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August, 2003

Making Scorecards Actionable Newsletter # 4/2003

Content of Making Scorecards Actionable Newsletter # 4/2003

» Our Opinion
» Lessons Learned From Completed Scorecard Projects
» Elaboration On Key Design Issue #4: Interfaces between Scorecards



OUR OPINION

Today we received the first copy of Making Scorecards Actionable in translation. It is published in our mother language – Swedish – by Liber in their management series “Bättre Ledarskap” (eq. Better Management). To us, this translation process has been intriguing – to see our original words formulated in English, slowly transform into a text in our own language. Reading the translated text has given us many new thoughts on the use of Scorecards and how they are implemented in various organizations.

In connection with the Swedish release of the book we will participate in different conferences and seminars, so please check out the website to find out about places and dates. And if you are in the neighbourhood, we hope to see you there.

Since “Making Scorecards Actionable” was released and the web site was launched we have received many comments from South East Asia on the book. This is an interesting observations. Is the concept more suitable in certain regions and cultures? If you have any thoughts on that – or personal experiences of where the concept has been easy to apply or the contrary, where you have run in to serious problems, we would like to hear from you.

As always, we are also looking for new cases to investigate and learn from. So, if you think your organization has used Scorecards in a novel way please let us know.



LESSONS LEARNED FROM SCORECARD PROJECTS
By Nils-Göran Olve

In Makings scorecards actionable, we describe how many of Skandia’s employees tended to see its scorecard project as identical to the software used. We faced a similar situation in another company. On paper, they had used scorecards for planning and reporting for several years. But most people found it difficult to say why, or to what good. Measurements were entered into a computerized tool by local controllers, but there were only five or six metrics, and in most departments, entering the information was the end of the story. In some units, they did discuss printouts of the data. But BSC practices did not seem to have had any impact on budgeting or other planning practices.

Initiatives to reform BSC in the company, or make a fresh start, focused on how the software should be made more flexible and useful. However, our analysis soon indicated that this was the least of their problems. Why was the no other use of scorecards, apart from reporting numbers into a computer system? And why had that one practice survived? Of course the reason was that reporting was an obvious and easy behaviour to monitor. Controllers who did not report might be criticized. Using the information for dialogues and decisions about the company’s activities, on the other hand, would require that scorecards were seen as important. They competed for attention with internal markets, budgets, and several different kinds of planning that had not in any way been reformed when the company introduced its BSC project.

Another reason was that the software required metrics to be the same for all units in the organization. In order to describe how different departments contribute, they would need to use customized metrics – as units in Skandia did, and as indeed the units in this company did in its traditional plans. But these could not be entered into its computer system. No surprise that its BSC project was fading, and only existed on paper and as a meaningless chore for some controllers.

What we did? Well, we are now trying to get management to make a fresh start, and pay much more attention to strategy maps. Metrics will reflect a strategic logic, and not be perceived as a set of metrics. They will probably require a new IT support system as well. But this time it should not be introduced as tool for reporting numbers!



ELABORATION ON KEY DESIGN ISSUE #4: Interfaces between Scorecards
By Nils-Göran Olve

How should different scorecards within a firm relate? This will of course be a matter of organizational design, and how responsibilities have been assigned.

In a functional organization, scorecards will describe the performance of each function. Renewal, Processes, Customers, and Financial perspectives can be used, but their contents and significance will be somewhat different from the perspectives in the firm’s overall scorecard. This is because in the functional organization, units will perform different tasks on the way to the final customers.

In a divisionalized structure, the scorecard of each division will probably be more similar to the scorecard for the entire firm, as each division resembles a complete company.

In both cases, however, scorecards for parts of the organization must support the overall purpose of the firm. This means that they need to convey the strategies of each unit, and this in turn depends on the corporate strategy.

Thus, a production unit’s scorecard should include in the Renewal Perspective metrics that describe how production is developed and improved, while the Customer Perspective might describe how internal customers are served, but perhaps also the final, external ones. In both perspectives, what is critical and thus should be included in the scorecard will depend on the strategy of the firm. Likewise, scorecards for the divisions of a divisionalized company should reflect the corporate strategy as well as the business strategies of each division. It might for instance be the corporate strategy to shift the focus from certain product areas to others, and this will have an obvious impact on which divisions are asked to grow, or serve as cash cows.

This also implies that the relation between the sub-units’ scorecards and that of the entire organization is not a simple one. Profits can obviously be summed, and ROI numbers weighted to provide overall values for the corporation. But averaging market shares over different product markets is usually not meaningful, and combining customer satisfaction indices may give meaningless results.

Especially when the strategy is to shift focus from one group of customers to another, or from one product area to another, the overall success of this may be quite hard to capture in numbers that derive from the performance of sub-units. Instead, new measurements will have to be invented for the group level.

Nor is it certain that numerical combinations are useful, even when the same metrics are used in different scorecards. Scores on employee satisfaction or business ethics may be required to exceed a certain value. The corporate average may hide totally unacceptable performance in some sub-units. A more appropriate combination method may be to rate performance for the corporation as non-satisfactory, as soon as any units fail in reaching the lowest acceptable level.

For some metrics, additional qualities beyond a certain level may not have any value. They could be reported, but do not compensate sub-par performance in other units.

As we discuss also in Chapter 10, this is particularly important when an incentive scheme is linked to scorecards. Then, it is vital that combination of several metrics into one index is not performed thoughtlessly as a mathematical exercise, but really reflects the strategic value of different combinations of measurement values.








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.
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