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April, 2009

Content of Making Scorecards Actionable Newsletter # 38 (2009)

» Suggestions from our readers

» Implementing scorecards at The Swedish Motor Vehicle Inspection Company

» New web-cast on diagnostic and interactive control

» What did you think about this newsletter?



SUGGESTIONS FROM OUR READERS

Thank you for all you comments on these newsletters and our book. One re-occurring theme in your comments is your wish for more case studies. We would therefore like to take this opportunity to encourage you to tell us about your scorecard experiences. Where ever you are, we are interested in your experiences – especially if you would like to share your knowledge and learnings with us and the rest of our readers. Please let us write a case story from your company together. Since much of our experiences are gained in Scandinavia and Northern Europe, we especially invite practitioners with scorecard experience form other parts of the world, e.g. from Asia and Africa.

In this newsletter we devote most of the space to an extensive case study from Sweden. The most important take-away from this story is the need to re-confirm scorecards as a management tool and not let it become a technical solution. The Swedish Motor Vehicle Inspection Company, deliberately avoided to introduce IT-issues during the first two years of its BSC-project, to emphasize it focus on management dialogues. Five years after the project was started, and three years after the introduction of the IT support system, many managers have come to think of the IT application when some one talks about scorecards. Our learning is that you can never be too explicit about BSC’s purpose as management tool, to prevent the interpretation of it as an IT system.

Please, also view our short web cast on YouTube, where Dr. Petri relates to the Harvard-professor Robert Simons two concepts diagnostic and interactive control.



IMPLEMENTING SCORECARDS AT THE SWEDISH MOTOR VEHICLE INSPECTION COMPANY

In this case study we describe Bilprovningen (The Swedish Motor Vehicle Inspection Company) and their introduction of Balanced Scorecards.

Bilprovningen is, by appointment of the Swedish government, solely responsible for inspecting all vehicles registered in Sweden. It is co-owned by the motor insurance companies, companies in the motor industry, the motor associations and the Swedish government.

Bilprovningen has 175 stations throughout Sweden, employs some 2000 persons and inspects approximately 4 million vehicles each year. Bilprovningen's competence, technical equipment and inspection methods are in many areas among the best in the world.

Last year we listened to a presentation by Bilprovningen’s chief controller where she described how Bilprovningen had implemented Balanced Scorecards throughout the whole organization. We were especially impressed by their efforts in the early stages of the scorecard project, as they had spent a lot of time with the field-organization (the 175 inspection stations all over Sweden) to assure their acceptance of the critical success factors and the new key performance indicators.

After digesting the controller’s presentation for some time, when went back to her to see if Bilprovningen would allow us to study the project in more in-depth. They agreed to let us interview individuals throughout the organization, in return for a written report where we summarized our impressions. Interviews where made from top to bottom: from the CEO Magnus Ehrenstråhle, via the chief controller to three regional managers. In addition, we also did three field visits at different inspection stations where we spoke both with station managers and employees in the inspection process.

Based on the interviews and the internal documents Bilprovningen shared with us we summed up our experiences in a report, which is about to be released by Bilprovningen within the coming month. In the following we give you a short summary of our findings.

INITIATING THE PROJECT. Magnus Ehrenstråhle, Bilprovningen’s CEO, was recruited to the company in 2001. When he joined Bilprovningen, his first initiative was to redesign the performance management system. Until then, much of the decision making had been centralized to the head office, outside Stockholm. Ehrenstråhle, instead, wanted to distribute the decision-making, such that decisions were made closer to the customers. His first initiative was to create a responsibility structure where station managers were allowed to make decisions regarding the actual operation of the station (still relying on centrally defined processes, regarding for example inspection methods, booking over the internet, et cetera). To allow this, a new profitability metric was defined, which promoted station managers to aim for local profitability. Stations managers were allowed to make local decisions as long as they achieved the profitability goals that were set.

After some years, Bilprovningen evaluated the experiences from decentralizing decision making to the stations and found that most of the experiences were very satisfying. However, when using a profitability indicator there is a risk that the focus become too short sighted. In 2004 a new project was initiated in order to update the control system to, simultaneously, allow decentralized decision making and create a more strategic focus. The purpose of the project (in our translation) was stated: “The traditional financial control system constitutes a too narrow basis for decision making. Broader management control focuses on managing with more indicators than just the financial. We want to create a more proactive control, instead of just evaluating what has happened. A better Management Control will help us manage the operation based on several perspectives and time horizons. Thus we will create a holistic understanding regarding the business in the whole organization. Management Control creates commitment and communication regarding our vision and our strategic goals. We will include as many employees as possible in the process of defining our key performance indicators that will be used in Bilprovningen. In the future, budgets, reports and possible incentive systems will be aligned with these performance indicators”.

GETTING BUY-IN FROM THE FIELD. In the project’s purpose statement it was explicitly articulated that as many employees as possible should be included in the effort to define Bilprovningen’s new performance indicators. This mission was taken seriously. Headed by Bilprovningen’s chief controller, all 175 station managers in the organization were invited to regional meetings where potential indicators were discussed. The station managers added their practical business knowledge to the development process where new indicators were defined. The controller and her colleagues (and some consultants) from the head office added methodological knowledge regarding balanced scorecard. Together these two groups co-created the content for the scorecard.

The head office had defined a set of requirements for Bilprovningen’s scorecard: there should not be too many indicators in the scorecard and all stations should use identical indicators. Through the regional meetings the project team got to learn which indicators were regarded relevant and self-explaining, and which were difficult for station managers to relate to. For practical reasons, and in the pursuit of gaining buy-in, indicators that were easily accepted by the field, were prioritized. In total this effort resulted in a scorecard with only twelve (!) indicators, covering the full operation of the field organization. Most station managers recognized the indicators in the final scorecard as a result of the consultation process, and accepted them as fair descriptions of the business of running an inspection station. The indicators were organized in four perspectives: stakeholders, employees, processes and finance. Examples of indicators were customer satisfaction index (individuals as well as companies), waiting time, employee- and manager satisfaction index, productivity, cost per inspection and gross margin.

One big difference between Bilprovningen and many other large organizations that are implementing scorecards is that Bilprovningen did not buy or develop a computer system in the early stages of the project. Instead they allowed the organization to suggest, discuss and redesign indicators that would eventually be used in the scorecard. Not until 2006, an IT-system for compilation, storage, analysis and presentation was launched and made available to the stations. This underscored the idea that scorecards were a new management instrument – a method to plan for and evaluate business’ performance – not a new IT system!

USING SCORECARDS IN CORPORATE DIALOGUES. Scorecards are used as the main mechanism for dialogues between station managers and their regional managers. Regional managers consult the computer system to get an impression regarding each station’s performance and use this information as a basis for his dialogues with the station manager. The regional managers argue that the scorecard is a good summary of the state of the station. It does not only show the financial outcome, but also what the station is doing to create these results (e.g. assuring employee satisfaction, which is assumed to correspond with customer satisfaction and internal productivity, which in turn will result in lower cost and better margins).

In addition to the numerical numbers in the scorecard (showing each month’s results) every station manager is also expected to reflect on the performance and share this reflection with his regional manager. This is done in the comments fields in the computerized system, where the station manager writes an explanation if some indicators do not live up to the expectation.

The regional managers’ scorecards are identical with the stations’ scorecards, except that the values are aggregates of the stations’ outcome in the region. This information is used by the regional managers when they report their region’s performance to the company’s CEO.

The local utilization of scorecards differs between stations. There have not been any mandatory instructions to the station managers on how they should use the scorecard in their internal dialogue with their employees at the station. Of course, the head office has recommended stations managers to use the scorecard to inform the employees on how the station (and Bilprovningen as a whole) is performing. But the station managers have not been offered any education or coaching on how to use this kind of new information to manage the business in a new way. Instead, station managers are expected to understand how they can use this more business grounded information to inform their employees by themselves. Most station managers confirm that it is easier to use indicators like customer satisfaction (rated on a five point scale) or waiting time in minutes, than more complicated financial indicators like gross margin, when they tell the employees at the station what is going on.

Some station managers regularly show the scorecard to the employees at the station (e.g. at the monthly meeting) informing them about the station’s performance. Others argue that their employees are not interested in statistics and figures, and therefore do not bother them with the scorecard. Instead they perceive the scorecard as a communication device, to be used by them and their regional manager.

In the initial phases of Bilprovningen’s development of scorecards they put a lot of effort into manifesting it as a management system – not an IT-system. It was not until two years after the inception of the project, Bilprovningen started to evaluate how the scorecards could be operationalized in computer system. This was a conscious decision, in order to demonstrate that the business issues were driving the technical solution. Not the other way around (which is unfortunately very often the case).

In the beginning, the scorecards were perceived as a management solution that would be used to spur discussions and dialogues in the organization regarding important business matters. The control system would not only focus on short term financial results, but also address what is creating these results, like e.g. how satisfied employees would affect customer satisfaction and productivity. This is a good illustration of what Robert Simons at Harvard talks about as Interactive Control system. An interactive control system is a management control system that focuses on a limited and highly important set of indicators and puts the spotlight on issues of strategic importance to spur a discussion regarding these in the company.

Three years down the road, however, many of the station managers seem to think of Bilprovningen’s balanced scorecard as the computer system that is available via the company’s intranet. Instead of a tool for discussion and dialogue (both up-stream and down-stream from the station manager’s point of view) scorecards are sometimes confused with the IT-system that delivers the data in the scorecard. In Robert Simons’ words, the control system has become diagnostic rather than interactive.

CONCLUSIONS. In Bilprovningen the scorecards have transformed from interactive to diagnostic. This is the most important take-away from this case description. When reading though the project documentation, it is obvious that the project team intended to create a management tool that would allow business oriented dialogues in the organization. This intention was emphasized by Bilprovningen’s reluctance to introduce a computer system to operationalize the scorecards too early in the project.

Nonetheless, after some years many station managers spontaneously think of the computer system when someone refers to “the scorecard”. This is the same observation as Sofie Roy made in her doctoral dissertation regarding the insurance company Skandia’s introduction of scorecards. Unless the scorecards’ purpose as a management system (driven by, and used by, individuals) is continuously re-confirmed there seem to be a tendency to shift focus: from using scorecards as a mechanism to describe strategy and monitor whether the company is following that path, to a notion where the scorecard is perceived as yet another business intelligence package.

Two other observations – that we have commented on in previous newsletters – are 1) the pros and cons of identical performance indicators for different units in the same organization and 2) whether the assumption that employees in general are not interested in performance reports is valid.

The benefit of identical indicators is, of course, that the scorecards are easier to operate (i.e. there are economies of scale in data acquisition, storage and presentation) and that indicators may become more legitimate (because every body else is measuring the same thing). The obvious problem with identical indicators is that they are not absolutely relevant to any unit. All units face different challenges, and therefore they should employ slightly different strategies. Hence, also the indicators should be different, reflecting different strategic intent. Otherwise, there is a risk that the indicators are only fairly relevant to all, but nor really relevant to anyone.

Our experience regarding employees’ interest in performance reports is, honestly, that they are rarely spontaneously interested in them. But, this does not mean that they are not interested in how the company is doing. On the contrary, most employees have an intrinsic interest in the place where they spent most of their time awake. However, the typical content and design of these reports do not invite persons with another background than finance, to pay attention to the reports! If the reports, instead, are presented in a user friendly way (when it comes to content and lay-out), and even marketed (in the same way as the company’s products are marked to its customers) most employees want to know how they are doing. Managers we meet, who have started to create an interest, among their colleagues, in the unit’s, department’s and company’s performance have witnessed that there is a tremendous interest in the company’s performance information. Hence, not showing the scorecards to the employees because “they are not interested” is not a practice we agree with. Your employees are inherently interested in how you are doing. So, if you don’t experience this interest, you need to develop your skills in presenting the performance information!

If you are interested in the full report (unfortunately only in Swedish), please send us a note and we will arrange that you will receive a copy from Bilprovningen. Please contact Carl-Johan at carl-johan.petri@makingscorecardsactionable.com, and he will help you.



NEW WEB-CAST ON DIAGNOSTIC AND INTERACTIVE CONTROL

In this month’s web cast Dr. Carl-Johan Petri gives a short introduction to professor Robert Simons’ concepts Diagnostic Control Systems (DCS) and Interactive Control Systems (ICS).

You find the clip on the following address:
http://www.youtube.com/watch?v=cowfYkTfiV4



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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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