Chapter 7 Enhanced Version Metrics Exhibits / Tables October 22, 2000

Chapter 7 Enhanced Version

Metrics

Exhibits / Tables

October 22, 2000

CAS-COD-Prez-Date-CTL

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Exhibit 7-1: The Balanced Scorecard - Strategy Into Operational Terms

FINANCIAL

To succeed financially, how should we appear to our

shareholders?

INTERNAL BUSINESS PROCESS

To satisfy our shareholders and customers, what businesses

must we excel at?

CUSTOMER


shareholders?

LEARNING AND GROWTH


shareholders?

Visionand

Strategy

Source: Kaplan, Robert S. and David P. Norton. 1996. Using the Balanced Scorecard as a Strategic Management System. Harvard Business Review 74 (January-February): 76.


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Exhibit 7-2: The Performance Dashboard

FinancialMetrics

FinancialMetrics

STEPS OF STRATEGY

CustomerInterface

CustomerInterface

Branding &Implementation


PERFORMANCE DASHBOARD

MarketOpportunityAssessment

MarketOpportunityAssessment

BusinessModel

BusinessModel


Metrics


Metrics

CustomerInterface &OutcomeMetrics

CustomerInterface &OutcomeMetrics

BusinessModel Metrics

BusinessModel Metrics

OpportunityMetrics

OpportunityMetrics

EvaluationEvaluation


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Supporting Slide 7-A: Introducing the Performance Dashboard

FinancialFinancial

Steps of Strategy:

Customer InterfaceCustomer Interface Implementation and Branding

Implementation and Branding

Performance Dashboard:

Areas Addressed:

Size of market opportunity

Attractiveness of target segments

Competitive landscape

Customer acquisition

Changes in customer behavior

Site experience and usability

Branding

Technology infrastructure

Internal organization

Relationship with suppliers and partners

Fulfillment capability

Revenue

Profit

Cost

Balance sheet

Market OpportunityMarket Opportunity Business ModelBusiness Model

Implementation & Branding

Implementation & Branding CustomerCustomerBusiness ModelBusiness ModelMarket OpportunityMarket Opportunity

Uniqueness of value proposition

Attractiveness of offering

Firm capabilities relative to competition

Sustainability of competitive position

EvaluationEvaluation


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Exhibit 7-3: Life Cycle of a Company

STARTUP/BETA

STARTUP/BETA

CUSTOMERACQUISITION

CUSTOMERACQUISITION MONETIZATIONMONETIZATION MATURITYMATURITY

Develop a platform for rapid growth by building a strong team and creating a flexible site.

Build market share as quickly as possible by aggressively spending on partnerships and promotion.

Increase revenues and customer lock-in by developing new revenue streams.

Control costs and optimize marketing expenditures to achieve profitable growth.

6 Months- 1 Year 1 Year - 2 Years 2 Years - 5 years > 5 Years

Strategy

Business.com TNBT.com

Mvalue.com Paypal.com Evite.com

Yahoo.com Amazon.com

Schwab AOL

Examples*

* At time of writing (3/2000)


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Table 7-1: POV: Bill Gurley on the Power of Conversion Rates

Conversion Rate 2% 4% 8%

Advertising Spend 10,000$ 10,000$ 10,000$

Visitors 5000 5000 5000

Transactions 100 200 400

Cost/Transaction 100$ 50$ 25$

Revenue 10,000$ 20,000$ 40,000$

Marketing/Revenue (%) 100% 50% 25%

Average transaction size = $100 Source: J William Gurley

Source: Gurley, J. William. 2000. The Most Powerful Metric of All. CNET News.com, 21 February. URL: http://www.news.com/Perspectives/Column/0,176,403,00/html?tag=st.ne.


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Exhibit 7-4: Blueprint to the Performance Dashboard

Step One: Articulate Business Strategy

Step One: Articulate Business Strategy

Step Two: Translate

Strategy Into Desired

Outcomes

Step Two: Translate

Strategy Into Desired

Outcomes

Step Three: Devise Metrics

Step Three: Devise Metrics

Step Four: Link Metrics To Leading

And Lagging Indicators

Step Four: Link Metrics To Leading

And Lagging Indicators

Step Five: Calculate

Current And Target

Performance

Step Five: Calculate

Current And Target

Performance

Def

ine

goal

s an

d va

lue

prop

ositi

onD

efin

e go

als

and

valu

e pr

opos

ition

Market Opportunity•Opportunity size?•Competitive environment?

Market Opportunity•Opportunity size?•Competitive environment?

Customer•How to acquire customers?•How will customers change?•The customer experience?

Customer•How to acquire customers?•How will customers change?•The customer experience?


•How to develop brand?•How to go to market?


•How to develop brand?•How to go to market?

Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?

Financial•Financial consequences in terms of revenue, profit, cost and balance sheet?

Market Opportunity•Market size and growth•Average age and income•Competitor concentration

Market Opportunity•Market size and growth•Average age and income•Competitor concentration

Customer•Market share•Purchases / year•Success rate•Service requests / customer

Customer•Market share•Purchases / year•Success rate•Service requests / customer

Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders

Implementation•Customer brand awareness•System uptime percentage•Number of IT staff•% inaccurate orders

Financial•Revenue•Profit•Earnings per share•Debt to Equity ratio

Financial•Revenue•Profit•Earnings per share•Debt to Equity ratio

•For each metric, determine the metrics that it affects and that affect it

•Map the linked set of metrics, indicating leading and lagging indicators

•Ensure that there is a balance between leading and lagging indicators

•For each metric, determine the metrics that it affects and that affect it

•Map the linked set of metrics, indicating leading and lagging indicators

•Ensure that there is a balance between leading and lagging indicators

Dev

elop

res

ourc

e sy

stem

req

uire

d to

del

iver

the

stra

tegy

Dev

elop

res

ourc

e sy

stem

req

uire

d to

del

iver

the

stra

tegy

•For each metric, calculate current level of performance

•Determine target level required to meet outcomes described in Step 2

•Ensure that targets are consistent with each other

•For each metric, calculate current level of performance

•Determine target level required to meet outcomes described in Step 2

•Ensure that targets are consistent with each other

Business Model•Unique value proposition?•Capabilities vs. competition?

Business Model•Unique value proposition?•Capabilities vs. competition?

Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vs competition

Business Model•Customer perceived benefits•Exclusive partnerships•$ invested in technology vs competition


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Table 7-2: U.S. Top 25 Web & Digital Media Properties (March 2000)

Source: Media Metrix (www.mediametrix.com/usa/press/releases/20000424.jsp) March 31, 2000

Rank Digital Media/Web Unique Visitors (000)1 AOL Network 59,8582 Yahoo Sites 48,3363 Microsoft Sites 46,5814 Lycos 32,8995 Excite @ Home 28,5716 Go Network 23,0067 NBC Internet 17,1698 Amazon 15,2179 Time Warner Online 13,636

10 Real.com Network 13,48211 Go2Net Network 13,04112 AltaVista Network 12,55713 About.com Sites 12,32914 Ask Jeeves 12,26915 eBay 11,15516 LookSmart 10,55717 ZDNet Sites 10,22618 CNET Networks 10,02319 eUniverse Network 9,19820 JUNO/JUNO.COM 9,17721 EarthLink 8,52622 Infospace Impressions 8,30523 Viacom Online 8,13924 FortuneCity Network 7,80925 CitySearch-TicketMaster

Online7,689


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Exhibit 7-5: Market Research Source - Bizrate.com


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Exhibit 7-6: Analyst Source - Forrester


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Exhibit 7-7: Financial Information Source - Hoovers Online


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POINT-COUNTERPOINT

Off-Line Research On-Line Research

Advantages Allows richer interactions, such as focus groups

and in-depth phone interviews Can address an unbiased group of respondents

- does not only address on-line respondents

Disadvantages Labor and time intensive - questions asked in

person by telephone or by filling out surveys Data collection is costly and not scalable - very

difficult to conduct extensive survey at the pointof purchase

Data must be entered for analysis – resourceintensive process, subject to human error

Cannot measure people’s behavior – onlyopinions

Only allows for low or highly costly interactivity -interactivity requires highly trained phoneinterviewers

Advantages Fixed cost with almost no variable cost and

hence is highly scalable Automatic data entry, eliminating unnecessary

labor, cost and potential for human error Easy-to-conduct point of purchase research Can ensure higher level of data completeness

and accuracy by performing automatic error andgap checks

Disadvantages Selection bias for people with Internet access Concerns over privacy, since many users are

not aware of how their data can or will be used

Supporting Slide 7-B: Which is Better? Online or Off-line Datasources


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POINT-COUNTERPOINT

User-Based Research Content Expert-Based Research Content

Users buy, use and rate often, keeping reviewsup to date

Extensive customer base reaches and rates asignificantly larger number of sites than limitedgroup of experts

Users tend to trust the opinion of other usersmore than the opinion of experts

Bias may be introduced because users aremost likely to complete a survey if they have astrongly positive or negative opinion

Can analyze all aspects of interface experience,including features that users might be unawareof

Consistent rating scheme, ensuring that samecriteria are enforced when comparing betweenweb sites

Supporting Slide 7-C:

Which is Better? User-Based or Expert-Based Research Content


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Exhibit 7-8: Mapping Internet Research Onto The Performance Dashboard

Market

Implementation

Customer

Financial

Market Research AnalystFinancial

Information


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Exhibit 7-9: Metrics for Seamless On-line / Off-line Customer Purchase Process

Awareness of off-line offer vs awareness of on-line offer

Perceived benefits of web vs off-line offer

InformationAvailable offering information on-line vs off-lineCurrency of information on-line vs off-line

Security and privacy associated with purchasing

Customer serviceResponse time on-line vs off-line

Customer loyalty incentive programs on-line vs off-line

Exchange policies on-line vs off-line

AWARENESSAWARENESS

KNOWLEDGEKNOWLEDGE

EVALUATION OF ALTERNATIVES

EVALUATION OF ALTERNATIVES

PURCHASEPURCHASE

SATISFACTIONSATISFACTION

LOYALTYLOYALTY

DISPOSALDISPOSAL

Pre

-Pur

chas

eP

ost-

Pur

cha

seP

urch

ase


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Table 7-3: Metrics for Seamless Internal Business Processes and

Operations

Ability to open accounts on-line and off-line

Ability to access accounts on-line and off-line

Integrated customer databases

InformationSharing

InformationSharing

FulfillmentSystems

FulfillmentSystems

Seamless order processing

Seamless order tracking

Integrated inventory keeping


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Exhibit 7-10: Charles Schwab -- Customer Acquisition Stage

Step 1: Articulate the Business Strategy

“Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”

Schwab Learning Center Live Events Principles of Investing Understanding Market

Cycles “Did You Know” Q&A

Schwab Signature Services

Schwab AdvisorSource Options Service Global Investing

Service

Online chat with Customer Service Representatives

Customer Service via phone Customer Service via email Customer Service at Branch My Watch List

Margin Loans Money Transfers Automatic

Investing Options Service After Hours

Trading Account

Protection Bill Payment

Overall General Goal

Planner Investor Profile Sample

Investment Plans

Retirement Retirement

Planner IRA Analyzer

Product Offering

On-Line Investment Process

Get educated about

investing

Plan investments

Decide on Investment

Perform Investment

Post Investment Support

Perform Research

Estate Estate Tax and

Probate Calculator Alternatives

ComparisonCollege College PlannerTax Tax Strategies IRS Withholding

Calculator

Overall Quotes and Charts Analyst CenterStocks and Options Stock AnalyzerBonds and Treasuries Schwab BondSource

ServicesCDs and Money Markets SchwabOne

Annuities Schwab Select

AnnuityLife Insurance Insurance Needs

Calculator

1. Value Proposition

2. Marketspace Offering

High quality Investment Information

High quality Investment Information

Innovative productsInnovative products

Low priceLow price

Technology LeadershipTechnology Leadership

Superior serviceSuperior service

3. Resource System


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Exhibit 7-11: Schwab Desired Outcome Summary

MARKET OPPORTUNITY

•Significant Opportunity•Financially Attractive Segment•Competitively Attractive Segment

BUSINESS MODEL

•Value Proposition vs. Competition•Offer vs. Competition•Capabilities vs. Competition•Sustainability of Value Proposition

CUSTOMER INTERFACE & OUTCOMES

•Lower Customer Acquisition Costs•Transition Customer Base•Outperform competition on Interface Perceptions

•Customer Satisfaction & Loyalty

IMPLEMENTATION & BRANDING

•Brand Associations vs. Competition•Best-in-class IT Infrastructure•Ability to Deliver Brand Promise

FINANCIAL EVALUATION

•Revenue•Profit•Cost•Balance Sheet

BusinessModel


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Exhibit 7-12: Charles Schwab -- Customer Acquisition Stage

BusinessModel

BusinessModel

Implementation& Branding

Implementation& Branding CustomerCustomer FinancialFinancial

Build brand

Build brand

Increase system uptime

Increase system uptime

Train branch

staff

Train branch

staff

Improve customer service

Improve customer service

Increase customer

loyalty

Increase customer

loyalty

Increase profit

Increase profit

Optimize cost

Optimize cost

Increase revenue

Increase revenue

Investin

technology

Investin

technology

Increase number of

IT staff

Increase number of

IT staff

Increase customer satisfactio

n

Increase customer satisfactio

n

Increase usage

Increase usage

Acquire new

customers

Acquire new

customers

MarketOpportunity

MarketOpportunity

Avoid crowded markets

Avoid crowded markets

Play in attractive market

Play in attractive market

Target attractive segments

Target attractive segments

Leverage capabilitie

s to deliver offering

Leverage capabilitie

s to deliver offering

Provide unique

VP

Provide unique

VP

Provide attractive offering

Provide attractive offering


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Table 7-4: Charles Schwab -- Customer Acquisition StageCurrent and Target Levels for Select Metrics

Revenue 1997 Actual 1998 Target CommentTotal revenue $2,299 2,529$

Revenue growth 24% 10%

Despite the decrease in Schwab's pricing for trades, increases in the number of accounts and number of trades per account should produce revenue growth, albeit at a reduced rate

Revenue breakdownTrading 62%Non-Trading 38%

Trading 59%Non-Trading 41%

An additional driver of revenue growth will be increases in margin loans to account holders. This will outpace the growth in trading revenues

Total trading volume 106m/day 132m/dayLower trading prices will result in a 25% growth in trading volume

Average fee per trade 64.27$ $51.41

1998 will be a year of transition for Schwab as customers migrate towards the web platform. Average fees per trade will drop by 20%

Profit

Post tax proft margin 19.50% 19.50%

Investments in technology will be offset by branch staff reductions and lower trade fulfillment costs

Pre tax profit growth 14% 10%Profit breakdown

Earnings per share 0.99$ 1.07$ Option packages granted to key staff will cause some EPS dilution

Earnings per share growth 14% 8%

*Source: Tempest, Nicole and Warren McFarlan. 1999.Charles Schwab Corporation (B). Case no. 9-300-507, 13 September. Boston: Harvard Business School Publishing.

Documents

Chapter 7 Enhanced Version Metrics Exhibits / Tables October 22, 2000