April 26, 2003

The balanced scorecard represents a system of strategic management and control, which implements the corporate vision as a springboard from which to derive strategy, ultimately culminating in a system of operational and performance management seamlessly related to the vision itself. Significantly, if properly implemented, the scorecard can register an increase in shareholder value. To its credit, it has been successfully spread out in both the private and public sectors.

Lucid discussion on the balanced scorecard is provided by Mr. Robert S. Kaplan and Mr. David P. Norton in various works, including The Balanced Scorecard: Translating Strategy into Action (1996) and The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment (2000).

The balanced scorecard emphasizes strategic, rather than purely financial, control and inherently acknowledges that both financial and non-financial perspectives (see Kaplan and Norton, 1996) determine the short-and-long-run performance of an organization.

The metrics of performance measurement stemming from the scorecard symbolize a balance among the key financial and non-financial perspectives through which the vision is articulated. The ability to deliver the panoply of strategic goals flowing from these perspectives effectively dictates whether the enterprise will achieve the vision propelling its endeavours. The importance of the vision is, therefore, underscored emphatically.

Vitally, the balanced scorecard articulates a system of operational management amenable to achieving the vision. The scorecard attempts to dissolve the discernible, discordant disconnect that often prevails between strategy and its robust execution.

Broadly speaking, what then are the key steps integral to pervading your organization with an effective balanced scorecard approach to strategic management? Before we answer this question, there is, however, a critical pre-step, which forms the foundation of any seriously responsible attempt to invoke your enterprise with the virtues of balanced scorecard technology.

Based on the accent placed on it in the Kaplan and Norton methodology and the various scorecard projects I have consulted on acquiring the total support of the corporate board (subsequently referred to as the board) is crucial to driving this definitively crucible event. Without the CEO’s complete passion for, and commitment to, the scorecard process and the board’s undivided working conviction in its merits, the execution of a balanced scorecard approach is likely to be blighted by seriously palpable organizational inertia.

I have not yet encountered a single case where not having the CEO’s total commitment resulted in the successful implementation and ongoing sustainability of the scorecard! The steps that comprise the scorecard process can only reasonably crystallize a successful, ongoing outcome once the commitment of the CEO and that of the whole board truly exists.

Notably, the board forms the balanced scorecard team dedicated to developing a corporate-level scorecard. Ownership for the corporate-level scorecard therefore resides with the company’s board. More poignantly, a lack of ownership here is an anathema to its implementation!

The board should be guided through the scorecard process by a cross-functional project group presided over by a project manager drawn from outside the board. The project manager would facilitate each of the sessions necessary for creating the corporate-level scorecard.

The key steps are now described to give readers a flavour of the constructs on which a corporate-level scorecard is premised. The fact that the board is responsible for formulating a vision on the back of which the subsequent components of the scorecard unfold in no way precludes the rest of the enterprise from contributing to this process.

The organization would clearly need to be consulted by the project group in terms of gathering relevant data and inputs, including gauging views and insights from managers and employees. The scorecard methodology does not curtail the board to the monologue of a top-down approach. On the contrary, it reverberates with the euphony of two-way dialogue!

The first step is to evolve a coherent vision (where you see yourselves as an enterprise at some point in the future) at the corporate level, typically viable over a two to three year time period, which imparts a sense of ownership and confidence among members of the board. If an acceptable vision already exists then step 2 would be the effective starting point.

The second step entails the board dissecting the vision into appropriate financial and non-financial business perspectives. Kaplan and Norton (1996) suggest four perspectives: Financial, Customer, Internal-Business-Process and Learning and Growth, with the latter three clearly representing the non-financial perspectives driving the vision.

Interestingly, these perspectives impact competitiveness in different time domains. Whereas the Financial perspective is essentially historical in outlook reporting on past performance, the Customer and Internal-Business-Process perspectives exercise more of a current influence on competitiveness, while Learning and Growth tends to harbour a more long-run effect. These perspectives are in no way cast in concrete. Examples of other perspectives include Culture and Innovation. The number of perspectives may exceed four (the norm), though invariably six represents an upper limit, any more perspectives and the scorecard becomes unwieldy!

The final set of perspectives earmarked by the board should be predicated upon the business logic that is appropriate to their organization. In practice, I have found that it is pragmatic to further interpret these business perspectives in the context of a mission statement (how, in the context of each specific business perspective, an enterprise hopes to accomplish the vision) derived for each perspective. In effect, the sum of the perspective-specific mission statements results in an overall mission statement (how, overall, an enterprise hopes to accomplish the vision) for the enterprise.

In step three, the board agrees on the key strategic goals for each perspective, in effect evolving a strategy for each perspective. In defining these principal goals, vertical alignment transpires for each perspective as a matter of course since the less significant goals are stripped out and de-emphasized on the basis of a ranking matrix where the goals are ranked using (weighted) criteria agreed by the board. A further check needs to be applied for cross-perspective alignment.

Importantly, the strategic goals are aligned seamlessly to the corporate vision, which emerges from step 1 (or already exists). Based on the scorecard projects that I have directed, the total number of key strategic goals across all perspectives tends to range from between 10 to 12.

Too many goals would defeat the purpose, since the scorecard seeks to direct focus only at those goals that are absolutely seminal to realizing the vision. These strategic goals in sum constitute the strategy of the corporation, which crucially is aligned to the vision. As a consequence of the scorecard process a seamless linkage results between the vision and strategy formulated.

Step 4 revolves around delineating the critical success factors (CSFs) incumbent to achieving the key strategic goals identified for each perspective. In much the same way as for the goals (see step 3), these CSFs are ranked vertically by the board in order to derive the key CSFs. The key CSFs should also be horizontally-aligned.

In step 5, the board agrees to a set of corporate-level performance measures, which capture how well the key CSFs are managed. Whilst some of the measures may already exist as current measurements, others are likely to be new additions in which case the systems and procedures necessary to enable them (the new measures) to be quantified need to be defined.

The corporate-level measures need to disaggregated into constituent measures at the strategic business unit (SBU) and lower organizational levels. Expected targets should be set for each of the corporate-level measures in the short-, medium- and long-run. While companies do benchmark targets, where possible, against competitors, more proactive organizations specify stretch targets to challenge the enterprise’s resolve to progress to even greater heights.

Ownership should be attributed to each measure and the frequency of measurement, be it daily, weekly, monthly, quarterly, half-yearly or annually, etc, should be agreed. Learning and Growth measures, for instance, tend to be measured at greater time intervals than say Internal-Business-Process, Customer or Finance metrics.

Crucially, it is the corporate vision, business perspectives, key strategic goals, key CSFs and corporate-level performance measures, which together comprise the corporate-level balanced scorecard. This tool is, therefore, synthesized on the cornerstone of generating a solid consensus at board level in the context of the steps undertaken to build the scorecard.

A monthly corporate-level scorecard report should provide the CEO and the board with ample feedback as to how the corporation is faring in regard to achieving its vision and strategy. The report would detail performance on the basis of the corporate-level measures. Actual performance can then be compared to expected performance, a notion that raises the possibility of the balanced scorecard providing an alternative to the budget itself, which is an oft-mooted point. Where there are performance shortfalls corrective actions can be identified. More to the point, the board should make sure that these actions are implemented. Importantly, the scorecard spawns actions that are aligned to achieving the vision and strategy of the organization.

Since the scorecard is inherently dynamic in nature the card must be appraised regularly to check whether all the measures are consistently relevant once the scorecard has been introduced. Note, in a learning-based enterprise, any feedback pressing for the scorecard to be improved is immediately analysed to see whether a particular modification might be warranted.

A scorecard cannot be maintained in its original form indefinitely. The scorecard does not profess immunity to change; rather it encourages intelligent modification, which is in keeping with staying on top of the rapidly changing market environments that epitomize the dynamic personality of the new economy. This personality can only reinforce the legitimacy of organizations espousing a dynamic, and not static, approach to managing the scorecard.

Once short-, medium- and long-run goals have been assigned to the corporate-level measures and the corporate-level measures have been disaggregated, action plans can be elucidated at the SBU, functional, team and individual levels. Note that these action plans are designed to contribute to achieving the short-, medium- and long-run goals identified for the corporate-level measures.

The scorecard ultimately drills down to the level of the individual rendering a correlation between individual objectives and the corporate vision.

Consequently, performance appraisal systems can be designed where an employee’s performance objectives are conspicuously driven by the corporate vision. Employees can therefore see how their daily actions relate to accomplishing the vision, which tends to increase employee commitment and in turn boosts greater employee trust in the organization. As I have learned from the projects that I have worked on, nothing is more fulfilling to employees than seeing how their work connects to the bigger picture!

The scorecard should be manifested in an appropriate IT format so that its results and inferences can be easily accessible across the organization. The sophistication of the IT solution is in large measure guided by the degree of granularity sought.

I have found that workshops and focus groups combined with the company intranet, internal newsletters and, amongst other information sources, a glossary of definitions lend discernible momentum to disseminating the scorecard effectively throughout the enterprise, whatever the organizational layer. Education and communication are intrinsic to galvanising the high degree of employee buy-in, which is so important for implementing the scorecard favourably.

In my experience, a corporate-level scorecard typically takes one to three months to formulate. Subsequently, a significant proportion of time should be reserved for disaggregating the corporate-level measures, usually circa two to three months. The typical time line over which the balanced scorecard is implemented throughout the entirety of the organization, that is on an enterprise-wide basis, tends to vary between a year to two years, though this is highly contingent on the size and structure of the enterprise in question.

However, generating the correct vision is vital! To CEOs, it is critically stressed that time invested in formulating the right vision is time well invested!

Enterprises, which have correctly implemented the balanced scorecard, have witnessed perceptible improvements in their bottom line and shareholder value. The balanced scorecard represents a sine qua non system of strategic management, which encapsulates effective strategic control, robust operational management and focused performance management. The balanced scorecard provides a tangible link between the vision and its implementation and, significantly, if effectively executed, can contribute to improving the bottom line and increasing the shareholder value of organizations!

The writer k_a_beg@hotmail.com is a strategy consultant based in the UK

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