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The Balanced
Business
Scorecard
Product or Process?
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Someday
is not a
day of
the week
Anon
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The Balanced Business Scorecard
Executive Briefings is a series published by Axon designed to explore and
share insights about the pressing concerns of todays business leaders as they
reach for the opportunities of the new millennium. Each issue tackles a specific
challenge facing corporations, defines the problems firms encounter as they rise
to the challenge, and provides discussion and practical applications.
Few can doubt the scale and complexity of issues that organisations face if they
are to be successful in the 21stcentury. To achieve this success business leaders
will have to address emerging global issues such as electronic commerce, industry
convergence, worldwide alliances, virtual organisations and corporate citizenship.
But even more importantly, they will need to find new ways to excel at
the fundamentals of business: leadership, management, strategy and
implementation.
Almost three-quarters of major corporations have used the concept of the
Balanced Business Scorecard in some form or other, yet only 3 out of 10
achieved the expected benefits from this tool. We consider the success factors
which were commonly present in those winning organisations, and ask What Is
the Balanced Scorecard?and challenge whether that is even the right question
to be asking.
We hope this publication adds value to you as you continue to build your business,
and we encourage you to write or call us with your questions, observations and
suggestions.
Mark Hunter
Chief ExecutiveAxon
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Executive Briefings
Product or ProcessAccording to IMAs Cost Management Group survey, of those companies currently
undertaking a review of their performance measurement systems, 80% are either
using, or plan to use, the Balanced Scorecard approach. Indeed, it is believed
that the use of the Balanced Scorecard concept by the Fortune and European
500 has now exceeded 75%. A success rate that Kaplan and Norton could never
have envisaged when they invented the concept less than a decade ago.
Yet the first comprehensive study on Balanced Scorecard implementations
conducted by Professor Claude Lewy of the University of Amsterdam, found that
fewer than 30% of Scorecard projects achieved their stated objectives a far
from impressive performance. But what can explain this significant gap between
acceptance of the concept and success in implementation? Is the Balanced
Scorecard a flawed approach, or are so many companies simply getting it wrong?
Forget the Balanced Scorecard
The beginning is always a great place to start, and for the Balanced Scorecard
the key findings from the early research project from which it was developed
tells it all. It concluded:
90% of companies fail to execute strategy
85% of Executives spend less than 1 hour per month discussing strategy
60% of companies do not link budgets to strategy
Only 25% of managers have incentives linked to strategy
Less than 5% of the workforce understand the strategy.
So there clearly is a critical need for an approach to bring strategic clarity, a
method for communication and alignment and a process to focus Executives on
the strategic, not operational issues. The Balanced Scorecard was developed for
that purpose, but has, in many ways, been a victim of its own success. Too
often, it is seen as a product to solve a symptom, where in fact what is needed
is a process to transform an underlying problem. That process is strategic
performance management, and it will be critical that CEOs and Senior
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Executive Briefings
Alignment happens through
measures and money
value-added partnerships and technical supremacy can also be understood. With
these three customer differentiators and a focus on being number 1 or 2 in each
market they operate in, the overall enablers for long-term value can be understood,
when this market dominance is combined with expense minimisation and asset
productivity. A highly complex and inter-related strategy, encompassing every
aspect of the business, but able to be communicated through a single picture.
Sitting behind each oval on the strategy map, is the objectives statement and
performance measures which explain it, and it is these three simple tools which
provide the overall framework for strategy deployment
the Balanced Scorecard.
Alignment and Integration
But having the top level Balanced Scorecard is only the start aligning it through
the two Ms of measures and money are the key to getting the whole organisation
pulling in the same direction.
Measures are a powerful lever because they can link upwards and downwards,
either through cause and effect relationships, or via direct deployment. Take
Exhibit 1: ChemCo Strategy Map
BusinessProcess
Innovation
Shareholder
Customer
PerformanceCulture
ManufacturingExcellence
TechnologyAdvantage
PeopleCapability
BestPractices
Value-AddedPartnerships
DominantKey Markets
TechnicalExcellence
Long TermValue
ExpenseOptimisation
A&IProductivity
ProductAvailability
Market-focusedselling
HS&EPerformance
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Executive Briefings
Dont link pay to the
scorecard for 6-18 months
Personal money. Pay and bonus. So often the issue of using measures to drive
behavioural change is mentioned by companies who have implemented Scorecard
systems. And linking it to personal remuneration is the most powerful way of
doing that. But also the most dangerous. If customer satisfaction is the objective,
and number of complaints the measure, how will that drive behaviour on the
manager whose bonus is linked to driving the complaint levels down? Improving
customer satisfaction for sure. But also not reporting some of the complaints,
forgetting to log them on the complaints system? Perhaps. What we measure,
is indeed what we get.
Three conclusions seem to emerge from the learnings of many companies attempts
to link personal reward to the Balanced Scorecard process:
Ensure the Balanced Scorecard is fully deployed and has been fine tuned
through implementation to be driving the right behaviours before linking to
pay (typically 6-18 months)
Get everybody on performance related pay linked in to the Balanced Scorecard
goals after that bedding in period. If you state your strategic aims through
one set of objectives and then pay bonus against another set, conflicting
priorities and misalignment is an obvious and unwelcome outcome
Only link Balanced Scorecard to bonus, not to base pay. Scorecard goals are
business outcomes, and are rightly rewarded through bonus
or other exceptional pay methods. Base pay is primarily
around capability and market rates, and should reflect
assessments in these areas.
Implementation Speed
So the Balanced Scorecard is designed at both an Executive level and through
deployment right down the business. We now want to start using it to run the
business, which involves a fair degree of change, as well as straight resource
and effort. Will we make it work or not? The answer to this question is the one
golden rule of Balanced Scorecard implementation:
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The Balanced Business Scorecard
If the Scorecard is not in operational use
within 60 days of the design phase finishing,
it probably never will be
And achieving the 60-day goal is actually far more about what needs to be
stopped, versus what needs to be started. Indeed, there are a number of
dimensions to consider.
Not surprisingly, the physical production of the data required to bring the Scorecard
to life can be a significant barrier. And this is where the use of Balanced Scorecard
automation software can really assist. Not only can they integrate the data
together, they also provide, in many cases, intranet front-ends for ease of use,
and flexibility to rapidly deploy changes to measures or targets. The marketplace
is full of such applications. So understanding your success criteria and breadth
of deployment are important in picking the right model.
Plan-Do-Review
The fundamental difference between the process of Strategic Performance
Management as opposed to a product focused approach is the Plan-Do-Review
improvement cycle. Yet for so many companies this improvement loop is not in
place as it is about behavioural change not documentation, measures or reports.
Exhibit 3: Balanced Scorecard Implementation Criteria
MeasurementBehaviour
Not supporting strategyConflictingToo many
Not linked to strategyMultiple sources/formulae
Many and conflicting"Personal" in ormation
Does not existVariable and too low level
oo slowMultiple demands
A stick to beat withFailure ocused
toppedMerged and aligned
ationalised and aligned
ismantleCommon definitions
ingle at each levelDismantled
Create PDR cyclelign to PDR principle
ingle systemPriority to vital few
oaching and root causePerformance driven
Dimension Typical Issue Action
Existing Initiatives
Existing Measures
Existing Reports
Review Process
Data Provision
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Executive Briefings
Plan-Do-Review is the
link to improvement
There are three key behaviours that the Plan-Do-Review cycle drives and they
are very real and highly inter-dependent.
1. Under performing areas or processes that were previously hidden are quickly
exposed forcing Managers to take accountabilityfor their performance
2. Heads of Business Units who are leading the performance reviews must
challengepoor performance and seek out root causes
3. Corrective actions agreed around root causes of poor performance must be
closed out on a timely basis. Managers are thus forced to take accountability
for delivering resultsif the review process is to add any value.
In many organisations the introduction of a focused review
process is the first time Managers have been challenged
around certain areas of performance. Many find themselves challenged again
when they have not closed out on corrective actions agreed at previous meetings.
In companies where poor performance or avoidance of issues has been tolerated,
this kind of structured improvement approach is a real shock. But the foundation
stone for the performance culture to which so many firms aspire.
Exhibit 4: Comparison of Balanced Scorecard Software
If customised
If customised
If customised
VendorCategorisation
ProductCategorisation
Web-enablement Limited
E-mailLinkages
CommentCapability
Data Source/Links toother Applications
Show Cause/EffectRelationships One Level One Level One Level One Level
OLAPCapabilities Link Link Link Link
Graphing BarFunctionality Basic Basic Basic Charts Basic Basic Basic Basic
Cognos
BusinessIntelligence
Provider
DIYSolution
CorVu
BusinessApplication
Vendor
'Out of Box'Stand-alone
Gentia
BusinessApplication
Vendor
'Out of Box'Stand-alone
Hyperion
BusinessIntelligence
Provider
SystemIntegrated
Oracle
SystemProvider
SystemIntegrated
Panorama
BSCApplication
Vendor
'Out of Box'Stand-alone
Pilot
BSCApplication
Vendor
'Out of Box'Stand-alone
QPR
BSCApplication
Vendor
'Out of Box'Stand-alone
SAP
SystemProvider
SystemIntegrated
SAS
BusinessIntelligence
Provider
Tailor-made
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The Balanced Business Scorecard
Seize the PrizeSo if, by taking on-board the key success criteria, the Balanced Scorecard is
effectively integrated as an on-going strategic performance management tool,
what is the prize? Is it really worth the effort and energy necessary to make it
deliver? Well, according to William Schiemann, the spoils are indeed great.
Exhibit 5: Plan-Do-Review Cycle
Daily15 minutes
Weekly30 minutes
Fortnightly1 hour
Monthly2 hours
trateg
icire
c on
Pero
rman
ce v
auatio
n
3
4
1
2
Effectiveness of Action
Results Root Cause
Action
LowProductivity
WorkPermits
Costs High
Bad Weather
WHO
1 More active supervision
2 Renegotiate contracts
3 Re-communicate procedures
4 Review long range forecast
MJ
PE
PB
CJD
Pla
nRevie
w
Do
Pla
nRevie
w
Do
Pla
nReview
Do
Supervisor
Manager
Director
ManagingDirector
Exhibit 6: The Value of Measure Management
74%
83%
97%
44% 5
2%
55%
Measurement-Managed
Organisations
Non-Measurement-Managed
Organisations
100 -
80 -
60 -
40 -
20 -
0 -
Perceived as an
industry leader
over the past 3 years
Reported to be
financially ranked
in the top third
of their industry
Last major cultural or
operational change
judged to be very
or moderately
successfull
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Executive Briefings
Measurement-managed
organisations enjoy nearly
twice the success ratefor major change initiatives
Perhaps the most interesting finding from this 200-company research project is
the difference in the last factor success of the most recent
major change programme. Performance management
provides agility and a readiness to change, that can be
deployed from top to bottom very rapidly. Financial
performance and industry leadership are no doubt a simple outcome of these
companies ability to change quickly and successfully.
So what nowDesigning and implementing a strategic performance management system,
whether that be based on the Balanced Scorecard framework or not, is a lengthy
process. It covers the design of the original strategy map, through to its
deployment, and then its integration into budgets and pay. Finally, the continuous
improvement, plan-do-review cycle, needs to be instilled as the method for driving
real organisational value and behavioural change. For a firm beginning this
process for the first time, it is probably a 2-3 year journey. But along that road,
there are two critical milestones. The first is the start point setting the
initiative up in a way that leverages the lessons learned from others and the
second is the commencementof implementation. For while during the design
phase we can always go back to the drawing board, there is no such luxury once
we push the green light for implementation. We hope that the pointers contained
inThe Executive Agenda, which covers these two areas, are helpful as you
plot the performance path for your own organisation
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The Balanced Business Scorecard
The Executive Agenda
Starting Up
Does the Executive Team understand the length and
implications of the journey they are starting?
Is there already a clearly articulated strategy at Executive
level?
Do you have an expert resource, either internal or external,
who can support strategic mapping?
Have you a clear communication and deployment plan to
support the process?
Are the linkages to existing business planning, reporting,
budgeting and bonus processes understood up-front and
aligned?
Implementation Readiness
Have you an agreed plan-do-review process which aligns
upwards and downwards?
Have all existing reports and measures been physically
dismantled?
Have all initiatives and projects which do not support one
of the Scorecard objectives been either stopped or
integrated into ones that do?
Have the behavioural impacts of the chosen measures been
role-played to test their validity?
Is there a clear and simple (and ideally automated) process
for providing the data into the review process?
(Check)
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At the heart of the Axon consulting approach is a focus on
delivering long-term sustainable improvements to the
organisations key stakeholders. Axon consultants work alongside
client senior teams, to help them set direction and analyse their
current performance, identify the gaps and then put in place achange effort that will close those gaps.
But designing new strategies, processes or organisations is not
where it stops. At Axon we see that as the beginning.
Implementing those designs so that they become embedded as
the new way of doing business as usual is what matters. And
helping companies do that is what we see as our greatest
strength.
Strategic performance management sits at the heart of a firms
ability to lead and manage it is the glue which brings the
different elements together. And setting that process in place
must be a role performed by an organisations own leadership
structure. That is why our vision is to support companies through
self-managed change efforts.
For more information on Axons services, please visit
www.axonglobal.comor contact:
Phil Kingsland in Europe (+44) (0)1784 480 800
George Russel in the Americas (+1) 203 973 0344Chris Bailey in the Middle East (+971) 4 391 0820
Saeed Sadek in the Asia Pacific (+61) 2 9238 6869
Axon is a leading business transformation consultancy with over
twenty one years experience of helping companies achieve their
ambitions.
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The measure of
success is not
whether you have
a tough problem
to deal with,
but whether it is
the same problem
you had last year
John Foster Dulles
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Europe
AxonCentre
Church Road
EghamSurrey TW20 9QB
England
Tel: (+44) (0)1784 480 800
Fax: (+44) (0)1784 480 900
America
Two Stamford Landing68 Southfield Avenue
Stamford
CT 06902
U.S.A.
Tel: (+1) 203 973 0344Fax: (+1) 203 973 0345
Middle East
Suite 1601B
City Tower 2
P.O. Box 28966
DubaiUnited Arab E mirates
Tel: (+971) 4 332 1418
Fax: (+971) 4 332 1367
Asia Pacific
Level 67, MLC Centre
Cnr King/CastlereaghSydney NSW 2000
Au st ra li a
Tel: (+61) 2 9238 6869
Fax: (+61) 2 9870 8456