One need only take a trip to the refrigerator to see how The Kano Model is true. In the dark beginnings of time, people didn’t have frost-free freezers; layers and layers of ice were the norm.
These layers of ice invariably grew thicker over the course of a month, eventually choking off the freezer and encasing its contents in an arctic prison. The cure? Users had to unplug the freezer for a few days to let the ice melt. The invention of frost-free freezers was under- standably a real delight to customers. They didn’t have the product before, and they were tickled pink to have this new innovation in their
kitchens. Customers would even pay a little extra just to have the luxury.
Try to go out now to any appliance store to find a refrigerator that doesn’t have a frost-free system. Good luck — you’ll be looking for a while. Would you even consider buying one?
Heck no! You see, the innovation that was a real delighter has become a basic level of expected performance. If a refrigerator manufacturer doesn’t provide it, the company isn’t even close to being in the game as far as the customer is concerned.
⻬Look into developing your own latest-and-greatest innovation or new technology (this can get expensive and risky, but if you hit a home run, it really pays off).
⻬Make it a habit to rummage through business and industry journals to see what’s out there and in the pipeline for future developments in your markets.
While you’re at it, find out if you can borrow some ideas from outside your industry and markets. Many of the so-called “inventions” and “inno- vations” in the marketplace were actually adopted from unrelated indus- tries! Do the proverbial “thinking outside the box” and see what you can borrow from others.
Financial-leg influences and their effects
Let’s hear it for Wall Street! So, do you think the dot-com businesses felt the influence of any external financial changes forced upon them? Maybe just a little? How about a lot! And the thing is, for companies that really paid atten- tion to what was going on, they saw the changes coming. Almost every day, some newspaper or radio talk show was saying how overpriced the dot-com market had become. Yet, when the crash came, plenty of companies got caught flat footed and really felt the pain.
Always watch the markets and read the reports about what’s going on in your business and industry — especially within your market segment and their stocks. Read the analysts who review your market segment, watch the cost of capital, and track investment dollars. See where the smart money is going.
Some of the common financial influences include
⻬The effects upon costs of goods sold resulting from a change in the price of a commodity or raw material (for example, consider the ramifications of the changes in the price of oil, especially on airlines and transporta- tion and the markets they serve).
⻬Unexpected shifts in the cost of capital
⻬The emergence of a new competitive product that eats into your market share
⻬Mergers and acquisitions within your industry
The one thing you may be powerless to predict is a global political happen- ing. Sadly, the attacks of 9/11 falls into this category. The influence of that day on business was profound. Travel was curtailed because nobody wanted to fly anywhere. Plans for new products and services were put on hold. Almost everyone went into a wait-and-see-what-happens mode, and some of these modes lasted more than a year. Some companies never recovered from the hit.
For more on the financial leg, see Part III.
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Chapter 2: Building and Balancing Scorecard Strategies
Internal-process-leg influences and their effects
The internal-process-leg influences are much the same as your customer-leg influences. Your internal processes are heavily influenced by the following:
⻬Your customers
⻬The competition
⻬Innovation
⻬Best practices
The financial side also influences internal processes, in terms of cost of capi- tal and investments in new or upgraded plants and equipments.
When looking at ways to understand the effects of external influences on your internal processes, take a long look at the things that influence your organization both from the customer and financial arenas.
Learning-and-growth-leg influences and their effects
The effects of your need for employee knowledge, skills, and abilities can be just as profound for your organization as the other legs — maybe even more.
When new technologies, systems, and processes come into the market, that knowledge comes at a very high premium. Just take a look at what happened with the Six Sigma quality move (see the upcoming sidebar). Seeing the huge salaries available, Six Sigma experts flooded into the experience vacuum to take advantage of the market conditions for their knowledge.
For this leg, you should keep a close eye on universities, colleges, trade schools, new technologies, and consultants. You need to see what’s in the pipeline in the education system and what influences new technologies are exerting that require new knowledge, skills, and abilities.
Can supply and demand for new knowledge and skills have an impact on your company? You bet it can! Therefore, some companies will wait out the new technologies and the knowledge requirements that go along with them until the situations stabilize. This is a strategic and tactical decision on the part of your company that has to be balanced with what your customers want and need and what you’re willing to pay in order to deliver it (versus the costs if you don’t).
Keep your eyes on the places where new knowledge is being introduced and see what’s coming down the pike. Based on your observations, weigh your options and make your decisions on the best course of action: jump on the bandwagon or sit out for a while and wait for things to cool down on the supply and demand curves.
Recognizing early warning signals
Early warnings of potential issues, concerns, and problems are worth their weight in gold (or platinum or diamonds, for that matter). The good news is that you can use Balanced Scorecards to do just that: give you some early warning signals, particularly at the tactical level.
At the tactical level, you measure and report on the key indicators at the pro- ject and process levels of detail. Your tactical-level scorecards and dash- boards—when they measure the right things with timely information—will provide early warning signals that things will soon go wrong at the opera- tional and strategic levels. You can catch those things before they become problems at the higher levels.
What are some of the things you can catch at the tactical level before they hit the executive suites?
⻬Quality of products/services that are going wrong
⻬Process issues that affect delivery
⻬Revenues that aren’t quite performing as needed
⻬Rising costs of goods sold
Almost anything and everything you measure at the tactical level should provide an early warning signal that, if you don’t fix an issue, it will hit the operational and strategic scorecards and dashboards in a negative way. Isn’t that neat?