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Management Control Systems

Notes 6. In order to overcome the limitation of “sole dependence in a single measure”, many firms
have developed ……………….. goal structures.

9.4 Establishing Objectives and Performance Measures

The Financial Perspective

AT SBU Level: Operating Profit, Return on Investment, Residual Income, and Economic Value
Added are used for measuring the financial objective of the business unit.
Other financial objectives include revenue growth, cost reduction and asset utilization.
Customer perspective: Market share: It can be measured in terms of sales revenues, unit sales
volume or the number of customers. It is a measure of market penetration.
Customer retention and loyalty:
1. In terms of average duration of a customer relationship

2. Number of new customers referred by existing customers
Customer acquisition: can be measured by:
1. Number of new customers
2. Total sales to new customers in the desired market segment
3. Use of ‘mystery shoppers’ i.e., external agencies sampling the service as customers and
formally reporting back on their findings.
Customer satisfaction:
1. Examination of letters of complaint.

2. Feedback from sales representatives.
3. Use of ‘mystery shoppers’ i.e., External agencies sampling the service as customers and
formally reporting back on their findings.

Customer profitability:
1. Profitability should be analyzed by different customer segments and unprofitable segments
analyzed.

2. Newly acquired customers may initially be unprofitable and life-cycle profitability analysis
should be used for determining whether the focus should be on retention or on abandoning
them.
Measuring value propositions: Value propositions may be defined as the attributes, the supplying
companies provide through their products and services to create loyalty and satisfaction in
targeted customer segments. The attributes fall into three categories:
1. Product/service attributes – desirable product/service facilities, price and quality

2. Customer relationship includes the delivery of the product or service to the customer,
including the response and delivery time and how the customer feels of the buying
experience

3. Image and reputation i.e., intangible factors that attract a customer to a company.

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