Dear Students,
Today we have been introduced to a tool for managing innovation once the new business model is determined. The Balanced Scorecard was proposed as a possible tool to keep us on track and see weather our innovation measures and initiatives are working. Please develop a Balanced Scorecard for your India Smart Cities Framework which you may want to discuss during your mid-term presentation with the judges. Review the lecture notes that was posted under the resources.
What gets measured, gets done.
In lecture, we analyzed the implementation phase of smart city development: defining innovation metrics that will help us monitor progress, motivate appropriate behavior, establish accountabilities, and even identify new opportunities. For our purposes, we are focusing on ways to not only create value within cities but also make it easy for the city to capture that value in the form of profits; therefore, financial metrics are integral to determining the success of our recommendations. However, financial performance alone does not make a scorecard balanced—a balanced scorecard comprises of metrics that reflect the impact on customers, internal processes, and learning and growth of all stakeholders. We must balance the value to shareholders and customers with value created through improving internal processes (such as increasing productivity) and learning and growth initiatives (that empower the city to sustain excellence over time). As metrics must link to objectives, the Balanced Scorecard I developed will relate primarily to San Jose’s two main objectives: 1) reduction in public safety and 2) economic stimulus through attracting young people and new businesses (see attached chart for summary).
Financial Metrics:
Our team’s research has revealed that San Jose’s utilization of the city’s fixed assets may be the largest cost category with huge room for cost reduction improvements. As a result, the city’s “return on assets” will be an important measure of how well the city is using its “dead assets” (as infrastructure and real estate comprise of the large majority of costs), especially benchmarked against nearby cities with similar functions and population compositions, or cities that San Jose aspires to have a more similar brand to (such as San Francisco). A second financial metric that may be telling of how well the city is attracting young people and new businesses is its revenue generated per employee in the region. This metric implies several confounding variables: how well the employees are trained in the skills they need for their jobs, how productive each employee is (which may be an indication of the proportion of workers in the appropriate age group), and how well businesses are faring in the region economically. Finally, the city should not leave out one of the most commonly used metrics to measure revenue generation and efficient cost structure: profitability. Profit margins show how well the city is seeking new revenue streams, earning income on current revenue sources, and efficiently using its resources to run the city on as few inputs as necessary.
Customer Metrics:
From our discussion with Ms. Kim Walesh of the San Jose Department of Economic Development, a very important initiative for the city to make public spaces more safe and attractive to spend time in is to increase the number of parks and recreational facilities. To measure the effectiveness of this type of initiative, the city may want to use population growth as a metric to reflect how willing new families and young people are to migrate to San Jose. The city is also introducing many easy-to-use devices and citizen “watch” programs that allow city residents to get involved in improving public safety. A metric that may demonstrate the effectiveness of this program may be the number of citizens involved in reporting crimes per year and the percentage reduction in public complaints or police force costs per year. Furthermore, customer satisfaction is key to the psychological well-being and overall standard of living of city residents. As a result, a customer satisfaction survey may reveal the percentage of residents satisfied and the extent to which they are satisfied with how taxpayer dollars are currently being spent on combatting public safety and increasing economic development.
Internal Processes Metrics:
The city’s internal processes have the most significant potential to help reduce costs, because most internal processes are within the municipal government’s control. One of the first metrics that the city can use to evaluate the effectiveness of its new initiatives at cutting costs is the average time needed to communicate and implement policies. This data can be extracted through every city hall meeting, citizen complaint, and citizen focus group, and compared to the actual time it took for those complaints to be addressed and their perception of how long it took for their concerns to be heard. Going back to one of the original objectives of measuring how well a program may be at attracting new businesses, the city can first evaluate the average length of time needed for a business license to be approved, which may reflect the ease with which a startup can set up shop in San Jose. Similarly with San Jose’s own innovative ideas, the city can measure the number of new initiatives that actually successfully launched to market from its R&D funnel. When our team visited San Jose’s Office of Economic Development, the city government was actually testing out a new public space concept with DIY furniture and regularly manicured lawn to see how well it was at attracting families and residents to spend time outdoors. This is one of many San Jose initiatives that represent the city’s innovation, such as installing WiFi in lamp posts for ubiquitous Internet access and public surveillance crowdsourcing technology that enable neighbors to alert each other of suspicious activity outside their houses.
Learning & Growth Metrics:
The effectiveness of job training and education may be one of the most important and closely monitored metrics for a city, as every city wants to attract the brightest talent and most cutting-edge businesses to drive local economic activity. To target public safety, the city may measure the percentage of citizens trained to partake in these citizen “watch” programs. This statistic may indicate how well marketed the public safety programs are, how effective they are at actually involving citizens, and how well-trained the “people police” are. Furthermore, it is especially important for San Jose to measure the percentage of employees educated in from local universities and colleges, the reason being San Jose has a plethora of small universities and colleges and actually supplies the largest number of engineers to established corporations such as Cisco and IBM. We can even take the metric one step further to measure the percentage of these schools’ students that are retained in the region and go to work or set up families in San Jose, rather than flock to other cities such as San Francisco or Mountain View. Finally, a skills assessment may be needed to measure the percentage of employees who are actually equipped with the engineering or business skills needed to thrive in the technology sector, one of the largest industries in San Jose. The city would then determine the number of students with Computer Science or Business Administration degrees and the percentage of those who find jobs that match their skillset and education may collect this data.
Throughout our lectures on open innovation, we have learned how to make a business case that takes into consideration the needs of all stakeholders of a city. The balanced scorecard is one key tool that provides an overview of a city’s progress in various initiatives. Attached is my representation of a balanced scorecard.
Category #1: Financial
Starting from the top, this balanced scorecard reflects how a business case can only be made for a city if it results in growth in business activity and retained earnings. Similar to corporations, a city that strengthens its balance sheet will be able to better serve its current stakeholders while also attracting new residents and businesses to the city; this creates a long-term upward spiral of growth. Some metrics that cities need to watch carefully are asset turnover, return on equity, return on assets, leverage, and profit margin. These metrics can provide valuable insights when 1) benchmarked against other cities or 2) compared to past numbers. For example, a city that has increased its ROA compared to previous years will likely be utilizing its resources more effectively and efficiently. These ratios can also help a city assess its current riskiness and determine how to best utilize its earnings. Overall, financial ratios are a quick and easy way to recognize potential issues within a city, and the other categories offer more detailed insights into the strengths and weaknesses of the city.
Category #2: Customer
The two main customers of a city are its residents and businesses. Both of these customers depend on the city’s resources and services to prosper. In order to determine whether the residents are deriving value from the city, the balanced scorecard should reflect resident satisfaction with various resources/services; some potential resources/services to include are public safety, public transportation, community service centers, open public spaces, and more. For example, this category could reflect the percentage of residents that are satisfied with public safety and the number of crimes recorded for a given time period. These numbers will paint a picture of how satisfied residents are overall and whether or not the city’s assets are meeting their needs. Similarly, metrics such as the average time it takes for new businesses to receive approval by the city or the availability of talented workers can be used to assess how attractive the city is to businesses. If a city has weak financial ratios, then the customer category on the balanced scorecard will ultimately provide a quick overview of pain points for the residents and businesses leading to these weak metrics.
Category #3: Business Process
Next, the business process category is broken down into 4 key components: 1) quality, 2) utilization, 3) allocation, and 4) abuse. Quality is closely related to customer satisfaction and reflects whether assets can be effectively and efficiently used to create value. Some metrics related to quality would be the average age of assets or the relevance of assets given the city’s customer base. Utilization reflects whether any assets are being wasted or used ineffectively, and metrics could be the average idle time for police cars, the number of visitors to the public library per day, or the number of parking spaces used each day. Allocation refers to the geographical placement of assets within cities, and a potential metric could be the number of taxicabs allocated to the airport versus areas with less demand. Finally, abuse reflects the number of assets that belong to the city but are being used for personal use, and this category could include metrics on any relevant crimes that occurred within a specific period.
Category #4: Learning & Growth
The last category is learning and growth. The two components within this category are improved effectiveness and improved efficiency. For a city to enhance its businesses processes and its customer satisfaction, it must first find ways to improve its effectiveness and efficiency. Effectiveness refers to how well a city achieves and satisfies its corporate objectives, whereas efficiency reflects how well objectives are met by utilization of the least amount of resources possible. The key metrics within this category are the city’s progress in achieving measurable objectives (i.e. reducing crimes by 10% or congestion during peak commuter hours) and the costs of its initiatives to address these issues. This category is the base of the balanced scorecard since it highlights the most important issues that require enhanced business processes to improve, create pain points for customers, and hurt the city’s metrics. Therefore, the balanced scorecard will once again provide a quick overview that city leaders can use to better understand the strengths and weaknesses of the city.
Today, we started class by learning about the openfuel.org, a platform that allows us to fully utilize the business paradigm of open innovation. This will allow us to build off each other’s individual business models, balanced scorecards and innovation plans.
Thereafter, Professor Darwin began working with us on improving our presentation style and tailoring it to our subject matter. We first began by learning about the importance of our opening statement. Specifically, the importance of setting the stage with confidence and set our expectations, objective, and scope in a concise manner. In-line with human-centric design and addressing user needs, the ultimate goal of our presentation is answering the question “what is in it for me?” for all of our judges and audience members. Our presentation should aim to (1) have impact, (2) arouse curiosity, (3) challenge norms, and (3) propose and answer important and intriguing questions.
Our presentation should be given as if it is a story – how a specific issue causes a ripple effect and impacts the people of San Francisco.
Furthermore, Professor Darwin discussed how to manage innovation and apply a business model to a city. We first learned about King Solomon who is said to be the only king who never fought a war in his reign. He stated, “where there is no vision people perish.” Thus, in the context of our project, our goal is to provide a clarified vision for San Francisco and create a use case for this vision. Our team is aiming to address the drought and water usage and their impact on the city of San Francisco. Our vision should be based off and used to address stakeholder pain points. We must ask: what do we want the mission of our city to be?
Moreover, our framework must provide for adaptability. Specifically, we must create leadership mechanisms that anticipate technology and adapt that technology to the vision of the city. In doing so, we will ensure longevity for our “smart” cities. Without anticipating technology, our “smartness” will only be short-lived and will not provide the platform for continual growth of effectiveness and efficiency.
In starting our project, we found it important to establish the vision to implementation pathway. We believe vision and mission creates goals (as Professor Darwin stated, these are the critical success factors). Thereafter we must create and enforce performance metrics to measure our success – specifically, in the form of a balance scorecard. These metrics will allow us to set realistic and reasonably ambitious objectives and targets. This is the pathway from vision to strategy – how our goals are achieved. By understanding this pathway, we are better able to find all key elements on our critical path to implementing internet-of-things technology and policy recommendations.
Building off today’s lecture of managing innovation, our goal is also to collaborate with other cities in the Bay Area to create a collaborate advantage for the region. As a result, we will have a more holistic view of the various impacts of our recommendations that transcend the city limits.
We must design informative and concise smart-city and smart-region scorecards (based off that presented by Professor Darwin for business) that will allow us to:
(1) Make data-driven decisions
(2) Understand the current direct and indirect impacts (positive and negative)
(3) Project growth and development
The balance scorecard I would like to apply to San Francisco is adapted from the framework presented by Kaplan & Norton in The Balanced Scorecard, Harvard Business School Press, 1996. Their framework incorporates both quantitative and non-quantitative elements important in the long-term success of a smart city. Specifically, the framework cyclically incorporates:
(1) Financial
(2) Internal business (in our case – all municipalities and fund groups overseen by the city government, i.e. the airport, port, water systems, etc.)
(3) Learning & growth (in our case – incoming data used to make more informed decisions)
(4) Customers (in our case – the citizens, residents, and tourists)
In the context of the city, this balanced scorecard framework allows us to see all aspects of the city that governance needs to address – ensuring that government does not focus too much on one element, but the holistic view of our smart city initiative. The net effect of establishing a stakeholder-driven vision, managing our innovation, collaborating with other cities, and designing a simple scorecard, will allow us to present San Francisco a more effective and efficient smart city plan.
Equal contribution by Anchal Ahuja, Samuel Choi, Ryan Khalessi, Saundarya Mehra, Jordan Zola
The attached document is a Balanced Scorecard of Ahmedabad, the largest and former western capital of the state of Gujarat.
Contributions made by: Isabelle Lee, Ariella Sosis, Roman Decca, and Dorothy Kong
In Professor Darwin’s final lecture, we came full circle, reiterating some key points from our initial lecture in Ahmedabad. Darwin revisited the 8 areas of innovation in a business model: resources, activities, partners, value creation, distribution, customer segment, relationship, and value capture. He reminded us how to “transform pain into a gain” by creating a canvas for how the city works now and then showing how it would work.
In addition, Professor Darwin emphasized the framework to measure innovation. First, one must have a vision, mission, and core values. This vision can then be transferred into goals and critical success factors. From there, metrics are critical to gauge performance and measure success.
Next, objectives and targets provide tangible results to strive for and strategies can be developed to promote attainment of those targets.
Adding an element of time to our perspective, we see that in the past, financial statements were used to measure a business model. Looking forward from today into the future, innovation will be the measure of success. How well can a business model innovate and thrive in an increasingly competitive environment? The necessity of innovation has become apparent and will prove increasingly important in the days to come.
In looking at the concept of a balanced scorecard, it is important to first distinguish between effectiveness and efficiency of operations. The former is when a business model achieves and satisfies its corporate objectives while the later refers to objectives being met by utilization of least amount of resources. As Team Berkeley, we feel that both effectiveness and efficiency are crucial aspects of the balanced scorecard we wish to create.
The major benefits of a scorecard are vital in the reasoning behind using this method of analysis. First, a balanced scorecard allows for faster and more informed decisions. Second, we can gain a more holistic and accurate view of business. Third, it offers a clear map in determining how to improve and innovate in our smart cities.
We agree that a balanced perspective is key. Not only should we concern ourselves with financials, but we should also look to the customer perspective. How do customers see us? Furthermore, we can employ our definitions of effectiveness and efficiency to evaluate our internal processes. And most importantly, we must maintain the view that innovation and sustained excellence must take precedence.