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October, 2005

Making Scorecards Actionable Newsletter # 17 (2005)

Content of Making Scorecards Actionable Newsletter # 17 (2005)

» Winners of the signed copies of our book “Making Scorecards Actionable”
» Case description: Using scorecards to promote performance dialogues in a large organisation



WINNERS OF THE SIGNED COPIES OF OUR BOOK “MAKING SCORECARDS ACTIONABLE”

In the last edition of our Making Scorecards Actionable Newsletter we asked you to give us some feedback on our Newsletters and the website. We have received many valuable comments from you, and we have picked three lucky winners who will each receive a signed copy of the book Making Scorecards Actionable. The winners are:

Mike Parry in Johannesburg, South Africa
Ronaldo Aparecido Segundo in São Carlos, Brazil
Lotten von Heijne in Visby, Sweden

One of the suggestions we got from the survey, was an interest in more elaborate case descriptions. Some of you also asked for more “work in progress”, as an opportunity to access information before it is more widely accessible (e.g. in management magazines and scientific journals). Therefore we have chosen to publish a text that we consider as work in progress, in this newsletter. The case description is intended for future publication in a scientific journal, but we would like to take this opportunity to share it with you at this early stage, to invite you in our writing process and offer you some text in advance of the public presentation of it. But, we would also like to get some comments from you on the text. What can we add to make the case more interesting, and what can we remove to make it easier to digest.

Since the case description is so extensive, we will not include anything else in the Newsletter.



CASE DESCRIPTION: USING SCORECARDS TO PROMOTE PERFORMANCE DIALOGUES IN A LARGE ORGANISATION

Swebus AB – a bus company in rapid transformation

Swebus AB is the biggest bus company in Sweden, employing some 7000 employees, operating more than 2700 buses with a turn over of approximately 3 billion Swedish Kronor (approximately 320 million Euros). Their business is to operate Contractual Public Bus Transportation services throughout Sweden. The company has a market share of approximately 30%. Swebus operates out of more than 100 sites, through out Sweden.

Swebus is a fully owned subsidiary of Concordia Bus. Concordia Bus is one of the top ten European public transportation groups. It is also the leading Nordic Bus Transportation group. Concordia Bus carries an estimated 280 million passengers each year through its four business lines: Public Bus Transport, Express Bus, Coach Hire, and Packaged trips. Concordia serves local communities within the Nordic region through over 9000 employees.

An approach to understanding BSC utilization

Drawing from theory and our experiences we argue that six issues differentiate a successful and actionable scorecard from the meaningless rituals into which many scorecard processes degenerate. The six issues are:

1) Strategy maps: The most important benefit of a scorecard is to facilitate communication about the strategy – not just at top level but throughout the organization. In order to achieve this, the departure point for any scorecard project should be to visualize the strategies. Increasingly, organizations also want to involve employees at different organizational levels in a discussion of the organization’s aims and means. The strategy map is a simple yet powerful graphical tool for this. Successful practitioners use phrases like “a snapshot of our strategy” or “you can’t recognize success just from the financial report” to explain why they like strategy maps.

2) Dialogues: Scorecards and strategy maps are communication tools. They depict initiatives and performance in a particular organizational unit and they do so to enable discussions about direction, degree of success, and trade-offs. Such communication always concerns managers and employees in that particular unit, but can also be used to involve higher-level management.

Scorecards are about someone’s performance, but they are also about relations of accountability and needs to collaborate in order to achieve joint success. The second issue to be settled early in a scorecard project is to identify the dialogues where scorecards are to be used.

3) Roles and responsibilities: Making basic choices about the roles is the third issue we advise. Typical roles are:

• Business stakeholders; whose units use scorecards
• Scorecard designers; who are responsible for the design and content of the scorecard.
• Information providers; who are responsible that measurements are performed and that the results are made available.
• Scorecard analysts; who are responsible for giving proper consideration to scorecards in management control
• Learning pilots; who are responsible that scorecard measurements are used for learning.

4) Interfaces: Most organizations’ response to the question about dialogues, above, is that they want to introduce several interconnected scorecards – perhaps one top-level scorecard and scorecards for several business units. Some will want scorecards also for service units or processes, and some will have scorecards for many levels in the organization. By interfaces, we mean how these scorecards relate to one another.

In traditional financial reporting, this is answered by the set of accounts used, and by the basic fact that all accounts are aggregated into a common corporate report. For the new metrics introduced with scorecards, there is no such obvious connection. Even numbers such as market shares do not add up in any conventional sense. You may want to calculate an average market share, but for a diversified corporation this may be utterly meaningless.

5) Incentives: Our fifth design issue is incentives. You have to provide a reason why people should bother. Some international corporations develop elaborate weighting schemes in order to provide bonuses based on scorecard results. This may have far-reaching consequences for the ‘balance’ of balanced scorecards, as it signals a specific trade-off rather than the ‘drivers-outcomes’ discussion about strategy and learning that most scorecard promoters suggest. If a weighting scheme should be introduced, it is probably better to use a careful mix of minimum requirements, intervals, and no rewards at all for better-than-required performance as long as other goals are not met.

6) IT-solutions: It is not necessary to invest in an information system to make the scorecard actionable. All too often controllers and scorecard experts believe that they have to invest in an IT-solution to operate their scorecards. Instead we suggest that a more critical attitude towards IT-solutions is maintained. If the organization decides to invest in an IT-tool, a solution should be chosen based on the functionality it offers in the different phases of the scorecard project.

Our findings indicate that the six issues mentioned above should be addressed in this order. Any BSC effort should start with the strategy connection and then continue via dialogues, roles, interfaces and incentives to appropriate IT-solutions.

The reason why Swebus implemented scorecards

Swebus AB is the result of a 1990 merger between the state-owned SJ Buss AB and GDG Buss. Merging these two entities created the single biggest bus operator in Scandinavia. In 1996 the company was bought by the Scottish bus operator Stagecoaches, who ran the operation until 2000 when the company was bought by a consortium consisting of private equity funds managed by Goldman Sachs and Norwegian conglomerate Schöyen Group.

The management style under the Stagecoaches era was mainly characterized of a typical command-and-control structure where the corporate head office dictated what to prioritise, and what to neglect. The characteristics of the company, was that the 30 operating units through out Sweden operated in very different ways. A Swebus-unit in northern Sweden could behave in a totally different way, than a Swebus unit in Stockholm. Swebus’ competitive advantage, however, was its size and ability to utilise identical procedures in different parts of the country, thereby being able to charge a premium at a lower cost than the competitors. Examples of scale advantages could for example be more developed management procedures, better educated drivers, increased ability to draw from a greater pool of vehicles and drivers to prevent resource shortage. Swebus’ size also allowed it to reap benefits from being a big customer in the market, for example on vehicles, spare parts and fuel.

Perhaps the tougher management style under the Stagecoaches era was required, to harmonise the operation in all the local units. But when the present CEO came on board in 2002, he felt that the organisation would benefit from a more tolerating bottom-up management approach, than from the more hierarchical approach Swebus had relied on till that day. Still, the new CEO found the company’s ambition – to become a world class service provider – appropriate, as well as its strategy to benefit from economies of scale and harmonised internal processes.

Hence, the vision, goals and strategy was considered fit for purpose, whereas the management systems used to assure that this strategy was realised, did neither suite the new management team’s approach, nor focus explicitly on the strategy as such (the control systems that had been used, was based on typical financial performance reports, hence not connecting in any detail to the specific strategy that Swebus had chosen).

Deriving scorecards from the strategy

Swebus’ scorecard project started in the beginning of 2004 and was called “Måltavlan”, which means Goal board (rather than score board). During the spring of 2004 a small task force in the head office develop a rough idea on how the balanced scorecard format could be used as a communication tool to inform and engage all employees; from head office, all the way out to the drivers, in talking about and understanding the company’s performance. An important instruction to the task force was to develop a system that would focus on communication and dialogue, rather than aggregation and monitoring. The CEO’s ambition was hence to regard the drivers and the front line managers as the principal users of the Goal board.

As the task force had defined a structure and developed the idea on how to use the Goal board for communication purposes, a bigger group of stakeholders were invited to participate in the actual creation of the Goal board’s content. Most of the indicators the group (all together some 60 persons) came up with, already existed in the organisation but was rarely measured and communicated in any systematic and comprehensive way. In addition to these traditional indicators, that most employees found face valid, some novel indicators were included that were derived from the company’s strategy.

The Goal board is divided into five parts, indicating different aspects of the operation that a unit manager needs to focus his, and his employees’ attention, on. The perspectives are: Profitability, Satisfied Customers, Common processes, Motivated employees and Efficiency. Each perspective is constituted of two to four indicators. The Goal board is identical for all units; hence all units rely on the same indicators to judge success, even though there may be contextual differences between the units. The Goal boards are thus focusing on the units’ similarities, rather than their differences, which is derived from the strategy that addresses Swebus’ choice to create competitive advantage through economies of scale.

In contrast to recent Scorecard literature, Swebus did not take advantage of Strategy Maps to make the relationships between the strategy and the scorecard explicit. Instead, the scorecard was created from scratch, built on an implicit understanding, in the extended task force, for the company’s goals and strategy.

The Goal board was finalised after the summer 2004, and was than physically created as a large screen of hard paper in a frame. On the screen the perspectives are printed in different colours. On each such area on the screen, A3 papers can be attached (in a physical paper clip). It is on these A3 papers, the indicators for each perspectives are described in visual and numerical format, indicating last month’s outcome, the historical development, the trend and the unit’s relative position vis-à-vis all other units in the organisation (in a ranking list).

During the autumn of 2004 these screens were produced for each of the 30 units, distributed to them and mounted on a central spot where drivers passed by. The first balanced performance report was posted on each unit’s Goal board in November 2004, including the unit’s local performance, comparison with other units as well as a verbal written comment by the unit manager.

Designing new dialogue processes

The new CEO’s main purpose for implementing scorecards was to create a feedback system that would allow all employees in the organisation to recognise their performance and engage them in a discussion on past achievements as well as future challenges. Prior to joining Swebus he hade worked in various industries, and come to learn from different organisations’ utilisation of feedback systems that would include all employees in the performance evaluation, not just the white-colour workers in the office.

From the introduction of Goal boards in November 2004, onwards the focus has been on monitoring and feedback of results. When the Goal boards were installed, no targets for the indicators were set. Instead, ex post dialogues – of what had been achieved – was focused. Eventually, a comparison became possible as time series developed, thereby allowing unit managers and drivers to see their development over time. Performance can also be compared with other units’ performance.

At this stage, the only future looking component of the Goal board is the trend diagram, which calculates what will happen in the future, for each indicator, if the unit continues to develop according to past performance.

Every month the head office runs a round of MBR, Monthly Business Reviews, with each unit manager. These sessions are organised as 30 minute telephone meetings, where the CEO and CFO discuss performance with each unit manger, based on the performance according to the Goal board. In addition to the CEO and CFO, also the business manager and his controller participate. The day before the MBR, typically the business manager and unit manager meet to analyse and discuss the performance, so they have a shared view on what has happened and what actions will be taken, when they report their achievements to the CEO and CFO.

The unit manager is not only responsible for reporting his performance to the head office, he is also responsible for communicating the results to his local organisation (typically around 200 drivers and some administrative personnel). The results are posted on A3 papers that are clipped on to the Goal board screen. The Goal board itself is typically placed somewhere in the unit’s main building where most drivers pass by, for example the cafeteria or the reception area. Not only the numbers (and diagrams) are posted on the screen, there is also a separate area, where the unit manager should comment on last month’s performance in written text. This is typically structured according to the perspectives in the Goal board, with some sentences for each of the indicators, explaining or analysing why the unit’s result turned out the way it did.

One comment that typically reoccurs is on the unit’s position in the ranking list. Since the same indicators are used by all units, and the environment differs for each unit, the managers often point out that (if their ranking is low), their ability to reach world class for the individual indicator is small because of this and that. Instead of looking at the ranking, the unit manager argues that the performance should be evaluated based on their own achievements.

At the same time, when the unit is taking places in the ranking list, the head office recommends the unit manager to celebrate these small wins. It does not take much to make a celebration, the issue is to remember to recognise the employees when they have made an effort. And the celebration can be as simple as a box of chocolate for everyone.

The most important benefit of having identical indicators, however, is that it stimulates a competitive climate. Since the units are defined according to geography, there is no specific focus on cooperation between them. Each unit’s prime responsibility is to operate in its region, and only if it has spare capacity, it should allow other units to borrow buses or drivers from them. Hence, the strategy does not require the units to cooperate. Rather, cooperation is appreciated when it takes place on a voluntary basis.

An example of competitive spirit that the Goal board has contributed to, is when units who share similar circumstances have decided to compete with each other on specific indicators. For example, two units in different regions have challenged each other on fuel consumption, so that the unit that looses have to pay breakfast for the drivers in the winning unit. The tournament runs on a monthly basis, so there is always a breakfast at stake every month.

When introducing the Goal boards, Swebus also ran a series of educational events for all employees, drivers as well as administrative personnel, so that they can engage in and analyse the performance reports. During the first year of operation the majority of all permanent employees have attended these training sessions.

Allocating roles and responsibilities

Swebus has allocated de facto roles in operating their Goal boards. The owner of the structure and indicators in the scorecards is the project steering group, which is identical with the company’s management team. The steering group allocates the administrative development and operation of the Goal board to the project group. Decisions on how to modify and operate the Goal board lies with the steering group, while their intentions are carried out by the project team.

The monthly production of the content in the Goal boards is a shared responsibility between the IT-department, who derive data for the indicators from existing databases and formats it in A3 sheets for each unit, highlighting each particular unit’s performance and ranking, and an external company who receives the information and then produces the paper sheets, envelopes them and sends them to each unit manager.

The unit manager, in his turn is responsible for sticking up the sheets on the Goal board screen and write his interpretation and comments on a separate A4 paper, which is also put on the screen.

The unit manager, together with his Business manager, is responsible for making a more thorough analysis of the performance to present to the CEO and CFO in the Monthly Business Reviews (MBR). Not only does this cover the performance and the trend, but also what actions the unit manager will take to assure that the performance is improved. In the MBR:s, the CEO also manifests that he considers himself an important participant in the operation of the scorecards, since he engages in dialogues based on them with each and every one of the 30 units.

Within each unit, the unit manager is responsible for making the Goal boards an interactive part of his feed back systems. The head office recommends the unit managers to refer to the Goal boards in talking about the future direction of the unit as well as relying on it when understanding how it has performed over the last period.

Corporate scorecards and unit scorecards

Swebus uses scorecards on two organisational levels: for each or the 30 operating units (running buses in a geographical area) and for the whole organisation. Prior to the scorecard, Swebus was organised in regions, with regional managers. But this structure was removed some time ago. Hence, there is no hierarchical level between operating units and CEO, and consequently no scorecard on this intermediate level.

The structure and indicators in the corporate scorecard is identical with the unit scorecards, but the values are aggregations of the outcome in the units. To Swebus, no alternative to this structure was considered, e.g. to use an HQ scorecard that would include indicators on how well the head office serves the operating units. Instead the overarching scorecard is a summary of how well the units are performing. Neither are there scorecards for specific functions, such as IT, HR etc. on how they align their intentions with the business strategy of the company.

More challenging than the decision to use an identical scorecard on the company level, as on the unit level, is the decision to use identical scorecards for all units. It can be argued, and it is argued among the units, that their particular circumstances are so different from each other, that the scorecards should be designed to reflect this. An indicator that has attracted a lot of attention, with reference to this, is fuel consumption per kilometre. Of course this indicator is relevant to all units, since fuel is a major cost in the operation, but the actual level differs greatly between different regions. Units who operate buses in metropolitan areas, who drive slow and have to start and stop repeatedly will have significant higher fuel consumption than units who operate on the countryside and drive at high speed with few starts and stops. The indicator is relevant to both, but the metropolitan unit will never be able to reach a top position in the ranking list, since their consumption by necessity is higher than the countryside operator.

Having identical numbers also result in scorecards that share the least common denominator, among the units. Instead of focusing on the most pressing strategic issues in each unit, that will probably differ depending on the landscape where they operate, the type of buses they have access to, what the funding body as well as the travelling customers appreciate and so on, the interest will focus on the more general aspects that are relevant to everyone.

The benefits of local scorecards, tailored for each specific unit, are however not greater than the benefits of common scorecards. Among the benefits with common scorecards are; possibility to compare with others, economies of scale in developing the scorecards (if each unit had been asked to develop their local scorecard, the process would probably not have been finished), as well as ability to design one set of IT-solutions and paper-based performance reports that can be used by all units.

A principal benefit is also that the common scorecard emphasise the economies of scale strategy. For many years, Swebus have chosen to gain competitive advantage by size and harmonised processes, and this is manifested in the Goal board: a certain way of operating a bus company. Being a Swebus operation, includes a set of requirement that the unit manager has to obey, regardless if he could find solutions, that in the particular situation could be more profitable for his own unit. Instead, streamlined processes, shared procedures and common IT-solutions are believed to result in more efficient corporate operation.

Scorecards and incentive systems

The Goal boards have not been formally integrated with the unit managers’ incentive systems. However, all managers have an incentive scheme that awards bonuses based on both financial performance and on some non-financial (personal) goals/indicators. Financial performance can be traced to the Profitability perspective in the Goal board, whereas the non-financial indicators in the incentive model are different for all unit managers. Some have decided to include indicators from the Goal board as basis for awarding bonus and others have come up with other goals, not relating to the Goal board at all.

The CEO of Swebus and the steering group has not yet made any formal decision on how the Goal boards will be integrated in the incentive packages, but it is likely that the bonus models will relate to the Goal boards in the future.

Using IT to operate the scorecards

Swebus has not invested in any elaborate IT-solution to operate the Goal boards. This is obvious, especially when looking at the most essential instrument used to communicate and analyse results – which are the physical screens that are placed in central places in each unit, as well as in the head office. A great deal of thought has gone into the creation of these screens, regarding for example layout and structure, as well as the mechanisms to post the A3 reports on them.

There are however some IT-solutions available to support the operation of the scorecards. Swebus is using an internal fileserver, organised in folders where information about the Goal board itself can be found. But also all performance reports (the A3 paper sheets) are stored in .pdf format in respective unit’s folder. In the same folder, the unit managers also store their written comments on the last month’s performance, hence making it available to others who do not have access to the physical board. The head office can access these documents in advance of the MBR, to be able to have a discussion with each unit manager on his situation as well as on what actions he plans to take. The head office also encourages unit managers to browse around on the fileserver to read through their peers’ documents, to get ideas on different initiatives that can be taken to develop the performance. The fileserver thus becomes a simple knowledge sharing system.

To create the performance reports for each unit, the Goal board maintenance group in the head office has developed an IT-solution, which helps them create the reports. This functionality access information form existing internal (and in some cases external) databases and formats it according to the structure and indicators in the Goal board. The documents are then sent to an external partner who produces the hard copies of the reports and mails them, with the specific unit’s performance highlighted, to every unit.

The unit managers rely solely on the paper based reports, and only use a word processor to write up their comments on performance. No IT-solution is used to analyse outcome and trends or managing the to-do-lists.

Conclusions

Swebus AB’s scorecard, their Goal board, is an interesting and good example of how BSC can be used to create dialogues in large and disbursed organisations. Little emphasis has been made to develop high-tech solutions on how to design and operate scorecards. Instead, an old fashioned bulletin board (however, in fancy design) is used together with the head office’s demonstrated interest in the content. This has resulted in the unit managers knowing that the scorecard is perceived by the CEO as the way performance and success is recognised. Hence, making it difficult, if not impossible, to neglect.

The Goal boards are identical for all units and on all levels. This has allowed Swebus to capture some economies of scale in producing the scorecards. The intellectual process to design structure and indicators was led by the head office, and the content was presented to different stakeholders along the way, to get their opinion on it. The head office, did not, as is sometimes recommended in literature ask the units to create their own scorecards to reflect their unique situation and the local strategies to reach their goals. One reason for this seams to be practical – few if any unit managers would have had the time and interest to engage in scorecard development from scratch. Instead, they were offered a common scorecard that would capture areas of assumed interest to any unit manager. This allowed the managers to focus on the outcome and try to improve this, rather than on designing the (more theoretical) performance evaluation framework. An additional benefit is also that shared indicators allow comparison between units. In this particular organisation, the idea of competition has been well received, and resulted in a mind set where improvements are celebrated, especially when they can be framed as advancement in the ranking list or on head to head competition with similar peer units. Finally, shared scorecards with common indicators can also be regarded as suitable since Swebus’ strategy is to gain competitive advantage by economies of scale. One strategic choice to this end, is that all Swebus units shall operate in the same way. The Goal board is thus an expression of this – it indicates to what degree the units operate according to the standards that have been defined for the whole company.

In practice, it seems as if scorecard utilisation can take two alternative approaches. One approach is to spend a lot of time on scorecard creation, drawing strategy maps that are derived from the written strategy documents and translating these into scorecards with critical success factors and performance indicators. At best, this planning exercise reaches all the way to target setting and monitoring of the new performance indicators. All too often, however, the organisation does not find the energy to follow through all the way, hence the scorecards end up as aspirations and plans for how they intend to evaluate performance and assure that the strategies are realised. The opposite practice – which Swebus is a very illustrative example of – is when the organisation puts all its energy into operating the scorecards. Thinking of Swebus’ decisions, most energy has been invested in creating the physical Goal boards and integrating the Goal boards in the way management talks about and reviews performance. Much time has also been spent on how to create reports where the units can see how they perform compared to their peers and compared to national targets. Less time has been spent on issues such as rethinking the strategy, explicitly linking the Goal board to the strategy or invite the unit managers to create their own, local, scorecards. Given Swebus’ intentions, with a strategy that focuses on economies of scale, and the unit managers’ lacking ex ante interest in the new performance management system, the choices that have been made in Swebus seem to be appropriate.





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 organisations realise 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 organisation’s BSC skills according to our computerised BSC Analyser and to download presentations from the document archive.
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