivered. The start of the cycle can correspond to the time when: 1. Customer order or production batch is scheduled 3. and time-based measures of existing business process Appendix: Operations Process-Time. sales and gross margin would be achieved by buying the right quantities of merchandise in the right colors and sizes and stocking the right stores with appropriate assortment in advance of customer demands. Merchandise Availability Merchandise availability related to a “perfect inventory” objective in which customer satisfactions. Fashion leadership focused on effectively using information to choose fashions that would meet customers’ expectations in key clothing categories. a score on customers’ satisfaction with their shopping experiences was included in this subjective. Customer order is received 2. Process Time Measurement Many customers value highly short lead times. quality. Summary In the internal business process perspective. Conventional performance measurement systems focus only on monitoring and improving cost. These subjectivies were directed at building a concept and loyalty among targeted customers.

Order or batch is in finished goods inventory. Order is shipped 4. Measurement is a central part of any such program. Production on the order or batch is initiated Similarly the end of the cycle can correspond to the time when: 1. Order is received by the customers A metric used by many organizations attempting to move to just-in-time production flow processes is manufacturing cycle effectiveness (MCE) defined as: 𝑃𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔 𝑡𝑖𝑚𝑒 𝑀𝐶𝐸 = 𝑇ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡 𝑡𝑖𝑚𝑒 This ratio is less than 1 because: 𝑡ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡 𝑡𝑖𝑚𝑒 = 𝑝𝑟𝑜𝑐𝑒𝑠𝑠𝑖𝑛𝑔 𝑡𝑖𝑚𝑒 + 𝑖𝑛𝑠𝑝𝑒𝑐𝑡𝑖𝑜𝑛 𝑡𝑖𝑚𝑒 + 𝑚𝑜𝑣𝑒𝑚𝑒𝑛𝑡 𝑡𝑖𝑚𝑒 + 𝑤𝑎𝑖𝑡𝑖𝑛𝑔 𝑡𝑖𝑚𝑒 Process Quality Measurement Almost all organizations today have quality initiatives and quality programs in place. available to be shipped 3. Production of the order or the batch has been completed 2. 4. so organizations are already familiar with a variety of process quality measurements:  Process part per million defect rates  Yields  Waste  Scrap  Rework  Returns  Percentage of processes under statistical process control The index include such items as:  Long waiting times  Inaccurate information  Access denied or delayed  Request or transaction not fulfilled  Financial loss for customer  Customer not treated as valued  Ineffective communication . Raw materials are received 5.

operations or departments. .Process Cost Measurement Amidst all the attention to process time and process quality measurements. purchasing. or production planning and control use resources and activities form several responsibility centers. Traditional cost accounting systems measure the expenses and effeciencies of individual tasks. one might lose sight of the cost dimension of processes. Typically. processes like order fulfillment. But these systems fail to measure costs at the process level.