PREVIOUS NEWSLETTER

June, 2003

Making Scorecards Actionable Newsletter # 3/2003

Content of Making Scorecards Actionable Newsletter # 3/2003

» Our Opinion
» Balanced Scorecard In The Media
» Lessons Learned From Completed Scorecard Projects
» Elaboration On Key Design Issue #3: Assigning Roles and Responsibilities



OUR OPINION

When the book Making Scorecards Actionable was released in January 2003 we were both happy and surprised to see how well received it was. According to Wiley, the publisher, a third print has already been prepared.

The Swedish translation is also well under way and will hit the members of Liber’s management book club in August 2003. Of course the book can also be bought in regular book stores, and it will be interesting to see how this translation will be received in the Swedish market.

We are also engaged in numerous discussions with different companies at the moment that are preparing for this autumn’s business planning and budgeting process. It is interesting to see how different these companies aim to align the structure of their scorecards with the business planning and capital budgeting processes. Some of them regard the target setting for the scorecards as a separate process from the ordinary and yearly business planning process. When discussing with these companies we try to show them how they, instead, should integrate the scorecard target setting with the normal planning procedures. But more about that under “Lessons learned from completed projects”. In our view, the business planning procedure is an efficient instrument to use when legitimising the scorecards as the preferred control system used to realize the business strategies.

We hope this Newsletter will give you some food for thought. And, as always, we encourage you to react on what we say, and give us feedback on our experiences and opinions. All necessary contact information is available on the book’s website www.makingscorecardsactionable.com.



BALANCED SCORECARD IN THE MEDIA

Around the globe practitioners and academics are discussing the pros and cons of the Balanced Scorecard concept. As for all management trends, the first years after its introduction in the 90s resembled a honey moon period. But as more and more evidence of the concept is compiled and analysed, the literature has diverged into two streams; those arguing that BSC is an effective instrument to manage performance and assure that the business strategies are realised, and those who think this framework is not new or even effective. In this newsletter we would like to comment on an article from the other side of the globe. The article was published in New Zealand Management by the consultant Graham Kenny (March 5, 2003; Title: “Balanced Scorecard – Why it isn’t working”).

Kenny argues that the structure of the Balanced Scorecard concept is not a valid representation of what is important in a business. He writes: “On examination, the four categories are indeed a strange set. The innovation and learning perspective is an internal business process, so why does it warrant a box separate from the internal business process perspective? It doesn't, except that this reduces the boxes to three. One of the three boxes relates explicitly to a stakeholder, the customer, whereas the other two boxes, finance and internal business process, don't. This seems inconsistent. Why aren't other stakeholders represented? Aren't financial measures also relevant to customers? In which case, why is finance on its own? Every organisation has a myriad of internal business processes. So which ones should be chosen for this box? Aren't the business processes relevant to customers, for instance, represented in the customer perspective? The questions and the apparent inconsistencies go on. Because the framework is totally arbitrary, crucial measures are almost inevitably overlooked.”

Thus, he argues that a stakeholder approach is better when aligning what needs to be done in an organization (i.e. the strategy) and what is actually executed. He also claims that “The balanced scorecard also lacks a theoretical framework to guide executive input”.

In our view Kenny’s contribution is an important piece that demonstrates why it is so essential to continue to document our experiences and beliefs, such that it is possible to engage in a world-wide dialogue on the concepts merits and drawbacks.

To start with, we find it important to manifest that the balanced scorecard structure is not a stakeholder model. On the contrary, we believe that it is important to think of the structure as a framework for creative discussions on the cause-and-effect relationships inherent in any organization’s business model. The perspectives clearly indicate a normative temporal structure from what is done today to create value in the future (learning and development), via how it is executed today (internally as well as externally), and finally how this sums up in financial rewards for investors and owners. If the model is regarded as a stakeholder representation it will inevitable create a tension where different parties will “negotiate” the rights regarding what needs to be done as well as how they will be compensated for their participation.

Kenny also argues that the concept lacks a theoretical foundation. It is of course possible to argue that the application of balanced management control is not theoretical, but it is impossible to deny that the underlying assumptions on how organizations are structured, how planning and evaluation contribute to execution, and how internal dialogues contribute to a shared understanding, are solidly based in contemporary management research.

Regardless whether one perceives scorecards as an efficient structure to assure that the organization realises its strategies or not, it can be concluded that the concept as such still attracts interest among writers. Both those who think that the concept does not add anything new, as well as those who – like we – think it is the best available management instrument to realise business strategies.



LESSONS LEARNED FROM SCORECARD PROJECTS
By Carl-Johan Petri

We have recently finished a project together with a Scandinavian company that have used scorecards for some years. Their utilization, however, have mainly focused on ex post evaluation rather than ex ante target setting. At the end of each quarter a performance report was produced that illustrated the last period’s performance according to the metrics in the scorecards. The performance was reported both as figures (actual against targets) and diagrams. The reports where presented orally at quarterly company meetings as well as published on the corporate intranet.

When interviewing the employees (those who were the targeted audience for the performance reports) most of them said that the figures and diagrams did not mean much to them. Of course they understood why metrics like employee satisfaction index, utilization of fixed assets and number of new customers in a targeted market segment were relevant to monitor. But still, they did not really internalise what levels of achievements would be considered satisfying.

The prime reason for this was that most of the employees did not relate to the targets that were set for the different metrics. Hence they could not relate to whether 5 new customers in the target segment was good or bad. Of course they could relate to the formal target that had been set (e.g. 5 new customers), but no one really know where that figure came from – and what level they actually had the capacity to reach. This was true for most of the new metrics, those that the organization had not monitored before they implemented scorecards.

In the project we assisted the company to go through existing business planning and capital budgeting procedures and find out what was regarded important in the planning and forecasting. Not surprisingly, we found that the financial numbers attracted all the attention. But not so much on the aggregate level, but rather how they were distributed on different accounts far down in the books. The targets for the non-financial metrics, on the other hand, were just derived from last year’s targets (targets that were just tentatively set in the beginning of the project, but not meant as formal targets).

To address this, the company restructured the planning process to focus more on strategic issues and performance drivers. Of course financial outcome was important, but it was seen as a result of the efforts made in the organisation: of what was controllable. In the new planning process, the company engaged most employees in discussing the links in the strategy map, trying to estimate the strength of them. Thereafter they back-tracked: if we are to close ten new deals during the year, how many sales meetings will we need to do. In order to arrange so many sales meetings, how efficient must our booking procedure be. And, in order to have an efficient booking process, how many learning events must we offer our employees. Discussing the links and strategic bets in the strategy map, within the context of the formal business planning process, legitimised not only the strategy map and the scorecard, but also created an interest among the employees on the performance monitoring: did we reach the targets for our performance drivers? If so, did this yield the anticipated effect? Are our links between drivers and outcome valid? Without paying attention to questions like these in the target setting exercise, the company claims that the scorecards would not have been as appreciated as they are today.

If you want to know more about business planning and target setting from a scorecard perspective, check out chapter 7 in the book. If you want to discuss how your business planning and capital budgeting can be aligned an integrated with your scorecards, please contact carl-johan.petri@cepro.se.



ELABORATION ON KEY DESIGN ISSUE #3: Assigning Roles and Responsibilities
By Nils-Göran Olve

Assigning roles and responsibilities is one of the “inner three” key issues that we identified in our work with Making Scorecards Actionable. Even in the smallest BSC project and the smallest organization, an idea of how to visualize strategy and who should use scorecards in their dialogues will not be enough for scorecard use to survive and contribute to the organization’s future. One or several people need to feel commitment to BSC use.

This is really no different from many other change projects. Some executives will say that “if BSC is so valuable, let’s just make the methodology available and people will start using it.” Sadly, this seldom works. To develop an initial set of scorecards (and perhaps strategy maps) is an investment that requires time and effort. To collect measurements and report them will demand more work the first few times, as routines still are undeveloped and IS tools may not yet be available. To let scorecards form the agenda for management meetings, as we suggest, will feel unusual – maybe even as a threat to the traditional control exercised through scrutiny of budgetary deviations. And the benefits will not be obvious, even to those who ‘in principle’ have bought into the concept of BSC.

We identified a number of roles in connection with scorecard introduction in our two books. Some of them can be combined, and in our case discussions we have examples of highly sophisticated role instructions as well as someone simply assuming the part of ‘fiery spirit’. Even in this case, it is important that management – normally, the CEO – provides credibility and authority for this volunteer by signalling trust in BSC as an important part of the organization’s future.

Assigning permanent roles and responsibilities will help in two, closely related ways.

One is to remove the obstacles that may prevent organization members from adopting the new habits. This may involve ‘help-desk’ services and clear instructions that are easily available on an intranet, etc. It also includes avoiding metrics that will require large efforts to collect information on, and the gradual introduction of BSC software.

The other is to alert people to the benefits from using strategy maps and scorecards – that it is not a reporting chore, but an interesting and useful way of enabling meaningful dialogues about an organization’s direction and experiences. This usually requires an internal marketing effort, and concrete demonstration of how those dialogues can benefit one’s objectives.

So typical roles include both an element of practical assistance and visionary guidance. These may not be natural to combine in the same person. Yet, when we discuss a ‘scorecard designer’ in Chapter 8 of Making Scorecards Actionable, it is obvious that this role may include both elements of the administrative assistant and the missionary.

So casting the roles will need judgment, as will deciding the scope of the project. Several organizations seem to have been successful through looking for people with interest and talent in local units that will be involved in scorecard work, and “adopting” these into the project. They may not necessarily be the obvious candidates, but rather people with an intellectual curiosity who regard their corporation’s scorecard effort as a way of trying something new, and perhaps realise some of their own ideas about how the organization should change. For instance, at Lund University Hospital a couple of nurses with little formal experience of planning played an important part as teachers and catalysts when different parts of the organization implemented scorecards. Their own background in practical work helped in proving that the new method was feasible and relevant, and it probably made it easier for them to empathize with the employees who should start using it. They could be on hand for explaining the technicalities of scorecards, while it is our impression that the department head himself in this case largely handled the ”missionary” work.

In other organizations another “cast distribution” may be required. The important thing is to give the matter sufficient attention. And like we already said, provide sufficient support from the top in terms of visibility, credibility, and time to devote on the project.

We believe that there is a role for outside consultants as well in most BSC introductions. Their experience may add insights that cannot be gleaned from reading books and articles, or visiting conferences. As in most projects, there will be a temporary need for specific competences. But to ensure the survival of BSC, major efforts are required from the organization’s own employees, and it is essential that roles are created and cast so that they will continue to operate at least during the first several years that scorecards are to be used.









MAKING SCORECARDS ACTIONABLE NEWSLETTER is a bi-monthly update on our experiences and opinions on how scorecards and strategy maps can be made actionable – to help organizations realize their intended business strategies. The newsletter is compiled and distributed for free by the authors of the book “Making Scorecards Actionable – Balancing Strategy and Control”. Also make sure to check out www.makingscorecardsactionable.com to get up to date information about our seminars, to evaluate your organization’s BSC skills according to our computerized BSC Analyser and to download presentations from the document archive.
  Back