The Balanced Scorecard at ABB Sweden-

a Management System in a ”Lean Enterprise”1

by

Per Ewing2, PhD, Stockholm School of Economics.

Background

The emergence of concepts like "lean production"3 and "lean enterprise"4 have brought into

focus the way companies are run. During the last ten years a lot of dissatisfaction has been

expressed regarding traditional management control systems5, and different developments have

taken place in many companies6. Flow orientation and customer orientation have been key

words in this context as complements to the more traditional hierarchic view. Some writers go

so far as to talk about a shift in the paradigm7 from "mass production" to "Lean Enterprise".

This does not mean that the designation of the shift to ”Lean Enterprise” is generally accepted.

It can well be argued, that at least when it comes to the application of the ”lean” ideas, it is still

mostly a matter of an evolution with in the old paradigm. This process might however in a

later stage turn into a shift of paradigm The models and views which have dominated the

thinking regarding management and control of companies up to now, often have their roots in

outlooks that can be related to traditional mass production 8. In the last few years, reports about

1 The author wishes to express thanks to ABB Sweden for all co-operation and support which has made the study

behind the report possible. All but one of the figures in the report have been provided by ABB Management and

Process Consultants AB under the provision that they keep the ”Copyright”. Please, respect this. The author also

expresses thanks to his colleagues at the Stockholm School of Economics and IFL, specially Lars A Samuelson,

2

management and control systems have been published, based on flow-orientation and other

ideas in the direction of ”the lean enterprise”9. For companies with an ambition to work

according to the basic values of the ”lean enterprise" it seems desirable to develop and apply

new management and control models.

The purpose of this paper and method

Since at least the latter part of the eighties, people within research and application within this

area have been aware of the need to broaden the ways and means to measure and evaluate

activities. What is now added to this is a concept which builds on a systematic way, based on

the company’s all-embracing business ideas and strategies, to develop a set of measuring

figures which can provide a varied and balanced picture of activities at different levels and thus

create conditions for motivation and action for people at all levels. The models can be of

different design and content. The paper gives one example. It describes the basic ideas and

design of a control and management system that has been developed and is now being

implemented into the Swedish part of the multinational company Asea Brown Boveri, ABB.

The paper also describes the development process itself up to the end of January 1995. Future

papers intend to describe experiences from the first applications. Data for the report have been

collected since September 1994 through a collaboration between ABB Sweden and The

Economic Research Institute of the Stockholm School of Economics according to an "action

research" arrangement. The researcher has participated as a resource for ABB at the same time

as the project and its various parts have been followed from a research viewpoint10.

ABB Sweden - the nature of their activities and some basic company-values.

Asea Brown Boveri, ABB is a global electrical engineering group whose activities

encompasses a wide range of different product areas focused mainly on production, distribution

3

Swedish Asea and Swiss BBC Brown Boveri, has more than 200,000 employees and reported

revenues for 1993 of 28,315 million US dollars. The ABB Group is a federation of national

companies active around the globe within a number of business areas.

Sweden is one of the ABB Group’s most important domestic markets and, moreover, the base

for the successful exporting of products and systems throughout the world. The Swedish ABB

Group is comprised of approximately 130 companies with something over 26,000 employees

and a turnover in 1993 of 32 billion SEK ( 5 billion USD).

The chief control philosophy as communicated by ABB´s President Percy Barnevik in various

connections11 can be summarised by the four concepts of decentralisation, customer focus,

productivity improvement and competence development. Seen in a more long-term perspective

Percy Barnevik´s main message has been increased competitiveness and flexibility through a

far-reaching decentralisation of decision-making and responsibility for profitability. One way

of realising these aims has been through the customer focus programme which has been co-

ordinated and supported by group management but is being operated more or less locally.

Within ABB in Sweden the customer focus programme is called the "T-50 programme"12. The

experiences and the effects from this programme have been very positive. In order to strengthen

the T-50´s message even more and to integrate the programme more strongly within the

company’s ordinary control system, the decision has been taken to develop "Business Control

in the T-50 Spirit” in a special programme - the EVITA project. EVITA is an abbreviation of

the project’s Swedish name. It is the first parts of the EVITA project which are described here.

”The T-50 spirit”

The shaping and application of the instruments of control are important ways for a management

to communicate its message to the organisation. What the management focuses on and

measures is one of the most powerful ways of influencing the organisational culture.13 A

4

messages can be sent either directly or indirectly; directly through the formation of the

instruments of control, indirectly through the way in which the development and

implementation processes are carried out. For the EVITA project it is natural to take the

starting point from ABB´s all-embracing control philosophy and more specifically in the set of

values which lie behind the T-50 programme.

One way of describing the values of the T-50 is to look at the demands required for acceptance

as a "T-50 company". These demands should not be considered the end in itself, but rather the

stepping stones on a path which never comes to an end. In this way the expressed demands

become more of a way of signalling which areas management considers essential for the

organisation to focus on.

Using a company viewpoint which is flow-oriented as a basis, this activity can be described14

as a part in a longer processing chain from the raw material to the consumer product. In this

chain the primary process concerns a processing chain, in one or several steps, to refine the

input which is then offered and sold on external markets. In order to support the primary

activity flow there are a number of support activities such as control and management systems,

development of products and competence, administration etc. The T-50 places the focus on

several areas.

In order to follow the primary process the most important aspect is the co-operation with the

supplier. A first prerequisite for an efficient process is that the input in all respects accords

with the demands of the process. The way to accomplish this is by an active co-operation with

the suppliers concerning, for example, performance and quality, delivery times, in-store

preparedness, long-term ability to deliver, price, development potential and flexibility.

The company’s manufacturing process should initially have customer focus. The company’s

manufacturing process should, in the long-term, produce products/services with performance

and quality which is in great demand on the market at prices which ensure that the company

5

must be sought in order to attain these goals. Goals are often set so that simply "you cannot run

faster, but you have to work more intelligently." This places demands on the company’s

support activities.

Initially the company must, in its structure, build on process orientation and target-oriented

teams. Everyone must work on constant improvements and together function as a learning

organisation. A part of this learning process is to constantly look for examples, "stolen with

pride" instead of "not invented here." This assumes that one actively works with development

of attitudes, leadership and competence. The chief content of this development process has

been described in the following manner15.

"For example our managers must be more like coaches, rather than "rulers", in order to support

and develop employees areas of competence. Employees in the target-oriented teams must

continue to conduct work changes, with a continuous endeavour to improve. Certain staff

levels become support teams instead of agents of control just to give some examples. Behind

all this is the belief that attitudes must be changed - from direct control, of which we have

increasingly less within ABB, to target-oriented control and trust." In order to follow the

activity and to contribute to creating conditions for motivation, the organisation should use key

ratios at all levels and in all processes. It is in this context that the EVITA project should be

viewed, and through benchmarking of the most important activities to provide the basis for

development and learning. To summarise, the thoughts in T-50 that are the basis for long-term

survival and profitability, lie in satisfied customers and satisfied employees. This basis is

created by introducing "time compression" through a large-scale attack in all processes of the

manufacturing chain.

The development process

The EVITA- concept and model, are the results of a development programme within ABB

6

amongst others. The merger with Brown Boveri and the creation of ABB introduced an

increased need for a separate group reporting and accounting system which was also developed,

ABACUS. During the first part of the 1990s, some activities were conducted and some studies

were carried out under designations such as "Financial control in the future" and "Tomorrow’s

financial system". Simultaneously part of the ABB group management initiated ideas and

directives about "Customer focus" programmes which in ABB Sweden were realised in the

previously mentioned T-50 programme. This programme whose basic values have already been

described, was seen in a very positive and successful light by the organisation. Peter Fallenius,

Executive Vice President, responsible for finance and corporate control at ABB Sweden,

combined the control questions with T-5017 and claimed that the development work within the

area should be guided in that direction. In order to give a concrete form to the development

programme and increase the level of activity, Peter Fallenius commissioned Lennart Lundahl, a

consultant with ABB - Management and Process Consultants, who had formerly been a

programme manager for the development of ABACUS amongst other things, to follow a pilot

study suggesting a closer job description, organisation and time schedule.

Present management control systems

Parts of the mentioned pilot study and of a study18 conducted by two students at the

Stockholm School of Economics are descriptions of the pre - EVITA situation of the

management control systems in ABB Sweden and its subsidiaries. This is a short summary of

these descriptions

Organisational and responsibility structure

The ABB- group or federation of companies as they sometimes call themselves is organised

according to two main dimensions. One is a business / industrial segments dimension , the

7

Swedish engineering industry. The main areas of interest are still production and technology

combined with a growing concern for the business itself and the customer. The bigger

subsidiaries often have a divisionalized organisation on top of the traditional functional areas.

This organisation with separate divisions can also be supplemented with projects with a formal

responsibility linked to them.

A part of the T-50 spirit is to form target-oriented teams. In particular production-units are to a

growing extent organised in this way. Teams of 6 up to 40 persons can have their own missions

and targets and freedom to choose the ways and means to reach these. The missions of the

target-oriented teams are often defined from a flow- and process oriented view on the activities.

A target-oriented group is then a part of a longer value-chain with defined principal - process-

owner, suppliers and customers. The process-owner is an internal person. The suppliers and

customers are also often internal persons but could be external. The subsidiaries has developed

different along these lines, not just the pace but also when it comes to the size of the teams,

their mission, responsibility, degree of freedom and so on. One model being used is to create

target-oriented teams of former ”cost-centres” in the production-units.

Formal control systems for the group

The individual ABB-companies reports monthly to higher management levels. They mainly

report financial information but also more activity-oriented key figures like orders received,

service level and reliability of deliveries. This reporting takes place mainly through the

ABACUS information system which is a system for the whole group.

Each company has the liberty and responsibility within certain limits to generate information

and evaluate their own activities. This means that the internal control package within the

companies looks differently and is used in different ways. Some companies favour financial

figures while others focus on operational figures, often flow-oriented. This type of figures are

8

information as well as for other critical kinds of information to modern total-integrated

relational database system if they not have done so already.”19

9

Present control systems for target-oriented teams

In the pilot-study it was noted that only a few of the visited companies had fully implemented

the total concept of target-oriented teams with own key-figures, performance evaluation and

bonus-wages based on the result of the group. The companies described the mission and

responsibility of the teams in different words. The most developed teams themselves take

orders from customers, plan the activities, produce, deliver and evaluate the orders. In some

companies it is reported that even invoicing might be the responsibility of a team in the

future. An example of an advanced monthly report for a target- oriented team is the following:

• Short activity report in words

• Operation-oriented key-figures

orders received

sales invoiced

rejects as % of sales

complaints as % of sales

expenditures as % of sales

sick absence rate

• Productivity and sick absence rate

• Evaluation of the figures

• What has been done during the moth

• Activity-plan for the next 4 weeks.

From companies with developed target-oriented teams important cuts in throughput time and

need of support for control and administration are reported. Many of the companies visited had

not yet achieved these effects. At the same time they signalled a strong interest in the

10

To summarise, the objective of the project was to develop principles and information

structures for structured and operative information for financial and activity control at all levels

according to the thoughts behind the T-50 project. Another way to express the same thing is

that the management in ABB Sweden, in this case represented by Peter Fallenius, wished to

integrate the successful but of ad-hoc nature T-50 project into the traditional control package, a

sort of institutionalising. The traditional control package was, as already described, very much

focused on financial information and not enough reflecting the flow-orientated, customer

focused way to operate and manage the activities of ABB Sweden. This situation corresponds

well with those behind many of the articles20 referred to here. The ABB-project eventually

adopted the name EVITA.

Initially the time schedule stated that the adoption of the control concept and model should take

place during spring 1994.

In autumn 1994 it was intended to develop a data support system as a part of one of the new

standard financial accounting systems . This should constitute a first part of the project. The

next step, implementation in some pilot companies, was planned for the end of 1994 and spring

1995. If the experiences were positive, the system could then be implemented in those

companies which desired it.

The development process, continued

The initial phase

The work of the project group started with a ”kick-off” seminar in March 1994. The main

activity besides getting to know each other and the development activities taking place in the

different companies was for each member to formulate and write down an own opinion of the

mission based on the objectives given from the principal. In this way the group became the

11

• To build a simple and flexible activity based information model for business control in a

broad sense for target-oriented teams, processes and responsibility centres. The connections

between information for strategic and operational purposes should be reflected

• Transfer the knowledge to Swedish ABB - companies

• Apply the model in the information system TRITON and evaluate at least one other

alternative.

The initial phase encompassed three meetings to mid April 1994.

Active searching for information and knowledge

The initial phase was followed by a period of active searching for information and knowledge

in the ”control” area. This was done through weekly lectures by experts in different techniques

like ABC - analysis, other cost analysis models, process management and the T-50

programme. Information was also gathered through the participating in external seminars and

reading of articles in areas like flow - oriented control systems and ”Balanced Scorecard”.

Contacts were also taken with research institutions like the Stockholm School of Economics

and benchmarking activities with other companies.

The notations from this phase show that it was a very intensive period for the members of the

project group. The meetings were held at the members own companies and consisted of a

report on that company’s activities, general and in the control area, in combination with a

lecture of an expert on some subject. This period was marked by an active and open minded

searching for knowledge. Now, the participants got in touch with and started to form the basic

views which later come to form the backbone of their own concept and model, but it was not

yet formed to an entity or clearly pronounced.

Formulation of the first concept

12

a balanced scorecard with five perspectives. The idea was, after further developments,

presented to the project group and steering committee and was clearly approved.

During the later part of summer 1994, certain adjustments were made and the concept was

checked with the principal Peter Fallenius.

There were evidently a lot of external and internal sources for inspiration. The above

mentioned articles are examples of external influence. It is also possible to trace the pictures

with the ”dash board” (see below) to the preparations for the workshop. Some of the members

of the project group were already using models similar to the EVITA-scorecard. It is however

not possible to point out a single source for the concept. The best way to describe the process

is to say that the concept was crystallised from the knowledge and experiences existing in

ABB-Sweden, and mainly emanating from the T-50 programme in a broad sense. But this was

combined with what the project group learnt in the previous phase. Ex post it is easy to point

out similarities with other control models; the search process was, however, not at all straight

forward.

Test of the concept in a wider group

The concept was presented in October at an internal ABB conference with financial managers.

Basically the concept was strongly supported. Amongst other things it was emphasised that the

system should not be seen as yet another control system for the hierarchy but primarily was to

support the flow-orientation and the target-oriented teams within the flow. At the conference it

was also made clear that the IT support would be developed as an independent information

system, but if suitable, with references to other traditional systems for collecting data. The

initial idea with an information system inside one standard data system, for instance TRITON,

was abandoned. ABB Infosystem was given the task to make a sketch of a stand alone solution.

During the autumn the concept and model, successively refined, were presented at a series of

13

The new channel for IT support had meant a certain delay in the timetable. In January 1995 the

demand specifications for the IT instrument were laid down and the constructor ABB

Infosystem AB could begin the development work .The demand specifications and their initial

”system sketch” or prototype were the starting points for that work.

The two pilot projects started in December 1994. How these have developed and experiences

from them will be reported in the next interim report. In principle this report includes the first

phase of the EVITA project, up until the start of the pilot project.

Basic concepts of EVITA.

The basic values necessary to enable activities to be conducted successfully in those lines of

business where ABB Sweden is active, correspond well with the values that constitute the basis

of "the Balanced Scorecard". The objective is that, in order to meet the customer’s demand in

fierce competition with other very qualified players on the market, the company must be

managed according to the values summarised in the concept "the Lean Enterprise" and be

contrasted with the traditional industrial thinking with its roots in mass production, according

to Henry Ford. Then it is obvious that one of the most influential external sources of inspiration

in the EVITA project has been Kaplan and Norton´s articles on "The Balanced Scorecard"21.

The basic development process behind the articles has its roots in a co-operation between the

authors and the consulting company KPMG Peat Marwick concerning among other companies

Apple Computers22 . The articles of Kaplan and Norton are not the only external sources of

inspiration. Many companies have of course been using other key ratios than financial ones for

a long time now in order to follow business activities. These figures have acted as

complements and have often been formed on an ad-hoc basis. In several countries there exist

different approaches to broaden the ways and try to find alternative methods to measure and

evaluate business activities. As ABB Sweden has its roots in Swedish culture it is natural to

14

been reported from other countries, although they have had no direct impact in this case. One

interesting example is the well established model ”Tableau de Bord” which is reported from

France24.

The main perspective of the business activity

A key issue in the formation of a control instrument following the ideas which have been

discussed and the first part of EVITA´s basic concept is to identify and choose the main

perspectives within which the key ratios are to be sought, which in their turn should reflect the

most important strategic areas and critical factors in order to realise these. One angle of

approach is, from the view of an interested party25, to look for those people who control those

organisations’ most critical resources. The perspectives which are looked for are those which

illustrate the company’s ability to satisfy these people so that they are willing to contribute

these necessary resources to the organisation.

Two cornerstones of the T-50s philosophy are the customer and the employees.

The Customer perspective

The company’s offer to the customer must, in comparison with other companies offers, be

considered so good that the customer is willing to pay the price demanded in order to satisfy his

demand. A prerequisite and key to this perspective is a thorough understanding of the

"business" which the company operates as well as its competitive means and the prevailing

competitive market situation in which the company offers its goods and/or services.

In the long-term the remuneration the customer is willing to pay the company must, in its turn,

be sufficient to replace those resources which are used up in producing the goods or service.

The basic resources are capital, manpower and raw material. Added to this are sometimes

information or know-how.

15

important to show the activity from this perspective. One issue is to understand the company’s

competitiveness in order to attract the competence it needs, its ability to create prerequisites for

motivation and indications of how well it has succeeded.

16

The Financial perspective

Capital is another of the resources necessary for running the business. The business capital

comes from different sources. From an isolated viewpoint, in the type of economy which our

Western society represents, the owners are the residual interested parties. These parties

demands will be met last, since dividends to the owners of profits or in the case of bankruptcy

do not take place until the other capital contributors have been reimbursed. If the owners

demands for profits are met in the long-term, then other parties, who contributed capital, are

also satisfied. In more complex situations, the owner can, at the same time, hold several

positions as risk capital contributor, customer and/or supplier. It can thus happen that other

participants, for example the lenders and their demands, will be decisive in determining the

company’s financial performance. This reasoning shows that there is a financial perspective to

the company’s activity which it is most important to highlight. Then various participants needs

can govern measures and levels of demand, although normally it is the owners who do this.

The Process and Supplier perspective

An important feature in the values of T-50 is the collaboration with the suppliers or "Supply

Management". This is in order to guarantee the businesses need of the third classic production

resource which comes under the term "raw material". At one level the various suppliers

perspectives are different and unique. Some cases concern goods which are of crucial

importance for the company itself; there is no substitute and the supplier is the sole supplier -

strategic goods. In other cases it could be bulk goods freely available on an open market with

many suppliers - volume goods. To describe each suppliers perspective would be an extremely

arduous job. A common factor for these companies is that in order to have access to these

resources, the company must be able to fulfil a financial undertaking which normally occurs

17

the cornerstones in the evaluations of T-50. What is concerned is efficiency within the internal

processes of the company in general, not just to handle the supplier but the entire internal

process in order to produce the goods or services which the customer is demanding. To be

effective, the processes must be carried out in such a way that the article produced can be sold

for a certain price so the company’s resources can be replenished. The fourth perspective is

thus the internal processes and their efficiency within the organisation.

The Innovation/Development perspective

So far the perspectives have been of a relatively short-term type. In the longer term, it is

naturally a necessary prerequisite that today’s activity generates and attracts resources it needs,

although this is not the whole picture. The organisation must also learn from its observations,

must be able to grow and must be able to develop its products and services. There is a

progressive development and learning perspective which actually has an inward-looking

dimension - the development of the organisation and learning, as well as an outward-looking

dimension - development of those goods and services which are the conditions for the

organisation’s future ability, via the marketplace, to gain access to the resources which are

necessary for its survival. Even for this perspective, one must show an efficiency concept. This

is most clearly seen in the outward-looking dimension. An efficient product/service

development process is a key factor for the future.

All in all, this gives us five perspectives which are all of great importance for the activity and

give a more balanced image than if only one perspective were allowed to dominate. The five

perspectives and the balance between them is well illustrated in the following diagram:

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Customer perspective

Service levelComplaints and claimsMarket shareCustomer satisfaction

ABB Balanced Scorecard

Innovation /Development perspectiveDevelopm. costs/sales invoicedNo. of new product releasesProduct age distribution

Process andSupplier perspectiveThroughput timeInventory capital/sales invoicedFirst time yieldProductivityDelivery reliability

Employee perspectiveCompetence developmentSick absence rateEmployee satisfactionFlexibility

Financial perspective

Orders receivedSales invoicedGross margin, orders receivedNet incomeProfitability

Lennart Lundahl 950213 page 13 Copyright: ABB Management & Process Consultants AB

Fig. 1: The Balanced Scorecard in the EVITA concept

The five perspectives can be compared well with classifications in other works, mainly those

by Kaplan & Norton but also for example by Maisel26. In Kaplan & Norton, the employees

perspective is included in "internal processes". In Maisel´s work "innovation and development

perspective" is included in internal processes whilst his employees are considered deserving of

their own perspective. In the EVITA project the definitive choice has been to bring forward

both the "employees" and "innovation and development" perspectives as their own

19

instruments in the organisation. This point of view in development and alteration processes,

which have formed the basis of the concept, can be summarised in the following diagram:

POSITIONTODAY

FUTUREDESIRES

VISION

NEED FOR CHANGE

•Strategy for change

•Management for change

FEEDBACKLEARNING

Fig. 2: The strategic process of change

Based on the activity’s vision, there is, or can be formed, a picture of the future. Strategies and

action plans are needed in order to attain this picture. Concrete ideas as to how to carry out and

manage the changing work situation are also necessary. With the help of the perspectives

described, conditions are created for structured feedback and learning concentrated on five of

20

instruments, and what measures and scales are used is a matter for the activity concerned. Other

authors make the similarity with for instance the dashboard in a car27.

Kaplan & Norton have presented one way 28for a business to take the step from vision to

measure. Using this as a basis and having worked on this to some extent, the EVITA project

has developed a method of attack. The work procedure is composed of a number of issues

illustrated in the following manner:

Definition of critical measurements per perspective based on the vision for the business

What is ourvision of thefuture ?

If our visionsucceeds, howwill we differ?

What are the criticalsuccess factors inorder to achieveour vision ?

What are thecriticalmeasurements ?

- to ourcustomers

Customerperspective

- in our ability todevelop and be

innovative

Innov./Developm.perspective

- to our employees

Employeeperspective

- in our processes

Process / Supplierperspective

- to our owners

Financialperspective

- Mission statement- Vision statement.

Lennart Lundahl 950213 page 17Copyright:ABB Management & Process Consultants AB

Fig. 3: From vision to numerical values

The framing of the questions is evident from the diagram. These are used at all the different

organisational levels which apply in this connection. As support and a starting point for the

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question schedule. In the long-term, the method of working could be integrated with the

ordinary planning processes. There are prerequisites so that the methods of working can form

an important cornerstone in them. Researchers 29who have reported applications of similar

models mention that the greatest effect seems to be reached when they are used actively in

strategic change processes where it is essential that the visions and all-embracing strategies are

communicated out into the organisation and are independently put into concrete plans and

actions at all levels within the company.

EVITA´s reporting model

An important part of the control system is the data itself and its reporting. The metaphor

comparing EVITA´s concept and an aeroplane’s instruments has already been made. In this

chapter we will develop this further. All employees in the organisation must be able to receive

and understand all the information generated by EVITA. This means two things, amongst

others.

Firstly, the numerical values to be used must refer to such variables which are important for the

organisational level and for the people where the system is used. If EVITA is to be used by a

target-oriented group, the main task of the system is to create and present information which

gives the members of the target-oriented groups a possibility of obtaining a balanced picture of

their own group’s activity. The information presented by EVITA for a certain group is for that

group and the information is the "property" of the group. In this way the group’s members can

be motivated and can also independently and effectively work to solve their tasks within the

all-embracing "business deal". One way of accomplishing this is to develop the relevant

numerical values, with the aid of the method of working just described. The starting point is, as

previously noted, the next organisational level’s tasks and strategies. The measure of this level

is not the starting point for the work to develop one’s own measures, but instead these

22

that all levels and units do not need to apply EVITA but this can take place, for example, at a

number of target-oriented groups and at the "Business Unit" level. For example, departments

and company levels in between other levels do not need to apply EVITA. However, the starting

points - visions, tasks etc. - must be connected within the framework of an independent

"business deal".

Secondly, the demand of local use and understanding means that the numerical values must be

formulated in such a way so that the users can interpret the content of them and know how to

act and also have the possibility of acting in order to influence the outcome. This does not

mean that, through their own steps, the players must be able to control the outcome, but they

must experience that the steps they take have a decisive impact on the outcome of the

measures. This is a subjective experience which is influenced among other things by the

construction of the measures, the speed of the impact and the feedback, as well as the way in

which the measures are used. These points are in accordance with experiences reported from

other applications.30

Both the basic demands of EVITA´s reporting model discussed have led to two conclusions:

1. that within the EVITA project a common model should be developed for

collection of information, working and reporting. Furthermore together an IT

support should be developed for the model to be used in those units which wish to

do so.

2. that when the EVITA concept and model is to be used by a unit, whatever its

level, then the compilation of the specific numerical values via the method

previously reported is a responsibility for that particular unit. The realisation by

individual units should be able to be supported by special competence, at least

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The joint basic model for reporting according to the EVITA concept

The basis for reporting is the five perspectives - customer, innovation and development,

employees, process and supplier, as well as financial. These things together give a balanced

picture of the activity. One perspective in its turn is reflected by a set of different measures, as

many as five. The reporting model is aimed at people with different backgrounds and not

purely business controllers and accountants. One of the values behind T-50 is that the

individual employees at all levels should be able to follow their own activity, especially in the

target-oriented teams. The method of presenting the information and the measures by which it

is presented are adapted accordingly.

Introduction to the reporting model is an overall view of how the activity is developed in all the

five perspectives. Here the idea of an aeroplane’s cockpit is reintroduced.

SATISFIEDCUSTOMERS

ANDMOTIVATEDEMPLOYEES

Ambition ofthe month

To improve

75

CUSTOMER PERSPECTIVE

90%

025 50

100

INNOVATION AND

85%

025 50 75

100

EMPLOYEE PERSPECTIVE

75%

025 50

10075

EVITA - for driving towardsthe T50 objectives

PROCESS ANDSUPPLIER PERSPECTIVE

84%

025 50 75

100

FINANCIAL PERSPECTIVE

025 50 75

100ABB XX Inc.

9 7 %

24

The EVITA model allows each unit to choose whether the measures included should be

differentiated. The basic recommendation is that all measures should be equally important. It is

also each company’s responsibility to make its own decision regarding the target levels for a

unit which is reported according to the EVITA model; either by the unit, group, an individual

person or by someone else in the hierarchy. The recommendation is that the units applying the

EVITA model should determine the target levels themselves. The traditional budget control of

an ABB company is not affected.

Control within the company is an internal matter for the company itself.

The initial picture also gives an indication of the trends in each respective perspective as well

as, in written form, the unit’s vision on a slightly more long-term view and the focus of the

period.

At the next level of the EVITA model the included measures of the respective perspectives are

presented through the present level of target achievement in percentage form. The measures in

the figure are of course only examples.

EVITA - balancedfollow-up

Total:

Orders receivedSales invoicedGrossmargin orders receivedNet incomeProfitability

110%105%90%88%94%

97%

Competence development 60%

ABB XX Inc.

Total:

Throughput timeInventory cap./sales invoicedFirst time yieldProductivityDelivery reliability

71%90%80%97%80%

84%

90%87%95%90%

90%

98%

SATISFIEDCUSTOMERS

ANDMOTIVATEDEMPLOYEES

Total:

Service levelComplaints and claimsMarket shareCustomer satisfaction

FINANCIAL PERSPECTIVE

PROCESS ANDSUPPLIER PERSPECTIVE

EMPLOYEE PERSPECTIVE

CUSTOMER PERSPECTIVE

INNOVATION ANDDEVELOPMENT PERSPECTIVE

METRIC ACTUAL

METRIC ACTUALMETRIC ACTUAL

METRIC ACTUAL METRIC ACTUALDevelop. costs/sales invoiced

25

using a smaller number. For an individual activity it is even possible to limit the amount of

perspectives.

Apart from these diagrams, there is the opportunity to see trends within a diagram of respective

underlying ambitions and action plans accumulated for all the perspectives at once according to

the following diagrams. There is also the opportunity to get an overall picture of one individual

perspective. All these possibilities are illustrated with this figure showing the different ways to

illustrate the organisation’s activities from one perspective, in this case the employee

perspective

AMBITION

EVITA - measuringlevels

PLAN OF ACTION

VISION

TREND

Total

0 100

50 Goal

Well motivatedemployees

Notice for performancereview to all employeesto be sent out no laterthan (date).

To have performancereview with allemployees before theend of the year.

Competence developmentSick absence rateEmployee satisfactionFlexibility

60%98%70%73%

75%

75%

ABB XX Inc.Employee perspective

METRIC

ACTUAL

Lennart Lundahl 950213 page 26 Copyright: ABB Management & Process Consultants AB

26

other targets within the organisation, the visions etc. are broken down31. There is no demand

within EVITA for numerical targets to be linked, but the chain of visions etc. must build on one

another and be connected32. One content of this is that it is not necessary to apply EVITA to all

units or levels in the company. One could perhaps begin with the company as a whole and

some target-directed groups at the bottom of the organisation. The in-between levels do not

need to apply EVITA. However, one should partly do the equivalent for the levels above in the

process of compiling the visions of the target-directed groups, measures etc. as a prerequisite

for them.

An IT support is part of the EVITA model for the presentation of information. This support is

being developed at the present time. It should support in part the development process of the

chain visions - success factors - measure, partly the presentation of perspective, measure, action

plans and other things with the diagrams shown here.

Concluding comments and key questions before the next phase of the project

The first phase of the project has, as has been shown, concentrated on developing a new

structure to be used in a control connection. Control deals with creating prerequisites for

decisions and actions. This takes place when the control structures are used in the activity and

the effects are greatly dependent on the type of environment in question and how the system

structures are used. Before continuing with the project one should point out a number of issues

which may ultimately influence the EVITA system’s effects.

The traditional accounting information system’s role

One of the reasons behind the growth of a system of the EVITA-type is that the traditional use

of financial measures is considered to carry a risk that there will be a short-term and one-sided

focusing on certain parts of the activity. All the players have naturally not understood the

27

can be met with resistance from people who see their positions threatened. It is important to be

aware of the possibility of this type of reaction and to be prepared to handle such situations. It

is also interesting to note that it has been reported33 that in Japanese companies which apply a

flow view on control, cost data is not used to follow productivity development in the flow but

instead direct physical consumption measures on input of resources. In this way one knows that

the process is functioning as efficiently as possible. Cost data, use of resources multiplied by

factor price are collected to be used as an important foundation in the product development

process according to the target-costing concept.

Organisation structure

EVITA is built on and aimed at strengthening the flow orientation within the activity. At the

same time there is an organisation, in many places within ABB as well as in several other

companies, which has its roots in functional thoughts and is still often functionally oriented.

This is not to say that the entire ABB group is functionally organised, far from it. At higher

levels of the organisation there is a matrix between the business segment and the market

regions. At lower levels in ABB Sweden, the organisation is built up of a large number of

medium-large subsidiaries. Within these companies an organisational structure often has clear

functional traits. In other contexts34 it has been pointed out that a balance in influence in the

company between functional dimensions and production dimensions is important. Both the

organisation structure and the reporting system are proceeding in the same direction. If these

send out diverging signals there is an obvious risk that individual players will feel insecure and

the system parts run counter to each other. In all probability this reasoning is also valid if the

concept product dimension is exchanged for flow dimension. The risk is that if the organisation

and even more its power structure on the middle-level from historical reasons and inertia are

functionally directed, at the same time as the highest management via the control system tries

28

people are influenced and make sure that they see a platform for themselves in the future as

well, with an altered control system.

Conflict between measure perspectives

There is a different time viewpoint in the different business perspectives. It is not too difficult

to imagine a situation where short-term income and cost measures within the financial

perspective hold their ground against more long-term measures, such as competence

development within the employee perspective or other development efforts within the

innovation and development perspectives. Development works are obvious examples of

activities which can have a totally different time perspective than short-term income measures,

but it is also possible to imagine conflicts between other types of goals. The question is what

happens if measures are set against each other? Which will be given priority,? How will the

deviations from established goals for the different perspectives be judged? And what measures

will be taken? Finally is it still the traditional financial goals which actually dominate? The

system will most likely be tested by the participants to see what is actually relevant. Conflicts

between the different activity perspectives do not arise through a measuring system such as

EVITA. The conflicts are already there and have always been there. Systems of the EVITA type

illustrate that there is a conflict. They bring the problems up to the surface. Highlighting the

problem ensures that it must be solved through action on the part of the management. Is the

management serious about its message of flow-orientation and long-term plans? Another way

of expressing this is raising the question whether the company is prepared to change its

previous well-expressed prioritising of the hierarchy and the vertical control process to a

situation with at least a balance between vertical and horizontal dimensions. An example being

that measures aimed at employees and customers are allowed to dominate the financial

perspective even in the short-term. It has already been noted35 that the real action dominates

29

that productivity in the flow is influenced negatively in the short-term. It is probable that this

will show in the measures used to describe the activities in the flow and particularly to give

indications of the productivity development. The effects may be different, depending on how

the change of capacity was initiated, decided on, supported and carried out, as well as how the

signals via the outcomes of the measures were handled. A productivity decline which is

observed by people active in the flow and which can be traced to decisions which are perceived

as "taken over their heads", can give grounds for them to "lose interest", that is to say a decline

in productivity will increase and a process which leads in a downward spiral has begun. The

reasoning can be reversed if the change in capacity is well handled.

Another aspect of productivity versus capacity relates to how the result of the improvement in

productivity can be realised. One method is to increase the volume of the activity and produce

more. This is a method which does not normally create any problems in the flow. Instead the

critical factor is usually whether there is a demand for the extra which the flow produces and if

those responsible for the demand can or want to pay enough.

An alternative is, at a relatively stable demand level, to take advantage of the increase in

productivity by reducing the resources used in the flow, through getting rid of machines, plants

or entire parts of the activity. One problem could be that if there is no meaningful alternative

for the released resources, people, then it is easy to experience productivity improvements as

"the art of sawing off the branch you are, yourself, sitting on." A decision of this type can be

painful and taking it demands a good deal of forethought.

Reward/sanction system

A question at issue which has not yet been topical in the EVITA project and which does not

actually play a part in it but which may still be of great importance for the effects of the system

is whether and in that case how the results according to the EVITA model are connected to

30

conscious linking to some form of reward system. Such a reward system should, in order to

support the values behind EVITA, be formulated in a way so that it does not chiefly reward

success within one perspective of the activity but that the result for all five perspectives is

successful. A similar reasoning can also be conducted concerning sanctions linked to a system

of the EVITA type. A basic problem prior to this discussion is whether the utilisation of

EVITA is primarily aimed at supplying a system which means that units and groups can control

and evaluate their own activities better or whether the system is used for outside control or

hierarchic control of subordinate units. At ABB Sweden statements from those responsible are

unequivocal that it is a tool for the group’s own control.

IT questions

The IT support developed within the framework of the EVITA project is to be seen as a

presentation support system. This system will only be as good as what is put into it. It is

conceivable that a system according to the EVITA concept puts demands on availability of data

of different types, such as financial data, production data, market information and data about

attitudes held by all or some of the staff. Those measures that are part of the perspectives must

be put into operation. Nor is it improbable that an EVITA system demands data to be available

for new groupings of entities or parts which do not exist today. To summarise, a system of this

type can, especially when it has been built-up, demand that there is good know-how in the field

of data and availability within the organisation. Unless the input to the system is to be totally

manual, it is also required that data be stored and accessible in a suitable way and that transfer

between different systems can take place. Questions such as these can be considered technical,

but their significance should not be ignored. That these problems can be solved in a satisfactory

manner is a necessary, but not sufficient prerequisite for the EVITA system to work.

31

culture within ABB Sweden, management support for the EVITA project and awareness within

the project management of pitfalls all indicate an exciting and successful continuation.

32

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