How the Balance Scorecard Approach Compares to Policy

Governance®

IPGA 2007 Annual Conference

Alexandria, VA

June 23, 2007

Presented by: David Mustine

Policy Governance is the registered service mark of John Carver.

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The Balanced ScorecardRobert S. Kaplan & David P. Norton

This presentation will:

1. Provide general understanding of Balanced Scorecard

2. Compare Balanced Scorecard to Policy Governance®

3. Demonstrate why Policy Governance is superior to Balanced Scorecard in the field of governance

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The Balanced ScorecardRobert S. Kaplan & David P. Norton

• Developed early 1990’s

• Initial purpose – improve performance measurement

• Discovered effective in strengthening strategy implementation

• Now propose to use it in governing

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The Balanced ScorecardRobert S. Kaplan & David P. Norton

4 barriers to effective strategy implementation:

1. Vision and strategy are not actionable

2. Strategies are not linked to departmental, team, and individual goals

3. Strategies are not linked to long and short-term resource allocation

4. Feedback is tactical, not strategic

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The Balanced Scorecard3 Key Elements

• Measurement system

• Strategic management

• Communication tool

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The Balanced ScorecardFour Perspectives

• Financial

• Internal processes

• Learning & development

• Customer

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Mission: describes the broad, fundamental purpose for the organization’s existence, the ultimate result it hopes to produce.

“If we succeed, how will we look to our financial

donors?”

“To achieve our vision, howmust we look to our

customers?”

“To satisfy our customers, financial donors, and mission,what business processes must we excel at?”

“To achieve our vision, how must our people learn,communicate, and work together?”

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Alignment

1. Corporate strategic themes

2. Balanced Scorecard

3. Business unit strategic initiatives

4. Personal objectives

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Mission

Core Values

Vision

Strategy

Balanced Scorecard

Strategic Initiatives

Personal Objectives

Satisfied Customers

Delighted Donors

Effective Processes

Engaged/Equipped Employees

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5 Major Responsibilities of a Board (Kaplan & Norton)

1. Ensuring integrity and compliance

2. Approving and monitoring enterprise strategy

3. Approving major financial decisions

4. Selecting and evaluating executives

5. Counseling and supporting the CEO

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Integrity and Compliance (Kaplan & Norton)

• Ensure reporting and disclosure reflect underlying organization performance

• Monitor risks and risk management processes• Make certain there are adequate internal controls• Assure operating ethically• Verify that laws and regulations not violated

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Approving and Monitoring Enterprise Strategy (Kaplan & Norton)

• Ensure plans result in creation of LT value

• Approve or reject major mgm’t decisions

• Must understand and approve corp. strategy

• Continuously monitor strategy execution and results

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Approving Major Financial Decisions (Kaplan & Norton)

• Ensure financial resources are used efficiently and effectively to achieve strategic objectives

• Approve annual operating and capital budgets

• Authorize major capital expenditures, new financings and major mergers/acquisitions/divestitures

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Selecting and Evaluating Executives (Kaplan & Norton)

• Hires, evaluates performance and determines CEO compensation

• Approves hiring of other senior executives

• Assure succession plan on entire executive team

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Counseling and supporting the CEO (Kaplan & Norton)

• Individual board members use specific knowledge to provide CEO and executive team guidance

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Governance Scorecards (Kaplan & Norton)

• Enterprise:– Contains strategic objectives, performance

measurements, targets and initiatives– Plays central role in governing: provides

financial and non-financial information essential to performance oversight

• Executive:– Provides objective assessment of executive

performance

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Governance Scorecards (Kaplan & Norton)

• Board:– Enterprise financial perspective– Stakeholder perspective– Internal board processes– Learning and Development (knowledge,

information and culture)

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ENDS

Strategy

Balanced Scorecard

Strategic Initiatives

Personal Objectives

Satisfied Customers

Delighted Donors

Effective Processes

Engaged/Equipped Employees

Board

CEO

Executive Limitations

Bd./CEO Linkages

Governance Processes

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3 Major Responsibilities of a Board in Policy Governance

1. Connect with and understand ownership expectations

2. Develop and express board expectations in written policies

3. Assure owner expectations are met through rigorous monitoring

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Integrity and Compliancein Policy Governance

• Integrity accomplished through policies

• Compliance is confirmed through monitoring

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Approving and Monitoring Enterprise Strategy in Policy Governance

• Board establishes ownership expectations through ENDS

• Enterprise strategy is a management tool

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Approving Major Financial Decisions in Policy Governance

• Board may reserve some major financial decisions for itself (e.g. merger)

• Operating and capital budgets are management tools

• Carefully designed financial executive limitations policies coupled with monitoring effect strong method of control

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Selecting and Evaluating Executives in Policy Governance

• Board hires and evaluates only the CEO– Clarity of accountability– Clarity of board vs CEO roles

• Achievement of ENDS and avoidance of violating Executive Limitations comprise CEO evaluation

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Counseling and Supporting the CEO in Policy Governance

• Board never advises

• Individual board members urged to advise only if asked and then make sure it is not confused with board decisions

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Governance Scorecards Compared to Policy Governance

Enterprise

Executive

Board

Ends

Executive Limitations

Board/CEO Linkages

Governance Process

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Discussion

• In what ways do you see Policy Governance providing a balanced perspective to the board?

• Could Balanced Scorecard data be used in monitoring reports?

• Policy Governance starts with owners’ perspective – with which perspective does Balanced Scorecard start?

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Works Consulted

Carver, John. Boards That Make a Difference. San Francisco: Jossey-Bass, 2006, 3rd ed.

Robert S. Kaplan and David P. Norton, The Strategy-Focused Organization. Boston: Harvard Business School Press, 2001.

Robert S. Kaplan and David Norton, The Balanced Scorecard. Boston: Harvard Business School Press, 1996.

Robert S. Kaplan and David P. Norton, “Aligning the Board of Directors, The Balanced Scorecard Report.” Balanced Scorecard Report, March-April 2006.

Niven, Paul R. Balanced Scorecard: Step-by-step for Government and Nonprofit Agencies. Hoboken, NJ: John Wiley & sons, Inc., 2003.

The authoritative website for the Policy Governance® model can be found at www.carvergovernance.com.