July 10, 2018

Balanced Scorecard

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Over the past several decades, organizations have come to realize that success cannot only be measured in dollars and cents. Intangible assets (like a company’s reputation, the knowledge base created by their employees, and training initiatives) can make up a huge portion of a company’s wealth.

It only makes sense, then, that we needed a new tool to help us measure this expanded definition of success. Enter the balanced scorecard! This tool and its related components will help your organization identify, document, plan, and execute a balanced strategic mission. It will also help your organization evaluate and revise its strategic execution.

Expert Paul Niven describes the balanced scorecard as, “a carefully selected set of quantifiable measures derived from an organization’s strategy.” (Balanced Scorecard: Step-by-Step, 2006

The tool can be used to communicate, measure, and execute a strategic management plan. That’s a pretty big task, so there are a few documents that support the balanced scorecard:

  • A statement outlining the organization’s vision, mission, and strategy.
  • A strategy map, which outlines the objectives required to execute the strategy as well as the links between them.
  • A tactical action plan, which breaks down the objectives into initiatives and projects.

The scorecard is then created and used to create and implement the tactical action plan. It typically focuses on four perspectives of the business:

  • Finance
  • Customers
  • Internal processes
  • Employee learning and growth

The balanced scorecard is not a fad or a quick fix. It requires a significant investment in time and resources. In most organizations, it takes one to three years to complete the design and implementation process. Then, resources must be invested to monitor, report, and communicate results, and to evaluate and update the scorecard.

With this shift in how businesses work, it makes sense that we also need a new way to measure and manage success. In 1990, Robert Kaplan (a professor at Harvard University) and David Norton (a Boston consultant) examined this need through a research project. They presented their results in the January-February 1992 edition of the Harvard Business Review, in an article called, “The Balanced Scorecard: Measures that Drive Performance.” Over the next several years, they published more articles in the Harvard Business Review, and companies started trying the strategy out. Kaplan and Norton’s first book, The Balanced Scorecard, was published in 1996.

Since then, half of all Fortune 1000 organizations have adopted the scorecard. As well, Kaplan and Norton (as well as others) have written many books refining the scorecard, evolving it into a strategic management system, and adapting it for various uses. The Harvard Business Review has even called it one of the most influential ideas of the 20th century!

As we mentioned earlier, the balanced scorecard is not a one-size-fits-all solution. To succeed, it requires a high level of dedication and a lot of work. However, companies that do implement it are often quite satisfied with its results. A 2009 survey by Bain & Company (a U.S. organization that does global consulting) showed that 53 percent of their clients use the balanced scorecard with almost a four out of five satisfaction rating. This places it in their list of top ten tools.

If your organization chooses the balanced scorecard to manage and measure its strategic growth, there are some common pitfalls that you should be aware of.

In no particular order, our top ten issues are:

  1. No top-level commitment to drive the project
  2. Not enough awareness of why organization is taking the project on
  3. Lack of experienced people on the project
  4. Lack of project focus
  5. Inadequate foundation (i.e. strategy not fully developed beforehand)
  6. Project is not made a priority
  7. Teams are poorly chosen
  8. Scorecard and related tools not customized properly
  9. Scorecard not applied throughout the organization
  10. Measuring too much, too little, or the wrong things.

No Top-Level Commitment to Drive the Project

We already know that the balanced scorecard is an intensive process that involves the most intimate aspects of an organization. It is also a lengthy process that will consume significant financial and human resources. Therefore, you need someone from the executive team driving the bus, and you need the support of the entire executive team (particularly the CEO) in order for the project to be successful.

Not Enough Awareness of Why Organization Is Taking the Project On

In order to get employees’ support for this new way of measuring results and achieving success, they need to know why the organization has chosen this tool. How will it help them in their day-to-day jobs? What benefits will they see? How will their job responsibilities change?

Lack of Experienced People on the Project

Most organizations find that having a full-time consultant with balanced scorecard experience makes the process a lot easier and reduces re-work and frustration. When chosen properly, consultants and experts can provide a wealth of knowledge and save you from making others’ mistakes. As well, they can train employees on various aspects of the balanced scorecard and its related tools.

Lack of Project Focus

A balanced scorecard initiative needs to be approached like any other major project. You will need a project manager to build a plan, assign tasks, monitor work, and motivate the team. This is especially true in larger organizations, but even small companies can benefit from a well-laid plan. A balanced scorecard consultant can help with this task, particularly since they should be very familiar with the various tasks that the project will require.

Inadequate Foundation

There are a few things that need to be created before the balanced scorecard is created, including a values assessment, a vision statement, a mission statement, and a strategy map. You also need the right people and the right resources in place, and a good idea of why you’re attempting this project in the first place. Without these key building blocks, your balanced scorecard initiative won’t get very far.

Project is Not Made a Priority

The balanced scorecard needs to be given top priority throughout the organization. This means that if certain department members are part of a strategy workshop, for example, that workshop must be mandatory and it must take precedence over other meetings and tasks. If all organization members understand the importance of the balanced scorecard and understand why it is a key initiative, this will be much easier.

Teams Are Poorly Chosen

Remember the word balance in the term “balanced scorecard.” The scorecard process will require input from many different departments at many different levels. A team made up of two managers, in an organization with 10,000 entry-level employees and 20 departments, is not much of a team. Later, we’ll learn more about some teams that may be required during the scorecard process.

Scorecard and Related Tools Not Customized Properly

No balanced scorecard tool can be taken out of the box and used right away. You need to customize it for your organization, its vision and mission, and for your employees. Even the four perspectives discussed earlier aren’t set in stone.

Scorecard Not Applied Throughout the Organization

The balanced scorecard should not be used solely as an executive dashboard or as a tool for measuring manufacturing targets. It needs to apply to every individual in the organization in order for it to truly reflect progress and areas of concern.

Measuring Too Much, Too Little, or the Wrong Things

Peter Drucker once said, “What gets measured gets managed.” We can also interpret that as what we measure is what we get. If we measure the right things, our balanced scorecard will show us the metrics that we need to achieve success. If we measure the wrong things, our scorecard will be about as useful as a stockpile of toilet paper.

The strategy map is the foundation for all of your balanced scorecard efforts. It is a graphic that shows how your company will achieve its strategy.

Traditionally, strategy maps are focused on four perspectives:

  • Financial: What non-tangible investments do we need to make? What results do we want to see?
  • Customers: What does success mean to our customers?
  • Internal Processes: How will we achieve our financial and customer perspectives? Typically you will focus on four major areas:
    • Operations Management
    • Customer Management
    • Innovation
    • Regulatory and Social
  • Employee Learning and Growth: What non-tangible investments do we need to make? Typically you will focus on three major areas:
    • Human capital: What people do we need in place for success? What knowledge resources do we need?
    • Information capital: What information sharing and technology resources need to be in place?
    • Organizational capital: What cultural and leadership supports should be in place?

However, these perspectives are only intended as a guideline. Various companies have also chosen to include perspectives on:

  • Operational excellence (i.e. improving processes with Six Sigma or Lean)
  • Cutting edge innovation
  • Quality
  • Suppliers
  • Stakeholders

The strategy map is the foundation for all of your balanced scorecard efforts. It is a graphic that shows how your company will achieve its strategy.

The Tactical Action Plan breaks down the Strategy Map even further, taking the various balanced scorecard elements and creating an action plan for each one. Specific initiatives and budgets are included.

Often, the action plan is broken down into different strategic themes; in the example on the next page, the focus is leadership. This allows various themes to be assigned to a team of people and makes execution and monitoring much easier.

Traditionally, strategy maps are focused on four perspectives:

  • Financial: What non-tangible investments do we need to make? What results do we want to see?
  • Customers: What does success mean to our customers?
  • Internal Processes: How will we achieve our financial and customer perspectives? Typically you will focus on four major areas:
    • Operations Management
    • Customer Management
    • Innovation
    • Regulatory and Social
  • Employee Learning and Growth: What non-tangible investments do we need to make? Typically you will focus on three major areas:
    • Human capital: What people do we need in place for success? What knowledge resources do we need?
    • Information capital: What information sharing and technology resources need to be in place?
    • Organizational capital: What cultural and leadership supports should be in place?

However, these perspectives are only intended as a guideline. Various companies have also chosen to include perspectives on:

  • Operational excellence (i.e. improving processes with Six Sigma or Lean)
  • Cutting edge innovation
  • Quality
  • Suppliers
  • Stakeholders

The Tactical Action Plan breaks down the Strategy Map even further, taking the various balanced scorecard elements and creating an action plan for each one. Specific initiatives and budgets are included.

Often, the action plan is broken down into different strategic themes; in the example on the next page, the focus is leadership. This allows various themes to be assigned to a team of people and makes execution and monitoring much easier.

You can see a sample excerpt on the next page. Remember, tactical action plans should reflect what your organization needs, so you will see many different forms. Choose a form that works for you and don’t be afraid to revise it.

Once the need for a balanced scorecard has been identified, the decision makers must clearly articulate why that decision was made so that the reasoning can be communicated throughout the organization.

Some internal reasons might include:

  • Stakeholders are demanding more transparency and accountability
  • New leadership has a new vision and wants to communicate and implement it
  • Your organization has acquired a smaller company and the two cultures need to be merged
  • The composition of your workforce is changing (i.e. age, gender, ethnicity)
  • Your organization now includes multiple locations that require a unifying strategy

External factors could include:

  • Competition is increasing
  • Marketplace is changing, so the company will have to evolve quickly
  • Customers want something new/different
  • Supply chain is changing
  • Corporate governance rules are changing and your organization must comply

Once the decision maker(s) have identified these reasons, bring everything together into a unified statement. Let’s look at an example.

Your organization’s stakeholders are demanding more accountability and more precise results. As well, two competitors have opened up nearby, one of which offers a product similar to yours but with unique features. Your balanced scorecard vision statement might look like this:

“We at Acme Widgets are going to develop and implement a balanced scorecard to collect and report data that will reflect how we are meeting our strategic objectives. This scorecard will communicate this information in a clear manner to all interested parties, including employees, the leadership committee, and our stakeholders. We will use this data to develop initiatives that will solidify and increase our market position in Acmeville, USA.”

We’ve already discussed how the balanced scorecard is an interpretation and implementation of your organization’s strategy. It only makes sense, then, that you need to have a clearly defined vision of what your organization is and where it’s going before starting to build a balanced scorecard. We can break these building blocks out into a few components.

Values

What is important to your organization? What is the one word or phrase that your leadership team would like the organization to embody? Some ideas:

  • Excellence
  • Loyalty
  • Truth
  • Innovation
  • Responsibility

Wal-Mart, for example, has three basic values:

  • Respect
  • Service
  • Excellence

(Source: http://walmartstores.com/aboutus/321.aspx)

Toyota has five basic values:

  • Excellence
  • Teamwork
  • Welcoming new challenges
  • Global perspective
  • Customer first

(Source: http://www.toyota-industries.com/corporateinfo/philosophy/)

Do these values reflect what you know of these companies?

Mission Statements

Next, we have the mission statement. This outlines the core purpose of your organization. In other words, what makes the company tick?

Your mission statement should be:

  • A long-term vision, rather than a goal to be achieved
  • Something that will inspire growth and change
  • Easy to understand and communicate

Wal-Mart has one of our favorite mission statements: “Saving people money so they can live better.”

(Source: http://walmartstores.com/AboutUs/8123.aspx)

Sony’s mission statement is: “Sony is committed to developing a wide range of innovative products and multimedia services that challenge the way consumers access and enjoy digital entertainment. By ensuring synergy between businesses within the organization, Sony is constantly striving to create exciting new worlds of entertainment that can be experienced on a variety of different products.”

(Source: http://www.sony-europe.com/article/id/1178278971157)

Which one is easier to understand? Which one could you easily communicate to others?

Vision Statements

Your vision statement takes your organization’s values and missions and creates a statement of where you want to go in the long term (the next 10 to 15 years). You want your vision statement to be:

  • Something that can be accomplished
  • Positive and inspiring
  • Concise
  • Appealing to all members of the organization (from stakeholders right down to employees)
  • Consistent with the organization’s values, mission statement, and reality

Sony’s vision statement is: “To create exciting new digital entertainment experiences for consumers by bringing together cutting-edge products with latest generation content and services.”

(Source: http://www.sony-europe.com/article/id/1178278971157)

Wal-Mart has a purpose statement instead of a vision statement: ““If we work together, we’ll lower the cost of living for everyone…we’ll give the world an opportunity to see what it’s like to save and have a better life.”

(Source: http://walmartstores.com/AboutUs/9538.aspx)

Toyota has taken yet another approach: they have established a vision to achieve by 2020. They have chosen “Open the Frontiers of Tomorrow” as its slogan.

(Source: http://www.toyota-global.com/company/vision_philosophy/toyota_global_vision_2020.html)

Project Plans

A balanced scorecard is a major project and must be planned as such. You might even have a dedicated project manager overseeing things.

A project management plan is typically built in a spreadsheet application (such as Microsoft Excel) or a dedicated project management application (such as Microsoft Project). It often includes:

  • Tasks divided into phases (i.e. planning, training, design, set-up, implementation, and evaluation)
  • Resources assigned to tasks
  • Timeline of tasks and phases
  • Costs and budget
  • Planning diagrams like calendars, network diagrams, Gantt charts, and flow charts

Other documents that you might need to prepare include:

  • Project goals
  • Statement of work
  • Risk inventory
  • Project charter
  • Progress reports

Communication Plans

To ensure your project’s success, you must include a communication plan as part of your initial project planning. This plan will help you keep everyone up-to-date with the information they need to know, and it will make sure the right people get the right information at the right time. This is a crucial part of gathering support for the balanced scorecard.

Your communication plan will have five essential parts:

  • Who will you be communicating with?
  • When will you need to communicate with these various groups?
  • Why am I communicating with these people? What am I trying to accomplish?
  • What am I going to say to each group?
  • How will I get my message across?

Training Plans

Training is another essential element of any balanced scorecard process. People may need education on basic skills, such as:

  • Communication skills
  • Project management
  • Facilitation
  • Meeting management
  • Change management
  • Using particular software packages (Microsoft Excel, Project, etc.)

People may also need instruction on particular parts of the balanced scorecard process, like:

  • What the balanced scorecard is
  • How to build a values, vision, and mission statement; tactical action plan; strategy map; and/or balanced scorecard template
  • How to report data
  • How to use balanced scorecard software and/or tools
  • How to review balanced scorecard data and results

You may want to build a training plan that outlines elements similar to a communication plan.

  • Who will be receiving the training? (Group of people or a particular individual)
  • When will they require the training by?
  • Why do they need the training?
  • What will the training cover?
  • How will the training be done? (Classroom, online, hands-on, etc.)

Once you get your balanced scorecard up and running, there will still be work required to maintain it. You also want to ensure that it grows with your company and stays up to date. With that in mind, there are some processes that you should build in to help the balanced scorecard be successful.

Here’s a checklist of the most essential processes.

  • Identify how the balanced scorecard fits into your strategic and financial management processes
  • Create a timeline for data gathering, reporting, evaluating, and updating the balanced scorecard
  • Assign responsibility for each of these phases of activities to a single individual; this person won’t do all the work but they will be responsible for making sure that the work gets done
  • Create a template and FAQ sheet for submitting balanced scorecard data
  • Integrate the balanced scorecard into all organization-critical processes, such as orientation, training, performance reviews, budgeting, etc.

There are a few different types of teams that will be required at different stages of development of the balanced scorecard. Let’s start at the top.

Executive Team

The Executive Team gets the ball rolling. It is usually made up of six to eight of the most senior leaders in the company, plus the CEO and CFO. They start by gathering or creating the company’s vision and mission statement, and by outlining its values. They will also create a strategy map and outline a vision statement for the balanced scorecard project.

They will likely attend workshops on balanced scorecards. They will then choose the Balanced Scorecard Steering team and outline the strategic theme teams to be chosen. They may also hire a consultant and/or a project manager.

Balanced Scorecard Steering Team

The balanced scorecard steering team is the group that gets the balanced scorecard started and keeps it going. In the beginning, it will likely have eight to ten members, including:

  • Team leader
  • Executive sponsor
  • Consultant (optional)
  • Project manager (optional but recommended)
  • Representative from each business unit
  • Technical advisor

Once the Executive Team has done its piece, the balanced scorecard steering team will appoint teams for each strategic theme (as discussed below). They can then consolidate each piece into a master tactical action plan (and a master scorecard if desired). They will also be in charge of communication and project management.

The steering team will also be instrumental in implementing the balanced scorecard and keeping its momentum going.

Strategic Teams

Each strategic theme should be assigned to a smaller team that is composed of:

  • An executive representative
  • A manager
  • Three to five team members, each with knowledge of the theme area

This team will do the hands-on balanced scorecard work: identifying metrics, creating a balanced scorecard template for their unit (or a portion of the master scorecard), creating a tactical action plan, and gathering feedback from their unit on the work that is being done.

They will then turn their work over to the balanced scorecard steering team.

Well, that is a brief overview of the Balanced Scorecard

Comments? You can contact me directly directly via my AdvisoryCloud profile.

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