A change in focus
When describing both the Financial and Customer perspectives we typically focus primarily on the “what” of strategy, i.e. What are we ultimately attempting to achieve in our pursuit of executing this strategy? Revenue growth, productivity enhancements, customer satisfaction, and retention are all outcomes towards which you may be striving. When we enter the realm of the Internal Process perspective we veer sharply from the “what” to the “how” of value creation. This perspective describes specifically how you will achieve the customer value proposition articulated in the Customer perspective, and, ultimately, how you will enhance revenue and increase efficiency as measured in the Financial perspective.
Given that every organization is unique and relies on dozens if not hundreds of processes, it is not surprising that the Internal Process perspective will spawn the greatest number of measures in most Scorecards. For many organizations, the choices seem endless, sort of the way I feel when my wife invites me to participate on a home decor choice! Of course, if we make a poor decorating choice the ramifications are relatively insignificant, although my wife might disagree. The same is not so for organizations. The selection of Internal Process measures is critical in weaving together the disparate pieces of strategy into a coherent whole.
A look inside the Internal Process perspective
To assist in narrowing the practically infinite variety of potential measures for the Internal Process perspective to a manageable number, most organizations will rely on a framework which identifies four ‘clusters’ of processes, all of which are relevant to modern businesses with a desire to succeed. Let’s take a look at each:
Operations Management: The most basic of the four clusters, Operations Management processes relate to the basic, day to day routine activities necessary to first produce and ultimately deliver a product or service to the market. For example, underwriting is a core process employed at most banks.
Customer Management: As the name implies, this cluster focuses on processes relating to the management of a company’s customers, and includes the acquisition of your target customer group, proactively communicating the company’s value proposition in hopes of turning window shoppers into actual paying customers, and carefully determining user needs, targeting solutions accordingly.
Innovation: No company in today’s business environment can afford to stand still, content with the status quo, should they hope to thrive in a world fueled by innovation and new technology. Accordingly, this cluster focuses on the development of new products and services designed to meet the emerging needs of your customer base.
Regulatory and social: This final cluster has a dual focus, the first being represented by processes necessary to remain within regulatory guidelines established by third parties, such as Sarbanes-Oxley reporting to ensure the integrity of reported financial numbers. This cluster also provides a company with the opportunity of being a good corporate citizen; advocating on behalf of customers, supporting worthy causes, and providing a voice in the community.
By identifying and monitoring measures in these four clusters you ensure your Internal Processes are both efficient and effective, resulting in satisfied and loyal customers and creating value for your shareholders.
 Based on: Robert S. Kaplan and David P. Norton, Strategy Maps (Boston, MA., Harvard Business School Press, 2004) P. 43
Other Balanced Scorecard Perspectives