HR Guides

6 Tips to Customize Your HR Dashboard

2008-10-21T00:29:00.000-07:00

6 Tips to Customize Your HR Dashboard

by Jeremy Shapiro

Six Tips to Customize Your HR Dashboard

What should your recruiting dashboard look like? To begin, it must be able to suit your organization’s many unique requirements and priorities. Creating the ideal dashboard is not easy, but it helps when designing it to visualize a car’s dashboard. A car’s dashboard tells you when there is danger, or when you should accelerate. In essence, great dashboards are visual representations of data used to make important decisions. Below are 6 tips to help your metrics team customize the best recruiting dashboard for your organization.

1 Set specific goals.

Each metric in a dashboard should have a target or target range by which to measure it. Creating a clear visual of where the organization is versus where the management’s target is will make evaluating progress much easier. You may want to set these targets by compiling management interviews and human resources priorities. This information can then be used to set the measurement goal against the organization’s desired performance. Ideally, the measurement goal will help you determine a hard dollar amount of savings or revenue increase (for example, decreasing turnover by 10 percent results in a 5 million dollar annual savings). It can also aid in tying back a stated executive priority (for example, we promote a culture of promoting from within).

2 Model your measures.

Say you have already determined your executive’s priorities. You now need to model what the metric will look like. How do you identify the data you will need or the best practices appropriate for this measure? Model your metric using dummy data in a spreadsheet first. Then validate your decisions by shopping the metric around for feedback.

www.hodesiQ.com 888.438.9911 hodes

3 Build your metrics.

This is the actual work of creating the metric using real data. If you have an ad hoc tool, this could be user-accessible; if not, you may need to enlist a technical resource to build your reports. In the latter instance, modeling the metrics (see Tip 2) becomes critical to your success as your report developer will need to

understand exactly what the report is supposed to do.

4 Build your dashboard.

Think of your dashboard as a collection of well-focused reports on one page. After creating your reports, think about how to best represent them on a single page

using graphs and other design techniques.

5 Care for your data.

The information you need may be housed in several different places. Someone needs to care for this data; this includes ensuring users of the technology supporting you (HRIS, ATS, TMS, etc.) complete the information you need. This also includes surveys. A little data maintenance now will save you hours of data

repair later.

6 Validate your results.

Without validation, your organization could easily misrepresent your data.

Check your assumptions with peers, managers in different departments, and

even with Finance.

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Jeremy Shapiro is the Vice President of E-Recruiting Solutions at Bernard Hodes Group. Over the past 11 years, Jeremy has coached hundreds of companies through challenging recruiting technology implementations across industries and sizes. Jeremy is a frequent speaker and author on current/emerging recruiting technology topics, most recently contributing to the HR metrics book "Ultimate Performance" (Wiley, 2006). Jeremy holds an M.S. in Information Systems from NYU’s Stern School of Business and a B.A. in Economics from Rutgers University. He is an advisor to the industry metrics consortium HRMetrics.org.

Performance Management- Ten Steps to Bridge Strategy and Execution

2008-10-20T02:11:00.001-07:00

Performance Management- Ten Steps to Bridge Strategy and Execution
By Matt Angello and Ira S Wolfe

Many organizations struggle with executing their business plans. The root cause of this struggle can be as varied as the businesses themselves. The purpose of this document is to provide leaders with the ten essential steps to move an organization from strategy to execution.

Unlocking the potential of your organization requires discipline of definition, communication and alignment. Without these disciplines, your business “plans” will become at best, broken dreams and unfilled “hopes.” The following ten steps will guide your organization on the disciplined path to a successful future.

Step 1- Determine the Destination. Before an organization can move forward, every employee needs to know the destination. This destination is typically “charted” through clearly and concisely articulated vision, mission and values statements. Vision is an
organization’s reason for existence and long-term desired state. It answers the question “who are we and what do we want to be?” It often includes a reference to the competitive set, e.g. size, profitability, market share, positioning, etc. Without a vision, an
organization will lack purpose, passion and energy. Mission usually describes the enablers of the vision (“how” it will be achieved), often including references to customers, suppliers and employees. Finally, values describe the inviolable beliefs and guiding principles of the organization, which govern the behavior of everyone in the organization.

Step 2- Set the Course. Charting the course to the destination ensures that everyone is moving in the right direction. This is accomplished through strategic and operating plans. Strategic plans set the course over a time horizon, typically 3-5 years. These plans include detailed strategies for achieving the vision of the organization over time (market share, profitability, sales growth, product development, entering/exiting markets, etc). To be effective, the strategic plan must lay-out in clear terms what is expected, the current gaps to these expectations, detailed descriptions of the actions to close the gaps and the specified time to do so. Strategic plans are not broadly communicated to employees.

Operating plans are the distillation of the strategic plan over a shorter planning horizon, usually annual. They specify the deliverables of the strategic plan, including objectives and specific/measureable outcomes which must be achieved within specified time frames
and budgets. Operating plans must be broadly communicated to employees to ensure that everyone is on the proper course.

Step 3- Spread the News. Ensure that the key operating plan objectives are disseminated from executive management to employees. This is an opportunity with high engagementbuilding potential for many organizations. Because executive management spends so much time discussing the business with one-another, they tend to assume that employees share their understanding of the key priorities. Absent disciplined communication, this transfer simply does not happen. Start the process by establishing an “owner” for each of the objectives in the operating plan, and communicating the expectation to them. These individuals may or may not have been involved in establishing the objective as part of the planning process. This step ensures that there is no ambiguity as to who is responsible to champion and deliver the initiative. Diffuseness of responsibility is a sure-fire first step to non-execution.

Step 4- Be Clear. Ensure there is clarity around the delivery date and the financial value of the respective objectives. If dates and/or target values change after the creation of the operating plan, the owner of the objective needs to know.

Step 5- Name the Team. The owner of the objective must take the time to identify all of the participants who need to be engaged in the achievement of the objective through a “cascade” process. Additionally, they need to ensure (either directly or through a review process) that each participant has an appropriate success measure for their component and an agreed upon time frame for its delivery. Of course, the components and dates need to build in a logical progression to achieve the objective as outlined in the operating plan.

This is typically accomplished in the context of a project plan, which should readily identify all the individuals who have a role to play. The goal alignment process associated with any objective should not stop until the individual contributors to that
objective are identified. It is important to remember that all of the participants in the achievement of an objective will not necessarily fall into the reporting structure of the leader.

Step 6- First things First, Significant power results when every employee is linked either directly or indirectly to one of the operating objectives. Many linkages will be identified through the cascade process described above, but others will not. If they cannot, then identify other SMART objectives, tied closely to operating performance using the process outlined in the following steps.

Step 7- Define Success. Each employee should have no more than five SMART objectives, i.e. Specific, Measurable, Attainable, Realistic and Time-bound. If the objective outgrows a project plan, the measures in the project plan should be used for the
individual employee. If not, then focus on objectives that are directly or indirectly tied to the attainment of operating plan drivers, and/or to the most important department deliverables. Avoid low impact, work tasks becoming listed as objectives.

 Step 8- Break Ties. It is possible that employees will have conflicting objectives. There needs to be a process to break ties. It cannot be as simple as the immediate manager review, because they may not share accountability with their employee for a particular objective. An example of this could surface in the project planning teams previously discussed, where a department employee, but not necessarily the manager, could play a critical role. In this case, the project manager needs to be involved in the decision as to which objectives take precedence. To ensure an adequate review of objectives, a twolevel approval process is preferred. This process requires that all objectives are reviewed and approved by the second level manager. To the extent that there is a conflict with a project team leader and a department manager, the conflict will be resolved with the second level manager.

 Step 9- Stay Fluid and Think Linked. Objectives are not evergreen. Priorities have a way of changing with the ebbs and flows of market conditions. Be aware that every time a critical business initiative changes in part or in whole, the objectives of all those
employees who are tied to that initiative must be revisited. To ensure that you do not miss the opportunity to stay linked to changing requirements, managers and employees should revisit their objectives on a regular basis informally, and formally once per quarter. Post the objectives in an obvious location and keep them top of mind. Managers and project leaders should ask to review the objectives when meeting with employees. There are a number of software solutions that are available in the marketplace to assist with this process.

 Step 10- Dance with Your Stars. Linking pay and incentives in part or in whole to performance against objectives has been demonstrated time and again to have a positive impact on their achievement and company results. High performers embrace such plans, particularly those that provide direct “line of sight,” meaning there is a direct relationship between the employee’s performance and their pay. Weaker performers do not like such programs for obvious reasons. A strongly aligned objective process, as described above provides the best basis for making development, pay and promotion decisions that motivate your star performers and establishes a foundation of performance excellence organization-wide.

About the Authors
Matthew Angello, Principal Consultant and Executive Coach
Matt Angello brings over 25 years of business experience to his practice as a consultant and executive coach, including several years as a Board-Level Executive Officer in Fortune 500 companies. He is an accomplished strategist with expertise in executive and team coaching, organization development, change management, performance and process improvement, and communications. He has experience as both an independent consultant/business owner and global business executive across multiple industries and for companies in various stages of their business cycle.

Matt is the Founder and Principal of Bright Tree Consulting Group, a boutique firm that offers an array of highly personalized and effective coaching and consulting services for executives and companies seeking to unleash their potential, move their performance to the next level and prepare for future challenges. He has partnered with many CEO’s, Boards of Directors and other “C-Level” executives to improve their effectiveness. His clients include start-ups, privately held companies and Fortune 500 global firms. He is an accomplished coach, strategist, team builder and people developer with a global track record. Matt is a recognized human capital expert, and has been quoted in The Wall Street Journal, Human Resources Executive and other publications. He has been the featured speaker at many seminars and has served on the Board of Directors of national organizations. He received his BA from the University of Pittsburgh and an MS from Rutgers University.

Ira Wolfe, Assessment Consultant and Executive Coach
Ira Wolfe brings nationally recognized expertise in personality and skill assessment to his role at Bright Tree Consulting Group. As founder and president of his own consulting company, Success Performance Solutions, Ira has helped organizations across the United States find and hire the right employees, align people with business operating objectives, and identify high-potential leaders.

In 1999 Ira delivered a provocative and compelling forecast of the 10 and 20 year labor market. It wasn't long before Ira found himself speaking to audiences all over North America about The Perfect Labor Storm, resulting in the 2005 publication of a book by the same name. His newest book, The Perfect Labor Storm 2.0: Workforce Trends That Will Change The Way You Do Business has been described by readers as "fantastic," "outstanding," and "required reading for every Human Resource Professional, business owner, and elected official." Ira is also the author of Understanding Business Values and Motivators. Ira has trademarked a highly successful system, called CriteriaOne®, to assist organizations in job benchmarking, employee selection, and managing performance.

Ira is a highly sought-after expert for interviews in dozens of publications, including The Wall Street Journal and BusinessWeekOnline, as well as being the frequent guest on several business cable news shows discussing workforce trends, employee hiring and retention strategies. Ira has been the featured keynote at a wide variety of conferences, conventions, association meetings and Chamber of Commerce audiences, reaching thousands of business leaders and human resource professionals every year.

Ira started his career as a highly successful dentist who grew a large practice in central Pennsylvania. The need to hire the right staff piqued his interest in assessment and he pursued this field with intensity, ultimately achieving his current prominence as a national expert. He received his B.S. degree from Muhlenberg College and his DMD degree from University of Pennsylvania. He is nearing completion of his Master's Degree in Leadership and Ethics at Duquesne University.

To contact the authors:
Bright Tree Consulting Group
www.brighttreecg.com
Matt Angello: mjangello@brighttreecg.com
Phone: (717) 892-6703
Ira S Wolfe: iwolfe@brighttreecg.com
Phone: (717) 333.8286

Balanced scorecard

2008-09-22T19:10:00.001-07:00

From Wikipedia, the free encyclopedia

The Balanced Scorecard (BSC) is a performance management tool which began as a concept for measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy.

By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs to these, the Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests.

Organisations were encouraged to measure - in addition to financial outputs - what influenced such financial outputs. For example, process performance, market share / penetration, long term learning and skills development, and so on.

The underlying rationale is that organisations cannot directly influence financial outcomes, as these are "lag" measures, and that the use of financial measures alone to inform the strategic control of the firm is unwise. Organisations should instead also measure those areas where direct management intervention is possible. In so doing, the early versions of the Balanced Scorecard helped organisations achieve a degree of "balance" in selection of performance measures. In practice, early Scorecards achieved this balance by encouraging managers to select measures from three additional categories or perspectives: "Customer," "Internal Business Processes" and "Learning and Growth."

History

In 1993, Robert S. Kaplan and David P. Norton began publicizing the Balanced Scorecard through a series of journal articles. In 1996, they published the book The Balanced Scorecard.

Since the original concept was introduced, Balanced Scorecards have become a fertile field of theory, research and consulting practice. The Balanced Scorecard has evolved considerably from its roots as a measure selection framework. While the underlying principles were sound, many aspects of Kaplan & Norton's original approach were unworkable in practice. Both in firms associated with Kaplan & Norton (Renaissance Solutions Inc. and BSCOL), and elsewhere (Cepro in Sweden, and 2GC Active Management in the UK), the Balanced Scorecard has changed so that there is now much greater emphasis on the design process than previously. There has also been a rapid growth in consulting offerings linked to Balanced Scorecards at the level of branding only. Kaplan & Norton themselves revisited Balanced Scorecards with the benefit of a decade's experience since the original article.

Having realized the shortcomings of traditional management control systems, Kaplan and Norton designed the Balanced Scorecard as a result of a one-year research project involving 12 companies.

Since its introduction, the Balanced Scorecard has been awarded a prize by the American Accounting Association as the "best theoretical contribution in 1997", and its industry and academic attention has placed it alongside approaches such as Activity Based Costing and Total Quality Management.

The Balanced scorecard is a tool to execute and monitor the organizational strategy by using a combination of financial and non-financial measures. It is designed to translate vision and strategy into objectives and measures across four balanced perspectives: financial, customers, internal business process and learning and growth. It gives a framework ensuring that the strategy is translated into a coherent set of performance measures.

Use

Implementing Balanced Scorecards typically includes four processes:

Translating the vision into operational goals;
Communicating the vision and link it to individual performance;
Business planning;
Feedback and learning, and adjusting the strategy accordingly.

The Balanced Scorecard is a framework, or what can be best characterized as a "strategic management system" that claims to incorporate all quantitative and abstract measures of true importance to the enterprise. According to Kaplan and Norton, "The Balanced Scorecard provides managers with the instrumentation they need to navigate to future competitive success".

Many books and articles referring to Balanced Scorecards confuse the design process elements and the Balanced Scorecard itself. In particular, it is common for people to refer to a "strategic linkage model" or "strategy map" as being a Balanced Scorecard.

Although it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that the Balanced Scorecard itself has no role in the formation of strategy. In fact, Balanced Scorecards can comfortably co-exist with strategic planning systems and other tools.

Original methodology

The earliest Balanced Scorecards comprised simple tables broken into four sections - typically these "perspectives" were labeled "Financial", "Customer", "Internal Business Processes", and "Learning & Growth". Designing the Balanced Scorecard required selecting five or six good measures for each perspective.

Many authors have since suggested alternative headings for these perspectives, and also suggested using either additional or fewer perspectives. These suggestions were notably triggered by a recognition that different but equivalent headings would yield alternative sets of measures. The major design challenge faced with this type of Balanced Scorecard is justifying the choice of measures made. "Of all the measures you could have chosen, why did you choose these?" This common question is hard to ask using this type of design process. If users are not confident that the measures within the Balanced Scorecard are well chosen, they will have less confidence in the information it provides. Although less common, these early-style Balanced Scorecards are still designed and used today.

In short, early-style Balanced Scorecards are hard to design in a way that builds confidence that they are well designed. Because of this, many are abandoned soon after completion.

Improved methodology

In the mid 1990s, an improved design method emerged. In the new method, measures are selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or "strategy map". With this modified approach, the strategic objectives are typically distributed across a similar set of "perspectives", as is found in the earlier designs, but the design question becomes slightly less abstract.

Managers have to identify five or six goals within each of the perspectives, and then demonstrate some inter-linking between these goals by plotting causal links on the diagram. Having reached some consensus about the objectives and how they inter-relate, the Balanced Scorecard is devised by choosing suitable measures for each objective. This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through. This style of Balanced Scorecard has been commonly used since 1996 or so.

Several design issues still remain with this enhanced approach to Balanced Scorecard design, but it has been much more successful than the design approach it superseded.

In the late 1990s, the design approach had evolved yet again. One problem with the "2nd generation" design approach described above was that the plotting of causal links amongst twenty or so medium-term strategic goals was still a relatively abstract activity. In practice it ignored the fact that opportunities to intervene, to influence strategic goals are, and need to be anchored in the "now;" in current and real management activity. Secondly, the need to "roll forward" and test the impact of these goals necessitated the creation of an additional design instrument; the Vision or Destination Statement. This device was a statement of what "strategic success," or the "strategic end-state" looked like. It was quickly realised, that if a Destination Statement was created at the beginning of the design process then it was much easier to select strategic Activity and Outcome objectives to respond to it. Measures and targets could then be selected to track the achievement of these objectives. Destination Statement driven, or 3rd Generation Balanced Scorecards represent the current state of the art in Scorecard design.

Popularity

Kaplan and Norton found that companies are using Balanced Scorecards to:

Drive strategy execution;
Clarify strategy and make strategy operational;
Identify and align strategic initiatives;
Link budget with strategy;
Align the organization with strategy;
Conduct periodic strategic performance reviews to learn about and improve strategy.

In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the Balanced Scorecard.

Balanced Scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organizations, and schools.

Many examples of Balanced Scorecards can be found via Web searches. However, adapting one organization's Balanced Scorecard to another is generally not advised by theorists, who believe that much of the benefit of the Balanced Scorecard comes from the implementation method. Indeed, it could be argued that many failures in the early days of Balanced Scorecard could be attributed to this problem, in that early Balanced Scorecards were often designed remotely by consultants. Managers did not trust, and so failed to engage with and use these measure suites created by people lacking knowledge of the organisation and management responsibility.

Variants, Alternatives and Criticisms

Since the late 1990s, various alternatives to the Balanced Scorecard have emerged, such as The Performance Prism, Results Based Management and Third Generation Balanced Scorecard. These tools seek to solve some of the remaining design issues, in particular issues relating to the design of sets of Balanced Scorecards to use across an organization, and issues in setting targets for the measures selected.

Applied Information Economics (AIE) has been researched as an alternative to Balanced Scorecards. In 2000, the Federal CIO Council commissioned a study [1] to compare the two methods by funding studies in side-by-side projects in two different agencies. The Dept. of Veterans Affairs used AIE and the US Dept. of Agriculture applied Balanced Scorecards. The resulting report found that while AIE was much more sophisticated, AIE actually took slightly less time to utilize. AIE was also more likely to generate findings that were newsworthy to the organization, while the users of Balanced Scorecards felt it simply documented their inputs and offered no other particular insight. However, Balanced Scorecards are still much more widely used than AIE.^{[citation needed]}

A criticism of Balanced Scorecards is that the scores are not based on any proven economic or financial theory, and therefore have no basis in the decision sciences. The process is entirely subjective and makes no provision to assess quantities (e.g., risk and economic value) in a way that is actuarially or economically well-founded.

Another criticism is that the Balanced Scorecard does not provide a bottom line score or a unified view with clear recommendations: it is simply a list of metrics [2].

Some people also claim that positive feedback from users of Balanced Scorecards may be due to a placebo effect, as there are no empirical studies linking the use of Balanced Scorecards to better decision making or improved financial performance of companies.

The Four Perspectives

The grouping of performance measures in general categories (perspectives) is seen to aid in the gathering and selection of the appropriate performance measures for the enterprise. Four general perspectives have been proposed by the Balanced Scorecard:

Financial Perspective;
Customer Perspective;
Internal process Perspective;
Innovation & Learning Perspective.

The financial perspective examines if the company's implementation and execution of its strategy are contributing to the bottom-line improvement of the company. It represents the long-term strategic objectives of the organization and thus it incorporates the tangible outcomes of the strategy in traditional financial terms. The three possible stages as described by Kaplan and Norton (1996) are rapid growth, sustain and harvest. Financial objectives and measures for the growth stage will stem from the development and growth of the organization which will lead to increased sales volumes, acquisition of new customers, growth in revenues etc. The sustain stage on the other hand will be characterized by measures that evaluate the effectiveness of the organization to manage its operations and costs, by calculating the return on investment, the return on capital employed, etc. Finally, the harvest stage will be based on cash flow analysis with measures such as payback periods and revenue volume. Some of the most common financial measures that are incorporated in the financial perspective are EVA, revenue growth, costs, profit margins, cash flow, net operating income etc.

The customer perspective defines the value proposition that the organization will apply in order to satisfy customers and thus generate more sales to the most desired (i.e. the most profitable) customer groups. The measures that are selected for the customer perspective should measure both the value that is delivered to the customer (value position) which may involve time, quality, performance and service and cost and the outcomes that come as a result of this value proposition (e.g., customer satisfaction, market share). The value proposition can be centered on one of the three: operational excellence, customer intimacy or product leadership, while maintaining threshold levels at the other two.

The internal process perspective is concerned with the processes that create and deliver the customer value proposition. It focuses on all the activities and key processes required in order for the company to excel at providing the value expected by the customers both productively and efficiently. These can include both short-term and long-term objectives as well as incorporating innovative process development in order to stimulate improvement. In order to identify the measures that correspond to the internal process perspective, Kaplan and Norton propose using certain clusters that group similar value creating processes in an organization. The clusters for the internal process perspective are operations management (by improving asset utilization, supply chain management, etc), customer management (by expanding and deepening relations), innovation (by new products and services) and regulatory & social (by establishing good relations with the external stakeholders).

The Innovation & Learning Perspective is the foundation of any strategy and focuses on the intangible assets of an organization, mainly on the internal skills and capabilities that are required to support the value-creating internal processes. The Innovation & Learning Perspective is concerned with the jobs (human capital), the systems (information capital), and the climate (organization capital) of the enterprise. These three factors relate to what Kaplan and Norton claim is the infrastructure that is needed in order to enable ambitious objectives in the other three perspectives to be achieved. This of course will be in the long term, since an improvement in the learning and growth perspective will require certain expenditures that may decrease short-term financial results, whilst contributing to long-term success.

Key Performance Indicators

According to each perspective of the Balanced Scorecard, a number of KPIs can be used such as:

Financial

Cash flow
ROI
Financial Result
Return on capital employed
Return on equity

Customer

Delivery Performance to Customer - by Date
Quality Performance to Customer - by Quality
Customer satisfaction rate
Customer Loyalty
Customer retention

Internal Business Processes

Number of Activities
Opportunity Success Rate
Accident Ratios
Overall Equipment Effectiveness

Learning & Growth

Investment Rate
Illness rate
Internal Promotions %
Employee Turnover
Gender/Racial Ratios

Further lists of general and industry-specific KPIs can be found in the case studies and methodological articles and books presented in the references section.

References

Douglas W. Hubbard "How to Measure Anything: Finding the Value of Intangibles in Business" John Wily & Sons, 2007. ISBN 978-0470110126

Cobbold, I. and Lawrie, G. (2002a). "The Development of the Balanced Scorecard as a Strategic Management Tool". Performance Measurement Association 2002

Cobbold, I and Lawrie, G (2002b). "Classification of Balanced Scorecards based on their effectiveness as strategic control or management control tools". Performance Measurement Association 2002.

International Controller Association: Statement Balanced Scorecard; Gauting, Germany, 2003

Kaplan R S and Norton D P (1992) "The balanced scorecard: measures that drive performance", Harvard Business Review Jan Feb pp71-80.

Kaplan R S and Norton D P (1993) "Putting the Balanced Scorecard to Work", Harvard Business Review Sep Oct pp2-16.

Kaplan R S and Norton D P (1995) "Chemical Bank: Implementing the Balanced Scorecard" Harvard Business School Press

Kaplan R S and Norton D P (1996) "Using the balanced scorecard as a strategic management system", Harvard Business Review Jan Feb pp75-85.

Kaplan R S and Norton D P (1996) "Balanced Scorecard: Translating Strategy into Action" Harvard Business School Press

Kaplan, R. S., & Norton, D. P. (2004). Measuring the strategic readiness of intangible assets. Harvard Business Review, 82(2): 52-63.

Kaplan, R. S., & Norton, D. P. (2004). Strategy maps: Converting intangible assets into tangible outcomes. Boston: Harvard Business School Press.

Kurtzman J (1997) "Is your company off course? Now you can find out why", Fortune Feb 17 pp128- 30

Niven, Paul R. (2006) "Balanced Scorecard. Step-by-step. Maximizing Performance and Maintaining Results".

Per Nikolaj Bukh & Teemu Malmi "Re-Examining the Cause-and-Effect Principle of the Balanced Scorecard"

Norreklit H. (2000), The balance on the balanced scorecard - a critical analysis of some of its assumptions, Management Accounting Research, 11, pp. 65-88.

Papalexandris, A., Ioannou, G. and Prastacos, G.P. (2004) Implementing the Balanced Scorecard in Greece: a software firm's experience. Long Range Planning, 37(4), 347-362.

Papalexandris, A., Ioannou, G., Prastacos, G.P. and Soderquist, K.E. (2005) An integrated methodology for putting the Balanced Scorecard into action. European Management Journal, 23(2), 214-227.
Voelper S., Leibold M., Eckhoff R., Davenport T. (2006), The tyranny of the Balanced Scorecard in the innovation economy, Journal of Intellectual Capital, Vol. 7, n° 1, pp. 43-60.

Software tools

Many firms choose to use standard office software (such as spreadsheets, word processors, presentation software) to provide the same functions as are provided by commercial software packages - trading the time taken to develop the appropriate templates in the packages and then use them against the typically high cost of commercial Balanced Scorecard software packages / services.

source http://en.wikipedia.org/wiki/Balanced_scorecard

Case Studies For Case-Based Classes

2008-08-13T03:04:00.001-07:00

Case studies challenge students by bringing them as close as possible to business situations of the real world. Cases spark lively discussion in class and provide management lessons that students can put into practice in their professional lives. http://harvardbusinessonline.hbsp.harvard.edu/b02/en/academic/edu_teachres_case_based_courses.jhtml Below is an updated list of new and popular cases for your M.B.A. courses.

Accounting & Control
	Bridgeton Industries: Automotive Component & Fabrication Plant
	Citibank: Performance Evaluation
	Destin Brass Products Co.
	Kanthal (A)
	Microsoft's Financial Reporting Strategy
	Vyaderm Pharmaceuticals

Business & Government
	China: Facing The 21st Century
	Chiquita Brands International (A)
	European Monetary Union
	Forever: De Beers and U.S. Antitrust Law

Competitive Strategy
	Airborne Express (A)
	Apple Computer-2002
	BMG Entertainment
	Leadership Online (A): Barnes & Noble vs. Amazon.Com
	Matching Dell
	Nucor at a Crossroads
	Ready-To-Eat Breakfast Cereal Industry in 1994 (A)
	Walt Disney Co.: The Entertainment King

Entrepreneurship
	Howard Schultz and Starbucks Coffee Co.
	Icedelights
	Ingvar Kamprad and Ikea
	Johnsonville Sausage Co. (A)
	Nantucket Nectars
	Vermeer Technologies (A): A Company is Born
	Walnut Venture Associates (A): RBS Group Investment Memorandum
	Zipcar: Refining the Business Model

Finance
	Acquisition of Consolidated Rail Corp. (A)
	Airbus A3XX: Developing The World's Largest Commercial Jet (A)
	Arundel Partners: The Sequel Project
	Clarkson Lumber Co.
	Interco
	Marriott Corp.: The Cost of Capital (Abridged)
	MCI Communications Corp.-1983
	Netscape's Initial Public Offering

General Management
	Body Shop International
	BRL Hardy: Globalizing an Australian Wine Company
	EMI and the CT Scanner (A)
	GE's Two-Decade Transformation: Jack Welch's Leadership
	Lincoln Electric: Venturing Abroad
	McKinsey & Co.: Managing Knowledge and Learning
	Philips Vs. Matsushita: A New Century, A New Round

Human Resources Management
	Cirque Du Soleil
	General Dynamics: Compensation and Strategy (A)
	John Smithers at Sigtek
	Merck & Co., Inc. (A)
	Nordstrom: Dissension in the Ranks? (A)
	People Express Airlines: Rise and Decline
	SG Cowen: New Recruits
	Slade Plating Department

Management Of Information Systems
	Buckman Laboratories (A)
	Caregroup
	Charles Schwab Corp. (A)
	Cisco Systems Architecture: ERP and Web-Enabled IT
	Mrs. Fields Cookies
	Providian Trust: Tradition and Technology (A)
	Wyndham International: Fostering High-Touch with High-Tech

Marketing
	Barco Projection Systems (A): Worldwide Niche Marketing
	Biopure Corp.
	Black & Decker Corp. (A): Power Tools Division
	Calyx & Corolla
	Citibank: Launching The Credit Card In Asia Pacific (A)
	Cumberland Metal Industries: Engineered Products Division1980
	Eastman Kodak Co.: Funtime Film
	Tivo

Negotiations
	Beauregard Textile Co.
	C.K. Coolidge, Inc. (A)
	Frasier (A)
	L.L. Bean, Inc.: Item Forecasting and Inventory Management
	Luna Pen (A)

Operations Management
	Barilla Spa (A)
	Ford Motor Co.: Supply Chain Strategy
	iPremier Co.: Denial of Service Attack (A)
	Manzana Insurance: Fruitvale Branch (Abridged)
	Sport Obermeyer Ltd.
	Toyota Motor Manufacturing, U.S.A., Inc.

Organizational Behavior & Leadership
	Charlotte Beers at Ogilvy & Mather Worldwide (A)
	Erik Peterson (A)
	Firmwide 360-Degree Performance Evaluation Process at Morgan Stanley
	Meg Whitman at Ebay, Inc. (A)
	Rob Parson at Morgan Stanley (A)
	Rudi Gassner and the Executive Committee of BMG International (A)
	Taran Swan at Nickelodeon Latin America (A)
	Wolfgang Keller at Konigsbrau-Hellas A.E. (A)

Service Management
	Benihana of Tokyo
	Euro Disney: The First 100 Days
	Jetblue Airways: Starting From Scratch
	NYPD New
	Southwest Airlines--1993 (A)

Social Enterprise & Ethics
	Accounting Fraud at WorldCom
	Analyst's Dilemma (A)
	Conflict on a Trading Floor (A)
	Levi Strauss & Co.: Global Sourcing (A)
	Martha McCaskey
	Merck Sharp & Dohme Argentina, Inc. (A)
	Royal Dutch/Shell in Nigeria (A)
	Sears Auto Centers (A)

http://harvardbusinessonline.hbsp.harvard.edu/b02/en/academic/edu_teachres_case_based_courses.jhtml

balanced scorecard - kaplan and norton's organizational performance management tool

2008-08-13T02:56:00.001-07:00

balanced scorecard

kaplan and norton's organizational performance management tool

In the beginning was darkness. We went to work, did our job (well or otherwise) and went home - day in and day out. We did not have to worry about targets, annual assessments, metric-driven incentives, etc. Aahh life was simple back then.

Then there came light. Bosses everywhere cast envious eyes towards our transatlantic cousins whose ambition was to increase production and efficiency year-by-year. Like eager younger siblings we trailed behind them on the (sometimes) thorny path to enlightenment.

Early Metric-Driven Incentives - MDIs - were (generally) focused on the financial aspects of an organization by either claiming to increase profit margins or reduce costs. They were not always successful, for instance driving down costs could sometimes be at the expense of quality, staff (lost expertise) or even losing some of your customer base.

Two eminent doctors (Robert S Kaplan and David P Norton) evolved their Balanced Scorecard system from early MDIs and jointly produced their (apparently) ground-breaking book in 1996. Many other 'gurus' have jumped on the Balanced Scorecard wagon and produced a plethora of books all purporting to be the 'Definitive' book on Balanced Scorecards. Amazon.com shows over 4,000 books listed under Balanced Scorecards, so take your pick - and your chances!

balanced scorecard - definition

What exactly is a Balanced Scorecard? A definition often quoted is: 'A strategic planning and management system used to align business activities to the vision statement of an organization'. More cynically, and in some cases realistically, a Balanced Scorecard attempts to translate the sometimes vague, pious hopes of a company's vision/mission statement into the practicalities of managing the business better at every level.

A Balanced Scorecard approach is to take a holistic view of an organization and co-ordinate MDIs so that efficiencies are experienced by all departments and in a joined-up fashion.

To embark on the Balanced Scorecard path an organization first must know (and understand) the following:

The company's mission statement
The company's strategic plan/vision

Then

The financial status of the organization
How the organization is currently structured and operating
The level of expertise of their employees
Customer satisfaction level

The following table indicates what areas may be looked at for improvement (the areas are not exhaustive and are often company-specific):

balanced scorecard - factors examples

Department	Areas
Finance	Return On Investment Cash Flow Return on Capital Employed Financial Results (Quarterly/Yearly)
Internal Business Processes	Number of activities per function Duplicate activities across functions Process alignment (is the right process in the right department?) Process bottlenecks Process automation
Learning & Growth	Is there the correct level of expertise for the job? Employee turnover Job satisfaction Training/Learning opportunities
Customer	Delivery performance to customer Quality performance for customer Customer satisfaction rate Customer percentage of market Customer retention rate

Once an organization has analysed the specific and quantifiable results of the above, they should be ready to utilise the Balanced Scorecard approach to improve the areas where they are deficient.

The metrics set up also must be SMART (commonly, Specific, Measurable, Achievable, Realistic and Timely) - you cannot improve on what you can't measure! Metrics must also be aligned with the company's strategic plan.

A Balanced Scorecard approach generally has four perspectives:

Financial
Internal business processes
Learning & Growth (human focus, or learning and development)
Customer

Each of the four perspectives is inter-dependent - improvement in just one area is not necessarily a recipe for success in the other areas.

balance scorecard implementation

Implementing the Balanced Scorecard system company-wide should be the key to the successful realisation of the strategic plan/vision.

A Balanced Scorecard should result in:

Improved processes
Motivated/educated employees
Enhanced information systems
Monitored progress
Greater customer satisfaction
Increased financial usage

There are many software packages on the market that claim to support the usage of Balanced Scorecard system.

For any software to work effectively it should be:

Compliant with your current technology platform
Always accessible to everyone - everywhere
Easy to understand/update/communicate

It is of no use to anyone if only the top management keep the objectives in their drawers/cupboards and guard them like the Holy Grail.

Feedback is essential and should be ongoing and contributed to by everyone within the organization.

And it should be borne in mind that Balanced Scorecards do not necessarily enable better decision-making!

Here's a helpful webpage for further in-depth information on Balanced Scorecards.

See the other free resources on this website for ethical personal and organizational development, for example:

Quality Management

Adair's Action Centred Leadership model

McGregor's X-Y Theory

Adams' Equity Theory

McLelland's Motivational Theory

Maslow's Hierarchy of Needs

Personality Models and Types

NLP (Neuro-Linguistic Programming)

Transactional Analysis

Howard Gardner's Multiple Intelligences theory

Kolb's Learning Styles

Kirkpatrick's Learning Evaluation Model

Bloom's Taxonomy of Learning Domains (Educational Objectives)

360 degree appraisals tips

Employment termination, dismissal, redundancy, letters templates and style

Exit interviews, questions examples, tips

Grievance procedures letters samples for employees

Group selection recruitment method

Induction training checklist, template and tips

Job interviews - tips, techniques, questions, answers

Job descriptions, writing templates and examples

Performance appraisals - process and appraisals form template

Team briefing process

Training evaluation processes

Training and developing people - how to

and lots more on the main businessballs website if you are not already there.

The use of this material is free provided copyright (see below) is acknowledged and reference or link is made to the www.businessballs.com website. This material may not be sold, or published in any form. Disclaimer: Reliance on information, material, advice, or other linked or recommended resources, received from Alan Chapman, shall be at your sole risk, and Alan Chapman assumes no responsibility for any errors, omissions, or damages arising. Users of this website are encouraged to confirm information received with other sources, and to seek local qualified advice if embarking on any actions that could carry personal or organizational liabilities. Managing people and relationships are sensitive activities; the free material and advice available via this website do not provide all necessary safeguards and checks. Please retain this notice on all copies.

Balanced Scorecard Initiative

2008-08-13T02:54:00.000-07:00

Balanced Scorecard Initiative

University BSC presentations made at ACE meeting March 2004

Additional Resources and Information

Materials provided to members of the Faculty Senate

Perspectives on the Balanced Scorecard©

2008-08-13T02:47:00.001-07:00

Perspectives on the Balanced Scorecard^©

Arthur M. Schneiderman

I have several working hypothesis on the balanced scorecard:

Analog Devices scorecard implementation (1987-1992) is still a best practice. It contained all of the popular elements identified by today's balanced scorecard promoters including:

	top-management ownership of the processes for creation and management of the balanced scorecard,
	a complete set (the vital few) of rigorously defined metrics that characterize progress toward its strategic objectives,
	a clear and compelling story linking these metrics to Analog's Corporate Objective and business strategy,
	a rigorous process for setting aggressive long-term, intermediate and short-term goals (the half-life method) consistent with organizational capacity and resource requirements,
	deployment of scorecard goals to individual action agents and their knowledge based personal ownership and commitment to achievement of these goals,
	a state-of-the-art improvement process for achieving the highest possible rates or improvement on scorecard metrics,
	a formal process for its ongoing refinement.

See the detailed history of Analog's development, deployment and refinement of the First Balanced Scorecard and test my conclusions.

	The much sought-after linkage between performance measurement and strategy is poor in practice, partly as a result of the forced classification into the categories of financial, customer, internal processes, and learning and growth.
	There is no formal process employed for creating the linkage between performance measurement and strategy. Current practice is ad hoc and the resulting linkages are not compelling. Tell me what an organization is measuring, and I should be able to deduce its strategy.

I'm in the process of collecting data to test these hypothesis. Watch for more on the last two in my Art of Process Management section.

return to top

Last modified: August 13, 2006

Must Your Scorecard be Balanced?©

2008-08-13T02:45:00.001-07:00

Must Your Scorecard be Balanced?^©

Arthur M. Schneiderman

An edited version of this article appears in strategy+business

Background

Conventional wisdom¹ mandates that a scorecard contain a balance of:

financial and non-financial,
lagging (results or retrospective) and leading (process or predictive),
externally (customer) and internally (processes) focused, and
short-term and long-term metrics.

It also demands representation within a prescriptive framework; most often financial, customer, internal, and learning and growth.

But is this really necessary? Let's first look at the origins of the "balanced" part of the scorecard.

The balanced scorecard resulted from the confluence of three streams of late 1980's management thinking:

	Total Quality Management (TQM) practitioners were discovering that non-financial measures were much more useful in the day-to-day management of their organizations ("you get what you measure") and were struggling with determining the vital view metrics that they should use in steering their organization's limited resources.
	Accountants where loosing both the eyes and ears of management to the new non-financial measures² and were failing in their effort to regain their past prominence by reengineering traditional product cost systems³ (Activity Based Costing) in light of the compelling criticism by both internal and external advocates of the Theory of Constraints (TOC).
	IT professionals were desperately seeking non-transactional IT applications to expand their internal market from operations to management in the hope that that would forestall their eventual relegation to a part of those operations.

The first balanced scorecard was created in 1987 to address the first of these issues. Although it was "balanced" in the current sense, its inclusion of financial measures was for pragmatic not conceptual reasons (see "How the Scorecard Became Balanced"). Three years later it was discovered by a collaborating accounting professor and IT consultant, who recognized that it also provided a solution to both of their professions' most pressing challanges.

But just like the three blind men (or six, depending on which version you choose) first confronting an elephant, each of these three scorecard proponents approached it from their own parochial perspective. To the Process Management devotee, it remained a tool for identifying, communicating and tracking the vital few "... measures of those processes whose improvement is critical to the success of the organization." To the accountant, steeped in double-entry bookkeeping, income statements and balance sheets, and the like, the need for balance and control appeared essential. While to an IT consultant, the opportunity to create software systems that extract managerially useful data from their costly data warehouses became a godsend.

Now I know that some of you are thinking that I'm being grossly unfair to today's promoters of the balanced scorecard, but my point is that each of us views the scorecard from our own often biased perspective. Right now, the accountant and IT consultant perspectives are dominating the scorecard framework. As proof, just search the internet using the keywords "balanced scorecard" or "software." Virtually every major enterprise software company and accountancy now offers a balanced scorecard product that they can even have certified as conforming to some self-proclaimed "standard."

So to answer the question posed in the title, I'll take the perspective that I've maintained from the scorecard's very beginning:

The most valuable use of a scorecard is as a driver of a strategically focused improvement process and as such need not and usually should not be "balanced."

Before you decide that my definition is too narrow, keep in mind that strategy creation and deployment can be viewed as processes and in many organizations are themselves in need of significant improvement.

Is a Scorecard for Control or Improvement?

Current balanced scorecard practice often mixes measures of control and improvement. In a nutshell, there just isn't room on a manageable scorecard for control measures. There are far too many of them. Furthermore, control measures can only be managed at the process level. Every process in an organization has the out-of-control potential to significantly damage stakeholder satisfaction, so ALL must be effectively controlled (see Step 4 in my Process Management Model). Process Control is part of every employees daily job activities and should not be singled out for special attention.

A number of years ago, I had the opportunity to sit in the cockpit simulator of what was then the next generation of commercial aircraft. Missing was the vast array of instruments that we are use to seeing. They had been replaced by a very high resolution color LCD display about the size of today's laptop screens. In the simulation, what appeared on the screen was only the set of virtual instruments that were critical to the particular activity that was currently going on. I was told that even that was unnecessary, but it made the pilots feel more comfortable. The engineers had designed the system to display only anomalous measures: instruments that were outside their acceptable range under the current flight situation. And the automated system already knew what had to be done and was taking the actions required to bring these measures back to their nominal ranges.

The same approach is appropriate for control measures in process management. Only a pattern of out-of control situations that can't be resolved by existing recovery processes should be a candidates for scorecard inclusion. For example, the number of "serious" out-of-control situations per month, or the time to resolve an out-of-control situation are potential scorecard metrics, but only if reducing their numbers is an identified strategic priority.

Scorecard metrics should be used to align "non-production related" activities around the vital few improvements (change from current in-control practice) that can impact achievement of the organizations strategic objectives. Note that the introduction or improvement of process control (e.g. SPC/SQC) itself, does fall into this category of activities.

Some balanced scorecard advocates make use of this dashboard or control panel metaphor. That metaphor is only useful if, as with modern flight decks, it excludes control measures and limits itself to measures that require process improvements for the organization to be successful.

Let's now look at each of the identified elements of scorecard balance.

Financial and Non-financial?

OK, I'll admit it right up front: I still don't understand why we need financial measures on a scorecard at all. Many view this position as unacceptable heresy. I do realize all-too-well the practical need to include them to make the scorecard more palatable and sellable to executives who are often steeped in traditional management by the financial numbers. And I acknowledge the perceived need to signal to the the stockholders that their interests are still paramount. But to earn a place on a scorecard, a metric should be directly actionable and I would argue that financial measures simply are not.

Financial results are always dependant variables in the mathematics of metrics. They are determined by the independent, non-financial metrics which fall into two categories: controllable or uncontrollable. Only the independent, controllable metrics are actionable. There is ongoing and very constructive debate over whether any independent metric is really uncontrollable in the long run (for instance exchange rates can be hedged, supplier prices contractually smoothed, and risk shed through insurance).

For example, you cannot really manage long-term sales (yes, I know that you can play lots of games with short-term sales numbers); you can only manage (i.e. improve) the controllable processes that cause sales to happen (new product development, marketing, sales force training, answer-getting, etc.). It's appropriate measures of those processes that belong on a scorecard. And the same argument holds for unit cost reduction.

As proof of this, just listen in on a typical management conversation around an unfavorable variance in a financial measure. Inevitably, the discussion will first move to "uncontrollable" causes (exchange rates, economic conditions, supplier price increases, tight labor markets, etc.). Only if that fails will explainers turn to the underlying processes and all too often revert to finger-pointing instead of real root cause identification. Now compare this to a similar discussion about a well-conceived non-financial metric where the process owner can have a clear understanding of the root causes of variances from plan as well as credible corrective actions.

I will reluctantly bow to pragmatism, but I can't conceptually defend the mandatory inclusion of financial measures on a scorecard. Companies that really benefit from a scorecard process will inevitably move the focus of their attention to the non-financial scorecard metrics. And remember, if you can't make good money after stretch improvements in your most critical business processes, than it's probably time to reassess your strategy.

External and Internal

If you accept my premise that the scorecards highest and best use is in strategically driven process improvement, than the next question is whether it must have a balance of stakeholder (external) and process (internal) metrics. Because they are linked to strategic imperatives, scorecards are usually crafted at the top of the organization and deployed down to action agents who are the only ones that can "make it happen."

Implicit in this cascade of scorecards is that the higher level ones will generally have metrics that steer lower level scorecards to required internal process improvements. For this reason, high level scorecards tend to be unbalanced toward external or stakeholder metrics while lower level ones need to focus on internal process metrics. The actions taken by higher level scorecard owners are principally related to steering and diagnosing, while that of lower level scorecard owners is process improvement focused.

The hierarchical structure of organizations implies that the number of scorecards increases as you move down the organizations. Consequently scorecard metrics, taken in their entirety, should be unbalanced in favor of internal or process metrics. Another way of saying this is that for improvement of each external scorecard metric, there are usually several internal improvements required, and each of these have a place on someone's scorecard.

Leading and Lagging

This "requirement" goes to the very heart of the issue that lead to the need for the creation of an instrument that would raise the visibility of non-financial performance measurement in the first place. You can not manage lagging indicators ... they are inherently after-the-fact measures. Certainly spectators are interested in the results. It's interesting to know who won the World Series; but no aficionado, no participant would be content with that meager information. To affect the outcome, we need to focus on the leading indicators. So this issue translates into the basic question of who is the BSC for? If it's for interested outsiders, lagging indicators have their place. But if it is intended as a management tool, as a driver of future success, then it must be dominated by leading indicators, principally process metrics ... the only things that CAN be managed (see Selecting Scorecard Metrics for a more detailed discussion of this subject).

Short- and Long-term Objectives

Long-term objectives run the high risk of inadvertently incenting short-term inaction. A distant goal looses its ability to motivate in the press of day-to-day business. By the time that that distant date approaches, the gap between current and desired performance is likely to be insurmountable thus assuring failure. What is a far better approach is to break a long-term objective into intermediate quarterly and/or semiannual milestones (using for example the Half-Life Method). If progress toward the the long-term objective is slower than required, more resources can be directed toward its achievement or the long-term goal must be reassessed. If progress is faster, resources being used for this improvement can be redeployed to other needed areas.

Bottom Line

Well, where does this leave us. If an organization were to force its scorecard to contain a numerical balance (equal numbers) of measures in each of the above categories than I would argue that nearly half of them don't really belong there. My advice is to avoid altogether selecting scorecard metrics based on any prescriptive and arbitrary framework that can clutter the scorecard with un-actionable measures. Instead insist that metrics on high level scorecards focus on performance gaps in areas deemed most important to strategically targeted stakeholders. Then deploy these metrics down the organization to those processes whose improvement will contribute most to their closure (see my e-paper on How to Build a Balanced Scorecard).

In my opinion, most scorecards should be unbalanced toward internal, leading, short-term metrics. At the highest scorecard level, where management diagnosis rather than process improvement is the main purpose, there is a place for long-term, external metrics, but here the purpose is to trigger a review of the appropriate lower level scorecards which should contain mostly internal, leading, short-term measures. To accomplish this, those external metrics must be directly linkable to metrics associated with internal drivers.

For example, customer satisfaction indices are poor scorecard metrics at any level unless they are disaggregated into measures of the major drivers of customer dissatisfaction such as poor responsiveness, quality, delivery, or product features. Once the principal drivers of customer dissatisfaction are known, they become potential high-level scorecard metrics that are then linked to the appropriate internal process drivers.

It's worth noting here that the popular strategy maps, used in communicating the balanced scorecard story, may require the inclusion of non-scorecard measures in order to weave a compelling logic path linking strategy to action. These adjective-like measures, which perform a logic rather than action function, need not meet the same test as effective scorecard metrics.

It's ironic that the first balanced scorecard, created in 1987, was called the "Corporate Scorecard." But its subsequent renaming often encourages dysfunctional behavior. When I use the term "balanced scorecard," I'm simply bowing to the current vernacular. So don't be misled by its name, a Balanced Scorecard need not be balanced.

NOTES:

¹see for example: Translating Strategy into Action The Balanced Scorecard, Robert S. Kaplan and David P. Norton, Harvard Business School Press, Boston, Massachusetts 1996, ISBN 0-87584-641-3, preface.

²see for example: Relevance Lost: The Rise and Fall of Management Accounting, by H. Thomas Johnson and Robert S. Kaplan, Harvard Business School Publishing, November 1986, ISBN: 0875841384

³see for example: Relevance Regained: From Top-down Control to Bottom-up Empowerment, by H. Thomas Johnson, Simon & Schuster, June 1992, ISBN: 0029165555

Last modified: August 13, 2006

Juggling Balanced Scorecard Metrics©

2008-08-13T02:42:00.000-07:00

If you just arrived here, click on "Home" above for more on Process Management

Juggling Balanced Scorecard Metrics^©

Arthur M. Schneiderman

Back in 1988, I was shown a monthly metrics report by the VP of Quality Assurance from a large mid-West US bank. The report (more than 50 pages long, as I remember) contained nine graphs per page and the pages were beautifully bound into a glossy, full-color publication. She was really proud of this output from her department. I'm sure that everything that could be measured was. It reminded me of the old army directive: "If it moves, measure it; if it doesn't, paint it." Flipping through the many pages, one thing stood out clearly to me: virtually all the graphs were flat. The data scattered randomly around a horizontal line drawn at their precise mean. For each of the graphs, there was a horizontal line located at a target value. The resulting gap between current performance and this target remained essentially constant.

The report left me with three messages: TQM was not being practiced by the people being measured, the goal setters didn't recognize the importance of establishing specific milestone dates for their goals, and the bank's management did not understand the concept of organizational capacity and the consequent importance of focusing on the "vital few."

Several years earlier, I had seen a study of change initiatives at a US automaker. The three or four "programs" created at the top of the organization quickly proliferated, on average, to well over a hundred supporting implementation tasks by the time they reached a foreman who was more than 20 organizational levels below. Interviews of the beleaguered foremen showed that they employed several time-tested survival strategies for dealing with this initiative overload. Absent, of course, was the strategy of doing them all.

With the later popularity of balanced scorecards, this issue has surfaced as a central question: What is a good rule-of-thumb for the maximum number of metrics on an individual scorecard? It is clear from the many balanced scorecard presentations that I've seen that organizations quickly recognize that they have too many to manage. They often start with more than a 100 metrics and over a few years winnow the list down to 10 to 20 survivors. But is that the "right number" to avoid metrics overload? I'm unaware of any definitive studies on this specific question. My instincts tell me that that's still too high and that five to seven is the correct answer. Let me try to support those instincts.

Scorecards and Metrics Need Owners

Let's start by making a few important distinctions. First of all, I strongly believe that each scorecard must have an individual owner. That owner makes the personal commitment to do everything possible to assure that the scorecard's goals are achieved and is held accountable for that commitment. In some cases, that may require an hour a month of effort, in other cases, it will be a full time job. On average, it's probably in the range of 10-20% of their time. Furthermore, every metric on their scorecard also needs to have an owner who is willing and able to make this very same commitment. The metric's owner usually creates their own subordinate scorecard and negotiates ownership for each of its metrics with other individuals. This pattern is replicated throughout the organization. I have called this process "scorecard deployment."

A scorecard without an owner is nothing more than a report. The number of metrics in a report obviously depends on its purpose. Often organizations confuse this distinction and refer to their metrics report as their balanced scorecard. But these reports can be nothing more than a collection of individual scorecards, each of which in turn must have its own owner. One of the jobs of a scorecard owner is to present periodic status reviews to upper management. These reviews address variances from plan including both root causes and corrective actions when they're negative. Positive variances represent breakthroughs and their causes are valuable contributors to organizational and process learning.

Once we acknowledge the correspondents between scorecards and individual owners, our question translates into its equivalent form: What is a good rule-of-thumb for the maximum number of metrics an individual can manage? Why should there be a limit? First of all, there is the minimum amount of time that it takes to accomplish any meaningful part of the task. Then there's a phenomenon called multiplexing. Whenever we switch from one task to another, we loose time in closing the first and opening the second. The sum of these times (opening, executing and closing), divided into the total available time gives the number of tasks we can address in other than a cursory manner. Since the switching time, usually referred to as "overhead," is non-productive, the more tasks we try to do in any given period, the greater the fraction of time wasted on overhead.

You might find it informative to track your own time for a few days using these categories. Make sure that you rate yourself on the effectiveness of your effort too and see if you can make a rough estimate for your average time per effectively executed task. A look at your calendar will also give you a hint: what's the minimum time that you schedule for a one issue meetings? Let's say that the answer is 30 minutes. If you're spending two hours per week managing your scorecard's metrics owners, then you have enough time to manage no more than eight metrics per week. Remember though, that you are probably the owner for a metric on someone else's scorecard, so make sure you net out the time required for you to execute your commitments there.

Without a body of relevent data to guide us, we need to look for analogies to help us answer our question. Two come to mind: juggling and span-of-control.

Juggles

The ancient art of juggling provides a good benchmark for the number of things that we can do repeatedly when these things require both physical and mental effort. A "juggle" involves throwing an object into the air and catching it more than one time. On the other hand, a "flash" only requires that the object be caught once.

The chart on the right shows the current world records for numbers juggling. The ordinate is the number of times the object has been caught and the abscissa is the number of objects being thrown. The current world record for two catches is 10, while seven balls have been maintained in the air through nearly 100 cycles. I'm told by one of the record holders that good jugglers can juggle four or five balls "indefinitely."

Believe it or not, there is an underlying scientific theory of juggling based on muscle biophysics (how high can a human throw a ball) and Newton's laws of Motion. It suggests that these records are currently limited by mental rather than physical constraints. It is probably fair to say that accomplished jugglers can juggle between five and seven balls for extended periods of time. Keep in mind though that it takes lots of practice to get to that level.

Span of Control

Another place we can look for our answer is in the management of people. For any given people management model (control, empowerment, etc.), there is a practical limit to the number of people that can be effectively supervised by their manager. By looking at individual organizations, we can infer their average span of control, a good surrogate for what we're looking for.

Consider, for example, the case where each supervisor has exactly 3 direct reports. Let's start with the person at the top. He or she has 3 reports, so our sub-total is 1+3=4. Each of the 3 reports has 3 reports, or a total of 3x3=9, which brings the total so far to 4+9=13. Each of the nine has 3 reports which adds 9x3=27, so the total is now 13+27=40. So far, we've counted four levels. Let's look at the pattern:

total=1+3+3x3+3x3x3+...=1+3+9+27+...=40+...

We can easily generalize this to

total= 1+s+s²+s³+s⁴+...+s^L-1, or

where s is the average span of control (average number of direct reports per supervisor) and L is the total number of levels in the organization. Lets see how this looks graphically:

The middle curve shows the relationship between number of levels in the organization and the average span of control for an organization of 5000 people. If the typical organizational hierarchy was CEO, COO, Division General Manager, Director, Manager, Supervisor and Operator, then there would be seven levels and from the graph, the average span of control would be about 3.9 people per manager. If we reduced the number of levels to five, then the average span of control would increase to 8.1. Increasing to nine levels reduces the span of control to 2.7.

The other curves show this relationship for different size organizations ranging from 200 to 125000 people. I've used this model in a number of organizations and business units and always found that the average lies somewhere between four and six. Try placing your organization on this chart and let me know what you find. You can usually get the number of levels from your HR department. Sometimes, they have actual data on the average number of reports per supervisor.

As you can see, increasing the average span of control decreases the number of organizational levels for an organization of given size. Decreasing the number of levels reduces organizational complexity. This in turn accelerates the rate of process improvement and decreases the improvement half-life. So, clearly it is desirable to increase the span of control while maintaining effective management. This can only be accomplished by more self-management through effective empowerment. The people at Milliken & Company have a saying: "Empowerment by abandonment is not empowerment." In other words, there's a lot more to empowerment than simply stepping back. Improved communications as well as skills training are essential ingredients for effective empowerment.

The above analysis considers average span of control. Obviously, some individuals can manage more, others fewer. And effective span of control probably decreases with increasing organizational level. The type of organization also plays a role. Command and Control based organizations (like the military) can have larger spans of control than consensus managed organizations. Russ Ackoff uses the terms uni-minded and multi-minded organizations to make a similar distinction. In any case, current practice seems to imply that the average manager can only supervise between four and six other people; seven is probably a good guess for the upper quartile of good managers.

Implications

Good jugglers can keep five or six balls in the air; average managers can manage four to six other people; so I think that my instincts are about right: scorecards should contain a maximum of five to seven metrics. Keep in mind though that it takes lots of practice to get to these levels. Furthermore, Hoshin Kanri, the older Japanese relative of the Balanced Scorecard, always limits tops-down breakthrough initiatives to a total of one or two at any given time. This, even after decades of organizational experience using that approach. A prudent starting point may be one to three metrics per scorecard owner.

Metrics reports can contain more, but they are principally for documentation, root cause analysis, or communications, not for performance management purposes. Lengthy metrics reports have no place in organizational alignment efforts or performance review meetings. The important distinction here is that a scorecard must be limited to the vital few metrics that can really make a difference in the organization's overall achievements. If that means more than the number that its managers can effectively handle, it usually is a sign that the situation is terminal.

Last modified: August 13, 2006

Juggling Balanced Scorecard Metrics©

2008-08-13T02:40:00.000-07:00

If you just arrived here, click on "Home" above for more on Process Management

Juggling Balanced Scorecard Metrics^©

Arthur M. Schneiderman

Scorecards and Metrics Need Owners

Without a body of relevent data to guide us, we need to look for analogies to help us answer our question. Two come to mind: juggling and span-of-control.

Juggles

Span of Control

total=1+3+3x3+3x3x3+...=1+3+9+27+...=40+...

We can easily generalize this to

total= 1+s+s²+s³+s⁴+...+s^L-1, or

where s is the average span of control (average number of direct reports per supervisor) and L is the total number of levels in the organization. Lets see how this looks graphically:

Implications

Last modified: August 13, 2006

BSC - Business Publications

2008-08-13T02:39:00.000-07:00

Business Publications

Each of the following publications is available from this website in MS Word or Adobe Acrobat format. If they are unreadable in your browser or word processor, e-mail me and I'll try converting them to your format. Also, please respect the copyrights of these articles which belong either to the journal or me.

To save/print rather than open a file, right click on the file type and select "Save/Print Target As..."

Click here to get your free copy of Adobe Acrobat Reader ?

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1. "Optimum Quality Costs and Zero Defects: Are they Contradictory Concepts?" Quality Progress. November 1986, p. 28.

This article provides a mathematical proof that minimum cost can occur at a defect level of zero. It also provides an explanation as to why conventional calculations of optimum quality levels overestimate these optima by failing to include many important costs associated with producing defects and overstating the cost of prevention.

MS Word (52K) Adobe Acrobat (53K)

Article reprinted in "Quality Costs: Ideas & Applications, A Collection of Papers" by ASQC Quality Costs Committee, Jack Campanella, Editor, Quality Press, American Society for Quality Control, Milwaukee, Wisconsin, 1989.

2. "Setting Quality Goals" Quality Progress. April 1988, p. 51.

This article introduces the half-life method, a normative model for predicting rates of improvement in processes being addressed by TQM. It analyzes nearly 100 improvement efforts and shows that the rates of improvement were constant over many improvement cycles and were determined by process complexity. It characterizes complexity along two dimensions: organizational and technical. The article discusses several applications as well as possible misuse of the method.

MS Word (83K) Adobe Acrobat (76K)

	The application of the half-life method at Analog Devices, Inc., a mid-sized semiconductor company, is described by its CEO and Chairman in: Ray Stata, "Organizational Learning The Key to Management Innovation," Sloan Management Review, Volume 30, Number 3, Spring 1989. This article also describes an early versions of the first balanced scorecard that was initially developed at Analog in 1987.
	The half-life method became the subject of a Harvard Business school case: Robert S. Kaplan, "Analog Devices: The Half-life System" Harvard Business School Case Number 9-190-061, 3/16/90 (revised 7/12/91). Also, Teaching Notes, 05-191-103, 11/27/90. This case also appears in: Cooper, Robin., and Kaplan, Robert S., "The Design of Cost Management Systems" (Englewood Cliffs, N.J.: Prentice Hall, 1991), ISBN 0-13-204124-3, pp. 226-239.
	John K. Shank of the Amos Tuck School of Business Administration at Dartmouth College accompanied Kaplan on his site visits. His independent view of the half-life method and its application is given in Robert A. Howell, John K. Shank, Stephen R. Soucy, and Joseph Fisher, "Cost Management for Tomorrow: Seeking the Competitive Edge" (Morristown, N.J.: Financial Executives Research Foundation, 1992), ISBN 0-910586-85-3, pp. 127-149.
	A more recent Analog Devices case study was prepared by Kirk Hendrickson of Dartmouth College under the supervision of Professor Vijay Govindarajan. It appears in Robert N. Anthony and Vijay Govindarajan, "Management Control System, 9th Ed.," (McGraw-Hill Professional Publishing, January 1997), ISBN 0256168784, Case 11-1. This case not only describes the half-life method and its application at Analog Devices, but also the development of the first balanced scorecard and its evolution through 1997.

Professor Govindarajan has recently revised this case and published it in Robert N. Anthony and Vijay Govindarajan, "Management Control System, 10th Ed.," (McGraw Hill College Div., August 2000), ISBN 0072316357.

3. "Metrics for the Order Fulfillment Process" Journal of Cost Management. Part 1: Vol. 10, No. 2, Summer 1996, p. 30. Part 2: Vol. 10, No. 3, Fall 1996, p. 6.

This 2-part article defines the characteristics of good (and bad) metrics and applies these definitions in a real case study. It also describes the use of these metrics in the first balanced scorecard.

MS Word (part 1) (300K) MS Word (part 2) (132K)

Adobe Acrobat (part 1) (137K) Adobe Acrobat (part 2) (124K)

Articles 1-3 are reprinted in Emerging Practices in Cost Management, Performance Measurement, 1997 Edition, Barry J. Brinker, Editor. Warren, Gorham & Lamont, Boston, Massachusetts, 1996, ISBN 0-7913-2404-4.

4. "Measurement, the Bridge between the Hard and Soft Sides", Journal of Strategic Performance Measurement, Vol. 2, No 2, April/May 1998, p. 14.

Organizations can be viewed from both a process and people perspective. Unfortunately, many practitioners take this as an either/or situation. This article attempts to bridge the gap using data as the vehicle. Admittedly starting from the "hard" side, it defines measures of process and organizational learning and shows real examples of how these data can be used to drive behavioral change. It also introduces the use of fuzzy logic as a way of dealing with degrees of truth and language data.

MS Word (159K) Adobe Acrobat (180K)

5. "Are there Limits to TQM?", Strategy & Business, Issue 11, Second Quarter 1998, p. 35.

The declining interest in TQM partly results from its proponent's failure to apply the basic principles of TQM to itself. Among these principles are customer focus, conformance to specification and fitness for use. But, who are the customers of TQM and what are their explicit and latent needs? What are the specifications of TQM? Under what circumstances is TQM fit for use? The lack of clear answers to these questions has created expectations among senior managers that TQM cannot currently meet. These unmet expectations have driven managers to discount TQM's overall value, and to look elsewhere for solutions to their most important challenges. This article develops a model for defining the region of usefulness for TQM by examining the effectiveness of its evolving tool set for processes of varying complexity. With this distinction, managers can refocus their organization's TQM efforts to those areas, which still have vast potential payback.

MS Word (250K) Adobe Acrobat (525K)

Strategy & Business

An abridged version of this article appeared in Measuring Business Excellence, Volume 2, Number 2, Second Quarter 1998, p. 4.

6. "Why Balanced Scorecards Fail!", Journal of Strategic Performance Measurement, January 1999 Special Edition, p. 6.

Most Balanced Scorecards fail because they lack a sound foundation. Basic structural requisites include processes to guarantee that the right things go on the scorecard, with properly defined metrics and rational, time based goals. To assure successful implementation, the scorecard must be deployed throughout the organization, teams equipped with state-of-the-art improvement tools, and learning and refinement formally embodied in scorecard management. Executives who underestimate the long time lag between non-financial and financial results may prematurely abandon good Balanced Scorecard systems.

MS Word (496K) Adobe Acrobat (472K)

"Managing System Profit", Journal of Cost Management, Vol. 14, No. 5, September/October 2000, p. 33.

Focusing on cost by product and customer through Activity Based Cost (ABC), or production bottlenecks through the Theory of Constraints (TOC) are two of the many possible ways of viewing the profit equation. Another, "System Profit," (product profit minus opportunity cost), combines ABC and TOC considerations and adds competition-based market constraints to provide different, often initially counter-intuitive, strategies for true long-term maximization of shareholder value. The resulting changes in optimizing product mix can have significantly longer implementation times than occur in most cost management initiatives and produce short-term signals that require unconventional management responses.

Adobe Acrobat (K)

"How to Build a Balanced Scorecard", Handbook of Performance Measurement, Mike Bourne, Ed., Gee Publishing Ltd., London 2001 Chapter B2, ISBN 1 86089 824 6 (CD and looseleaf), 1 86089 940 4 (looseleaf only).
To successfully create and use a BSC an organization must translate its strategy into the language of its various stakeholders and then identify the critical process improvements that will lead to their satisfaction and delight. This three-part e-article describes how to do it using a step-by-step process.
This is an edited version of the material appearing elsewhere on this website. See
How to Build A Balanced Scorecard
"Time to Unbalance Your Scorecard", strategy+business, Issue 24, Third Quarter 2001, p. 12.

By its very name, the Balanced Scorecard mandates a "balanced" set of performance measures. To meet this requirement, scorecard are often populated with unessential measures. This article argues that in order to have a manageable set of metrics that are the vital few keys to strategic success, metrics must be selected based in strategic impact, not balance. As a consequence, good scorecards will be unbalanced; containing mostly non-financial, internal, leading, short-term measures.

strategy+business link

html text (5K) Adobe Acrobat (76K)

"The First Balanced Scorecard", Journal of Cost Management, Vol.15, No.5, September/October 2001, p. 16.

The first Balanced Scorecard was developed at Analog Devices in 1988 as part of their 5-Year Strategic Plan. It resulted from a logical process that started with Analog's written Corporate Objective, which articulated its strategic commitment to its five major stakeholder groups: communities, customers, employees, stockholders and suppliers. Gaps in stakeholder satisfaction provided the external perspective, and were mapped into required process improvement to provide an actionable internal perspective. The resulting Corporate Scorecard provided a rallying flag for efforts that led to dramatic improvements in customer satisfaction and operating efficiency, the focal points of Analog's strategic objectives, and contributed in part to a hundred-fold increase in shareholder value.
This edited article is based on The First Balanced Scorecard that appears elsewhere on this website. It focuses on the period of 1986-1988. This BSC is still in use today.

"Moving Ahead ... To the Past", Journal of Cost Management, Vol. 15, No. 6, November/December 2001, p.43.
There's on old saying that the key to success is "doing the right things right." Much of today's focus is on identifying and measuring the right things for an organization to do in order to achieve its strategic objectives. But success is not assured unless an organization can follow the trail to its "pot of gold" faster than its competitors and before the terrain has significantly changed. To do this, it must be as facile in doing things right as it is identifying the right things to do. And the key to this lies in the past.
"Setting Goals the Half-Life Way", Encyclopedia of Social Measurement, Academic Press, to be published in Fall, 2003.

The Half-life Method is a normative model for predicting the rate of incremental improvement of non-financial performance measures. It can be used both as a diagnostic tool and for goal setting purposes. Because it identifies the fastest rate at which a measure can be improved using current incremental improvement tools and methods, it is particularly valuable in testing the achievability of strategically significant Balanced Scorecard goals without major process redesign/reengineering or outsourcing.

"Cultural and Structural Requirements for a Successful Balanced Scorecard", MBA in a Box, Crown Publishing, to be published in Winter, 2004.

The BSC, like any change initiative must satisfy a general set of requirements shared in common by any change initiative as well as those unique to it. This article describes seven general cultural requirements and seven more BSC specific structural requirements that must be satisfied for successful implementation.

Last modified: August 13, 2006

HOW TO BUILD A BALANCED SCORECARD*©

2008-08-13T02:37:00.001-07:00

HOW TO BUILD A BALANCED SCORECARD*©

Introduction
by
Arthur M. Schneiderman

The balanced scorecard (BSC) has undergone significant change since its widespread popularization in the early 1990s. Although the first balanced scorecard was an integral part of its creators' strategic planning process, its subsequent emulations focused on it as a simple instrument rather than as one element of a total planning system. Consequently, most early adopters just took their myriad of existing non-financial performance measures and force-fitted them to an arbitrary framework that classified scorecard metrics into the prescribed categories of financial, customer, internal, and learning and growth.
I've chronicled elsewhere the resulting common failure modes. Number one on that list was:
"The independent (i.e. non-financial) variables on the scorecard are incorrectly identified as the primary drivers of future stakeholder satisfaction."
Unfortunately this fundamental misapplication of the BSC concept is still all too prevalent.
However, academics, consultants, and practitioners alike have learned much over the last decade. Leading edge BSC proponents recognize that a meaningful scorecard must be viewed as an integral part of an organization's overall management system. But to build on its brand image, "Balanced Scorecard" promoters have used its moniker to provide a name umbrella over its continuously redefined and expanding boundaries. Today, in best-practice organizations, the BSC is tantamount to their business planning system.
But having recognized that the BSC itself is only one part of a comprehensive process, there has still been little documented about that process itself. What has been written describes the method for its creation and use in such general terms that a practitioner is left with insufficient detail on exactly what needs to be done. The objective of this e-paper is to provide my view of that missing level of detail.
In Part 1, I will describe a 9-step process that assures the identification of a manageable and actionable set of BSC metrics that link directly to an organization's strategic objectives. But organizational success - just like a coin or a magnet - has two sides: planning and doing. Successful organizations excel at both. They do the right things and they do them right. My focus in this e-paper will be on the planning side of that fateful coin. I refer you to my other writings on process management (see also my publications) for more on its control, improvement, and reengineering facets.
Part 2 addresses the difficult task of translating strategically chosen stakeholder segment requirements into a prioritized list of internal process improvements. It is the improvement of these targeted processes and sub-processes that will make-or-brake the realization of strategic success. What makes identification of these vital few processes difficult are their many interdependencies and varying impact. Seeing through that cloud of complexity and uncertainty requires the use of some unfamiliar analytical tools and an appropriate balance between established facts and the organization's collective instincts.
Finally, in Part 3, I will describe the fundamentals for extracting the appropriate set of BSC metrics from the near-infinite list of possibilities that still exist even after the vital few processes are identified. Finding those leveraged internal process measures is key in achieving a successful BSC implementation.
*This e-paper was first posted on December 20, 2000 (Part 3 was posted earlier). It will be appearing in hard copy as a Chapter in the Handbook of Performance Measurement, Michael Bourne, Editor, Gee Publishing, 2001.

©1999-2006, Arthur M. Schneiderman All Rights Reserved
Last modified: August 13, 2006

The First Balanced Scorecard©

2008-08-13T02:36:00.000-07:00

Analog Devices: 1986-1992

The First Balanced Scorecard©
by
Arthur M. Schneiderman

The first balanced scorecard was created in 1987 at Analog Devices, a mid-sized semiconductor company. This e-book chronicles its development over the period of 1986-1992. By understanding the environment in which it was born and nurtured, and how it grew over time, I hope you will gain insights that will help you in your efforts at improved organizational performance and competitiveness.
During my tenure at Analog from 1986 through 1992, I was the process owner for non-financial performance measurement and the balanced scorecard. In documenting this history, I've relied heavily on my early audio or video taped presentations. I want to be sure that I'm not inadvertently revising history; time tends to have that effect. My principal objectives are to provide you with period data that demonstrates how Analog linked its performance measurement system to its Corporate Objective and business strategy and the richness and completeness of the improvement infrastructure that we had in place. You can be the judge of how it compares to current best practices.
Much of what has been previously written about this period at ADI is through the eyes of outside observers: Kaplan, Shank, and Hendrickson, for example, whose work was based on extensive interviews at Analog Devices. In reading their writings, it has become clear that even scholars have difficulty in capturing in words the fullness of what really happened. I'm sure I am guilty of the same oversimplifications. For example, it's difficult to publicly talk about failures, particularly when individuals are involved. So recognizing this inherent positive bios, I invite you to relive Analog's scorecard journey through the eyes of a very involved insider.
Finally, I posted my intentions to write this history more than six months ago. I grossly underestimated the effort involved in locating, transcribing, and assembling the material. And it's not over yet, as I continue to discover and correct errors and important omissions. But I took my own advice and reluctantly accepted lower initial performance on my journey to 6s writing.
Many of you offered encouragement through your emails. I hope that the result proves to be worth your wait. Let me know what you think and thanks for your patience.
I've structured this history in three levels of increasing detail:
The "Contents" section below highlights the key milestones in Analog's evolution of the first balanced scorecard.
Each of the sections summarized in the contents then provides a more detailed description of this evolution. Key period slides are shown to demonstrate how the various elements sequentially fell into place. (Left-click on the slide to get a more readable full screen view and then use your browser's return button to resume the story).
Finally, a number of actual slides and presentations given by me in the period of 1986-1991 are made available in various formats. Some of these presentations were video/audio taped and I have faithfully transcribed those tapes. Where actual transcripts are not available, I've tried to briefly describe the relevant slides in as unbiased a way as is possible. (PLEASE NOTE: I know that some of the other presentations were also recorded. If you have a copy, or know where I can get one, please let me know so that I can arrange for its transcription and inclusion.)
Contents
Setting the Context - 1986
The 1988-1992 Strategic Plan The first balanced scorecard was the offspring of Analog's Five-Year Strategic Planning Process and its TQM activities.
Analog's Vision and Mission: The Corporate Objective The Corporate Objective defined Analog's long-term commitment to its five constituent groups or stakeholders: customers, employees, stockholders, suppliers and communities. The Strategic Plan provided the roadmap for achieving delight among these stakeholders; TQM was one of the principal tools for getting there. The Analog Devices Corporate Objective c. 1985, 1989

What was ADI's QIP? The Quality Improvement Process or QIP was the early TQM framework used to drive improvement of Analog's key business processes. It represented Analog's starting point in its long journey toward effective process management.

Phase 1: 1986/1987 - The Gestation Period: Developing the "Five-Year Plan"
Defining The Drivers of Success A first look from the external and internal perspectives: where we're going and what we need to do to get there. October 1986 presentation: starting the process of translating the corporate objective into specific actions

Organizing for Success Establishing the organizational infrastructure (cross-functional and functional councils and teams), deployment strategy (tops-down AND bottoms-up) and setting five-year measurable goals (how we'll know we have been successful) leads to an unbalanced scorecard. August 1987-1 presentation: organization setting and ADI's five-year non-financial goals

Linkage to the annual business plan: The Quarterly Scorecard and performance monitoring August 1987-2 presentation: the first balanced scorecard emerges

Refining the Scorecard Story The logic trail from strategy to scorecard metrics January 1988 presentation: telling the scorecard story: linking metrics to strategic objectives

Phase 2: 1988/1991 - Deployment
Internal communications: spreading the word Rolling out the plan within Analog March 1988 Strategic Plan (with transcript): the ADI QIP Plan rollout

The CEO goes public: 1989 Sloan Management Review Article Analog's management puts its commitment on the table for all to see. Excerpts from the article

External communications: telling the ADI Story Spreading the word outside of Analog. January 1989 presentation (with transcript): APICS/Babson
The QIP LOGO, a pictorial description
March 1990 presentation (with transcript): The ADI Story (QIPers)
December 1990 presentation: (with transcript) QOAL/QPC Annual Conference
October 1991 presentation (with transcript): University of Dayton

Phase 3: Continuous Refinement
Evolution of Analog's balanced scorecard: 1987-1990 Step-by-step evolution of the first balanced scorecard
Analog's version of the strategy map: 1987-1990 Telling the story of why achieving scorecard goals will make a difference.

Epilogue
ADI Results Was it worth the all the effort?
Summary Why I believe that this history is important

Appendices
Guide to period presentations Listing of presentations and how they were recreated.
How the first scorecard became balanced "You got peanut butter on my chocolate."
Pilot: Using an Executive Information System (EIS) for scorecard deployment A war story of automating the scorecard and its deployment May 1990 presentation: DSS Conference
September 1990 PILOT demo

The Kaplan connection How Bob Kaplan discovered Analog's scorecard. My July 1990 presentation to Nolan/Norton
Excerpts from Kaplan/Norton reports, articles and book

©1999-2006, Arthur M. Schneiderman All Rights Reserved
Last modified: August 13, 2006

balanced scorecard methodology

2008-08-13T02:33:00.001-07:00

- Balanced scorecard methodology is an analysis technique designed to translate an organization's mission statement and overall business strategy into specific, quantifiable goals and to monitor the organization's performance in terms of achieving these goals. Developed by Robert Kaplan and David Norton in 1992, the balanced scorecard methodology is a comprehensive approach that analyzes an organization's overall performance in four ways, based on the idea that assessing performance through financial returns only provides information about how well the organization did prior to the assessment, so that future performance can be predicted and proper actions taken to create the desired future.

The methodology examines performance in four areas: financial analysis, the most traditionally used performance indicator, includes assessments of measures such as operating costs and return-on-investment; customer analysis looks at customer satisfaction and retention; internal analysis looks at production and innovation, measuring performance in terms of maximizing profit from current products and following indicators for future productivity; and finally, learning and growth analysis explores the effectiveness of management in terms of measures of employee satisfaction and retention and information system performance.

As a structure, balanced scorecard methodology breaks broad goals down successively into vision, strategies, tactical activities, and metrics. As an example of how the methodology might work, an organization might include in its mission statement a goal of maintaining employee satisfaction. This would be the organization's vision. Strategies for achieving that vision might include approaches such as increasing employee-management communication. Tactical activities undertaken to implement the strategy could include, for example, regularly scheduled meetings with employees. Finally, metrics could include quantifications of employee suggestions or employee surveys.

The balanced scorecard approach to management has gained popularity worldwide since the 1996 release of Norton and Kaplan's text, The Balanced Scorecard: Translating Strategy into Action. Kaplan has subsequently published another book on the subject, called The Balanced Scorecard: You Can't Drive a Car Solely Relying on a Rearview Mirror. The Gartner Group estimates that at least forty percent of all Fortune 1000 companies are now using the methodology.

Balanced Scorecard at UVa Library

2008-08-13T02:23:00.000-07:00

The Balanced Scorecard is a management technique designed to provide a view of an organization from four perspectives: user, internal processes, financial, and future/learning potential. This document explains how the University of Virginia Library is defining each of these four areas by providing the details of the metrics we are using in determining our success in each perspective.

Each of the metrics contains two targets. Target1 indicates complete success in achieving the metric; Target2 indicates partial success. Management Information Services will compile and report the results of all metrics on a regular basis.

View all metrics for 2007-2008

User Perspective

How well is the library meeting the needs of our users?

Internal Process Perspective

How do the library's internal processes function to efficiently deliver library collections and services?

Finance Perspective

How well are the library's finances managed to achieve our mission?

Learning/Growth Perspective

How well is the library positioned to ensure that goals are met in the future?

Overarching Goal

We acquire, organize, preserve, and deliver information to support the teaching, research, and service missions of the University of Virginia.

Overview - concept and components
Metrics - details of what we are measuring and how
Links - bibliography and other sites using the Balanced Scorecard - bibliography and other sites using the Balanced Scorecard

The Balanced Scorecard Toolkit!

2008-08-13T02:19:00.001-07:00

Introduction

Is the Balanced Scorecard difficult? Setting up and running a balanced scorecard is certainly no easy task.

Sometimes it appears easier to keep going along as we have been than to design and implement a whole new system. But this doesn't have to be the case!

Our own staff have been there many times before. It is this which helped us understand the need for a viable balanced scorecard solution: The Balanced Scorecard Toolkit!

This is a step-by-step guide that lays everything out simply and logically. It contains a wealth of information and data, including:

Presentations (Fundamentals, Building a Balanced Scorecard, HR Balanced Scorecard, Overview, Roadmap for Performance Excellence and What, How, Why, When)
Papers & Guides (An Implementation Plan, Performance Management, A Step by Step Guide, Measuring and Managing E-Business Projects)
The Checklist (The Balanced Scorecard Assessment).

When it comes to performance management, how can you be sure you are measuring the right things? And communicating the right information to the right people?

Using the Balanced Scorecard framework is a good place to start allowing you to align and support key processes and to translate strategy into operational objectives, measures, targets and initiatives. The Balanced Scorecard Toolkit provides an outstanding platform to understand and implement this.

Purchase & Download

Obtaining the Balanced Scorecard Toolkit, for a special price of only $199, could hardly be easier. Simply visit our purchase page and then download straight to your own PC.

Balanced scorecard - A guide to real change

2008-08-13T02:14:00.001-07:00

The Balanced Scorecard was developed in the early 1990s by Robert Kaplan and David Norton, to provide a new form of strategic management. The key features of the Balanced Scorecard approach are that it:

has a limited number of measurements
focuses on the important factors for strategic success
is not overly complex
does not confuse, or diffuse focus, by containing too many objectives or too much information
is broad-ranging (including strategy, customers, financial management, business processes and learning/development)
relates the diverse areas together in a dynamic relationship

The balanced scorecard provides a simple but effective answer to the questions "what does the organisation need to do to succeed?" and "how can we get every employee working in the same direction?"

Balanced scorecard and organisational teamwork

The Balanced Scorecard can play a key role in achieving real change in organisational teamwork. Although team/organisational performance is dependent on many things, a major part is played by:

the degree of collective focus on the overall goal
simplicity of that goal
clarity of visible measurement of that goal
speed of communication of measurement results

These principles makes it easier, for example, for sports teams to build a performance culture than many businesses, because:

the goals of sports teams are very clear (eg: to win the league)
measurement is simple, both in the short term (by goals scored) or long term (by position in the table)
communication of progress to organisational members, and their supporters, is clear and instant (everyone sees when a goal is scored, or the team wins a match, and the updated tables are reported within minutes of each match finishing)

The difficulties faced by business

It is often difficult to improve overall organisational performance in a business because the collective goals are unclear. Employees are often only aware of the aims of their own "team island", and regard other team islands as having a different job. Individuals are often motivated to "do their bit", but they lack the overall understanding of where the organisation is going or how the various team islands are supposed to work together for collective good. Whereas a sports team is often characterised by a focus on goals, results and league tables, businesses are often characterised by an absence of such a unifying force.

The role of Balanced Scorecard

The Balanced Scorecard can help overcome such difficulties by providing a focus that unifies all parts of the business. It provides a methodology that turns the eyes of all employees to a single direction. The Balanced Scorecard can therefore be a very effective tool for changing the organisational culture, breaking down the barriers between team islands, creating an overall team culture and thereby improving organisational performance.

History of the Balanced Scorecard

2008-08-13T02:13:00.000-07:00

History of the Balanced Scorecard

In 1992, an article by Robert Kaplan and David Norton entitled "The Balanced Scorecard - Measures that Drive Performance" in the Harvard Business Review caused a lot of attention for their method, and led to their business bestseller, "The Balanced Scorecard: Translating Strategy into Action", published in 1996.

The financial performance of an organization is essential for its success. Even non-profit organizations must deal in a sensible way with funds they receive. However, a pure financial approach for managing organizations suffers from two drawbacks:

It is historical. Whilst it tells us what has happened to the organization, it may not tell us what is currently happening. Nor it is a good indicator of future performance.
It is too low. It is common for the current market value of an organization to exceed the market value of its assets. Tobin's-q measures the ratio of the value of a company's assets to its market value. The excess value is resulting from intangible assets. This kind of value is not measured by normal financial reporting.

The 4 perspectives of the Balanced Scorecard

The Balanced Scorecard method of Kaplan and Norton is a strategic approach, and performance management system, that enables organizations to translate a company's vision and strategy into implementation, working from 4 perspectives:

Financial perspective.
Customer perspective.
Business process perspective.
Learning and growth perspective.

This allows the monitoring of present performance, but the method also tries to capture information about how well the organization is positioned to perform in the future.

Benefits of the Balanced Scorecard

Kaplan and Norton cite the following benefits of the usage of the Balanced Scorecard:

Focusing the whole organization on the few key things needed to create breakthrough performance.
Helps to integrate various corporate programs. Such as: quality, re-engineering, and customer service initiatives.
Breaking down strategic measures towards lower levels, so that unit managers, operators, and employees can see what's required at their level to achieve excellent overall performance.

1. The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will make sure to provide it. In fact, there is often more than sufficient handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financial issues leads to an unbalanced situation with regard to other perspectives. There is perhaps a need to include additional financial related data, such as risk assessment and cost-benefit data, in this category.

2. The customer perspective

Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any company. These are called leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline. Even though the current financial picture may seem (still) good. In developing metrics for satisfaction, customers should be analyzed. In terms of kinds of customers, and of the kinds of processes for which we are providing a product or service to those customer groups.

3. The Business Process perspective

This perspective refers to internal business processes. Measurements based on this perspective will show the managers how well their business is running, and whether its products and services conform to customer requirements. These metrics have to be carefully designed by those that know these processes most intimately. In addition to the strategic management processes, two kinds of business processes may be identified:

Mission-oriented processes. Many unique problems are encountered in these processes.
Support processes. The support processes are more repetitive in nature, and hence easier to measure and to benchmark. Generic measurement methods can be used.

4. Learning and Growth perspective

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge worker organization, people are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to learn continuously. Government agencies often find themselves unable to hire new technical workers and at the same time is showing a decline in training of existing employees. Kaplan and Norton emphasize that 'learning' is something more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools such as an Intranet.

The integration of these four perspectives into a one graphical appealing picture, has made the Balanced Scorecard method very successful as a management methodology.

Objectives, Measures, Targets, and Initiatives

For each perspective of the Balanced Scorecard four things are monitored (scored):

Objectives: major objectives to be achieved, for example, profitable growth.
Measures: the observable parameters that will be used to measure progress toward reaching the objective. For example, the objective of profitable growth might be measured by growth in net margin.
Targets: the specific target values for the measures, for example, 7% annual decline in manufacturing disruptions.
Initiatives: projects or programs to be initiated in order to meet the objective.

Double-Loop Feedback

In traditional industrial activity, "quality control" and "zero defects" were important words. To shield the customer from receiving poor quality products, aggressive efforts were focused on inspection and testing at the end of the production line. A problem with these approaches - as pointed out by Deming - is that the true causes of defects could never be identified, and there would always be inefficiencies because products with a defect are rejected. Deming understood that variation is created at every step in a production process, and the causes of variation need to be identified and repaired. If this can be done, then there is a way to reduce the defects and improve product quality indefinitely. To establish such a process, Deming emphasized that all business processes should be part of a system, with feedback loops. The feedback data should be examined by managers to determine the causes of variation, and what are the processes with significant problems. Then they can focus their attention on repairing that subset of processes.

The balanced scorecard method includes feedbacks around internal business process outputs. As in TQM. Additionally, the Balanced Scorecard provides a feedback for the outcomes of business strategies. This creates a "double-loop feedback" process in the balanced scorecard.

Outcome Metrics

You can't improve what you can't measure. Therefore metrics must be developed based on the priorities of the strategic plan, which provides the key business drivers and criteria for metrics managers most desire to watch. Processes are then designed to collect information relevant to these metrics and reduce it to numerical form for storage, display, and analysis. Decision makers examine the outcomes of various measured processes and strategies and track the results to guide the company and provide feedback.

So the value of metrics is in their ability to provide a factual basis for defining:

Strategic feedback to show the present status of the organization from many perspectives for decision makers.
Diagnostic feedback into various processes to guide improvements on a continuous basis.
Trends in performance over time.
Feedback around the measurement methods themselves. Which measurements should be tracked?
Quantitative inputs for forecast methods and for decision support systems.

Management by Fact

The goal of measuring is to permit managers to see their company more clearly - from many perspectives - and hence to make wiser long-term decisions. A 1997 booklet on the Baldrige Criteria summarizes this concept of fact-based management:

"Modern businesses depend upon measurement and analysis of performance. Measurements must derive from the company's strategy and provide critical data and information about key processes, outputs and results. Data and information needed for performance measurement and improvement are of many types, including: customer, product and service performance, operations, market, competitive comparisons, supplier, employee-related, and cost and financial. Analysis entails using data to determine trends, projections, and cause and effect - that might not be evident without analysis. Data and analysis support a variety of company purposes, such as planning, reviewing company performance, improving operations, and comparing company performance with competitors' or with 'best practices' benchmarks."

"A major consideration in performance improvement involves the creation and use of performance measures or indicators. Performance measures or indicators are measurable characteristics of products, services, processes, and operations the company uses to track and improve performance. The measures or indicators should be selected to best represent the factors that lead to improved customer, operational, and financial performance. A comprehensive set of measures or indicators tied to customer and/or company performance requirements represents a clear basis for aligning all activities with the company's goals. Through the analysis of data from the tracking processes, the measures or indicators themselves may be evaluated and changed to better support such goals."

Cautionary note on using the Balanced Scorecard

You tend to get what you measure. People will work to achieve the explicit targets which are set. For example, emphasizing traditional financial measures may encourage short-term thinking. The Core Group Theory by Kleiner provides further clues on the mechanisms behind this. Kaplan and Norton recognize this, and urge for a more balanced set of measurements. But still, people will work to achieve their scorecard goals, and may ignore important things which have no place on their scorecard.

Evolution of the Balanced Scorecard

In 2002, Cobbold and Lawrie developed a classification of Balanced Scorecard designs based upon the intended method of use within an organization. They describe how the Balanced Scorecard can be used to support three distinct management activities, the first two being management control and strategic control. They assert that due to differences in the performance data requirements of these applications, planned use should influence the type of BSC design adopted. Later that year the same authors reviewed the evolution of the Balanced Scorecard as shown through the use of Strategy Maps as a strategic management tool, recognizing three distinct generations of Balanced Scorecard design.

Book: Robert S. Kaplan, David P. Norton - The BSC: Translating Strategy into Action -

Book: Paul R. Niven - BSC Step-by-Step: Maximizing Performance and Maintaining Results -

Book: Paul R. Niven - BSC Step-by-Step for Government and Nonprofit Agencies -

Sharpening Your Skills: Balanced Scorecard in Action

2008-08-13T02:06:00.000-07:00

Sharpening Your Skills: Balanced Scorecard in Action

Published: July 23, 2008

Sharpening Your Skills dives into the HBS Working Knowledge archives to bring together articles on ways to improve your business skills.

Questions to be Answered

How does the Balanced Scorecard (BSC) improve corporate governance?
Does customer profitability increase using the BSC?
Can BSC measures reduce the gap between strategy and execution?
Does the BSC work in testing strategy?

How can the Balanced Scorecard improve corporate governance?

Working Paper: Improving Corporate Governance with the Balanced Scorecard

The authors review the key roles of corporate boards and recommend a Balanced Scorecard approach to help boards work smarter, not harder.

Key concepts include:

Reforms such as Sarbanes-Oxley have increased the amount of work that boards need to do. A Balanced Scorecard approach can help boards use their limited time effectively.
An enterprise strategy map and enterprise Balanced Scorecard should be the primary documents distributed to the board in advance of meetings.

Does customer profitability increase using the BSC?

A Balanced Scorecard Approach To Measure Customer Profitability

Happy customers are good, but profitable customers are much better. In this article, professor and Balanced Scorecard guru Robert S. Kaplan introduces BSC Customer Profitability Metrics. From Balanced Scorecard Report.

Key concepts include:

In their zeal to delight customers, some companies actually lose money with them by becoming customer-obsessed rather than customer-focused.
The BSC adds a metric that summarizes customer profitability.
The ability to measure profitability at the individual customer level allows companies to consider new customer profitability metrics such as "percentage of unprofitable customers."

Can BSC measures reduce the gap between strategy and execution?

The Office of Strategy Management

Many organizations suffer a disconnect between strategy formulation and its execution. The answer? HBS professor Robert S. Kaplan and colleague Andrew Pateman argue for the creation of a new corporate office.

Key concepts include:

There is a persistent gap between the strategic goals that organizations set for themselves and the results they achieve.
An office of strategy management is intended to close that gap. At the corporate level of an organization, it oversees all strategy-related activitiesfrom formulation to execution. It is typically an outgrowth of a Balanced Scorecard program.
The purpose of an OSM is to unlock value by making strategy execution a distinct and recognized competency in an organization.

Does the BSC work in testing strategy?

Working Paper: Testing Strategy with Multiple Performance Measures Evidence from a Balanced Scorecard at Store24

To what extent do Balanced Scorecards provide useful information for testing and validating an organization's strategy? Analyzing Balanced Scorecard data from Store24a privately held convenience store retailer in New Englandthis study investigates whether, when, and how information about problems with the firm's strategy was captured in the multiple performance measures of its Balanced Scorecard.

Key concepts include:

Store24's Balanced Scorecard contained useful and timely information for detecting problems in its strategy.
The results also suggest that Store24 executives eventually learned about problems with the strategy despite a lack of reliance on such formal analysis.
Analysis of the Balanced Scorecard could have yielded more timely information as well as more detail on why the strategy was not working as planned.
Multiple measures in a Balanced Scorecard might systematically be used to test how well different drivers of performance are working to achieve strategic objectives and superior financial performance.

Keywords:	Strategy Development

Strategy Execution and the Balanced Scorecard

2008-08-13T02:04:00.001-07:00

Q&A with:	Robert S. Kaplan
Published:	August 11, 2008
Author:	Martha Lagace

Companies often manage strategy in fits and starts. Though executives may formulate an excellent strategy, it easily fades from memory as the organization tackles day-to-day operations issues, doing what HBS professor Robert S. Kaplan calls "fighting fires."

A new book by Kaplan and David P. Norton aims to make strategy a continual process. The Execution Premium: Linking Strategy to Operations for Competitive Advantage shows managers how to weave organizational principles into a more effective management system that respects the differences between strategy and operations yet integrates them in a powerful way. Kaplan and Norton introduced the Balanced Scorecard, a performance measurement system, in 1992. The Execution Premium is their fifth book as coauthors.

Kaplan recently explained the ideas behind The Execution Premium and how they bridge the common divide between strategy and operations.

Martha Lagace: What particular issues around execution need to be better addressed in business?

Robert Kaplan: There are two key issues. First is leadership. Without strong visionary leadership, no strategy will be executed effectively.

The second key issue is to recognize that strategy and operations (or tactics) are both important but they are different. The normal course of events is for companies to focus on day-to-day operations and short-term problem solving. Management meetings focus on fighting fires and fixing problems. Often little time and few resources get committed to strategic issues.

We don't advocate abandoning an intense focus on operations and their improvement. But we do advocate planning strategy, not just describing it as important. The senior management team needs to have regular, probably monthly, meetings that focus only on strategy. We describe in the book the different roles, frequencies, participants, and agendas for operational review meetings and strategy review meetings. We open the book with a great quote often but perhaps inaccurately attributed to Sun Tzu in The Art of War: "Strategy without tactics is the long road to victory; tactics without strategy is the noise before defeat." This quote highlights the importance of integrating strategy and operations, a central theme in our strategy execution system.

Q: What are typical challenges and pitfalls when linking strategy with operations? Why is a formal strategy execution system valuable?

A: One challenge or pitfall is that few companies align their operational improvement activities to strategic priorities. Many companies today are practicing Total Quality Management, Six Sigma, or other continuous improvement activities. But these are done across the organization with no sense of priorities or impact from process improvements. Consequently, much effort does not show up in tangible results. Companies need a formal process for using strategic objectives to set priorities for where operational improvements can have the largest impact on strategy execution. We note that quality and process improvement programs are like teaching people how to fish. Strategy maps and scorecards teach people where to fish.

Another pitfall occurs when budgeting and financial planning are done separately from strategic planning. We advocate that the operational plan and budget be driven from the revenue targets in the strategic plan. In The Execution Premium, we describe how a time-driven activity-based cost model provides the previously missing link between the revenue growth targets in a strategic plan and the authorization for spending to supply the quantities of resource capacity that are necessary to fulfill the sales and production needs of the strategic plan. Without this coupling, operational plans either provide too little or too much capacity for the strategic plan.

A third challenge is that most management meetings get consumed with discussions about short-term operational and tactical issues. It is important to meet to discuss and solve operational problems. But companies err when they devote all their time together for fire-fighting and coping with near-term issues. The formal strategy execution system schedules strategy review meetings at a different time from operational review meetings. In that way, each meeting has its own frequency, agenda, information system, and participation, as best meets the goals for that meeting.

Q: Given the proliferation of tools, how should management choose the right one to formulate strategy and improve operations?

A: We don't have a preferred position on strategy formulation methodologies. We have seen each approach lead to success in different circumstances. If, for example, the company has low capital utilization, then some use of a value-based management approach would help to define a financial strategy. If the company does not have a distinctive brand or market presence, a focus on identifying an attractive customer segment, such as through Harvard University professor Michael Porter's positioning framework, W. Chan Kim and Renee Mauborgne's Blue Ocean approach, or C. K. Prahalad and V. Ramaswany's customer co-creation process might prove most relevant.

If the company has distinctive capabilities in important business processes operations management, customer data mining, or product features and innovationthat are superior to or not possessed by competitors, then the resource-based view and identification of core competencies are effective frameworks for strategy formulation. If the company has a great human capital base, with skilled, experienced, and highly motivated employees, then striving to create a learning organization and encouraging emergent strategies to be proposed can identify promising new strategic approaches.

While we are agnostic with respect to which strategy methodology a company uses to arrive at its strategy, we do believe that creating a strategy map and scorecard for that strategy is the logical and proven next step for putting the strategy into action. That is why we have placed strategy analysis and formulation as Stage 1 of our management system, with planning and translating the strategy as Stage 2.

We take the same position with the various operational improvement methodologies. We don't want to be caught debating the relative merits and shortcomings of TQM, Six Sigma, lean management, and reengineering. We do believe, however, that these methodologies are most effectively applied to the strategic processes identified in a company's strategy map and scorecard. That is why we place planning operations in Stage 4 of the management system, downstream from the Stage 2 processes of translating and planning the strategy. You can't focus on the critical processes for improvement until they have been identified in the strategic planning and translation stage.

Q: What is an Office of Strategy Management, and why is it necessary in a company?

A: The OSM is analogous to a military general's chief of staff. The general is responsible and accountable for developing the strategy to win wars and battles. But a general almost always has a chief-of-staff, often several ranks junior, who leverages the general's time and attention. The chief-of-staff does not create strategy or operational tactics and has no authority or accountability for its execution. A chief-of-staff schedules the general's meetings, ensures that the appropriate people show up at the meeting, attends and takes notes at the meeting, and follows up after the meeting to ensure that the actions decided upon are carried out. The chief-of-staff leverages the general's time by making sure that all the information, people, and follow-up are in place for the general's strategy and tactics to be effectively executed. We recommend that a similar, but expanded, set of tasks be carried out by a small cadre of professionals to orchestrate the various strategy management processes for the executive team.

The Office of Strategy Management has multiple roles and responsibilities. First, as an architect, the OSM designs and embeds any missing strategy and operational management processes into the six-stage strategy execution system. The OSM ensures that all the planning, execution, and feedback processes are in place, and that they are linked together in a closed loop system.

The OSM also serves as the process owner for several strategy and operational management processes, such as those to develop the strategy, translate the strategy, and orchestrate the senior management strategy review meetings. Many of these processes are new to the organization. Since they cross existing business and functional organizational lines, it is natural for the OSM to be their owner. Assigning responsibilities for their execution to the OSM fills a gap in management practice without infringing on the current responsibilities of any existing department or function.

Finally, the OSM is the integrator of many existing activities. This aspect is challenging because organizational and functional units already have primary responsibility for processes such as budgeting, communications, human resources planning and performance management, IT planning, initiative management, and best practice sharing. The OSM must work with the existing owners of these processes to ensure they become aligned to the strategy.

Q: What is the role of leadership in sound execution?

A: While not an explicit part of any of the six strategy execution stages (described below), executive leadership pervades every stage of the management system. Throughout The Execution Premium, we describe organizations that have successfully implemented their strategies. They operate in varied regions and industries, including manufacturing, financial services, consumer services, nonprofit, educational, and public sector. Their strategies differ; some produce low-cost commodity products and services, others deliver complete solutions to their customer, and still others innovate with high-technology products. About the only common element all these diverse successful strategy implementers have in common is exceptional and visionary leadership. In every example, the unit's CEO led the case for change and understood the importance of communicating the vision and strategy to every employee. Without such strong leadership at the top, even the comprehensive management system we introduce in this book cannot deliver breakthrough performance.

In fact, leadership is so important to the strategy management system that we make a rather bold claim that leadership is both necessary and sufficient for successful strategy execution. The necessary condition comes from our experience with the more than one hundred enterprises around the world who have become members of the Balanced Scorecard Hall of Fame. In every instance, the CEO of the organizational unit implementing the new strategy management system led the processes to develop the strategy and oversee its implementation. No organization reporting success with the strategy management system had an unengaged or passive leader.

For Stage 1, the CEO leads the change agenda and drives it from the top to reinforce the mission, values and vision. Leadership sets the ambitious vision and stretch targets. In Stage 2, the executive leader validates the strategy map as an expression of the strategy articulated in Stage 1 and challenges the organization with stretch targets that take all employees outside their comfort zones. In Stage 3, leadership drives alignment of organizational units and is essential for communicating vision, values, and strategy to all employees. Leadership, in Stage 4, supports the cross-organizational unit process improvements. In Stage 5, the leader's openness and skill in running the strategy management review meeting determines its effectiveness for fine-tuning the strategy throughout the year. And in Stage 6 the leader must allow even a well-formulated and executed strategy to be challenged in light of new external circumstances, data collected about the performance of the existing strategy, and new suggestions from employees throughout the organization. Being willing to welcome and subject existing business strategies to fact-based challenges is one of the hallmarks of effective leadership.

Our sufficiency claim, however, is even bolder. The management processes we describe in The Execution Premium give an effective leader a framework for effective strategy execution. None of the six stages in the management system is simple or brief. But collectively, the management processes in the six stages provide leaders with a comprehensive, proven system for managing the development, planning, implementation, review, and adaptation of their strategies.

We believe that our 18 years of observation and work with enterprises in all sectors and regions of the world has led to an emerging science of strategy execution. Each of the six stages in the strategy management system is doable, especially when guided by a senior strategy management office. The one component we cannot provide a blueprint for is visionary and effective leadership. That is why we have come to believe that executive leadership is now both necessary and sufficient for successful strategy implementation.

Q: You have written four other books touching on the Balanced Scorecard (BSC). How has your thinking and your work with this innovation evolved along the way?

A: Our thinking has really evolved from performance measurement, the focus of our first Harvard Business Review article and the first half of the original Balanced Scorecard book, to using the BSC as the cornerstone of a comprehensive management system to help enterprises execute their strategies. We learned early that the BSC was much more than just a better performance measurement system; it can become the basis for a new strategy management system.

Our second book, The Strategy-Focused Organization, identified the five principles we saw successful companies using with the BSC for strategy management: Mobilize, Translate, Align, Motivate, and Govern. In the next three books, including our most recent book, The Execution Premium, we went into more depth in these principles. Strategy Maps focused on principle #2, translate. We described and illustrated how strategy maps and scorecards could be customized to many different strategies. The fourth book, Alignment, described principle #3, how to create and capture corporate synergies through vertical and horizontal alignment of business and support units. The fourth book also contained material on principle #4, aligning and motivating employees for strategy execution in their business or support units.

Our most recent book started out as an in-depth articulation of principle #5, governing to make strategy a continual process." But along the way, my coauthor Dave Norton and I realized that this book was really a synthesis of all our prior work. It encapsulates the latest development in the other four strategy-focused organization principles and integrates them into a comprehensive closed-loop management system that links strategy and operations. Beyond integrating all our prior work, the new book also integrates a wide range of other proven management tools, including mission and vision statements, strategy formulation, target-setting, dynamic budgeting and resource allocation, process improvement, quality methodologies (Six Sigma, lean management, catchball), dashboards, the learning organization, analytics, and emergent strategies.

Q: What's next for you?

A: I have recently become sensitive to a gap in our strategy map/BSC framework by not paying sufficient attention to enterprise risk management (ERM). Obviously, many large financial institutions, despite having risk management departments, have suffered massive losses from failure to understand the risks they took on. All companies, not just financial ones, need to have better methods to assess and monitor their risks. Quantifying financial, operating, technological, and strategic risk is far from trivial, and much needs to be learned to make enterprise risk management more effective. Risk management also requires effective systems for internal control, management control, and governance.

ERM objectives and metrics could certainly have a home in the financial BSC perspective for increasing and sustain shareholder value, along with the traditional objectives of revenue growth and productivity improvements. And companies should have objectives in the process perspective to manage and mitigate the risks associated with their strategies. I am persuaded that embedding risk management objectives in strategy maps and scorecards should be a high priority for where increases in knowledge and professional expertise could add substantial value to an organization. And reviews of a company's risk position should be part of the monthly strategy review meetings. I plan to spend some time in the next few years exploring this issue and hoping to make some progress.

A Balanced Scorecard Approach To Measure Customer Profitability

2008-08-13T02:02:00.001-07:00

Published:	August 8, 2005
Author:	Robert S. Kaplan

The Balanced Scorecard introduced customer metrics into performance management systems. Scorecards feature all manner of wonderful objectives relating to the customer value proposition and customer outcome metricsfor example, market share, account share, acquisition, satisfaction, and retention.

Yet amid all these measures of customer success, some companies lose sight of the ultimate objective: to make a profit from selling products and services. In their zeal to delight customers, these companies actually lose money with them. They become customer-obsessed rather than customer-focused. When the customer says "jump," they ask "how high?" They offer additional product features and services to their customers, but fail to receive prices that cover the costs for these additional features and services. How can companies avoid this situation? By adding a metric that summarizes customer profitability.

Consider the situation faced in the 1990s by one of the nation's largest distributors of medical and surgical supplies. In five years, sales had more than tripled to nearly $3 billion, yet selling, general, and administrative (SG&A) expenses, thought by many to be a fixed cost, had increased even faster than sales. Despite the tripling in sales, margins had declined by one percentage point and the company had just incurred its first loss in decades. Rather than SG&A costs being fixed or even variable, these costs had become "super-variable."

The experience of this company is hardly unique. Companies often capture additional business by offering more services. The list is wide-ranging: product or service customization; small order quantities; special packaging; expedited and just-in-time delivery; substantial pre-sales support from marketing, technical, and sales resources; extra post-sales support for installation, training, warranty, and field service; and liberal payment terms. While all of these services create value and loyalty among customers, none of them come for free. For a differentiated customer intimacy strategy to succeed, the value created by the differentiationmeasured by higher margins and higher sales volumeshas to exceed the cost of creating and delivering customized features and services.

Unfortunately, many companies cannot accurately decompose their aggregate marketing, distribution, technical, service, and administrative costs into the cost of serving individual customers. Either they treat all such costs as fixed-period costs and don't drive them to the customer level, or they use high-level, inaccurate methods, such as allocating a flat percentage of sales revenue to each customer to cover "below-the-line" indirect expenses.

Companies become customer-obsessed rather than customer-focused. When the customer says "jump," they ask "how high?"

The remedy to this situation is to apply activity-based costing (ABC) to accurately assign an organization's indirect expenses to customers. Many companies, however, have tried ABC at some time during the past twenty years and abandoned it because it did not capture the complexity of their operations, took too long to implement, and was too expensive to build and maintain. Fortunately, a new approach is now available that is far simpler and much more powerful than traditional ABC.

"Time-driven" ABC, introduced in a recent Harvard Business Review,1 requires obtaining information on only two parameters: the cost per hour of each group of resources performing work, such as a customer support department; and the unit times spent on these resources by specific activities for products, services, and customers. For example, if a customer support department has a cost of $70 per hour, and a particular transaction for a customer takes 24 minutes (0.4 hours), the cost of this transaction for this customer is $28. The approach has been successfully applied in more than 100 organizations and readily scales up even to companies with hundreds of thousands of products and services, dozens of operating departments, and thousands of customers. The end result is the ability to measure individual customer profitability accurately and in a system that is easy to implement and inexpensive to maintain and update.

The payoff: BSC customer profitability metrics

The ability to measure profitability at the individual customer level allows companies to consider new customer profitability metrics such as "percentage of unprofitable customers," or "dollars lost in unprofitable customer relationships." Such customer profitability measures provide a valuable signal that satisfaction, retention, and growth in customer relationships are desirable only if these relationships contribute to higher, not lower, profits.

BSC customer profitability metrics are also highly actionable. If a company finds that an important customer is unprofitable, it should first look internally to see how it can improve its internal processes to lower the cost-to-serve. After all, we can't expect customers to pay for our inefficiencies. For example, if important customers are migrating to smaller order sizes, the company can focus on reducing setup and order handling costs. The company can ask the customer to use electronic channels, such as Electronic Data Interchange (EDI) and the Internet, that greatly lower the cost of processing large quantities of small customer orders.

Customized pricing policies should be at the heart of any strategy to manage customer profitability. The company can set a base price for a standard product or service, with standard packaging, delivery, and payment. The company also provides customers with a menu of options representing variations from the standard order, such as a customized product or service, special packaging, expedited delivery, or extended credit terms. Each menu item has a price that at least cover its cost, as measured by the ABC model, so the company no longer suffers losses from offering customized services. The menu prices also motivate customers to shift their purchasing and delivery patterns in ways that lower total costs to the benefit of both the company and its customers.

Customer profitability metrics provide a link, otherwise missing, between customer success and improved financial performance.

Finally, perhaps a customer is unprofitable because it is purchasing only a single service. As an alternative to raising the price for this single service, the company can encourage the customer to purchase a wider range of services, expecting that the margin from a comprehensive set of services will transform the customer into a profitable relationship.

Figure 1 shows how one insurance company managed its customer relationships once it understood its full costs of serving them. It ranked customers on the horizontal axis, from most profitable to least profitable (loss). The vertical axis represents cumulative customer profitability. The shape of the curve in Figure 1 occurs in virtually every customer profitability study ever done, in which 15 percent to 20 percent of the customers generate 100 percent (or more) of the profits. In this case, the most profitable 40 percent of customers generate 130 percent of annual profits; the middle 55 percent of customers break even, and the least profitable 5 percent of customers incur losses equal to 30 percent of annual profits. With its most profitable customers, the company worked harder to ensure their continued loyalty and to generate more business from them. For customers in the middle break-even group, it would improve its processes to lower its cost of serving them. It focused most of its attention on the 5 percent-loss customers, taking actions to reprice services and asking them for more business in higher-margin product lines. If the company could not transform these customers into profitable ones by these actions, it was prepared to drop the accounts.

Customer profitability metrics provide a link, otherwise missing, between customer success and improved financial performance. Many companies have experienced profitless revenue growth. Scorecard measures of the incidence of unprofitable customers and the magnitude of losses from unprofitable relationships focus the organization on managing customers for profits, not just for salesthus making the customer focus align with financial objectives

Footnotes:

1. R. S. Kaplan and S. Anderson, "Time-Driven Activity-Based Costing," Harvard Business Review (November 2004): 131138.

Figure 1

About the author

Robert S. Kaplan is a professor at Harvard Business School.

The Balanced Scorecard - Who's Doing it ?

2008-08-13T01:59:00.000-07:00

The Balanced Scorecard - Who's Doing It?

Increasingly, as balanced scorecard (BSC) concepts become more refined, we have had more inquiries asking for examples of organizations that have implemented the BSC, how the BSC applies to a particular business sector, metrics are appropriate for that sector, etc. This section provides a database of working balanced scorecard examples that our research has located.

By 2004 about 57% of global companies were working with the balanced scorecard (according to Bain). Much of the information in the commercial sector is proprietary, because it relates to the strategies of specific companies. Public-sector (government) organizations are usually not concerned with proprietary information, but also they may not have a mandate (or much funding) to post their management information on web sites.

The following link will take you to our compilation of data on organizations that have reported at least a partial adoption of the balanced scorecard:

Adopters of the balanced scorecard (in alphabetical order of organization name)

It is necessary to do extensive research in order to locate this information. If you would like to report other balanced scorecard examples, please let us know!

Balanced Scorecard Examples

OK, show me some examples!

Below we offer links to some files and publications that will show you what the documents and results of balanced scorecards look like. Although these all differ in format and details, they serve to illustrate the visual effectiveness of the balanced scorecard approach to strategic management. (Note: these documents are the products of their respective organizations, not the Balanced Scorecard Institute).

Non-profit Organizations:

Oak Knoll Academy - A primer on development of a management strategy for a fictitious private school, by Balanced Scorecard Institute Associate Dr. Lawrence Grayson. A strategy map for the school is also available.

Vinfen Corporation - A private, non-profit human services organization based in Cambridge, MA. They recently published a scorecard and a newsletter that provides details about their strategic plan and performance measures.

Government Organizations:

Defense Financial Accounting Service (DFAS) - Example of a balanced scorecard-based strategic plan for this world-class financial organization, and some additional information about how it was developed (Nov. 2001).

Federal Avaiation Administration Logistics Center - A highly customer-focused organization with a balanced scorecard-based strategic plan. Their original plan is a rather large (37 MB) file, so we have removed the graphics and here we provide the text content only, in order to reduce the file size.

Department of Energy Federal Procurement System- One of the early Federal Government adopters of the balanced scorecard. Continues to lead by example with this FY2003 Performance Assessment.

Department of Energy Federal Personal Property Management Program - Example of a balanced scorecard for a major government program.

Commercial Organizations:

Regional Airline - A strategy map, with objectives, performance measures and initiatives in the balanced scorecard framework.

Credit Card Company - A generic example of a possible strategy map for an innovative credit card company.

More coming! If you would like to share your balanced scorecard plans and/or results with the world, please contact us.

The Balanced Scorecard and Knowledge Management

2008-08-13T01:56:00.000-07:00

The Balanced Scorecard and Knowledge Management

© BSCI 2002
In recent years there has been a renewed interest in "human resources" and "collaboration" under the term "knowledge management". In another white paper, the meaning of knowledge management is explored in more detail. Here, the focus is on the relationship between the balanced scorecard and knowledge management.
In their book The Balanced Scorecard, Kaplan and Norton set forth a hypothesis about the chain of cause and effect that leads to strategic success. This cause-and-effect hypothesis is fundamental to understanding the metrics that the balanced scorecard prescribes. There are four stages to this chain of cause and effect, outlined as follows:

1. The foundation, or fundamental cause for strategic success has to do with people. Decades ago Peter Drucker recognized that innovation from creative people provides the only assured source of long-term success and competitiveness, because every other aspect of an organization can be duplicated by others. The right people must be hired, properly trained and mentored, and the learning process should become continuous and endless. Peter Senge, in his very influential book The Learning Organization, described a healthy organization as one in which a learning culture prevails, fostered both by formal and informal learning and by abundant internal communication in all media.

2. In a learning and growing organization, where the culture encourages people make suggestions and question the status quo, a steady flow of new ideas arises from the rank-and-file employees. These ideas are vital to the future of the organization, because they come from the experts -- the people who are involved with the business processes on a daily basis. This insight about employees traces back to Deming, who saw the vital need for managers and shop-floor supervisors to listen to workers' complaints and empower them to make suggestions and improvements. Conversely, an organization that stifles or ignores new ideas from its employees is probably doomed. The balanced scorecard, using efforts such as employee surveys and analysis of training data, is able to measure the degree of learning and growth, allowing leaders to assess the potential for long-term success.

3. Improved business processes lead to improved products and services. For example, if an improved process saves time, this results directly in a shorter delivery time to the customer -- something that any customer will appreciate. In the government context, cost reduction is also always of importance to the customer, because the customer is the sponsor of the whole organization's budget -- direct and overhead. The balanced scorecard measures customer satisfaction, but improving processes produces it.

4. Finally, improved customer satisfaction leads to loyal customers and increased market share, which directly affect the bottom line -- whether that line equals profit, ROI (return on investment) or ROCE (return on capital employed) in the private sector, or NOR (net operating result) or IOH (overhead) in the public sector.

Note that the four steps in the causal chain are also the four perspectives of the balanced scorecard in its original formulation. This shows the basic reason why the perspectives (and their underlying metrics) are defined as they are. Any modifications to the metrics should take into account the hypothesis that is being proposed as the cause of long-term strategic success.
This causal chain is illustrated in the figure below.

Corresponding to the steps in the causal chain are four general areas of strategic management activities, as follows:
1. Learning and growth is fostered by knowledge management activities and initiatives. These include strategic recruiting, hiring, training (both formal and informal), team development, document management, collaborative communication systems, knowledge and skills audits of employees, knowledge base developments, and fostering of communities of interest within the organization.

2. Business process improvements may range from moderate and localized changes to wide-scale changes in business processes, the elimination of paperwork and steps in processes, and the introduction of automation and improved technology. Deployment of the balanced scorecard measurement system itself is one of these processes.

3. Customer loyalty cannot any longer be taken for granted within the government, nor is it sufficient to manage it in an ad hoc or anecdotal way. Rather, customer relationships are becoming increasingly structured and measured. Not only must the agency work closely with customers on a personal level, it must also gain documented and continuous feedback on customer perceptions and loyalty. These efforts come under the general heading of customer relationship management (CRM).

4. Financial management -- in the passive sense of "bean counting" -- is giving way to proactive initiatives in Activity-Based Costing (ABC), Functional Economic Analysis (FEA), Earned-Value Management (EVM) and other practices by which managers can learn more from financial data, in order to track projects more closely and make better cost estimates. Also, innovations in budgeting -- including the GPRA's goal of linking performance to budgets -- are replacing Zero-Based Budgeting and other earlier techniques in government agencies. The availability of improved database technology with more business intelligence capability is turning financial management into an active part of an agency's overall strategy for success.

In conclusion, management experts agree that learning and growth are the key to strategic success, the foundation for the future. A learning and growing organization is one in which knowledge management activities are deployed and expanding in order to leverage the creativity of all the people in the organiza

The following books are recommended to provide expert help in special topics related to the balanced scorecard

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Training Materials

The Balanced Scorecard Institute now has made available a selection of training workbooks and the Balanced Scorecard Performance Toolkit.

Books

The following books are recommended to provide expert help in special topics related to the balanced scorecard. Many of them may be found at Amazon or other retail sources.

Bossidy, L., Charan, R. (2002). Execution: The Discipline of Getting Things Done. Bestseller by the CEO of Allied Signal.

Brown, M.G., Hitchcock, D.E. and Willard, M.L. (1994). Why TQM Fails and What to Do About It. McGraw-Hill, New York. Lots of good advice that is still relevant.

Cartin, T.J. (1993). Principles and Practices of TQM. ASQC Quality Press, Milwaukee, WI. Practical guide to the concepts and tools of total quality management.

Cox, B.G. and Chinnappa, B. N. (1995). Business Survey Methods. Wiley. NY. A good reference to help in the design of quality personal opinion and assessment surveys.

Deming, W. Edwards. (1986). Out of the Crisis. MIT Center for Advanced Engineering Study. Cambridge, MA. This is the classic book by Deming that summarized his teachings, which became the foundation for modern measurement-based management.

Drucker, P. (1985). Innovation and Entrepreneurship. Harper Business, NY. Ways that organizations can encourage new ideas, from the management guru who helped to inspire many of them.

Drucker, P. (1990). Managing the Nonprofit Organization. HarperCollins. The wisdom of Drucker in his prime. If you are a nonprofit manager you must get this book.

Fitz-enz, J. and Phillips, J. (1998). A New Vision for Human Resources. Crisp Publications, Inc. Brief outline of measurement-based HR management by the well-respected founder of the Saratoga Institute.

Gabor, A. (1990). The Man Who Discovered Quality. PenguinBooks. New York. A admirer's distillation of the teachings of -- who else? -- W. Edwards Deming.

Hodgetts, R.M. (1998). Measures of Quality and High Performance. Amacom (American Management Association), NY.

Juran, J.M. (1989). Juran on Leadership for Quality. FreePress. New York. Widely known author of the TQM era.

Kalton, G. (1983). Introduction to Survey Sampling. Sage Publications, London. A brief introduction to the mathematical analysis involved in surveys.

Kaplan, R.S. and Norton, D.P. (1996). The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press, Boston, MA. The book that coined the term, but does not include strategy maps because they weren't invented yet.

Kaplan, R.S. and Norton, D.P. (2001). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press, Boston, MA. Recommended for a manager's introduction to the key concepts.

Kaplan, R.S. and Norton, D.P. (2004). Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press, Boston, MA. 400 pages of private sector strategy maps; 28 pages of government and not-for-profit strategy maps.

Kaplan, R.S. and Norton, D.P. (2006). Alignment: Using the Balanced Scorecard to Create Corporate Synergies. Harvard Business School Press, Boston, MA. An advanced BSC book for large corporate enterprises.

Kaydos, W. (1991). Measuring, Managing, and Maximizing Performance: What Every Manager Needs to Know about Quality and Productivity to Make Real Improvements in Performance. Productivity Press Inc. The title says it all.

Kaydos, W. (1998). Operational Performance Measurement: Increasing Total Productivity. CRC Press. An excellent treatment by one of our own consultants.

Keehley, P. et al., (1997). Benchmarking for Best Practices in the Public Sector: Achieving Performance Breakthroughs in Federal, State and Local Agencies, Jossey-Bass. Explains the processes used in conducting benchmarking projects between governmental organizations.

Leidig, G. and Sommerfeld, R. (2002), Balanced Scorecard als Instrument zur Strategieumsetzung. Handbuch für die Druck- und Medienindustrie, Bundesverband Druck und Medien (German Printing Association), Wiesdaden (391 pp. incl. CD-ROM, ISBN 3-88701-238-0).

Leidig, G. and Mayer, T. (Hrsg.) (2002), Betriebswirtschaft und Mediengesellschaft im Wandel. Festschrift für Diethelm Schmidt und Lorenz Rottland, Bundesverband Druck und Medien, Wiesbaden (XVIII pp., 365 pp., ISBN 3-88701-237-2).

McCormack, C. and Jones, D. (1997). Building a Web-Based Education System. Wiley Computer Publishing, New York. Includes software to support all aspects of training.

Miller, G.J., Hildreth, W.B., Rabin, J. (2001). Performance Based Budgeting: An ASPA Classic. Westview Press. An anthology of the best academic articles on this subject. Includes an important article by ex-Senator Fred Thompson.

Mintzberg, H., Ahlstrand, B., and Lampel, J. (1998). Strategy Safari: A Guided Tour Through the Wilds of Strategic Management. Free Press, New York. Classic but advanced book that describes ten schools of strategic management.

Monahan, K.E. (2001). Balanced Measures for Strategic Planning: A Public Sector Handbook. Management Concepts, Vienna, VA. Outgrowth of a study done for the National Partnership for Reinventing Government (NPR). A practical reference book with numerous public sector case studies.

Olson, A., et al.(1995). Performance Measurement. Coopers & Lybrand LLP, Arlington, VA. A monograph by a leading supplier of management consulting to the US federal government.

Olve, N., Roy, J. and Wetter, M. (English ed., 1999). Performance Drivers: A Practical Guide to Using the Balanced Scorecard. Wiley, New York. The Swedish approach to the BSC.

Olve, N., Roy, J. and Wetter, M. (English ed., 2003). Making Scorecards Actionable: Balancing Strategy and Control. Wiley, New York. An update on progress with the BSC in several mostly Scandinavian companies.

Pederson, L.M. (2002). Performance-Oriented Management: A Practical Guide for Government Agencies. Management Concepts, Inc., Vienna, VA. Includes how to facilitate offsite strategic planning retreats, develop performance management systems, and conduct Baldrige assessments. Contains several assessment tools in appendices.

Raj, D. (1968). Sampling Theory. McGraw-Hill. NY. Textbook on survey and experimental design.

Savage, S.L. (2003). Decision Making with Insight. Brooks/Cole - Thomson Learning, Belmont, CA. Contains software for making analytical decision models and Monte Carlo simulations with Excel spreadsheets.

Shewhart, W. (1939). Statistical Method from the Viewpoint of Quality Control. in Deming, W.E., ed., Graduate School of the Department of Agriculture. Washington, DC. Shewhart was the inventor of SPC (Statistical Process Control) which was an early form of performance measurement and control of industrial processes.

Tingey, M.O. (1997). Comparing ISO 9000, Malcom Baldrige and the SEI CMM for Software, Prentice-Hall. A reference and selection guide for these three quality management assessment methodologies.

Van Grembergen, W. (2001). Information Technology Evaluation Methods & Management . Idea Group Publishing, London. Collection of scholarly studies by various authors that includes balanced scorecard concepts as they relate to IT management.

Wholey, J.S., Hatry, H.P. and Newcomer, K.E., eds. (1994). Handbook of Practical Program Evaluation. Jossey-Bass, San Francisco. A major 600-page textbook written by key leaders in US government program evaluation.

An extensive list of additional books and articles is available at the site of the Performance Measurement Association.

Handbook for Basic Process Improvement

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Handbook for Basic Process Improvement

BPIHNDBK.PDF

This handbook has been developed to assist team leaders at all levels who are involved in process improvement efforts. Together with the Basic Tools for Process Improvement, or "tools kit," it provides the practical information you need to initiate and successfully carry out process improvement activities.

The approach and tools described in the handbook follow a Basic Process Improvement Model. This model differs in many respects from the Process Improvement Flowchart found in the CNO-sponsored Starter Kit for Basic Process Improvement distributed to commanding officers several years ago. The Basic Process Improvement Model is much more detailed, in keeping with the "how to" approach used in the new handbook. Together, the model and handbook explain the actual actions teams must take to improve a process.

Tools for Basic Process Improvement

File	Size	Description
AFFINITY.PDF	425 KB	Affinity Diagram
BRAINSTM.PDF	318 KB	What is Brainstorming?
C-EDIAG.PDF	412 KB	Cause and Effect Diagram
CONTROL.PDF	885 KB	Control Chart
DATACOLL.PDF	655 KB	Data Collection
DESCNTLS.PDF	421 KB	Decision Making Tools
FLOWCHRT.PDF	430 KB	Flowchart
HISTGRAM.PDF	487 KB	Histogram
OPDEF.PDF	507 KB	Operational Definitions
PARETO.PDF	570 KB	Pareto Chart
RUNCHART.PDF	535 KB	Run Chart

The Balanced Scorecard and Knowledge Management

2008-08-13T01:48:00.000-07:00

The Balanced Scorecard and Knowledge Management

In recent years there has been a renewed interest in "human resources" and "collaboration" under the term "knowledge management". In another white paper, the meaning of knowledge management is explored in more detail. Here, the focus is on the relationship between the balanced scorecard and knowledge management.

In their book The Balanced Scorecard, Kaplan and Norton set forth a hypothesis about the chain of cause and effect that leads to strategic success. This cause-and-effect hypothesis is fundamental to understanding the metrics that the balanced scorecard prescribes. There are four stages to this chain of cause and effect, outlined as follows:

1. The foundation, or fundamental cause for strategic success has to do with people. Decades ago Peter Drucker recognized that innovation from creative people provides the only assured source of long-term success and competitiveness, because every other aspect of an organization can be duplicated by others. The right people must be hired, properly trained and mentored, and the learning process should become continuous and endless. Peter Senge, in his very influential book The Learning Organization, described a healthy organization as one in which a learning culture prevails, fostered both by formal and informal learning and by abundant internal communication in all media.

2. In a learning and growing organization, where the culture encourages people make suggestions and question the status quo, a steady flow of new ideas arises from the rank-and-file employees. These ideas are vital to the future of the organization, because they come from the experts -- the people who are involved with the business processes on a daily basis. This insight about employees traces back to Deming, who saw the vital need for managers and shop-floor supervisors to listen to workers' complaints and empower them to make suggestions and improvements. Conversely, an organization that stifles or ignores new ideas from its employees is probably doomed. The balanced scorecard, using efforts such as employee surveys and analysis of training data, is able to measure the degree of learning and growth, allowing leaders to assess the potential for long-term success.

This causal chain is illustrated in the figure below.

Corresponding to the steps in the causal chain are four general areas of strategic management activities, as follows:

1. Learning and growth is fostered by knowledge management activities and initiatives. These include strategic recruiting, hiring, training (both formal and informal), team development, document management, collaborative communication systems, knowledge and skills audits of employees, knowledge base developments, and fostering of communities of interest within the organization.

In conclusion, management experts agree that learning and growth are the key to strategic success, the foundation for the future. A learning and growing organization is one in which knowledge management activities are deployed and expanding in order to leverage the creativity of all the people in the organization

Deployment of the Balanced Scorecard Measurement System

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The Balanced Scorecard text by Kaplan and Norton describes in general terms the basic ideas of the balanced scorecard concept, its great advantages over past approaches to strategic management, and a general outline of how to develop and deploy such a system. However, there are many issues involved in making a good fit to a specific organization, and in estimating and minimizing the cost and time of deployment.

Change Management Comes First

Change management is always going to be a major challenge in deploying the balanced scorecard system, because it must touch every significant activity in the organization. John Kotter in Leading Change provides a description of the conditions that should prevail in order to ensure success. The most important of these is a sense of urgency in the senior management of the organization. Does your agency's management have a sense of urgency, or complacency? How can you instill greater urgency in them? This effort should not be underestimated, because success depends on their consistent support and understanding of the deployment.

Since the balanced scorecard process affects everyone in the organization, it has to confront the organization's culture. Many government agencies have a culture of complacency and even cynicism, due to the downsizing that has been prevalent in recent years. As young people are hired, it is critical to prevent these attitudes from perpetuating themselves. The balanced scorecard, by providing greater openness and visibility of an agency's mission and strategy, can give rank-and-file employees a better sense of what their jobs are about, and empower them to improve how that work is done. Strategic goals, balanced scorecard plans and improvement plans should be posted on an intranet web site for all employees to see. Broad participation in planning should be encouraged.

Deploying the Balanced Scorecard as a Pilot Project

Kaplan and Norton provide an outline of how to deploy the BSC. Basically, a core team is formed to develop the detailed plan and deploy it. To reduce cost and risk, it is usually wise to initially deploy pilot projects in a limited part of the organization. However, all deployment efforts should be initiated at the headquarters level. Strategic goals have to come from the top. Also, some strategic initiatives to reach these goals should be identified there. Some metrics should be standardized at the top level in order that measurements from different departments will be comparable for benchmarking. At the departmental or pilot project level, specific goals, initiatives, desired outcomes, metrics, targets, and annual milestones can be defined. The constitutes the strategic plan plus performance plan in accordance with Government Performance and Results Act.

Balanced Scorecard Measurement Processes

There are two sets of more-or-less continuous data flows required in the BSC system:

1. Downward information flow

Line managers at the Directorate, Department, and Branch levels define goals, desired outcomes, initiatives, metrics, targets, and schedules. The goals, metrics, targets and schedules are aligned with those specified in the top-level strategic plan and balanced scorecard performance plan. Some ofhese parameters may have to be translated from general to more mission-specific to apply to the work being performed at each organizational level. Specific desired outcomes and initiatives to attain them are developed by these managers, and the metrics, targets and schedules are then developed. This results in a hierarchical set of balanced scorecards that are pertinent at each organizational level. It also has the effect of giving the organizational stakeholders a meaningful role in performance evaluation and strategic management.

2. Upward information flow

Define collection methods for each of the BSC metrics. This is the most expensive, labor-intensive, aspect of the BSC system, and has the most impact on the rank-and-file employees. I therefore recommend that for survey-based measurements, surveys should be carefully and professionally designed to minimize complexity and impact on the employees' time. Aggregate metrics data by organizational code. Create reports at each line management layer. These will provide feedback to the managers on metrics that are pertinent to their own strategic interests. Aggregate at each level (without filtering or loss of data). At the senior management layer, combine the metrics data into the 'vital few' needed to give an overall picture of the agency's balanced scorecard, on a continuous basis.

At each level of the organizational hierarchy, the data are aggregated across the lower levels. Aggregation serves to reduce information overload. Periodically, measurements are collected, aggregated and analyzed at each management level. These data provide the managers with knowledge of strategic performance within their own part of the organization. In other words, the performance evaluations are not only for the top-level managers. Each manager, at each level, benefits by seeing the same metrics as they apply to his or her own area of responsibility. This is an incentive to support the balanced scorecard: we are measuring ourselves -- and we get to use the data we collect for our own purposes.

Use Information Technology to Support the System

Once the metrics and data collection procedures have been defined, an information infrastructure can help greatly in managing the data flows. A database-backed web intranet is recommended both for data collection and data reporting. This can be developed at relatively low cost using mostly COTS products, or components of it can be purchased. Web technology can support survey data collection and data reporting fairly easily. It also can enable features such as workflow process monitoring of cycle times, activity-based costing, and an 'anonymous channel' to upper management. Agencies such as DoD components and research labs often have the skills to build at least part of the system in-house. Information technology papers can be found here.

Issues

We should not leave the reader with the impression that deployment of the balanced scorecard in the government is easy or straightforward. In addition to the change management challenges mentioned above, there are several other issues that have not been sufficiently addressed in other literature. These issues confront implementers of the balanced scorecard in many agencies, and deserve continued serious study. Some of the major ones are described here.

1. Organization: In a matrix organization, most of the mission-oriented work is done in program/project teams, not according to the branch-department-division hierarchy. So should mission-oriented metrics be defined by the program managers rather than line managers?

Top-level metrics tend to be very generic: core knowledge, experience, capability, performance, realism, facility maintenance, etc. There are no metrics to describe the quality of research, the effectiveness of products and services, or the long-term outcomes of the mission. Rather, these are inferred from the level of customer satisfaction. If customer satisfaction and perception is the focus of the BSC, then it will be sufficient to define the metrics within the line management structure.

On the other hand, if headquarters desires more pertinent metrics on our mission-oriented quality, success, and outcomes, then it will be necessary for program managers to define specific metrics within their technical areas. Advantages are that they provide leading indicators for future customer satisfaction, they create an incentive for improvement within the programs, and they are probably being tracked informally already. The disadvantage is that unlike the generic metrics, these will be different for each program, harder to define, and probably not commensurate across programs to permit benchmarking. For example, how do we compare progress in public health care with progress in improving cost-effectiveness of a bridge design?

2. Cost. There are vendors that now provide SOME of the software and methodology needed to support the balanced scorecard. Several vendors offer systems that handle the planning, data aggregation and reporting/display functions. However, such systems, marketed primarily to Fortune 100 companies, are expensive, and organizations may need to consider an in-house build option. Moreover, such systems cannot COLLECT the data, which is a labor-intensive need. Cost minimization is an important factor in survey design; it may be cost-effective to bring in a consultant to design and/or conduct the surveys. This issue is discussed further in the references cited in survey methods. At any rate, a total cost calculation should be done to identify the best implementation approach.

3. Fear. At the branch level, it would be convenient to link the individual employee performance evaluations to the balanced scorecard. But is this a good idea? If too much emphasis is placed on performance of individual employees, the BSC could change into a warmed-over version of "Management By Objectives", which failed back in the 1970's. It might scare employees, and it would take the incentive and onus off managers to take responsibility for strategic management, the intent of the BSC approach.

On the other hand, since employee performance is to be evaluated in any case, these data should not be ignored. Moreover, there is a stated intention for agencies to set goals and objectives for personnel performance. Thus, tying the BSC process to the personnel evaluation process should help to align the organization strategically. However, in a public-sector organization, fear must be balanced by an incentive -- compensation, promotion, increased bugetary authority or other tangible benefits. In the government or nonprofit arena, fear unbalanced by real incentives will kill the balanced scorecard before it gets off the ground.

A suggestion to deal with this issue has been to stipulate that the BSC data are only to be used in the aggregate, not for individual evaluations. The collective performance of branches, programs and/or teams is the concern of the senior managers, not the performance of individuals. If this is clearly understood by all, then the fear involved in employee survey data collection or use of demo data should be minimized. However, this still leaves the employees and many managers asking, "what's in it for me?"

4. Objectivity. Charles Savage (Fifth Generation Management) notes that

"As information passes up and down the organization, there is a strong tendency to manage and massage it. A function is often more interested in making itself look good than in telling things the way they are. In too many companies, even before the computer, we have had managed information systems. The computer has not changed this pattern of interaction between levels. Usually MIS attempts to mirror the configuration of steep hierarchies, so they suck up information from lower levels, summarize it, and provide top management with executive decision support systems. These decisions are then communicated back down through the hierarchy to lower levels.... Is this where managed information systems are taking us? Will these systems be used to 'micromanage' the plants and their functions? .... if little trust exists between levels or between functions in steep hierarchies, there is going to be a greater interest in managing or massaging the information that is passed vertically between boxes. Is it possible that the wrong questions are being asked in the MIS arena? The more appropriate questions may deal with leveraging knowledge rather than managing information. The challenge is to see the interrelationship of multiple patterns. Unfortunately, traditional managed information systems tend to remove all the interesting rough edges and sanitize the information so the important patterns do not show up." (pp. 107-8).

How can we create an objective data collection system that minimizes these problems Savage identifies?

Summary

This article has pointed out the concepts and data management efforts that are involved in balanced scorecard deployment. It is clear that modern information technology systems can support this work. However, the big implementation problems are people problems: change of managers' perceptions, fear in the employee culture, and the limited incentives available within most governmental and nonprofit organizations to counterbalance that fear. But this is where we are now with the balanced scorecard in the federal government, and these are the same issues that any future management system will have to confront.

HR Scorecard Metrics - measure and improve HR performance

2008-08-13T01:38:00.001-07:00

HR Scorecard Metrics - measure and improve HR performance

If you are in HR industry then you know how it is important to measure and control the performance of people who are working for you. It's important to measure all aspects of HR, including hiring, management, training and other.

The Balanced Scorecard approach is a great way to take a control over the HR performance management. This concept have different names, some call it KPI - key performance indicators or key performance indexes. Also, the concept of group's indicators also called "metrics". It doesn't matter what is the name of the concept, the trust is that it works and help to manage business in a better way.

What do Balanced Scorecard suggest for HR professional? First, this concept tells to think about HR from the view point of different people. From the viewpoint of financial specialist, from the view point of customer manager from view point of training and hire manager. Second, this concept tells us to use metrics to measure the performance, the better metrics we have the better result we will get.

The Balanced Scorecard concept is great, if some real-life tools stands behind it. Actually, there are some tools that helps in designing Balanced Scorecard metrics.

The HR Scorecard Metrics web-sites focuses on the principle - "keep it simple". Why invent billion dollars measurement systems? Why pay expensive consultants when you can do everything with a help of your own managers.

HR Scorecard Metrics resource collects useful information about measurement of performance in HR industry, and it suggest some ready to use packs of metrics. That is a good point where you can start when designing your own indicators.

To make a shopping experience more pleasant the web-site suggests downloading trial version of the metrics before purchasing, if you like it you can purchase metrics and have more options, such as metrics editable in Balanced Scorecard Designer software.

Balanced Scorecard as a Strategy of Life

2008-08-13T01:36:00.000-07:00

A lot of companies succeeded owing to this strategy, but now the subject is a bit different: "If you could use "Balanced Scorecard" in your own life?". We consider how one could apply balanced scorecard principles to personal strategy.

The "Balanced Scorecard" in origin is a management strategy, developed by Drs. Robert Kaplan and David Norton in early 1990's. It was a new approach to strategic management, based on viewing the activity of any company from four perspectives; which you can see on the scheme below.

We share best "how-to" ideas:

A lot of companies succeeded owing to this strategy, but now the subject is a bit different: "If you could use "Balanced Scorecard" in your own life?" First of all let's see, what is a person itself? Could it be considered a little company? Of course, and unconscionably we apply the principles of "Balanced Scorecard" very often, because in companies the charges are distributed, and very often one hand doesn't know about the other and doesn't see the strategy as a whole and this leads to unbalancing; so for one person it much easier to cope with this task. But purposeful applying of the "Balanced Scorecard" can lighten the process of systematization and show the progress. When you see the results it's much easier to continue the implementation of plans.

Now, let's have a look at the scheme. All the subjects in it are interrelated, and as you'll see it's really so.

Learning and growth. In the life of modern individual it is presents from the first days of life. Today almost everybody gets the secondary education, so it's out of question. The next step is to get higher education. But it doesn't mean that if you have already graduated from college it's enough for the rest of your life. In comparison with the beginning of the 20th century, nowadays the world develops much faster, so you need to correspond to it. It's like the goods at the market the better one has the higher price. "Learning and growth" in professional sense is obviously essential. At the same time it is very important to clarify the direction of development. So we go to the second subject

Internal business processes. Here you should analyze whether your proposal confirms the requirement. It means that you need to specify the area of application of gained skills and knowledge and see if you need some more training, or practice or whatever. Maybe you need to make some changes (find another work or develop a new profession, or just change the image). And you need to check how the changes influence on the situation in whole and what should be amended.

Customer. In our case the customer is an employer. It is obvious that if he is not satisfied, sooner or later he will find somebody else for your place. And on the opposite if you possess the required qualities, and can show it, the success is guaranteed.

We share best "how-to" ideas:

Financial is the last but very important item. It is the most demonstrative, as by the financial condition you can easily determine if you are succeeding or your strategy needs correction. It will also help to make long-term plans taking into consideration present state of affairs and changes you are expecting in the future.

And of course, like any company you should take into consideration different unforeseeable consequences to undertake the necessary steps in time. The "Balanced Scorecard" in its name concludes the main principle all four components should be balanced! So, "Internal business processes" has the straight influence on "Learning and growth" and "Financial": you choose the process according to your education, skills and financial situation and with the purpose of improving of the last, but to gain new knowledge you need money. The same wit the "Customer": you choose the job and the employer chooses you when you come to terms with financial position and your professionalism.

The criteria of appraisal may be different, but the meaning will be the same, and with time the "Balanced Scorecard" may transform into the way of life.

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The Revolution in Strategic Planning

2008-08-13T01:35:00.001-07:00

The balanced scorecard is creating a revolution in the profession and practice of strategic planning. Many of the traditional strategic planning activities are being transformed or thrown out altogether. After a long, slow decline, strategy is now back in the spotlight, and the strategic plan has taken its rightful place as the marching orders of the organization. The Balanced Scorecard Institute is contributing to this transformation through its training and consulting efforts with a variety of public, private, and nonprofit organizations. This revolution is ongoing, but it has already made a significant difference in many corporations, government agencies and other organizations that have been early adopters of the balanced scorecard approach to strategic management.

One way to see the distinctions of the balanced scorecard (the "New Way") is to compare it to traditional strategic planning (the "Old Way".) Some of these differences are summarized in the table below.

Old Way	New Way
The traditional strategic planning retreat: executives go to a remote resort location for one or two days, where they brainstorm all the things they want to do; then prioritize their "goals" and "objectives" into a lengthy to-do list for the next planning cycle.	Multi-level, cross-functional planning teams: a sampling of experienced managers and workers at various levels meet and develop strategies through a systematic methodology.
Planning is done primarily in-house, with little or no outside facilitation help and no planning framework.	Outside expertise is brought in to learn best practices and provide professional facilitation; a structured framework is followed in a logical progression of steps without digression.
The standard planning cycle: typically 5 years, or as short as 3 years.	The agile planning process: shorter than 3 years, and strategies can be revised as necessary without being tied to any annual cycle.
Innovation and major change is not likely to occur, since only a few senior executives do all the planning, there is little external influence; plans tend to be repetitive and ingrown.	Innovation emerges from cross-functional teams composed of employees at all levels, who are empowered and provide a reality check on what is really needed in the organization at the working level.
Routine, perfunctory, tradition-bound planning: "We have always done it this way."	Creative strategic thinking is encouraged at all levels of the organization.
Compliance-driven management: "we have to do this because we were told to."	Strategy-driven management: we are doing this because we have arrived at a consensus on what is most important to this organization.
The Strategic Plan: a slick, attractive paper document with lots of pictures, filled with "goals" and "objectives", roughly 50 pages in length, published every 5 years.	The strategic plan is a series of strategy maps, performance measures and initiatives that tell the story of the organization's vision and strategies.
The Strategic Plan is "shelfware": it is disconnected from actual execution and gathers dust on a shelf.	The "strategic plan" is a dynamic process that provides the guidance for all programs and projects. It is enforced through strategic performance measures and manager accountability.
The strategic plan contains a large number of "goals", "objectives", "action items", etc.	Strategic plan is focused on a 3 or 4 strategic themes; yet at the same time the plan is much more comprehensive.
Alignment is haphazard or unknown, because of a lack of appropriate performance measures.	Alignment to mission and vision is enforced by the use of appropriate strategic performance measures.
Managers tend to focus on short-term financial goals.	Managers have a balanced view of the major perspectives of performance.
TQM-based performance measures (or Key Performance Indicators, KPIs) generate a lot of data but yield little insight as to what works.	Strategic performance measures allow planners to learn what strategies are working to improve performance.
Planning is goal or project oriented: Planning jumps directly from mission and vision to projects and initiatives. This puts the focus on means, not ends.	Planning is results oriented: Planning moves logically from vision to desired results, to strategies, to strategic performance measures, and then to initiatives. Performance measures are focused on end outcomes and results.
Planning is mostly aimed at improving processes and operations ("doing things right"), not strategies.	Planning is aimed at crafting and improving strategies ("doing the right things").
The budgeting process is disconnected from performance measures, which are disconnected from strategic plans.	Budgets are guided by performance measurements showing how well strategic initiatives are improving strategic results.
Collection of performance measures is reactive and ad hoc, driven by "data calls".	Performance measures are collected systematically and continuously throughout the organization.
No performance reporting mechanism.	Performance data is widely reported via a distributed software system.
Not transparent.	Transparent -- shows what is important. Focuses on the strategies and how they will be supported.
Numerous objectives, not linked to anything.	Objectives are linked in a chain of cause and effect on a strategy map.
Work incentives are disconnected from strategic performance.	Work incentives are tied to behaviors that are aligned to performance of strategic objectives.

Using the Balanced Scorecard to Align Your Organization

2008-08-13T01:31:00.001-07:00

By Howard Rohm
President & CEO, the Balanced Scorecard Institute

Balanced Scorecards, when developed as strategic planning and management systems, can help align an organization behind a shared vision of success, and get people working on the right things and focusing on results. A scorecard is more than a way of keeping score..it is a system, consisting of people, strategy, processes, and technology.

One needs a disciplined framework to build the scorecard system. This article is the first in a series describing how to build and implement a balanced scorecard system using a systematic step-by-step approach.

"Balanced Scorecard" means different things to different people. At one extreme, a measurement-based balanced scorecard is simply a performance measurement framework for grouping existing measures into categories, and displaying the measures graphically, usually as a dashboard. The measures in these systems are usually operational, not strategic, and are used primarily to track production, program operations and service delivery (input, output, and process measures).

At the other extreme, the balanced scorecard is a robust organization-wide strategic planning, management and communications system. These are strategy-based systems that align the work people do with organization vision and strategy, communicate strategic intent throughout the organization and to external stakeholders, and provide a basis for better aligning strategic objectives with resources. In strategy-based scorecard systems, strategic and operational performance measures (outcomes, outputs, process and inputs) are only one of several important components, and the measures are used to better inform decision making at all levels in the organization. In strategy-based systems, accomplishments and results are the main focus, based on good strategy executed well. A planning and management scorecard system uses strategic and operational performance information to measure and evaluate how well the organization is performing with financial and customer results, operational efficiency, and organization capacity building.

Performance measurement balanced scorecards are not very interesting, and add little business intelligence to help an organization chart strategic direction and measure the progress of strategic execution. Balanced scorecards built with the goal of "organizing the measures we have" hardly justify the energy it takes to build them.

We'll start our balanced scorecard journey not from performance measures but from the results we want the organization to accomplish. In other words, we'll start with the end in mind, not with the measures we currently have. One of Stephen Covey's quote captures the essence of our journey: "People and their managers are working so hard to be sure things are done right, that they hardly have time to decide if they are doing the right things."

What is the Balanced Scorecard?

2008-08-13T01:28:00.000-07:00

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950's and the work of French process engineers (who created the Tableau de Bord literally, a "dashboard" of performance measures) in the early part of the 20th century.

The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The "new" balanced scorecard transforms an organization's strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies.

This new approach to strategic management was first detailed in a series of articles and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning & Growth Perspective
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Government agencies often find themselves unable to hire new technical workers, and at the same time there is a decline in training of existing employees. This is a leading indicator of 'brain drain' that must be reversed. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.

Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems."

The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.

In addition to the strategic management process, two kinds of business processes may be identified: a) mission-oriented processes, and b) support processes. Mission-oriented processes are the special functions of government offices, and many unique problems are encountered in these processes. The support processes are more repetitive in nature, and hence easier to measure and benchmark using generic metrics.

The Customer Perspective
Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.

The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives.

There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

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The Balanced Scorecard and Measurement-Based Management

The balanced scorecard methodology builds on some key concepts of previous management ideas such as Total Quality Management (TQM), including customer-defined quality, continuous improvement, employee empowerment, and -- primarily -- measurement-based management and feedback.

Double-Loop Feedback

In traditional industrial activity, "quality control" and "zero defects" were the watchwords. In order to shield the customer from receiving poor quality products, aggressive efforts were focused on inspection and testing at the end of the production line. The problem with this approach -- as pointed out by Deming -- is that the true causes of defects could never be identified, and there would always be inefficiencies due to the rejection of defects. What Deming saw was that variation is created at every step in a production process, and the causes of variation need to be identified and fixed. If this can be done, then there is a way to reduce the defects and improve product quality indefinitely. To establish such a process, Deming emphasized that all business processes should be part of a system with feedback loops. The feedback data should be examined by managers to determine the causes of variation, what are the processes with significant problems, and then they can focus attention on fixing that subset of processes.

The balanced scorecard incorporates feedback around internal business process outputs, as in TQM, but also adds a feedback loop around the outcomes of business strategies. This creates a "double-loop feedback" process in the balanced scorecard.

Outcome Metrics

You can't improve what you can't measure. So metrics must be developed based on the priorities of the strategic plan, which provides the key business drivers and criteria for metrics that managers most desire to watch. Processes are then designed to collect information relevant to these metrics and reduce it to numerical form for storage, display, and analysis. Decision makers examine the outcomes of various measured processes and strategies and track the results to guide the company and provide feedback.

So the value of metrics is in their ability to provide a factual basis for defining:

Strategic feedback to show the present status of the organization from many perspectives for decision makers
Diagnostic feedback into various processes to guide improvements on a continuous basis
Trends in performance over time as the metrics are tracked
Feedback around the measurement methods themselves, and which metrics should be tracked
Quantitative inputs to forecasting methods and models for decision support systems

Management by Fact

The goal of making measurements is to permit managers to see their company more clearly -- from many perspectives -- and hence to make wiser long-term decisions. The Baldrige Criteria (1997) booklet reiterates this concept of fact-based management:

"Modern businesses depend upon measurement and analysis of performance. Measurements must derive from the company's strategy and provide critical data and information about key processes, outputs and results. Data and information needed for performance measurement and improvement are of many types, including: customer, product and service performance, operations, market, competitive comparisons, supplier, employee-related, and cost and financial. Analysis entails using data to determine trends, projections, and cause and effect -- that might not be evident without analysis. Data and analysis support a variety of company purposes, such as planning, reviewing company performance, improving operations, and comparing company performance with competitors' or with 'best practices' benchmarks.

A major consideration in performance improvement involves the creation and use of performance measures or indicators. Performance measures or indicators are measurable characteristics of products, services, processes, and operations the company uses to track and improve performance. The measures or indicators should be selected to best represent the factors that lead to improved customer, operational, and financial performance. A comprehensive set of measures or indicators tied to customer and/or company performance requirements represents a clear basis for aligning all activities with the company's goals. Through the analysis of data from the tracking processes, the measures or indicators themselves may be evaluated and changed to better support such goals."

Balanced scorecard

2008-08-13T01:19:00.000-07:00

From Wikipedia, the free encyclopedia

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The Balanced Scorecard (BSC) began as a concept for measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy. It was developed and first used at Analog Devices in 1987. By focusing not only on financial outcomes but also on the human issues, the Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests. The strategic management system helps managers focus on performance metrics while balancing financial objectives with customer, process and employee perspectives. Measures are often indicators of future performance.

[hide]

[edit] History

In 1993, Robert S. Kaplan and David P. Norton began publicizing the Balanced Scorecard through a series of journal articles. In 1996, they published the book The Balanced Scorecard. Since the original concept was introduced, Balanced Scorecards have become a fertile field of theory and research, and many practitioners have diverted from the original Kaplan & Norton articles. Kaplan & Norton themselves revisited Balanced Scorecards with the benefit of a decade's experience since the original article.

The Balanced Scorecard is a performance planning and measurement framework, with similar principles as Management by Objectives, which was publicized by Robert S. Kaplan and David P. Norton in the early 1990s. Having realized the shortcomings of traditional management control systems, Kaplan and Norton designed the Balanced Scorecard as a result of a one-year research project involving 12 companies. Since its introduction, the Balanced Scorecard has been awarded a prize by the American Accounting Association as the "best theoretical contribution in 1997", and its industry and academic attention has placed it alongside approaches such as Activity Based Costing and Total Quality Management.

Balanced scorecard is a tool to execute and monitor the organizational strategy by using a combination of financial and non financial measures. It is designed to translate vision and strategy into objectives and measures across four balanced perspectives: financial, customers, internal business process and learning and growth. It gives a framework ensuring that the strategy is translated into a coherent set of performance measures.

[edit] Use

Implementing Balanced Scorecards typically includes four processes:

Translating the vision into operational goals;
Communicating the vision and link it to individual performance;
Business planning;
Feedback and learning, and adjusting the strategy accordingly.

Balanced Scorecard is a performance management tool. Although it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that the Balanced Scorecard itself has no role in the formation of strategy. In fact, Balanced Scorecards can comfortably co-exist with strategic planning systems and other tools.

[edit] Original methodology

In short, early-style Balanced Scorecards are hard to design in a way that builds confidence that they are well designed. Because of this, many are abandoned soon after completion.

[edit] Improved methodology

Several design issues still remain with this enhanced approach to Balanced Scorecard design, but it has been much more successful than the design approach it supersedes.

[edit] Popularity

Kaplan and Norton found that companies are using Balanced Scorecards to:

Drive strategy execution;
Clarify strategy and make strategy operational;
Identify and align strategic initiatives;
Link budget with strategy;
Align the organization with strategy;
Conduct periodic strategic performance reviews to learn about and improve strategy.

In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the Balanced Scorecard.

Balanced Scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organizations, and schools.

[edit] Variants, Alternatives and Criticisms

Another criticism is that the Balanced Scorecard does not provide a bottom line score or a unified view with clear recommendations: it is simply a list of metrics [2].

[edit] The Four Perspectives

Financial perspective;
Customer perspective;
Internal process perspective;
Learning and growth perspective.

The learning and growth perspective is the foundation of any strategy and focuses on the intangible assets of an organization, mainly on the internal skills and capabilities that are required to support the value-creating internal processes. The learning and growth perspective is concerned with the jobs (human capital), the systems (information capital), and the climate (organization capital) of the enterprise. These three factors relate to what Kaplan and Norton claim is the infrastructure that is needed in order to enable ambitious objectives in the other three perspectives to be achieved. This of course will be in the long term, since an improvement in the learning and growth perspective will require certain expenditures that may decrease short-term financial results, whilst contributing to long-term success.

[edit] Key Performance Indicators

According to each perspective of the Balanced Scorecard, a number of KPIs can be used such as:

[edit] Financial

[edit] Customer

Delivery Performance to Customer - by Date
Delivery Performance to Customer - by Quality
Customer satisfaction rate
Customer Loyalty
Customer retention

[edit] Internal Business Processes

Number of Activities
Opportunity Success Rate
Accident Ratios
Overall Equipment Effectiveness

[edit] Learning & Growth

Investment Rate
Illness rate
Internal Promotions %
Employee Turnover
Gender/Racial Ratios

Further lists of general and industry-specific KPIs can be found in the case studies and methodological articles and books presented in the references section.

[edit] See also

Applied Information Economics
Digital dashboard, also known as business dashboard, enterprise dashboard or executive dashboard
Key performance indicators
Performance management
Strategic management
Strategy map
BSC SWOT

[edit] References

Douglas W. Hubbard "How to Measure Anything: Finding the Value of Intangibles in Business" John Wily & Sons, 2007. ISBN 978-0470110126

Cobbold, I. and Lawrie, G. (2002a). "The Development of the Balanced Scorecard as a Strategic Management Tool". Performance Measurement Association 2002

Cobbold, I and Lawrie, G (2002b). "Classification of Balanced Scorecards based on their effectiveness as strategic control or management control tools". Performance Measurement Association 2002.

International Controller Association: Statement Balanced Scorecard; Gauting, Germany, 2003

Kaplan R S and Norton D P (1992) "The balanced scorecard: measures that drive performance", Harvard Business Review Jan Feb pp71-80.

Kaplan R S and Norton D P (1993) "Putting the Balanced Scorecard to Work", Harvard Business Review Sep Oct pp2-16.

Kaplan R S and Norton D P (1995) "Chemical Bank: Implementing the Balanced Scorecard" Harvard Business School Press

Kaplan R S and Norton D P (1996) "Using the balanced scorecard as a strategic management system", Harvard Business Review Jan Feb pp75-85.

Kaplan R S and Norton D P (1996) "Balanced Scorecard: Translating Strategy into Action" Harvard Business School Press

Kaplan, R. S., & Norton, D. P. (2004). Measuring the strategic readiness of intangible assets. Harvard Business Review, 82(2): 52-63.

Kaplan, R. S., & Norton, D. P. (2004). Strategy maps: Converting intangible assets into tangible outcomes. Boston: Harvard Business School Press.

Kurtzman J (1997) "Is your company off course? Now you can find out why", Fortune Feb 17 pp128- 30

Niven, Paul R. (2006) "Balanced Scorecard. Step-by-step. Maximizing Performance and Maintaining Results".

Per Nikolaj Bukh & Teemu Malmi "Re-Examining the Cause-and-Effect Principle of the Balanced Scorecard"

Norreklit H. (2000), The balance on the balanced scorecard - a critical analysis of some of its assumptions, Management Accounting Research, 11, pp. 65-88.

Papalexandris, A., Ioannou, G. and Prastacos, G.P. (2004) Implementing the Balanced Scorecard in Greece: a software firm's experience. Long Range Planning, 37(4), 347-362.

Papalexandris, A., Ioannou, G., Prastacos, G.P. and Soderquist, K.E. (2005) An integrated methodology for putting the Balanced Scorecard into action. European Management Journal, 23(2), 214-227.
Voelper S., Leibold M., Eckhoff R., Davenport T. (2006), The tyranny of the Balanced Scorecard in the innovation economy, Journal of Intellectual Capital, Vol. 7, n° 1, pp. 43-60.

[edit] Software tools

[edit] External links

Palladium Group formerly the Balanced Scorecard Collaborative
The Balanced Scorecard Institute
EPM Review - Balanced Scorecard Resources

Retrieved from "http://en.wikipedia.org/wiki/Balanced_scorecard"

TWI History and Development

2008-08-03T07:45:00.000-07:00

http://www.trainingwithinindustry.net/
TWI has experienced a rediscovery in the 21st century. Despite being mostly forgotten between the post-war era and today, the sound principles of TWI are present in modern day training programs, such as OJT. If one pulls on the thread, the history of TWI unravels and leads us beyond WWII into the early 1900's, nearly 100 years ago, where Charles Allen applied training principles that were thirty years old at that time. Like any solid principle that stands the test of time, we can come back to the present and realize TWI is as sound today in a company like Toyota as it was 100 years ago. You see, TWI has a common theme and it is rooted in the concept that "people are people" no matter the time or place along the timeline of history. The history of TWI plays an important part in the history of the United States; the program helped us and our allies win a world war. If we, "each and every person" as a country, take the time to study, understand and apply the principles underpinning the skills of the program, it is certain we can overcome many economic challenges facing us today.

TWI has its roots in pre-WWI times. The most prominent influence of the TWI program was Charles Allen, an industrial instructor of WWI shipyards, who authored the book: The Instructor, the Man and His Job, published in 1919. It is Allen's insightful, practical experience in understanding the human mind through the context of industrial efforts that lay the foundations for Job Instruction. Allen expanded his work in another book entitled, Managing Minds. This book worked outside the boundaries of "theoretical psychology" and focused on the details of "practical psychology" that should be used in organizational leadership.

Allen's message of utilizing proven, "practical" methods vs. narrowly defined theories is a lesson that can be learned today. It is very difficult not to succumb to the complex theories of organizational leadership that are quickly and creatively packaged for industrial managements' consumption, only to cherry pick bits and pieces we think we are comfortable with. This is especially true today under the professional pressures to perform at very high levels: it is tempting, if not inevitable, to embrace the newest, sophisticated methods of management, versus the proven "simple" and "outdated" methods of the past. After all, who wants to be on the trailing edge of organizational development?

Another influence found in the Assistant Director's files, at the National Archives, is Chester Barnard, President of Bell Telephone company. In 1940, Harvard University Press published a booklet titled, The Nature of Leadership. This publication was a collection of talks and discussions Barnard engaged in with various organizations. In the opening paragraph, Barnard wryly states:

"'Leadership' has been the subject of an extraordinary amount of dogmatically stated nonsense. Some, it is true, has been enunciated by observers who have had no experience themselves in coordinating and direct the activities of others; but much of it has come from men of ample experience, often of established reputations as leaders. As to the latter we may assume that they know how to do well what they do not know how to describe or explain. At any rate, I have found it difficult not to magnify superficial aspects and catch-phrases of the subject to the status of fundamental propositions, generalized beyond all possibility of useful application, and fostering misunderstanding."

In other words, there are a lot of people out there that think they know the topic of leadership, but do not. Those that are talking about the topic, are in fact unable to teach leadership in such a way that people understand the nature of leadership. Sixty-seven years later, have things really changed?

Another strong influence in the TWI program is the concept of work simplification. This principle of industrial engineering is epitomized in Job Methods Training, where people are trained in "how to improve methods". There are a number of people who mastered the concept of work simplification, namely Alan Mogensen. Mogensen is known for advocating worker involvement in all improvement activities:

Lillian and Frank Gilbreth were also known for their very early work in improving work methods; in fact, Lillian Gilbreth was on Mogensen's conference staff for many years after its initial founding in 1937. However, lesser known members of industry were working on similar programs in the field. Clifton Cox is considered to be the main architect of TWI's Job Methods Training (JMT) program. In August of 1941, Clifton Cox presented the basic outline for Job Methods Training to Alan Mogensen, Glenn Gardiner (JIT co-creator) and a Professor Dave Porter at the Lake Placid conference. Anyone familiar with the works of the Gilbreths and Mogensen, can easily see the principles of work simplification in Job Methods principles.

Once Cox, Gardner and other TWI representatives had polished the program through September 1942, it was time to officially launch the program. In December 1942, the first JMT Institute was held at the Picatinny Arsenal in northwestern New Jersey. Traditionally a research and development facility, the arsenal was charged with turning out munitions on three shifts while employing 18,000 people in WWII. In just three years after learning the skill of improving methods through JMT, Picatinny had logged over $8 million in savings through employee suggestions.

In case you are wondering, in 2007 that is nearly $100 million of savings due to common sense ideas when adjusted for inflation. Would you like $30 million per year in cost savings?

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Balanced scorecard

From Wikipedia, the free encyclopedia

Use

Original methodology

Improved methodology

Popularity

Variants, Alternatives and Criticisms

The Four Perspectives

Key Performance Indicators

Financial

Customer

Internal Business Processes

Learning & Growth

See also

References

Software tools

Case Studies For Case-Based Classes

balanced scorecard - kaplan and norton's organizational performance management tool

balanced scorecard

kaplan and norton's organizational performance management tool

balanced scorecard - definition

balanced scorecard - factors examples

balance scorecard implementation

Balanced Scorecard Initiative

Perspectives on the Balanced Scorecard©

Perspectives on the Balanced Scorecard©

Must Your Scorecard be Balanced?©

Must Your Scorecard be Balanced?©

Background

Is a Scorecard for Control or Improvement?

Financial and Non-financial?

External and Internal

Leading and Lagging

Short- and Long-term Objectives

Bottom Line

Juggling Balanced Scorecard Metrics©

Juggling Balanced Scorecard Metrics©

Juggling Balanced Scorecard Metrics©

Juggling Balanced Scorecard Metrics©

BSC - Business Publications

Business Publications

HOW TO BUILD A BALANCED SCORECARD*©

The First Balanced Scorecard©

balanced scorecard methodology

Balanced Scorecard at UVa Library

Overarching Goal

The Balanced Scorecard Toolkit!

Purchase & Download

Balanced scorecard - A guide to real change

Balanced scorecard and organisational teamwork

The difficulties faced by business

The role of Balanced Scorecard

History of the Balanced Scorecard

History of the Balanced Scorecard

The 4 perspectives of the Balanced Scorecard

Benefits of the Balanced Scorecard

1. The Financial Perspective

2. The customer perspective

3. The Business Process perspective

4. Learning and Growth perspective

Objectives, Measures, Targets, and Initiatives

Double-Loop Feedback

Outcome Metrics

Management by Fact

Cautionary note on using the Balanced Scorecard

Evolution of the Balanced Scorecard

Sharpening Your Skills: Balanced Scorecard in Action

Questions to be Answered

How can the Balanced Scorecard improve corporate governance?

Does customer profitability increase using the BSC?

Can BSC measures reduce the gap between strategy and execution?

Does the BSC work in testing strategy?

Keywords:

Strategy Execution and the Balanced Scorecard

A Balanced Scorecard Approach To Measure Customer Profitability

The payoff: BSC customer profitability metrics

Footnotes:

Perspectives on the Balanced Scorecard^©

Must Your Scorecard be Balanced?^©

Juggling Balanced Scorecard Metrics^©

Juggling Balanced Scorecard Metrics^©