The organization’s ultimate goal
The financial perspective describes the ultimate objectives of the organization. This perspective allows you to determine if your organization is successful in realizing its strategy by interpreting indicator values. The financial perspective also tells you if your chosen strategy is leading to the desired financial results.
Sell more, spend less
According to Kaplan and Norton, financial results are about creating more stockholder value. They believe the financial perspective is relatively easy to operationalize: stock holder value grows by selling more on the one hand, and spending less on the other. In other words, objectives and goals have to be formulated for revenue growth and productivity or efficiency.
3 options for profitable revenue growth
For both, you have to present the logical options to management from a business administration perspective. There are, according to Kaplan and Norton, essentially three options for profitable revenue growth:
- Sell more to existing customers from the existing product and service offering. This can be done by exploring the customer relationship or by cross-selling additional products and services.
- Selling to customers in new segments.
- Selling new products.
See also: sales strategy.
Two options for improving productivity
Kaplan and Norton posit two options for improving productivity: lowering expenses and reducing direct and indirect costs. Reducing costs makes it possible to generate the same output while spending less on people, materials, housing, and resources.
Using fixed assets more efficiently
The other option for improving productivity is using financial and fixed assets more efficiently. This makes it possible to use the same capital (human, financial, and material) to generate more output. Generating revenue growth usually takes more time than effectuating actions to increase productivity. Often, actions taken in service of revenue growth lead to a decrease in productivity, and vice versa.
Short term and long term
The pressure to perform and show results to shareholders tempts many organizations to focus on short-term goals and results. That usually comes at the cost of improving long-term results. To prevent this, Kaplan and Norton say you have to strike a deliberate balance between revenue growth (long term) and productivity (short term).
Make the balance explicit
When designing the financial perspective, the first horizontal layer of the strategy map, Kaplan and Norton force the user to make this balance explicit. This leads to both revenue growth and productivity being placed on the strategy map. For example, in Volvo Finans’ strategy map, this can be seen in the combination of a growth and efficiency strategy.
When the critical success factors for this have been defined, you can take the next step and draw up the customer and market perspective in the strategy map.