A key to strong financial performance is identifying customer needs and satisfying them. In this video tutorial, accounting professor Kay Stice explores leading measures and outcome measures and the impact they have on customers. Leading measures include the ratio of your selling price versus your competitor's selling price, percent of on-time deliveries, number of returned items, and customer satisfaction surveys. Outcome measures include market share, returning customers, and new customers.
- The first key to strong financial performance is identifying customer needs and satisfying them. When companies understand what their customers want and will pay for, then these companies can design customer focused performance measures that lead to growth in market share, increased revenues and long term profits. Now with customers, let's think of leading measures and outcome measures. Leading measures reflect whether the company is currently meeting or exceeding its customers expectations. Outcome measures reflect whether customers are staying with the company and whether those customers are recommending the company to others.
So let's talk about some leading measures. First, the ratio of my selling prices, to those of my competitors. If my prices are higher than are my competitors prices then my customers are going to be less likely to stay with me, unless I'm providing them with some extra value. Better service, more timely delivery and so forth. Another measure, number of returned items. An increase in the number of customers who are returning items is likely to lead in a decrease in returning customers. Another measure, percent of on-time deliveries.
If you are delivering a product or service, and you promise delivery at a certain time, your customers are going to respond negatively to late delivery. Another measure, a decrease in the percentage of on-time deliveries is not a good omen for future customer satisfaction. Customer satisfaction surveys, another measure. Dissatisfied customers are more likely to leave you and go to one of your competitors. These leading measures give us advanced warning of possible future problems in terms of retaining customers and attracting new customers.
Now let's talk about some outcome measures. Market share is the proportion of industry sales of a particular product or service that is controlled by a specific firm. For example, market share in the soft drink business, is a critical and off sided number. In 2014, Coca-Cola had the highest market share, with 18 percent of the U.S. soft drink market. Pepsi was at number two with nine percent, just edging out number three, Diet Coke. Now do you think that soft drink executives follow these market share numbers, of course they do.
Companies increase their market share in two ways, retaining current customers and acquiring new customers. So clearly companies that can not service their current customers better than competitors will be hard pressed to maintain market share. Another outcome measure is the number of returning customers. This number might be something like, the fraction of customers last quarter, or last year, who have returned this quarter, or this year. The best customers are returning customers, because you don't have to spend money to find them and to get them to try your product or service.
Now of course there's a connection between having an enthusiastic base of existing satisfied customers and the ability to attract new customers. Another outcome measure is the number of new customers. This number might be measured in terms of actual number of new customers, or dollars of new customer business. Also it's important to track the cost of attracting new customers, if for no other reason, then to remind you how costly it is to replace any customers you lose because of not meeting the expectations of current customers.
The customer measures in the balance score card, remind managers that strong financial performance starts with satisfied customers. The existence of both, leading an outcome measures reminds managers that it's better to measure, detect and fix problems with customer relations rather than to measure a drop in the number of customers, and then sit around trying to figure out how to get them back.
In this course, accounting professors Jim and Kay Stice explain what KPIs your business should consider in a balanced scorecard, from financial goals to employee and customer satisfaction. They describe how to craft a clear mission statement that complements your KPIs, and how to tie performance to incentives. Plus, get a look at KPIs in action, as Jim and Kay break down a case study examining a trucking company's balanced scorecard.
- The importance of KPIs and measuring performance
- Financial goals and measure
- Customer needs and satisfaction
- Employee growth
- Creating an effective mission statement
- Linking measurements and rewards
- Examining a KPI case study