Financial scorecard

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Question - why should you develop a detailed financial scorecard?

Answer - to keep top management informed and supportive, and to keep the implementers focused on the critical issues.

Key action points

There are two main purposes of a review:

• for higher management to understand what is going on, and to provide guidance and direction
• for the people being reviewed to ask themselves the right questions about their performance on an ongoing basis

Of the two, we believe that the second is the more important. Scorecards are less about banging tables and demanding answers, and more about providing a framework for continued learning around what makes your organisation successful or otherwise.

Within a balanced scorecard, there are typically four elements:

1. financial results
2. customer intimacy measures
3. operational excellence measures
4. measures of renewal – competences, new products/services

Each of these elements can have their own scorecards.

The Mud Valley™ financial detector identifies eight burning questions to be asked of any brand:

1. What is the return on our investment?
2. What is the performance of our key products/services?
3. Are we growing or declining among our key customers?
4. Is there a change in our channel mix?
5. How competitive are we?
6. Are we growing our share of the market?
7. Is our communications investment paying off?
8. Are any increases or declines in sales or profit performance a result of volume or price fluctuations?

The answers to these questions are almost certainly complex, and the data may be hard to come by, but the questions should nonetheless be asked.

In more detail………………………………..

Managers of a brand should have questions that keep them awake at night.

The Mud Valley financial detector identifies eight such questions to be asked of any brand:

1. What is the return on our investment?
• Companies and organisations increasingly view themselves as a bank of resources to be deployed against agreed objectives. The questions are therefore “How much is being invested?” and “To what extent are we meeting our objectives?” Those objectives are usually financial (sales and profits), but they need not be. For a charity they could comprise the relief of poverty or the reduction of incidences of a disease

2. What is the performance of our key products/services?
• We would usually look at topline performance, but we would also want to know about the performance of principal products, services or workstreams

3. Are we growing or declining among our key customers?
• According to the pareto 80:20 rule, which is a proven reality in nearly all cases, there are some customers or other beneficiaries of our products and services whose “performance” should be measured. Are our key customers buying as much as they did, and as profitable to us? Do they take up an inordinate amount of investment?

4. Is there a change in our channel mix?
• Routes to market change, and there is a need to monitor trends. Some key channels may represent an enormous share of our sales, but be relatively unprofitable. What should we do about it?

5. How competitive are we?
• When our sales increase, is it because we are more effective than the competition, or are their sales rising even faster?

6. Are we growing our share of the market?
• Are we performing well, or are we falling behind the competition? While market definition is always problematic, market leaders tend to be more profitable because they have better productivity, more market demand, and premium pricing

7. Is our communications investment paying off?
• Measurement of communications is a hot topic, but outside consumer goods and internet-based companies it is still more honoured in the breach than in the observance. It is critical to understand which communications deliver you the business you need, and create the environment that encourages on-going growth

8. Are any increases or declines in sales or profit performance a result of volume or price fluctuations?
• You can grow sales and profits because you are selling more units or because you are putting our prices up, or both. Which is it, and where do you stand against the rest of the market?

The answers to these questions are almost certainly complex, and the data may be hard to come by, but the questions should nonetheless be asked.

Our financial detector looks, at first glance, a blizzard of information, and it is. However, it is intended as a basis for regular review, so all parties will get used to it quickly enough, and become adept at understanding what it is telling them or, more importantly, what questions the data are asking.

You may have other key performance indicators you wish to track, and we obviously encourage you to build them into a scorecard. What we are providing are some generic questions that you may wish to ask yourself about the financial performance of your brands. The questions are not exhaustive, but they touch on the key dimensions of the financial performance of a brand.

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