Strategic Planning vs. Strategic Innovation

Strategy is half-baked without innovation. It is necessary to distinguish strategic planning from strategy innovation. Organizations typically carry out strategic planning by studying past data and predicting the future. The mistake here is the assumption that the future would resemble the past.

Strategic planning aims to extend the existing value proposition. Strategy innovation creates new business models, is market centric and aims to find new value proposition. Hence strategic planning is predominantly analytical while strategic innovation is creative.

However, strategic innovation is incomplete in isolation and hence strategic planning cannot be ignored altogether. The two can perfectly co-exist; one tending to the current and the other building the future. Even in future, the learnings and best practices of the past can be implemented as strategic planning would prop up strategic innovation.

Given below is a table by Professor Robert Johnston, which summarizes the differences between the two approaches.

Strategic Planning	Strategy Innovation
Analytical	Creative
Numbers-driven	Insights-driven
Company-centric	Market-centric
Logic/Linear	Heuristic/Iterative
Today to tomorrow	Tomorrow to today
Extend current values	Create new values
Fit the business model	Create a new business model

Innovation vs. Invention

Often our general understanding confuses the line differentiating the two strategies when it comes  "invention" & "innovation". While the former implies new ideas or products that have been derived from an individual's ideas or from scientific research, the latter is more about prospecting, mining, refining and adding value to the idea. In short, 'Innovation is the commercialization of Invention'.

There have been various examples in the world's history of breakthrough inventions but failed innovations. Also, there are numerous examples where the inventors generated little or no returns while others who marketed it as an innovation amassed millions in revenue.

AT&T laboratories, in 1947, created the world's first transistor. Though patented organization could not find a suitable application for it. Thus an outstanding invention failed to develop as an innovation. However, in 1952 they licensed it  to out and companies like Texas Instruments, Sony and IBM acquired a technology that produced billions of revenues.

Another company which missed out on big opportunities would be Xerox. It was the world's first to develop a personal computer, a graphical oriented monitor, a word processing software, a workstation, a laser printer, a Ethernet, a hand-held mouse in its Palo Alto Research Center (PARC). Yet it profited from almost none of these.

Thus continues the dilemma of whether to invent or innovate !!!

Collaborative Research and Open Innovation

One of the value disciplines or strategies of 'market makers' defined by Michael Treacy and Fred Wiersema is Product Leadership which requires the firm to produce a stream of state-of-art products and services. Innovation thus becomes the key to success of such a strategy. However as companies grow larger and more inorganic, the traditional innovation model of internal R&D is barely or actually rarely able to compete with high level of topline growth. Is there a different model then? Yes indeed! We look at a model of collaborative Research or in P&G's words C&D i.e. Connect & Develop.

Open innovation is a rather old idea and can be traced back to the ‘60s, however it has gained importance under different names in the recent years due to mainly two reasons. First is the increased competitiveness in the industrial landscape and secondly outburst and easy accessibility of new technologies. While the first reason has put pressure on firms to reduce the lead time for new product/service development, the second reason has made it possible for creativity to come from small firms and even individuals. If larger firms want to solve their first problem, they have to leverage on the second one. This leads to open innovation.

Open innovation advocates that firms should use external ideas as well as internal ideas. It assumes that since the boundaries between a firm and its environment have become more permeable, innovations can easily transfer inward and outward.Many companies like IBM, Eli Lilly and P&G have successfully used open innovation. It is believed that such a model will become the dominant model in the coming days. So what do we require for such a model to succeed?

Firstly since ideas come from external sources, firms have to develop a receptive culture. This might require a major cultural change because traditionally organizations are secretive of 'ideas'.

Secondly the implementation of such a model will require developing a network of appropriate external resources. Because the possible sources from which ideas can generate is limitless, the choice of resources should be such that it aligns with the innovation needs of the firm.

Thirdly it should be understood that only the idea generation part is being done with external collaboration, the major part of implementation and distribution still remains with the firm. So the firm has to develop these areas as per the requirement of the product or service. And most importantly the internal R&D should be utilized to adapt the ideas as per the company requirements otherwise the firm runs the danger of being in areas which are not related to its businesses.

In the recent days with increased globalization, collaboration is already seen to be a dominant strategy in marketing, manufacturing and many non core activities of the firm. In the coming days, innovation will also find itself greatly influenced by it !

Value Disciplines

Making it big by selling value is not a recent phenomena. Its an age-old practice which has been tailored across decades to suit the market. What is new is how the the customers define the value. Earlier it was perceived as a combination on quality and price while today's consumer has a more expanded concept including convenience of purchase, after-sale service and dependability among others. Micheal Treacy and Fred Weirsema have captured this new found superior customer value under three parameters- Operational excellence, customer intimacy and product leadership.

Operational Excellence

This implies providing reliable products or services at competitive prices and deliver the same with minimal difficulty or inconvenience. The companies adopting this discipline focus on making their operations lean and efficient. The name which champions this field is Dell. 

Customer Intimacy

The second value discipline focuses on customisation and delivering to the niches. Companies adopting this principle segment their target markets precisely and then tailor their offering to match the demands. A marriage of customer knowledge and operational flexibility leads to excellent customer intimacy and subsequently customer loyalty. Home Depot's are an apt example of the same.

Product Leadership

This discipline comes handy to outrun a competitors product or service by offering customers leading-edge products and services which enhance the use or application of the product. In the sports shoe category, Nike excels in product leadership. Johnson&Johnson also lives up to the challenges of being a product leader as it attracts new ideas, develops them quickly and then looks for ways to improve upon it.

Based on a 3-year study of 40 companies, Treacy & Weirsema have drawn a few conclusions. This indicate that generally market leaders excel at one value discipline while a few mavericks have gone ahead by mastering two. Companies which pursue the same value discipline have remarkable similarities irrespective of the industry segment. Eg. Federal Express, American Airlines, Wal-Mart have operational excellence and thus their systems, structures and cultures are more or less similar. However, this homogeneity is visible only among market leaders in the discipline and not among mediocre. To become an industry leader a company must carefully align its strategy in line with one of the disciplines taking into account its capabilities and culture as well as its competitors strength.

The above is inspired from the works of Micheal Treacy & Fred Weirsema, "The Three Paths to Market Leadership"

Combining Strategy and Performance

My learnings from an article by Michael Mankins and Richard Steele:

Majority companies deliver only 63% of their potential financial turnover. The reason – mismatch between execution and strategy. Leaders often strive for better execution without a sound strategy or try to find newer strategies but do not execute them properly. These situations can be avoided by linking strategic planning and execution and then improving both simultaneously.

There are seven rules for successful strategy execution:

Keep it simple: Clearly describing the company’s dos and don’ts and avoiding vague lofty goals.

Challenge assumptions: Assumptions made during strategy formation must be in line with real market scenario and competitor as well as consumer behaviour

Speak the same language: The entire organization, from top leaders, to finance, marketing, operations and other departments, must all be one the same page regarding the strategy to be followed.

Discuss resource deployments early: Proper planning and forecasting by various departments regarding resource deployment during strategy formation is important.

Identify priorities: Strategic priorities must be made explicit, for everyone to know what to aim for and work for.

Continuously monitor performance: Tracking of real-time results against the proposed plan is important to ensure that the execution is on the right path.

Develop execution ability: Selecting the right persons to execute the strategy is as important as designing the strategy itself. 

Great leaders speaking about Leadership

In the following videos, great leaders CK Prahalad and Narayana Murthy speak their mind about leadership and strategy.

CSR and Strategy

CSR as a Reactive strategy

CSR has been traditionally a reactive strategy for reviving sagging fortunes of companies by gaining confidence of the consumers. The case of Nike and cheap labour is such an example. CSR is viewed by such companies as an additional cost. This approach limits the potential CSR has in enhancing business.

CSR as Image building exercise

While using CSR as a reactive strategy is a back-to-the-wall job, CSR today is seen by companies as an opportunity for building corporate image. Companies’ announcing their plans for various philanthropic activities draws the attention of media and public. This helps in portraying the company as an organization which cares for the society and people associate the company’s products with such goodness as well. Thus if a company can develop a systematic approach for maintaining the focus on CSR activities, this will serve the purpose of positive advertisement as well

CSR for improved operating efficiency

Some companies take care of the environment because it not only helps in operating within the environmental norms set by authorities but also reduces their costs and improves operating efficiency. Moving from the compliance mode to integration of CSR with business goals results in better environmental conditions and simultaneously improves the work environment within the organization, reduces cost and provides a strategic advantage over competitors.

CSR as Source of competitive advantage

Business need to have a clear understanding of the communities that they impact and must be concerned with how their strategy helps these communities grow qualitatively along with their business – both in the short and the long run? The challenge for industries today is to identify social issues that drive its competitiveness both now and in the future. For this to happen, managers must believe that CSR is a source of business opportunity and not a liability.

CSR has the potential to shape business strategies world over.

China’s “String of Pearls” strategy

The term ‘string of pearls’ was coined to describe China’s increasing forays into the Indian Ocean , in an effort to establish ‘nodes of influence’ in the region. Each “pearl” in the “String of Pearls” is a part of the nexus of Chinese geopolitical influence or military presence. The string of pearls includes “pearls” in many countries like Myanmar, Bangladesh, Nepal, Sri Lanka etc. Let us look at them one-by-one:

Myanmar: Myanmar does not lean towards either China or India. It tries to get the best out of the competition between China and India competing for it’s resources.

Bangladesh: Bangladesh currently has an India friendly government and army.

Nepal: China and India are currently locked in a tussle over Nepal. China has tried to exert considerable influence on the Nepali Maoists. However, India is not expected to lose its clout in Nepal.

Sri Lanka:  Hambantota port in Sri Lanka was developed by China and China supplies military wares to Sri Lanka. However, Indian influence in Sri lanka is not less either.

Maldives, Mauritius and Seychelles: China has been trying but has not been successful in getting ports or bases in these countries due to Indian objection.

Pakistan: The Pakistani proxy is not currently available to China due to the US influence.

Thus there is no compelling evidence yet to suggest that the plan has succeeded in its basing activities, though the dangers cannot be ruled out. China’s string of pearls strategy is not likely to give immediate headaches to Indian maritime security in the near future. However, there will inevitably come a time when India will have to face the reality of Chinese naval presence in its own backyard. Beijing will take all measures to cover its Achilles heel - its vulnerability to any interruption of its overseas trade.

Only when India’s strategic community understands that India is already well placed to counter China’s string of pearls, they will be able to overcome the sense of vulnerability. The presence of Chinese ships does not present any real threat to Indian naval forces in the region. It would rather provide the Indian Navy with a greater degree of tactical flexibility in the event of a future war with China, be it on land or at sea. This advantage can only be guaranteed, if India undertakes certain preparatory measures and curbs Chinese influence among certain key countries.

Core Competencies

Here's a summary of CK Prahalad and Gary Hammel's concept of core competencies and its implications for corporate management:

Core Competencies

Competitive Advantage

A video on sustainable competitive advantage and its factors:

Foreign Market Entry

There are four possible mechanisms to enter a foreign market:

• Exporting
• Licensing
• Joint Venture
• Direct Investment

Exporting

Exporting refers to the direct selling of domestically-produced goods in a foreign country. It is a traditional method of reaching foreign markets, and a well-established one. Exporting does not need the goods to be produced in the target country and hence no investment in production facilities is required there. Most of the costs associated are due to marketing expenses.

Exporting requires coordination among five players:

•   Exporter
•   Importer
•  Transport provider
•  Government of domestic country
•   Government of target country

Licensing

Licensing permits a company in the target country to use the property of the licensor by payment of a fee. Such property is mostly intangible, like trademarks, patents, and production techniques. Licensing has the potential to provide a very large ROI because there is little investment required on the part of licensor. However potential returns from manufacturing and marketing activities may be lost to the licensee.

Joint Ventures

There are five common objectives of a joint venture: market entry, reward/risk sharing, sharing of technology and product development, and managing government regulations. Political connections and distribution channel are other potential banefits.

JVs work best when:

•   the partners' strategic goals converge and competitive goals diverge;
•   none of the partners are comparable to industry leaders; and
•   there exist learning opportunities despite limited access to each other’s proprietary skills.

The key issues are ownership, control, agreement length, pricing, technology, capabilities and resources sharing and government intentions.

Foreign Direct Investment

Foreign direct investment refers to direct ownership of facilities in the target country. It involves the transfer of capital, technology, and personnel to the target country. FDI may be done through acquisition or through establishment of a new enterprise and provides a high degree of control in operations and better opportunity to understand the consumers and competition.

Blue Ocean vs Red Ocean Strategy

Oceans and Business Strategy? Can they be related? Oh yes, they can! If you can relate blue to newness and red to the current, then they definitely can!! Here, I will compare the Red Ocean and Blue Ocean Strategies as applied to business.

Red Ocean Strategy: 
The Red Ocean Strategy is applied to the existing marketplace and deals with increasing the market share of an existing business. It focuses on increasing the customer base by tapping the existing demand in the market. According to this strategy, either differentiation or low cost should be used and not both. Market segmentation should be done by focusing on special needs of customers. Finally, according to Red Ocean Strategy, implementation follows a well documented strategy formulation.

Blue Ocean Strategy:
The Blue Ocean Strategy is applied to creation of a new market and deals with increasing the scope of a business. It looks to capturing current non-customers and potential future customers by the creation of new demands in the market. Unlike the Red ocean Strategy, the Blue Ocean Strategy focuses on value innovation by simultaneous use of both differentiation and low cost. It looks at varied customer needs and thus desegments the market instead of segmentation. Blue Ocean Strategy focuses on the improvement of three pillars of value, profit and people.



The above comparison was done by Senior Global Blue Ocean Strategy Network Member Dr. Zunaira Munir         

Reinventing your business model

My understanding of the article by Johnson, Christensen and Kagermann:

To determine whether a company needs to reinvent its business model, following steps need to be undertaken:

•        Find what makes the existing model successful or unsuccessful.
•        Find out signals that suggest that the model needs change
•        Decide if changing the model is worth the effort

Understanding the current model

A successful model has three components:

Customer Value Proposition: providing customers a unique offering that competitors cannot provide

Profit Formula: the model generates revenue for the company through multiple factors like revenue model and inventory turnover

Key resources and processes: the company has in place the required resources and processes to deliver value to the customers

Identifying the need for new model

An opportunity: when large consumer segments find existing solutions too expensive or complicated, a new technology opening up new avenues etc

A need: response to shift in competition or overcoming the challenge of new or evolving competitors

Strategic Management

Strategic management is about taking "strategic decisions" of an organization, those that define the way an organization functions. In practice, strategic management has three main components:

1.    Strategic Analysis

2.    Strategic Choice

3.    Strategy Implementation

Strategic Analysis

It is about analyzing the strengths of a business and understanding the external factors that influence it. The process of Strategic Analysis can be assisted by a number of tools, including:

PEST Analysis - a technique where the political, economic, social and technological analysis of a business’s environment is done

Scenario Planning - a technique which builds various possible views of the future of a business

Five Forces Analysis - a technique which analyses the five forces pertaining to a business, its market and its competition

Market Segmentation - a technique which identifies similarities and differences between groups of customers

Directional Policy Matrix - a technique which summarizes the competitive strength of a business’s operations in specific markets

Critical Success Factor Analysis - a technique which identifies areas in which a business must outperform the competition for achieving success

SWOT Analysis - a technique which summarizes the strengths, weaknesses, opportunities and threats to a business.

Strategic Choice

This process involves the understanding of stakeholder expectations, identifying strategic options, and evaluating and selecting the right strategic option.

Strategy Implementation

Quite often the hardest part, after all possible strategies has been analyzed and the right one selected, the task is then to implement it into organizational action.

Strategy in Business

Business strategy determines the success of an organization. It defines the way an organization intends to tackle competition. A business strategy intends to define the following:

Ø  Scope of business

Ø  Current and future needs of customers

Ø  Capabilities of the organization/key differentiating factor for competitive advantage

Ø  Ways to leverage the key differentiating factor  

A business strategy being of “strategic” importance, it is necessary for a strategy to meet the following quality tests:

§  The scope of the strategy should be correctly defined

§  The strategy should be well documented

§  It should address the real needs of the customers

§  It should be in line with the core competencies of the organization

§  It should define the competitive advantage of the organization

§  It should lay the groundwork for implementation

Thus the intent of business strategy is to leverage the unique capabilities of an organization to gain as well as sustain competitive advantage in catering to the needs of customers in the market. 

Strategy at Different Levels of a Business

There are different strategies at different levels in an organization - ranging from the overall business strategy to strategy at individual level.

Corporate Strategy – It is concerned with the overall purpose of the business and ability of the organization to meet customer demands. It is heavily influenced by investors and acts as a guide for decision-making throughout the business. Corporate strategy is often stated in the vision and mission statements.

Business Unit Strategy – It is concerned more with how an organization would compete successfully in the marketplace. It affects decisions regarding choice of products, meeting needs of customers, competitive advantage, creating new opportunities etc.

Operational Strategy – It is concerned with the execution of corporate and business-unit level strategic directions. It focuses on issues of resources, processes, people etc.

Strategy in Cricket

Found a very interesting article on the use of strategy in cricket at www.mycricketgame.com. Posting it here...

Cricket Strategy and Tactics are the key to success on the cricket field: when two teams with equal skill and fitness levels engage, it is the side with superior cricket strategy who will more often than not prevail.

Winning Cricket begins off the field. It is too late when you are in the middle of a game, particularly one day and 20 20 cricket, to be able to catch up when the opposition have taken the initiative and are running away with the match.

In building a strategy to maximise the opportunity for victory on the cricket field, you are going to make primary assessments of your opponents.

Good Captains, Coaches and Players do this: they do their homework on whom they are playing and where the match is taking place. They do assessments of their opponents’ strengths and weaknesses and go about decoding their opponents' game, choking their strengths and attacking their weaknesses.

Strategy in its application in cricket is the overarching plan to bring victory.

There are Three Key Areas to Cricket Strategy, there is Individual 'Player Strategy', then there is the strategy for a 'Sub Team', for example the bowling or batting unit within the team, then there is the overall 'Team Strategy'.
Tactics are the use of different 'weapons' or units within the team and we can see they operate on different levels, the 'Players strategy' fits into the 'Sub Team strategy' and the 'Sub Team Strategy' fits into the 'Team Strategy'.
The players’ tactic may be to use a 'weapon' they have in their armory. The weapon is typically a strength they have, it may be a bouncer, a sweep shot, a googly, a lofted drive, these are used as tactics to execute their own game plan and disrupt their opponents. The batsman may choose specific tactics as part of their overall batting strategy; the great Australian batsman Matthew Hayden would bat out of his crease on an off stump guard to take the bowlers line and length away. The primary objective of the tactic is to control where the bowler bowled, thus opening up his own scoring options.
The bowling units' tactics maybe to use the short ball against a key batter who they know likes to play front foot strokes. This will force him to play strokes in the weaker parts of his or her game, off the back foot.
Another example, the Captain may ask his fast bowlers to bowl a full attacking line and length outside off stump, this tactic is so that he can set a field with the goal to get the batsman caught behind.
Strategic Cricket means playing Smart Cricket, we will compare Smart Cricket with Mindless Cricket. You can ask yourself where you are with your game and see if there is scope for you to play better, smarter, winning cricket. Smart cricketers understand that the game of cricket strategy begins off the field. They understand that what they do off the field is a reflection of what they want to make happen on the field. Smart Cricketers begin by asking the right questions, they ask what do I need to do in my 'Pre-Match Preparation' to give myself the best chance of success during the game. They look at their Mental Game, cricket strategy and tactics are key parts of the mental game, so what do they need to do to maximize the opportunity for success on the field.
Sachin Tendulkar is a Smart Cricketer, he prepares in training to roll out a specific batting plan based on what he knows about the wicket, the ground and his opponents, and he even factors in the weather.
Smart Cricketers....
1. Know what they want to make happen during the game.
2. Know their opponent, assess their opponents’ game, what are their strengths and weaknesses and how can they use this knowledge back against their opponent.
3. Construct their Game Plan so that they are maximizing their strengths and focusing them on their opponents’ weaknesses.
4. Plan their training to make sure they work through their game plan for match day.


Physical Fitness: They do their homework on what type of strength and conditioning work they will need to do to be fully prepared for competition. Most of this work is done during the off season, but there are opportunities during the season to top up on training and peak for big games.

Technical Game: They make sure that their technical game is working well; they are consistently working on polishing their game, maintaining strengths and focusing on weak areas where they may be vulnerable, so that they can turn them into strengths too. They prepare well, knowing what they need to work on during training to make sure that they are fully prepared for the next match. Whether it is for a particular bowler they are going to face or it is work on a specific delivery they want to use.
Lets contrast this with Mindless Cricket.
The Mindless cricketer plays each week without any goals. They don't prepare or plan, subsequently their game stays in the same place. There is no homework on the opposition to know what they do and how they are going to do it. So they make the same mistakes each week, and when they face the same opponents they get out to the same bowlers and the same batsman score runs off them.
Engage Your Brain
The goal is to play better, score more runs, take more wickets, hold more catches, so the need is to engage the brain to play better, smarter, more strategic cricket. 

The Five Competitive Forces That Shape Strategy

The following is a video link of an interview of Michael Porter talking on the Five Competitive Forces that shape Strategy. What better source to learn about strategy in competition than the man who formulated it all??

http://www.youtube.com/watch?v=mYF2_FBCvXw

Use of Balanced Scorecard in Auto Industry

As defined by the Balanced Scorecard Institute, the balanced scorecard “is a strategic planning and management system used to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organizational performance against strategic goals”. The Balanced Scorecard provides information from four different perspectives which can be used to check which activities are in line with the organization goals and which need attention. The four different perspectives are:

• Financial:  To succeed financially, how should the organization appear to its stakeholders?
• Customer: To achieve its vision, how should the organization appear to its customers?
• Internal Business Process: To satisfy shareholders and customers, what business processes must the organization excel at?
• Learning and Innovation: To achieve its vision, how should the organization sustain its ability to change and improve?

FINANCIAL:

Target Cost Achievement

During the design phase, almost 80% of an automobile’s manufacturing cost can be affected. During manufacturing phase, only 20% changes can be done. Hence, setting of target costs and working with suppliers to achieve the targets is a key financial measure of an automotive company.

Capital Efficiency

The automotive industry is a capital-intensive industry and hence companies need to achieve greater returns on their capital investments, to be competitive. Many companies use capital efficiency measures such as net present value (NPV) or internal rate return (IRR). The need is to incorporate these measures into the reporting structure to reinforce the importance of earning back the cost of capital employed and achieving capital efficiency.

Return on Value Added (ROVA)

A typical automobile company does only a part of the manufacturing in-house, and outsources the rest. Outsourcing reduces the cost of manufacturing, but also reduces the value addition in that step. From a shareholder’s perspective, materials are essentially passed to the end customer at cost, and automotive companies can only generate a profit on the value adding processes that remain in-house. Hence, new types of measures, such as ROVA, are needed to identify the value creating processes within a company and hence decide what to outsource and what to manufacture in-house.

CUSTOMER

Product Portfolio

Having a better product mix as compared to competitors is essential for an automotive company’s success today. A product portfolio map is defined by an automaker’s market segments today. It could be based on traditional, demographic or psychographic dimensions. For each segment, internal and competitive measures such as capacity utilization, sales volume, incentives and vehicle profitability need to be measured. These are the segments in which competition occurs, and hence automakers should measure their rank in each segment.

Total cost of ownership

It is not just the buying price which is important for the customer but the total cost of ownership, which includes the buying price of the vehicle, cost of financing, depreciation, insurance, registration, maintenance, fuel, repairs and other costs. Hence automotive companies must measure themselves not only on the selling price of their vehicles but on the total cost of ownership

Customer Satisfaction

When customers purchase their next vehicle, they do not necessarily remember the fit and finish of the new car they got four or five years ago, but their last trip to the repair shop. Hence it is important to measure both initial quality and reliability over the life of the vehicle to gauge customer satisfaction.

INTERNAL BUSINESS PROCESS

Supplier sourced innovation

It is necessary, not just to obtain good quality raw materials from suppliers at right prices but to put innovation through the entire supply chain, to get innovation faster into the market, ahead of competitors. Supply sourced innovation could lead to product innovation as well as cost, quality and delivery improvement.

Cost reduction

Cost reduction is no longer a one-time exercise but a continuous process. Automotive companies that measure cost reduction throughout the supply chain have a greater advantage than companies that measure cost reduction programs as an offline calculation. Traceability of cost reductions to the bottom line is no longer a luxury but an essential capability of performance measurement in the automotive industry.

Outsourcing/supplier risk

Outsourcing of non-core activities may reduce costs and help to focus on core activities, but may also lead to increasing risks. Although automakers are passing warranty and liability claims down to the responsible suppliers wherever possible, negative public opinion and tarnished brand image generally get associated with the company and not suppliers. Hence risk management is an essential part of the Balanced Scorecard.

LEARNING AND INNOVATION

Intellectual Capital

Although companies are focused on retirement and pension payments for their ageing workers, the brain drain that will occur as these skilled workers exit the workforce is of equal importance. Companies must measure the cumulative years of experience in their key processes and find ways to leverage the vast knowledge base before it exits the company.

Innovation

In the automotive industry, customers are always willing to pay a premium for innovation. Both process innovation and product innovation are required to compete and earn a profit. Companies that can bring better quality in the form of new products and new technology to market faster and cheaper become the winners in the automotive industry. It is necessary to measure the speed at which innovation can be converted from ideas to profit.

Category	Measure	Weightage
	Target Cost Achievement	20%
Financial (45%)	Capital Efficiency	15%
	Return on Value Added (ROVA)	10%
	Product Portfolio	10%
Customer (25%)	Total cost of ownership	10%
	Customer Satisfaction	5%
	Cost reduction	10%
Internal Processes (20%)	Supplier sourced innovation	5%
	Outsourcing/supplier risk	5%
Innovation and Learning (10%)	Intellectual Capital	5%
	Innovation	5%