The Balanced Scorebard: Altria vs. Pfizer

10 May, 2005 | by

A new approach to strategic management was introduced in the early 1990′s by Drs. Robert Kaplan ( Harvard Business School ) and David Norton. The system was dubbed the ‘balanced scorecard’. The inception of the balanced scorecard was caused due to the weaknesses or ambiguities left from previous management approaches. These known weaknesses of managing solely by financial measures was a commonly understood vice for years. The balanced scorecard approach is intended to provide a clear formula as to what companies should measure in order to balance the financial perspective.

The balanced scorecard is more then just a measurement system. It is a total management system that provides a framework to organizations that helps maintain and clarify a sense of vision or strategy. Along with the vision and strategy that is essential to a company’s growth, the balanced scorecard provides usable data that can be leveraged to take appropriate business action with surgical precision. It provides vital feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results.

When properly utilized, the balanced scorecard can essentially renovate strategic planning throughout all business units of the organization. The tighter connection between the measurement system and strategy elevates the role for non-financial measures from an operational checklist to a comprehensive system for strategy implementation (Kaplan and Norton 1996a).

After analyzing the balanced score card, I will examine its usage across two sample companies. The analysis will compare annual reviews of both pharmaceutical giant Phizer and tobacco leader Altria respectively. Both companies will have their annual reviews scrutinized to see if traces of the balanced scorecard can be applied to their current business strategies.

Four Perspectives
The balanced scorecard suggests that we analyze the organization from four unique perspectives. Within these four perspectives, the balanced scorecard also suggests the development of metrics, data collection and analysis. Below are the four perspectives:

1. The Financial Perspective:
Maximizing shareholder wealth is a typical target that most organizations ultimately strive for. The balanced scorecard means just that, a balance of business functions allocated across an organization. Companies increase economic value through two unique approaches-revenue growth and productivity. The revenue growth strategy revolves around franchising developments from newly entered markets, new customers; increase sales to existing customers by building relationships, cross selling techniques, and offering complete solutions. A productivity strategy has two components as well: improve the cost structure by lowering direct and indirect expenses; and utilize assets more efficiently by reducing the working and fixed capital needed to support a given business. (Kaplan and Norton 2001, 90-93).

2. The Customer Perspective:
Customers satisfaction is sometimes taken for granted as organizations tend to say they are customers centric, yet are still neglecting the core customer needs to ensure profitable retention. The customer value proposition describes a unique mix of product, price, service, relationship, and company image. This customer centric perspective acts as a key differentiator when organizations take on competition head on. Companies differentiate their value proposition by selecting among operational excellence, customer intimacy and product leadership. (Kaplan and Norton 2001,93).

3. The Business Process Perspective:
This perspective refers to internal business process. Metrics based on this perspective allow the managers to know how efficiently their organization is running. It also helps to determine whether its products and services conform to the customers’ ultimate needs. (Kaplan and Norton 2001,93). The internal business perspectives encapsulate organizational processes, which are in line with four high level processes.

•  Build the franchise.
•  Increase customer value.
•  Achieve operational excellence.
•  Become a good corporate citizen.

4. The Learning and Growth Perspective:
This perspective includes employee career growth or training as well as a seasoned corporate culture dedicated to individual and corporate self improvement. In the current fast paced technical market, it is absolutely vital that workers consistently engage in knowledge enhancements. This knowledge enhancement does not start and end at a formalized training system, but should also involve ease of communication with co-workers and some type of formalized mentor program. By ensuring co-workers enhance their learning and growth, this provides the organization with the workforce needed to meet various strategies.

Altria, formerly known as Phillip Morris is one of the largest tobacco companies in the world with a very clear objective for potential and current stockholders. The 2003 chairman’s message had a clear push for the financial side of the business, neglecting many of the other perspectives of the balanced scorecard. Altria reviews 2003 as a year of investment by touching briefly on Kraft’s difficult year, but is now positioned to restore sustainable growth as well as its stock repurchases and suspension of stock repurchase programs.

The chairman’s message is very heavily focused on bringing financial accomplishments as well as investments to the forefront. Altria also goes into a detailed account of their legal issues, describing their strides to improve their litigation environment.

The Altria message couldn’t be further from a touchy feely — we do things right organization. Their prime motivation is to deliver long term shareholder value, tactfully avoiding any negative commentary that is typically associated with a tobacco company. The chairman’s message in reference to the balanced scorecard touches on the financial aspect extensively and never really touches on the three other perspectives of the balanced scorecard.

Phizer by contrast of Altria has a significantly different underlying message in their 2003 letter to stockholders. Phizer has a far more balanced account of their total business strategy touching on each of the perspectives in the balanced scorecard at great lengths.

For starters, Phizer seems to take great pride in the products they provide to their customers. It can be stated best in their new ion statement: “to become the world’s most valued company to patients, customers, investors, colleagues, business partners and the communities where we work and live.” It goes on to say that their new mission reflects the broader role society expects them to play in improving the human condition. This is a very ambitious mission for an organization to have, almost seamlessly aligning itself with a balanced scorecard methodology.

It goes on to state Phizers three key standards by which their progress can be measured. The three standards are as follows: financial performance, the ability to increase access to healthcare, and the last measure of reaching a level of “corporate social responsibility” or “corporate citizenship”. The three Phizer standards elaborated seem to fit nicely within each of the four perspectives of the balanced scorecard, which I assume is by no coincidence.

Overall, I feel Phizer does leverage the balanced scorecard model as they touched on their outstanding financial performance for the 2003 year. They discussed at length their customer needs for various medications, healthcare access, etc. Business process’s were clearly mentioned by discussing the Phizer Leadership Team (PLT) and how it has allowed for better improved corporate decision making. The learning and growing perspective goes hand and hand with the internal leadership team. By establishing a formalized leadership group, employees can expand their knowledge base and attain a certain degree of mentoring by more experienced workers. Overall, I feel the Phizer chairman’s message was well constructed and definitely appears to utilizes all aspects of the balanced scorecard method.

Footnote:  General electric attempted a system of nonfinancial measurements in the 1950s ( Greenwood 1974), and the French developed the Trbleaux de Board decades ago (Lebas 1994; Epstein and Manzoni 1998).

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