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A P Q C

I N T E R N AT I O N A L
B E N C H M A R K I N G
C L E A R I N G H O U S E

Copyright ©1999 American Productivity & Quality Center. Please see disclaimer.

Measure What Matters:
Aligning Performance Measures
with Business Strategy

CONSORTIUM LEARNING FORUM
BEST-PRACTICE REPORT

AMERICAN PRODUCTIVITY & QUALITY CENTER
123 NORTH POST OAK LANE, HOUSTON, TEXAS 77024-7797 • 713-681-4020
©2000 AMERICAN PRODUCTIVITY & QUALITY CENTER. ALL RIGHTS RESERVED.

MEASURE WHAT MAT TERS

Project Personnel
Project Team
Carmen Clarke, Neil Peltier
American Productivity & Quality Center
Information Services
Nancy Fleshman
American Productivity & Quality Center
Study Expertise
Arthur M. Schneiderman
Arthur M. Schneiderman Consulting
Rick Martin
Best Management Practices Consulting
Contributing Authors
Carmen Clarke, Neil Peltier, Arthur Schneiderman
Editors
Susan Elliott, Paige Leavitt
Designers
Connie Choate, Victoria Wirz

MEMBERSHIP INFORMATION
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a service of the American Productivity & Quality Center (APQC), and receive publications and other
benefits, call 800-776-9676 or 713-681-4020 or visit our Web site at www.apqc.org.
COPYRIGHT
©2000 American Productivity & Quality Center, 123 North Post Oak Lane, Third Floor, Houston, Texas
77024-7797. This report cannot be reproduced or transmitted in any form or by any means electronic
or mechanical, including photocopying, faxing, recording, or information storage and retrieval.
Additional copies of this report may be purchased from the APQC Order Department at
800-776-9676 (U.S.) or 713-681-4020. Quantity discounts are available.
ISBN 1-928593-30-5
STATEMENT OF PURPOSE
The purpose of publishing this report is to provide a reference point for and insight into the processes and
practices associated with certain issues. It should be used as an educational learning tool and is not a “recipe”
or step-by-step procedure to be copied or duplicated in any way. This report may not represent current organizational processes, policies, or practices because changes may have occurred since the completion of the study.

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Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC

MEASURE WHAT MAT TERS

Contents of Study Report
4

Sponsor and Partner Organizations
A listing of the sponsor organizations in this study, as well as
the best-practice (“partner”) organizations that were
benchmarked for their innovation and advancement in
performance measurement.

6

Executive Summary
A bird’s-eye view of the study, presenting the key findings
discovered and the methodology used throughout the course
of the study. The findings are explored in detail in
following sections.

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Participant Highlights
A comparsion of the sponsor and partner groups across
several dimensions.

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Key Findings
An in-depth look at the nine key findings of this study.
The findings are supported by quantitative data and
qualitative examples of practices employed by the
partner organizations.

67

Critical Success Factors
Additional important features of the partners’ balanced
scorecards.

75

Partner Organization Profiles
Background information on the partner organizations,
as well as their innovative performance measurement
practices.

Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC

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MEASURE WHAT MAT TERS

Sponsor Organizations

Blue Cross/Blue Shield of Michigan
New York Power Authority
CASE
Oklahoma Gas & Electric
CIGNA
Sara Lee Corporation
Eastman Kodak
PP&L Resources
General Motors
Ricoh Corporation
LifeWay Christian Resources
Trebor Bassett LTD
Lutheran Brotherhood
United States Postal Service

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Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC

Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 5 . North Carolina GTE—Human Resources Organization * Merrill Lynch Credit Corporation Nortel Networks—Canadian Customer Service Division * Solvay Polymers * USAA * Not site visited.MEASURE WHAT MAT TERS Partner Organizations 3M The Boeing Company—Commercial Airplane Customer Service Organization Caterpillar—Wheel Loader and Excavator Division * City of Charlotte. represented in quantitative data only.

they must optimize their internal value-creating processes. organizations must learn and their employees must grow in their individual capabilities. so they lack N 6 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . internal. For example. according to scorecard advocates—organizations must satisfy their customers. and learning and growth. alignment. To optimize these processes.MEASURE WHAT MAT TERS Executive Summary early 15 years ago.” Part of this difficulty is the scorecard’s reliance on logical causal linkages to relate metrics to strategic objectives. in principle. other logic paths have proved increasingly useful for some organizations. the traditional balanced scorecard organizes measures into four interrelated “perspectives”: financial. The balanced scorecard is a tool for quantitatively defining and managing the most effective indicators of future strategic success. The theory behind it is that to achieve financial success—the ultimate purpose of the organization. To guide practitioners. Two threads emerged from this long-awaited awakening: activity-based costing (ABC) and what eventually became known as the balanced scorecard. To satisfy their customers. It is the quintessential example of the phrase “It’s simple. and control. This logic breaks down if any link in the chain is weak or ill-defined. This recognition was triggered by the emerging popularity in the Western Hemisphere of Total Quality Management and its dependence on nonfinancial measures. customer. materials. and—more recently—knowledge. particularly in manufacturing. the unspeakable was finally spoken. capital. It can be used to rally organizational effort around the few activities that are most vital to this success. some organizations find that they have not effectively articulated their strategy in the first place. ABC represents an attempt to more realistically link costs to the underlying realities of operating processes and their usage of what economists call the “factors of production”: labor. improvement. can be used for communication. implementation of the balanced scorecard has proved to be a challenge for most organizations. Although this has been the dominant balanced scorecard structure during the 1990s. but not easy. It therefore is a multifaceted tool that. The balanced scorecard attempts to integrate critical nonfinancial performance measures into the basic management structure of the organization. But as appealing and simple as it appears. and members of the accounting profession began to acknowledge what was already well known to operating managers: Traditional financial tools alone were inadequate for prospectively managing contemporary organizations.

often provide that required proof. Measurement affects behavior. If there’s one area in which top managers need to get their collective hands dirty. On the other hand. resulting from pilot implementations and told by their champions. It takes a strong and convincing agent to overcome an organization’s inertia or resistance to change. in fact. usually the entity leader for the unit visited. it was often unclear as to whether that sponsor was simply encouraging or really driving the scorecard’s implementation. whimsical changes. the scorecard implementation was limited to a particular Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 7 . the greatest observed strength was sponsorship by a single senior executive. Others find that complexity masks the real drivers of success so that the resulting scorecard metrics are unconvincing. except in the case where a structured matrix approach was used that not only captured the causal relationship but also quantified its strength.to two-hour debrief with the site visitors. since they are the owners of the organization’s strategy and they must ensure that the result guide the entire organization in the chosen direction. ranging from changes in individual compensation and career advancement to increased dependence on teamwork. training and education. site visit reports. Also.S U M M A R Y the foundation needed for a compelling story. analysis and voted to prioritize our observations. it brings with it a set of challenges to successful implementation. A third difficulty lies in the scorecard’s dependence on changing the organizational culture. However. the linkage between the scorecard measures and the business strategy were sometimes unclear. In most Western organizations. it is the balanced scorecard. Reward and recognition of successful proponents reinforce the desired change. A similar analysis. An organization’s immune system ensures stability and resists wasteful. So. based on the collective conclusion from the five site visits. We used a simplified form of KJ. for better or worse. like any other culture change initiative. Of our three data sources —survey results. Systemization of the new approach. to outsiders often not privy to confidential information. Immediately following each site visit. there must be a sense of urgency and a convincing argument that the proposed solution will. We addressed the observed major strengths and weaknesses and identified areas for potential follow-up questions. Internal success stories. revealed several interesting dichotomies. For example. the person at the top must have the final word on the scorecard contents and the achievement of its goals. and debrief findings (discussed further in the methodology section of this executive summary)— the third provides a view of the best-practice organizations through the eyes of practitioners newly embarked on the journey. mitigate the source of that unwanted urgency. the study team held a one. leadership takes on different forms in different organizations. or affinity diagram. To break down this immune system. The best-practice partners’ observations reflect the challenges and concerns associated with initiating the balanced scorecard and its set of associated performance measurements. At all sites the study team visited. and information support systems facilitate the approach’s diffusion and maintenance throughout the organization. Changing measurements from a one-dimensional emphasis on financial performance to a more balanced emphasis on an appropriate mix of financial and nonfinancial measures has significant cultural implications.

Section 3: Communicating and Driving Behaviors 8. • implementing and operating the performance measurement system. 7. Simple structures for the balanced scorecard will yield the most effective performance measurement systems. the balanced scorecard provides the potential to unifiy the organization around issues central to its survival. address the following dimensions of our learnings: • designing the performance measurement system. Best-practice organizations take a simple approach to ensure that the organization understands the link between performance measures and business strategy. intuitive tools are most effective for managing and communicating performance measurement information. However. 8 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . 3. The findings. findings are supported with data gathered from the 18 study participants (partners and sponsors). 9. Meaningful and effective performance measurement begins with strategic planning and is linked to the periodic planning process.S U M M A R Y business unit or function—a good starting point. The organization must dedicate top-notch resources to the implementation and operation of the performance measurement system. ongoing communication. KEY FINDINGS The key findings of this study were derived from primary research performed via five site visits to best-practice organizations and detailed survey questionnaires completed by 18 organizations. Simple. though most organizations have fallen short of completing theirs. 6. but a recognized obstacle to significant strategic impact. and • communicating and driving behaviors. Even the most advanced users of performance measurement do not have a fully integrated scorecard in use throughout the organization. 2. Those who are successful will win leadership roles in the 21st century and transfer all of the associated benefits to their stakeholders. 5. Does all of this sound familiar? Every major change initiative in the past 50 years has had the same basic agenda. Executives must be actively involved in leading the implementation effort. Few organizations effectively use incentive compensation to manage individual performance or contribution to scorecard goals. Best-practice organizations enhance employee understanding of and support for performance measurement through customized. Based on the Measure What Matters benchmarking study scope. Section 2: Implementing and Operating the Performance Measurement System 4. which are organized into three sections. Section 1: Designing the Performance Measurement System 1.

the APQC consortium methodology. This team developed a project scope and the initial data collection tool to screen potential best-practice companies. 1999. Recognized as first among a list of 10 leading benchmarking organizations’ models by the European Center for Total Quality Management in 1995. as described below. key personnel were asked questions from the site visit guide to share innovative and best-practice process information. detailed questionnaires. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 9 . developed in 1993. Each accepted APQC’s invitation and agreed to continue the sharing process by hosting a four-hour site visit and completing the detailed questionnaire. sponsors chose the organizations they wanted to study more in depth. APQC’s Benchmarking Model: The Four-Phase Methodology PLAN ADAPT COLLECT ANALYZE Phase 2: Collecting The main objective of this phase was to focus on learning from best-practice partners by extracting rich. Based on this information. subject matter expert suggestion. and representatives from APQC. the APQC project team analyzed data collected from screening surveys. Phase 3: Analyzing and Reporting In this phase. The planning phase was concluded by conducting secondary research to identify companies with notable processes in each of the key process areas. The APQC project team conducted the Measure What Matters: Aligning Performance Measures with Business Strategy benchmarking study using its established benchmarking methodology. quality. and adapting outstanding practices from organizations anywhere in the world to help an organization improve its performance. Companies identified via secondary research. Phase 1: Planning A benchmarking team was formed in June 1999 consisting of the subject matter expert. study adviser. The other partners were asked to complete the detailed questionnaire as well.S U M M A R Y METHODOLOGY Benchmarking is the process of identifying. and sponsor organization nomination were contacted and invited to complete a screening survey. and site visits. cycle time. The team identified critical success factors and key enablers of outstanding performance measurement initiatives. serves as one of the premier methods for successful benchmarking in the world. Companies participating in benchmarking activities report breakthrough improvements due to direct and indirect improvements in cost control. understanding. and profits. The results of the contact and screening process were presented to study sponsors at the kickoff meeting on September 30. process-specific information concerning innovations in the study focus areas. During the site visits. In August 1999 five of the partner organizations were invited to host site visits during the study.

improve. facilitated the Quality Steering Council (chaired by the CEO). He was a member of ADI’s Executive Council. the subject matter expert. He holds a bachelor’s and a master’s degree in mechanical engineering from the Massachusetts Institute of Technology (MIT) and master’s degree in management from MIT’s Sloan School of Management. For the past 10 years he has worked within business. Before joining ADI. Phase 4: Adapting Adaptation and improvement from the best practices identified throughout a consortium study occur after the sponsor company representatives take the key findings back to their organizations. an international consulting firm specializing in strategic planning and implementation. Canada. and supporting ADI’s worldwide implementation of Total Quality Management. Quality Council II. Martin has 16 years of experience as one of Canada’s leading marketing specialists in the oil industry. From 1994 to 1997 he was on special assignment from the Canadian government to develop and assist in the implementation of a national and Atlantic Canadian strategic plan. Schneiderman was vice president of quality and productivity improvement at Analog Devices Inc. APQC published the results of the Measure What Matters study to help produce actionable change and solid decision making. 2000. Study key findings were presented to the participants during the Knowledge Transfer Session (KTS). Study Adviser. and chaired the TQM Implementation Council. He was responsible for planning. a one-and-a-half-day meeting in Houston on January 27 and 28. and education to promote corporate performance best practices. formed the foundation of this final report. along with expertise provided by Arthur Schneiderman. Schneiderman was a senior examiner for the Malcolm Baldrige National Quality Award and served on the Conference Board’s U. Subject Matter Expert. 10 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC .S. (ADI). From 1986 to 1993. Nova Scotia. Rick Martin. Independent Consultant Rick Martin is the president of Best Management Practices Consulting (BMP) in Truro. government. APQC staff members are available to help study sponsors create action plans appropriate for their organizations based on the study findings. Independent Consultant Art Schneiderman is an independent process management consultant. and otherwise manage their most critical value-creating processes. characterize. map. He is a member of the editorial advisory board of the Journal of Strategic Performance Measurement. He works with senior executives in client organizations to help them identify. facilitating. Schneiderman spent six years as a consultant with Bain & Company. SUBJECT MATTER EXPERTISE Arthur Schneiderman.S U M M A R Y Analysis of participant data. control.

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M E A S U R E W HAT M AT T E R S Participant Highlights Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 13 .

Figure 1 shows the variety of industries represented by our study participants. size. This section introduces our study participants by comparing the sponsor and partner groups across several dimensions. it is important to understand the differences in organizational structure. and industry that might influence these practices. FIGURE 1: Industries Represented by Participants Industry Sponsors Chemicals Partners Solvay Polymers Diversified foods Sara Lee Corporation Trebor Bassett Ltd. Financial services and insurance LifeWay Christian Resources* USAA Lutheran Brotherhood Merrill Lynch Credit Corporation Blue Cross Blue Shield of Michigan CIGNA* Manufacturing Case New Holland General Motors Ricoh* Transportation United States Postal Service Consumer products Eastman Kodak Caterpillar The Boeing Company 3M Public service City of Charlotte. Five sponsoring companies (marked with an asterisk) chose not to answer the study’s detailed questionnaire because they do not have a performance measurement system or their systems of performance measurement are still in the early stages of development. North Carolina Telecommunication Nortel Networks GTE Utilities PP&L Resources Inc.H I G H L I G H T S MEASURE WHAT MAT TERS Introduction W hen assessing performance measurement practices across organizations. Oklahoma Gas and Electric* New York Power Authority * did not answer the detailed questionnaire 14 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC .

corporate. most of the study participants have 9.000–49. For example. Additional details include: • Two respondents reported costs of $6 million and $15 million that were not included in the calculation above. Respondents were asked to answer the questionnaire from one perspective for their company (i. the average revenue was $5.17 billion. The second-most-common response was from the business unit perspective (five responses). Boeing Commercial Airplane Customer Support Organization (CACSO) needed to better support its parent organizations with its products and services. In short.999 1. and these figures were not included in this calculation.7 Million 1 $50. At GTE. with a maximum and minimum of $22 billion and $890 million. Nortel Networks Canadian Customer Service (CCS) and Caterpillar Wheel Loader and Excavator Division (WLED) both initiated the scorecard as a result of increased competition in the marketplace. • Three companies reported their number of FTEs to be greater than 80. Only one sponsor company exceeded the 100. Spending on Measurement Total Annual Revenue of Organization Average number of FTEs for measurement Average annual spending on measurement Minimum: $83.000 Mean: $9.. Some of the results were found at more than one organization.000 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 15 . respectively (Figure 3). deregulation created a new business environment that prompted the need for new strategies. FIGURE 3: Revenue vs.999 or fewer employees. Total Number of Employees in the Organization 100.000–99.000-employees level. GTE chose the balanced scorecard as its tool to deploy new organizations strategies.H I G H L I G H T S As indicated in Figure 2. For these respondents. all of the best-practice used the balanced scorecard as a tool to boost their efficiency by improving their end-to-end processes.e.000–9.999 0 10. Throughout our site visits we found a variety of reasons that led organizations to change from their former measurement systems.000+ 0 50. The most frequent response was from the perspective of the entire organization.000 Maximum: $63 Billion 15 $500. divisional. and business unit).17 Billion 4 $300.999 0 100–999 0 1 2 3 4 5 6 7 8 Number of Organizations Sponsors (n=8) SCORECARD CREATIONS Partners (n=8) The balanced scorecard approach to performance meaFigure 2 surement focuses on incorporating nonfinancial and financial measures to create a more accurate picture of an organization’s performance.

Of the partners responding to the survey.H I G H L I G H T S CHANGES TO THE SCORECARD Degree of Change in Measurement System in Past Two Years 0% Completely 22% 44% 33% Significantly 56% 45% Slightly 0 20 40 60 80 100 Percentage Sponsors (n=9) Partners (n=9) Figure 4 Performance measurement has not been a one-time effort at any of the companies in this study. RESULTS OF PERFORMANCE MEASUREMENT Changes in the Performance Measurement System in Past Two Years 56% Categories of measures 33% 89% Individual measures 67% 67% 78% Goals set for each measure 22% 22% Time frame for goals Ownership within the organization According to the survey results. One organization even tracked its return on investment for the balanced scorecard implementation and found that its savings in the first year alone were enough to pay for all of the costs associated with setting up the system. most partners and sponsors have changed the individual measures and the goals set for those measures. They recognize the value of performance measurement and the benefits that a well-balanced. The table represents the percentages of partners and sponsors that changed a particular dimension of their performance measurement system. Over the past two years. The most significant changes for the partners and sponsors can be seen in Figure 5. All responding partners and sponsors credit the scorecard with focusing their organization’s attention on the issues that were most critical to their success. effective system will yield. 63 percent reported that the scorecard has helped them to improve productivity. all of the organizations have seen positive changes in their organizational performance due to their balanced scorecard approach. 11% 33% 0 20 40 60 80 100 Percentage Sponsors (n=9) Partners (n=9) Figure 5 16 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . Both partners and sponsors have continued to develop and revise their performance measurement systems (Figure 4). Sponsors indicated that they have made less-extensive changes to their performance measurement systems in the past two years than have partners.

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M E A S U R E W HAT M AT T E R S Key Findings 21 Section One: Findings 1 and 2 37 Section Two: Findings 4–7 55 Section Three: Findings 8 and 9 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 19 .

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M E A S U R E W HAT M AT T E R S Section One Designing the Performance Measurement System Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 21 .

Erring on the low side may be a prudent way to start. then that story should be equally compelling to a knowledgeable outsider. If the objective is to provide a compelling story to all employees. This exercise. Have too few. They recognize the dynamic nature of this effort and the need for continuous refinement of their performance measurements and balanced scorecard. based on other management analogies. and tactics.KEY FINDINGS MEASURE WHAT MAT TERS Introduction B alanced scorecard literature stresses the criticality of creating clear causal linkages between scorecard metrics and the organization’s strategic objectives. Have too many. strategy. since the vast majority of employees are usually naïve about their organization’s value-creating process. Many organizations are beginning to recognize the need to understand their system of interacting internal processes as an intermediate step in identifying the true drivers of stakeholder satisfaction. and the organization’s management capacity is quickly overwhelmed. and 2) it is difficult to uncover the real drivers because they are often hidden by ever-increasing complexity. and some critical success factors will not receive the required attention. is more easily described than done. The bottom line is that most successful organizations start small with their performance measurement initiatives. A rule of thumb. Two factors confound the job of linking metrics to strategy: 1) the potential links vary significantly in terms of their causal impact. The answer to one recurring issue—the optimum number of scorecard metrics— still remains elusive. however. leading organizations are developing formal quantitative processes for identifying their internal and external strategic levers. not just within a business unit or a single organizational function. To deal with these issues. so that real strategic impact requires corporatewide (both horizontal and vertical) scorecard deployment. appears to be five to seven as the maximum number of scorecard metrics that an individual scorecard owner can manage. They quickly recognize that these drivers reside throughout the organization. Their initial objectives are to learn the practice 22 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC .

Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 23 . Best-practice organizations frequently examine the scorecard implementation process and establish their own “manual” of problem areas. Employing the “keep it simple” principle wherever possible helps minimize organizational confusion and pushback.KEY FINDINGS of performance measurement and to develop organizationally relevant success stories. and appropriate countermeasures. Successful scorecard implementers use initial successes as stories to sell the balanced scorecard approach to the rest of the organization. obstacles. These organizations add complexity only when its needed to move to the next level of scorecard deployment.

In others. “W hat are the most important things for us to focus on?” That single question can be anticipated in any scorecard implementation. there is no single accepted model for developing this “scorecard story” and for illustrating the link between measures and strategic objectives. Best-practice organizations continually review and revise their scorecards with one eye on their rapidly changing environment and the other on ever-changing goals and objectives. that question is readily verbalized. Some organizations first identify their core business processes and then develop the appropriate metrics for these processes. yet it is essential to establish the credibility of the performance measurement system throughout the organization.KEY FINDINGS MEASURE WHAT MAT TERS Finding 1: Best-practice organizations take a simple approach to ensure that the organization understands the link between performance measures and business strategy. Currently. but it’s still there. it is critical to maintain highly visible links between the indices and their underlying metrics. 24 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . Maintaining this critical balance is often more art than science. In some organizations. communities. Therefore. That buy-in must occur not only for employees but also for the other stakeholders in the organization: customers. Best-practice organizations answer that question up front. when using indices to summarize performance. suppliers. and stockholders. The common bond among these sometimes conflicting constituencies is the achievement of the organization’s strategic objectives. index systems are developed for flagging under-performing metrics or as the basis for a variable compensation formula. Others start with their existing set of performance measures and map them against their strategic initiatives to eliminate unrelated metrics and to identify gaps in their current metrics set. Often. it hides in the background. The extent to which the resulting story makes sense determines the degree of organizational buy-in to the often-stretched goals associated with the scorecard. Most organizations recognize that indices can mask the underlying metrics and goals. Best-practice organizations use a process that will ensure the link between strategic objectives and the performance measurement system is both clear and compelling to all. in a logical and convincing fashion.

KEY FINDINGS

The majority of our study participants maintain a highly visible and comprehensible
approach for the development and deployment of their performance measurement
systems. Nortel Network’s matrix-based approach for prioritizing metrics and
identifying gaps, detailed on page 27, is particularly noteworthy.
PRIORITIZING PROCESSES

As mentioned previously, an organization will look to the performance measures
implementation team for answers to the question “What are the most important
things for us to focus on?” Several study participants have identified systematic, logical, and convincing approaches for identifying a few vital performance measures.
Many of these approaches rely on process-orientation and traditional quality improvement techniques.
3M:

In the early 1990s, 3M established “Q90s,” a total quality initiative that initiated
the corporation’s “uncompromising commitment to customer satisfaction.” The
autonomous divisions at 3M identified strengths and areas for improvement—
according to the Malcolm Baldrige National Quality Award criteria—and then
developed and implemented plans that focused on meeting customer requirements.
As Q90s evolved throughout the company, so did 3M Dental Products Division’s
(DPD’s) commitment to numerous business processes that management established
to meet goals. Division leaders recognized how the National Quality Award process
mirrored their own, so they systematically assessed and improved using the Baldrige
criteria.
Boeing CACSO:

Boeing CACSO has embraced the Process Management Improvement
Methodology (PMIM) to increase its focus on processes within the organization.
Each functional group within Boeing CACSO participated in a four-day off-site
meeting, during which the group defined its processes, captured the critical elements,
and mapped leverage points. This analysis enabled the group to understand the
requirements and issues within each functional group. The PMIM and related
process management tools will enable leaders to confer and make decisions about
processes using a common vocabulary and approach.
Process management will enable Boeing to execute its strategy because it:
• captures customer requirements and expectations,
• focuses on the end-to-end processes,
• highlights leverage areas and process measures, and
• engages front-line employees.

Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC

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KEY FINDINGS
Caterpillar WLED:

Caterpillar WLED uses a system called Business Process Simplification (BPSI)
to prioritize its processes. The first step in the BPSI process is to isolate each process
by determining the supplier and the customer. WLED determined that it had approximately 130 processes that were necessary to run its profit center. Using this tool,
Caterpillar then narrowed the 130 processes to 13 that it felt were critical to profit
and loss of the plant.
To determine the key measures and identify opportunities to improve each critical process, Caterpillar used a tool called the Process Analysis Technique (PAT). Each
PAT team consisted of two people; the first was the process owner, the second an
internal consultant. The consultant and the process owner were pulled from their
current jobs to work solely on the PAT. The PAT was actually simple; the
“know-nothing” consultant could ask questions about the process and provide a fresh
perspective, while the process owner understood the current process and often found
ways to improve it. Those two people would interview other employees who used the
process daily to evaluate each step in the process so they could reengineer it by
removing all nonvalue-adding activities.
IDENTIFYING MEASURES

When asked who is responsible for identifying measures on the scorecard, nearly
all responding organizations reported that their functional management was responsible (Figure 6, page 27). A higher percentage of partners than sponsors tended to
rely on cross-functional teams and quality groups.
Another facet of identifying measures is goal setting. Sponsors and partners
responded very differently concerning the goal-setting process. Most partners
(67 percent) tend to favor the “catch-ball” method of goal setting, which combines the
top-down and bottom-up approach. Most sponsor organizations (63 percent)
primarily use the top-down approach.
GTE Human Resources:

To develop measures for the scorecard, GTE’s work force development group formulated questions regarding its ability to achieve in the areas of five strategic thrusts,
which are tied to GTE’s business strategy. The five strategic thrusts are:
1. talent,
2. leadership,
3. customer service and support,
4. organizational integration, and
5. HR capability.
The group came up with 17 questions that frame the scorecard measures:
1. Do we have the talent we need to be successful?
2. Do we have the leadership bench strength we need to be successful?
3. How is HR helping GTE position itself to meet the needs of its external customers?
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Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC

KEY FINDINGS

4. Is HR creating an environment that encourages
integration and shared vision?
5. Are we investing in our HR capabilities?
6. Is GTE viewed as a great place to work?
7. Is GTE creating an environment that engages people?
8. Is HR viewed as an enabler to attracting and
retaining top talent at GTE?
9. Is HR viewed as providing effective support systems
to employees?
10. Are our staffing support systems fostering better
recruiting and selection?
11. Are our other HR processes/transactions efficient
and effective?
12. Are we using technology to improve HR efficiency?
13. Are we managing the cost of turnover/churn?
14. Are GTE’s HR plans and programs competitive?
15. Is our HR service delivery cost-effective?
16. Are we managing financial risk?
17. What is GTE’s return on investment in people?
Finally, GTE’s HR organization identified operation/process measures and desired outcomes that would
provide the data needed to answer the 17 questions.
These measures and desired outcomes are organized into
four perspectives (strategic, customer, operational, and
financial) to form the GTE HR balanced scorecard.

Party Responsible for Identifying
Measures on the Scorecard
78%

Business/functional
management

89%
33%

Cross-functional team

67%
67%

Strategic planning group

44%
33%

Quality group
11%

44%

Financial group

33%
11%
22%

Other
0

20

40

60

80

100

Percentage

Sponsors (n=9)
Partners (n=9)

Figure 6

Nortel Networks CCS:

Nortel Networks used a matrix to compare each of its top 33 metrics to each
strategic objective. Each metric was given a score (-9 to +9) that indicates that metric’s correlation to each objective. Negative numbers imply an inverse relationship; the
greater the absolute value of the number, the stronger the relationship. Each metric
was given a total score by taking the sum of the correlation numbers for each strategic
objective. These scores were then used to determine the 16 most important metrics.
As a result, the balanced scorecard is aligned with Nortel Networks’ strategic
objectives, a list of metrics that strongly correlates with each strategic objective, and an
operational scorecard of those metrics not on the strategic scorecard that would help
Nortel Networks CCS to make data-driven business decisions.
REVISIONS

Most of the partners and sponsors review their performance measurement systems
annually (Figure 7, page 28). Partner organizations also review their systems whenever
there is a change in strategy, competitive action, or management. One organization

Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC

27

KEY FINDINGS

Timing for Revisions to Performance
Measurement System
89%
78%

Annually

Semi-annually 0%

11%

When there is a change in 0%
management

22%

In response to competitive 0%
action

33%
11%

Whenever strategy changes

67%
0

20

40

60

80

Percentage
Sponsors (n=9)

100

conducted a full review of its performance measurement
system twice a year. A sponsor organization indicated
that it reviews its measurement system whenever its organizational strategy changes.
3M:

3M refines its performance measures system annually
after the 10-step corporate strategic planning process is
complete. Related operational metrics are identified in
the fall during the budgeting process. In addition to the
annual alignment, the system is refined any time a competitor takes a significant strategic action, as well as any
time there is a change in management structure at 3M.
The process for reviewing and revising the performance
measurement system is at the discretion of each of the
divisions. As long as they produce corporatewide measures mandated by executives, the divisions can revise
their measurements when necessary. On average, measurements are revised two or three times a year.

Partners (n=9)

Boeing CACSO:

Figure 7

Boeing CACSO’s leadership reviews the company
strategy annually in light of market performance and
customer and competitor data. Organizational development experts facilitate discussion of performance measures and any necessary revision resulting from changes in strategy. Boeing CACSO also evaluates its performance
measurement system on an ongoing basis. As new strategic directions emerge, the vice
president of CACSO and/or a strategy development consultant lead discussions to
identify how to incorporate or reflect the new strategy in the measures.
Nortel Networks CCS:

Nortel Networks CCS has a documented process to review its performance
measurement system. The process is designed to evaluate the effectiveness and usefulness of each CCS strategic metric and to ensure the balanced scorecard is aligned with
the strategic plan. Six business operating managers (BOMs) are surveyed concerning
the effectiveness and usefulness of each metric.
To further determine its effectiveness, each metric is weighted on a scale from
one to four, one representing “no value” and four representing “extremely valuable.”
Every participant rates the effectiveness of each metric to each of the six strategic goals
by asking the question “How effectively does this measure represent the goal?” This
gives each metric a numerical value.
To determine the usefulness of each metric, respondents are asked to indicate
how often they use a particular measure to make decisions that affect the business.
28

Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC

Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 29 . If it is deficient in either area. If the measure is determined to be both useful and effective. the metric is kept on the scorecard. the measure is either discarded or amended. and yearly. which is then summed with the measures effectiveness score. quarterly.KEY FINDINGS They are given the choices of monthly. Each of these choices has a numerical value associated with it.

through the achievement of dramatic success and a cadre of champions. Another approach takes a less aggressive approach. Most of our best-practice partners have chosen to use a pull deployment strategy and are beginning to stimulate interest in performance measurement throughout their organizations. the measures may not be integrated into one corporatewide balanced scorecard (Figure 8).KEY FINDINGS MEASURE WHAT MAT TERS Finding 2: Even the most advanced users of performance measurement do not have a fully integrated scorecard in use throughout the organization. However. T here are two opposite scorecard deployment strategies. At each organizational level. 30 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . There is much debate over which of these strategies achieves the most successful corporatewide deployment. The ability to use consistent measures throughout an organization is the first step to linking the performance measurement system. One of the keys to the balanced scorecard is to use the tool in an integrated fashion at all levels of the organization. military and the prototypical Japanese organizations). creates a demand for the scorecard approach throughout the entire organization. Although none of the participants were able to roll up measures from the individual level all the way to the corporate level. functions. The answer depends on the organization’s culture. where all employees line up behind the person at the top and simply follow orders (i. At one extreme. At the other extreme lies the increasingly common Western. where many employees need to be convinced that the proposed initiative is worth their effort. where a directive from the top is usually met with a “why?” rather than the desired “how?” A push deployment strategy is more likely to work in a uni-minded organization than a multi-minded one. One starts at the top with an overall corporate scorecard and deploys it down and across the organization so that all business units. It starts within a business unit and/or a function and. multi-minded organization. we have what has been termed uni-minded organizations.e.. The first model represents a push and the second a pull deployment strategy. they were all attempting to do so. more partners than sponsors responded that they could aggregate their measures. Almost all study participants use performance measurement at most levels of the organization. and levels have linked scorecards.

As pockets Partners (n=9) of performance measurement emerge at Boeing. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 31 . yellow. Realistic. Action-oriented. CACSO’s balanced scorecard. differ from top-level measures. blue) enables a quick visual assessment of performance. The Flight Deck. such as revenue and operating margins. Boeing Percentage recognizes the need to develop similar performance Sponsors (n=9) measurement tools across the organization. arithmetically and/or logically. All measures within the CACSO flight deck/performance matrix system roll up. tools. roll up to the Boeing-wide value scorecard. 33% Business unit rolled up to CACSO plans to develop scorecards for the entire division 67% CACSO organization. to represent overall performance across CACSO. Measurable. Within one year. In addition.KEY FINDINGS Boeing CACSO: How Organizational-Level The Boeing companywide value scorecard reflects Metrics Are Rolled Up top-level measures and goals for the entire organization. each person and team has a set of SMART goals. Lower-level measures. and approaches for the entire organization. The leaders of business unit CACSO’s subunits soon will identify leading measures that feed into and support the Flight Deck. may reflect that the organization delivered 600-plus airplanes on time this year. supports 11% Employee rolled up to companywide goals and measures and reflects overall department 44% performance measures for the Commercial Airplane 44% Department rolled up to Customer Support Organization. Color-coding (red. 56% Division rolled up to Many Boeing operating units outside of CACSO corporate 67% have recognized the value of the performance measure0 20 40 60 80 ment system. Measures that support this goal at lower levels in the organization might include the on-time delivery of engineering designs to manufacturing unit. SMART goals are Specific. The BSC performance matrix displays current-month and threemonth-running average performance levels relative to baseline for each key measure. Boeing CACSO reports performance levels for the key measures using the BSC performance matrix. Bold goals are then developed by each of the profit centers in support of those critical success factors. down to the work-group level. 89% 100 Caterpillar WLED: Caterpillar has a fully integrated measurement system. green. For example. which often represent outcomes. Within the profit center. especially in light of the introduction of the Boeing companywide value scorecard. the Figure 8 organization will begin to identify common performance measurement frameworks. some CACSO measures. Boeing’s top measures in on-time delivery. which include leading indicators. The corporate office identifies the critical success factors (CSFs) that are broad strategies that shape the future of Caterpillar.

the short-term objectives. There are several links among the different types of goals. and the critical success factors. These scorecards contain measures that reflect the day-to-day operations of the unit but are not strategic in nature. The ICP links a portion of employee pay to the performance of WLED as a whole. nor do they represent a balanced set of measures. 32 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC .KEY FINDINGS and Time-and-resource-constrained objectives that are designed to support the bold goals and CSFs. Nortel Networks is planning to expand the use of the scorecard to other customer service divisions worldwide. Nortel Networks CCS: Nortel Networks Canadian Customer Service performance measurement system includes a strategic balanced scorecard and an operational scorecard. Each year WLED determines its short-term objectives that roll into its business plan and its incentive compensation plan (ICP). Individual and team SMART goals are assigned based on the business plan. Each metric has a measurable goal associated with it. The bold goals are the link between the SMART goals. Nortel Networks plans to create a balanced set of measures for each of the operational scorecards within CCS. The operational scorecards and the strategic scorecards have many links. The CCS strategic balanced scorecard is used only by the CCS organization but includes data from across the Nortel Networks organization. within the CCS there are operational scorecards maintained by several departments. Additionally.

to communicate performance. Schneiderman recommends that individuals focus their efforts on up to seven key measures. many organizations use a visual analogy or logo. Most sponsors and partners chose the five categories in Figure 9 (page 34) as the primary types of measures in their performance measurement system. This reality can be captured through the use of weighting factors: The larger the numerical factor. the more things you try to concentrate on. One of the keys to the balanced scorecard is to only focus on the measurements that drive your current business. T o best convey their performance through performance measures.MEASURE WHAT MAT TERS KEY FINDINGS Finding 3: Simple structures for the balanced scorecard will yield the most effective performance measurement systems. Sponsor and partner organizations track nearly the same number of Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 33 . In addition. Subject matter expert Art Schneiderman contests that managing performance measurement is analogous to juggling. such as an aircraft’s flight deck or instrument panel. Internal business processes are often measured so companies can improve their products. processes. Most companies recognize that all metrics are not created equal. for example. the less attention (catches) you can give to each one. These issues have prompted several study participants to delay the use of weighting factors until later in their scorecard deployment. which links employee satisfaction to customer satisfaction to financial success. The most popular set of scorecard perspectives. some scorecard metrics and their underlying processes will have a greater strategic impact than others. In structuring the performance measurement system and in depicting results. These categories conform to the Sears model. the greater that metric’s impact on achievement of the strategic objectives. As with juggling. Others organize metrics to uniquely reflect their individual business. In other words. But weighting factors are difficult to determine and greatly complicate communication of the scorecard’s rationale. study participants have found that scorecard users most appreciate simplicity. flows from financial to customer to internal to learning and growth. successful organizations organize their metrics into logical groupings. or services. Figure 10 (page 34) charts the number of catches per ball compared with the number of balls being juggled.

Each of these indices is weighted as 33. Boeing CACSO: 100% 100% Financial 56% Internal business processes 78% 78% 78% Employee satisfaction 0 20 40 60 80 100 Percentage Sponsors (n=9) Partners (n=9) Figure 9 CACSO’s leaders. and specifically the vice president and general manager. and departmental levels (Figure 11). These systems are less complex and easier for employees to understand and use. The indices are composite scores. Partner organizations track only four to six measures for work teams and employees. FIGURE 10: Juggling Records 100 90 80 Catches per ball 70 60 50 40 30 20 10 0 0 2 Source: Arthur Schneiderman 34 3 4 5 6 7 8 9 10 11 12 Number of balls Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . CACSO’s flight deck includes a performance index for each of the three perspectives: financial.3 percent of the total scorecard. Seventy-eight percent of study participants favor a non-weighted system for performance measurement. envision a simplified version of the textbook balanced scorecard method. business unit.KEY FINDINGS Categories That Best Describe the Primary Types of Measures on Organizational Scorecards 88% 100% Customer satisfaction 67% 78% Quality measures at the corporate. while sponsors track nine or 10. CACSO’s flight deck includes three perspectives (modeled after Sears’) linking employee satisfaction to customer satisfaction to financial performance. The customer perspective at CACSO includes traditional customer satisfactionfocused measures as well as internal process measures. and people. customer. representing about 15 top-level measures for CACSO.

Average Number and Type of Measures Tracked on Scorecards 10 Corporate 10 11 Division 8 Caterpillar WLED: Caterpillar WLED does not weight its goals unevenly on paper. internal processes. The measures reflect CCS strategy and represent five focus areas: employee performance. By increasing the number of these goals. and finance. the BSC measure definition template. they will create more SMART goals for employees that are aligned with a particular bold goal. By tying the measures that Caterpillar considers more important to the compensation system. customers. and other tools were created using simple spreadsheets. when supervisors create SMART goals for employees during the performance development program (PDP) process. supervisors direct the employees’ efforts to the goals management considers most important. 10 Business unit 11 9 Department 10 6 Project or work teams 10 4 Employees 9 0 3 6 9 12 Number of Measures Sponsors (n=9) Partners (n=9) Figure 11 Nortel Networks CCS: Nortel Networks CCS currently has 16 measures on the strategic scorecard equally weighted. and all of those are considered equal. All of the measures on the scorecard support their strategic objectives. Additionally. The accessibility and portability of these simple frameworks ensure that any group can access and use the tools of performance measurement. The organization can easily weight its measures differently using the PB Views commercial balanced scorecard software. the company believes those measures will be more important to employees. The flight deck. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 35 . market share. the BSC performance matrix.KEY FINDINGS A critical success factor for CACSO was the development of tools and methods to populate and display the balanced scorecard. Caterpillar emphasizes some of the bold goals over others by using the incentive compensation system as well as having more SMART goals tied to particular bold goals.

.

M E A S U R E W HAT M AT T E R S Section Two Implementing and Operating the Performance Measurement System Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 37 .

” Either way. nuclear navy. These experts/facilitators often can be found within the existing organizational structure. created and enthusiastically owned by the person or team ultimately responsible for the achievement of the goal. Top management’s ultimate personal responsibility as “captains of the ship” and behavioral role models to the organization will reinforce the importance of the scorecard and its priority over other competing activities. well-versed in both performance measurement and facilitation tools and techniques. Delegation of the leadership responsibilities of this job are impossible. Although this distinction is extreme. 38 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . A dedicated support group. Representatives from finance and human resources can bring the skills required to address such issues as metrics validation and employee motivation. it was “The devil is in the details. The combination of top-down commitment and direction and qualified resources enables and motivates those who will ultimately achieve the goals to provide the bottom-up knowledge needed for the creation of realistic scorecards and their associated goals. “God is in the details. must play a critical role. Remember the popular quip about the roles of the chicken and the pig in creating bacon and eggs: The chicken was involved. Executive lip service to performance measurement is insufficient. Strategic planning groups can be a natural match for the tasks associated with scorecard implementation. the father of the U. Recognizing the magnitude of the organizational change associated with successful scorecard implementation quickly draws us to the critical role top management plays. getting the details right is the only way to win at implementing the balanced scorecard.” To Admiral Hyman Rickover.S. Each scorecard metric must be skillfully.KEY FINDINGS MEASURE WHAT MAT TERS Introduction A ccording to the famous architect Ludwig Mies van der Rohe. However. but the pig was committed. top management’s real and visible commitment to the creation and management of the balanced scorecard process is a primary requisite for effective and timely implementation. top managers cannot and should not do the job by themselves. perhaps even artfully.

Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 39 . Some systems even allow statistical analysis of performance results. many new information technology tools are available to aid the performance measurement implementation effort. enabling the user to separate significant results from ever-present noise. Together. Specialized software programs can deploy the balanced scorecard throughout the organization and permit the creation of customized reports for their timely management. Fortunately. given the substantial cost associated with these powerful but often inflexible solutions.KEY FINDINGS Representatives from operations can ensure that metrics definitions are meaningful and related to real business objectives. these experts constitute a core team to support top management’s initiative. Reports and displays using graphics and color-coding help managers quickly focus on areas requiring their attention. With the increasing use of corporatewide access to data via intranets and other tools. the tasks of data collection and dissemination can be effectively decentralized. But many note that manual preautomation planning efforts have significant payoff.

They require the use of scorecard results in every employee’s annual performance review and annual plan. they visibly use the scorecard to organize their own meetings. leaders require top management to approve all goals and ensure that the scorecard goals are matched to the available resources. accountable for the committed results. Their approach is process-oriented and hands-on. Several study participants struggled with the nature of the executive involvement. and fail to generate the desired results. successful organizations link this new approach to the organization’s traditional structure. Although all scorecard initiatives had a top-management sponsor and at least one enthusiastic middle-management proponent. This “initiative proliferation. Without a focused effort. and management. This ensures that goal achievement is a matter of thoughtful execution rather than unsustainable heroics. as performance measurement integrates into the organization’s culture. These tasks are prioritized based on perceived importance. Over time. By tightly integrating performance measurement into all appropriate legacy management systems. not substance. Executives in best-practice organizations recognize this critical need and constantly reinforce their message through their personal involvement in scorecard creation. deployment. where they hold themselves. we will likely complete the task in form. These leaders elevate the importance of nonfinancial measures by demanding data integrity. the robustness 40 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . the role of the executive leader often shifts from driving the scorecard implementation to nurturing its refinement.KEY FINDINGS MEASURE WHAT MAT TERS Finding 4: Executives must be actively involved in leading the implementation effort. so top management should rightfully drive this perception. As role models. generally means that we have more potential tasks than available time. T he number of action items generated by a few top-level initiatives escalates at the level of process execution. often as a result of their past involvement in quality or process improvement efforts. They practice what they preach at every opportunity and become role models of the behavior they are trying to stimulate. as well as each metric’s owner.” compounded by the demands of daily tasks. In the front-end planning process.

the balanced scorecard and the CCS approach to implementing this tool may be used in all of Nortel Networks’ customer service divisions in North America. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 41 . CACSO’s balanced scorecard. He effectively conveyed that the intent of the performance measurement initiative is to develop highly effective processes in HR. rather than to identify poor performers. Would the initiative survive the departure of one of these key individuals? Boeing CACSO: The vice president and general manager of the Commercial Airplane Customer Support Organization champions the flight deck. He encourages CACSO’s leaders to follow this approach as well. by modeling the use of the measures. he is accustomed to approaching the business from a process perspective. He envisioned a centralized business performance measurement team. The executive vice president of HR served as senior executive sponsor of the HR balanced scorecard implementation initiative. The executive vice president of HR and departmental vice presidents played a major role in positioning the performance measurement initiative as a learning experience and a constructive. GTE Human Resources: Senior executive support of the performance measurement initiative was key to the successful rollout of GTE’s scorecard. His leadership team consists of all of CACSO’s functional and support group leaders. With his enthusiasm and sponsorship. the customers of HR. This leadership team drives the development and improvement of the performance measurement system by communicating to the organization about measures and results. headed by a hands-on manager. He actively influenced others to support the initiative and then held them accountable for performance.KEY FINDINGS of the effort remained unclear. Nortel Networks CCS: The vice president of Nortel Networks’ Canadian Customer Service organization initiated the balanced scorecard approach. and by reinforcing the importance of performance measurement. positive process of improvement. The vice president and general manager launched the flight deck at an all-leaders meeting and continue to reinforce the message of performance measurement through open forums with all levels of employees. The executive vice president of HR also modeled a commitment to deliver the best possible service to GTE employees. Because he has a process management/quality background.

while only 11 percent of sponsors’ employees use it. process management. Forty-four percent of partners’ employees are empowered to use the scorecard. The members of the core team should bring with them individual skills in areas such as strategic planning. As shown in Figure 12 (page 43) partners and sponsors report overwhelmingly that executives use the balanced scorecard. Usually. The most important characteristic is the ability to enroll line managers in the scorecard process and to constantly fuel enthusiasm through the difficult days of initial implementation. with the expectation that the pilot implementations would take two to three years. Nearly all of the study partners made significant investments of people and money in their scorecard implementations. This effort requires a significant time commitment from the core team members. A manager would never select a random group of “available” personnel to design a new financial accounting system or to participate in any other strategic initiative. Effective performance measurement development cannot be expected as an added task to an already full-time position. One of the keys to a successful scorecard is empowerment. human resources. This long-term commitment means that other provisions must be made for the work they normally would be doing. Similarly. 42 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . Seventy-eight percent of sponsors and partners report that directors and managers use the balanced scorecard. the more effective the scorecard will be. while fewer than half of professionals use the balanced scorecard. the role of core team members changes from designer/promoter to quality assurance/trainer. The ability to use this tool to make business decisions will help to create buy-in from employees at all levels and help validate the scorecard as an effective business tool. and information technology. Over time. successful scorecard implementers must create a core team of carefully selected individuals to work hand-in-hand with the executive leadership. The more people able to use the information within an organization. appropriate team membership changes with this role evolution.KEY FINDINGS MEASURE WHAT MAT TERS Finding 5: The organization must dedicate top-notch resources to the implementation and operation of the performance measurement system. The average resource-retraction level was four full-time equivalents.

Parties Who Interpret Data and Use Them for Decision Making 89% 89% Executives Directors 78% 78% Managers 78% 78% 44% 44% Professionals 11% Employees 44% 0 20 40 60 80 100 Percentage Sponsors (n=9) Partners (n=9) Boeing CACSO: Significant personnel resources are required to implement Boeing CACSO’s performance measurement system. These challenges provide a good framework to identify the skills required on the implementation team. and people) ensure that measures from each of the scorecard perspectives are integrated Figure 12 Has a Formal Training Course to Teach Employees to Gather and Interpret Data 22% 44% 0 20 40 60 80 100 Percentage Sponsors (n=9) Partners (n=9) Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC Figure 13 43 . customer. followed by direct coaching from managers (Figure 13). consisting of appointees from middle and lower levels in the organization. The D&D team members are leaders within their organizations. A development and deployment (D&D) team. Perhaps the most vital person on an implementation team is the one who communicates the importance and power of the balanced scorecard and eases anxiety about measurement accountability. Many of the organizations responding to the survey experienced challenges in defining measures.KEY FINDINGS Educating employees about how to use performance measurements is critical to empower them to make decisions based on the scorecard. capturing data. and addressing employees’ anxiety about accountability (Figure 14. People with skills in consensus building can help facilitate discussions when creating a common set of definitions for the organization. Clearly defining the roles and responsibilities of the team and creating ownership among team members was key to the implementation effort. page 44). Among those organizations responding to a related question on the data collection tool. They represent all operational and support processes within the organization. People with technical skills in data capture can design a system to track those measures that are critical to the business. the most popular method of training employees was an internal training class. formed the core of experts who further refined the system and continue to provide first-line data from within the operating or business units. The vice president and general manager’s leadership team chartered three types of balanced scorecard teams to support deployment of performance measurement. Three balanced scorecard indicator champion teams (finance.

Percentage The process teams collect and analyze performance Sponsors (n=9) data. GTE Human Resources: GTE HR’s newly formed planning. and coaching. and combine measures to report at a Partners (n=9) higher level. The strategy group aims to Defining measures 56% provide tools and support in anticipation of needs so 0 20 40 60 80 100 that implementation proceeds as smoothly and quickly as possible. 78% training. and analysis team includes a director plus three employees who have been dedicated to the team full time since the beginning of the HR balanced scorecard initiative. The strategy group continues to support the implementation of 33% Capturing data process management and performance measurement by 44% providing leadership and the D&D team with tools. measurement. The strategy group also acts as a consultant to the D&D and process teams. The D&D team ensures alignment of measures to strategy and monitors and guides the process and indicator teams. The HR measurement core team 44 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . and driving progress. Biggest Challenges Faced in Initiating the Performance Measurement System Caterpillar WLED: WLED’s product managers were ultimatly responsible for determining the measures that were used to run their business. These team members work within their processes to provide ongoing expertise.” Now that the top-level implementation at CACSO is well under way. facilitating meetings. Finally. The strategy group continues to play a key role in enabling the operation of the performance measurement system by providing tools. the balanced scorecard process teams represent all four operational processes and five support processes. The BSC indicator teams coordinate data Figure 14 collection and display work to ensure consistency of measures deployment. The company enlisted the help of external consultants as well as Caterpillar’s business resources group. the strategy group can identify “disconnects” and coach the process “from both ends. the strategy group implements performance measurement tools at lower levels in the organization. 33% Anxiety about measurement accountability 44% and analysis support to the D&D team. data collection. The business resources group is a shared service organization that is in charge of the collection and analysis of some performance measurement data that it reports to the department heads. set targets.KEY FINDINGS and aligned throughout the customer support organization. which aided the product manager in determining measures—an evolutionary process—and reporting and analyzing them. By meeting with leadership as well as with the D&D team.

These consultants are not actively engaged in the ongoing efforts. each team member invested approximately 400 hours in the effort.KEY FINDINGS includes eight functional subject matter experts representing the various functions within HR and the five GTE strategic business units. It also established a centralized reporting function. in addition to performing their full-time roles within the business units. These core team members were identified the critical measures and communicated them back to their business units. The BPM team is responsible for the ongoing collection and analysis of the performance measurement data. GTE HR enlisted the aid of consultants from Hewitt Associates for a year-long development and implementation initiative. and collaborating with the business performance team to ensure alignment between the balanced scorecard and the strategic objectives of the CCS. An extended team in the HR technology and data group supports the performance measurement effort. incorporating the strategic review into quarterly business performance reviews. trending. and submission of performance measurement data for their business units. validation. The strategic planning group is responsible for organizing the yearly planning sessions with the senior managers. Each metric has a data provider and a regional data owner. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 45 . Nortel Networks CCS: Two groups are involved in the process of aligning measures with business strategy: the strategic planning group and the business performance measurement (BPM) team. and reporting of all performance data. These core team members coordinate the collection. including the gathering. Regional directors are ultimately responsible for the data submitted by their particular region. The CCS BPM team relies on contacts within other business units to support the performance measures system. In addition. Each core team member continues to devote about one week every quarter to sustaining the balanced scorecard system. The BPM team was responsible for the creation and rollout of a balanced scorecard to the CCS. During the development of the scorecard.

During strategic planning. Some participants reported additional processes. as indicated in Figure 16 (page 47). 46 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . • assigns responsibilities. 3M: The 3M strategic planning process aligns and drives virtually every company action. the fact that performance measurement picks up where strategic planning ends is formally recognized in best-practice organizations. • defines approaches. This exercise leads to the development of performance measures that will gauge the organization’s success related to these strategies. and • aligns activities with each division’s vision. Others link it more closely to their quality improvement efforts.KEY FINDINGS MEASURE WHAT MAT TERS Finding 6: Meaningful and effective performance measurement begins with strategic planning and is linked to the periodic planning process. This process: • pulls together vast amounts of data and information for analysis. • determines priorities. and business unit representatives. As depicted in Figure 15 (page 47). All responding participants indicated that performance measures are identified during the strategic planning process. Wherever its home base. W here does the scorecard process fit in the traditional organizational structure? Many organizations view it as a natural extension of the strategic planning process and necessary vehicle for communicating their strategies and making them more tangible. most organizations prefer to position performance measurement as an extension of current practice rather than as an entirely new function. Several study participants link their balanced scorecard implementation to their strategic planning organization and/or process. the organization identifies the strategies and initiatives it will focus on in the future. No matter its location in the existing organizational structure. • allocates resources. financial. Still others view it as an extension of their financial function. the development of the performance measures involves strategic planning professionals as well as quality.

its purpose. For each of the three scorecard perspectives (employee satisfaction. customer satisfaction. and coaching. 56% 56% Measures are identified with input from an industry group or other outsider critical to the business. This effort may include additions and revisions to the existing measures. 3M’s dental products division (DPD) develops specific strategies. 100% 100% Measures are identified during the budgeting process. and its operational definition. and strategic objectives. The strategic plan includes high-level plans for 10 years. strategy. training. the company puts its business process management matrix (BPMM) to work by establishing teams and projects to accomplish objectives and identifying the measurement needs. The group used scorecard trees to identify real drivers of performance and to visually display the link between objectives and measures. Once these goals are established.KEY FINDINGS Each division’s steering committee is responsible for administering this process and ensuring that each process and measurement is aligned with corporate strategy. the team defined each measure. 78% Business/functional management Process Used to Identify Measures on the Scorecard Measures are identified during the strategic planning process. goals. The strategy group aims to provide tools and support in anticipation of the need so that implementation will proceed as smoothly and quickly as possible. CACSO’s strategy group continues to support the implementation of process management and performance measurement by providing leadership and the development and deployment teams with tools. Each year. The group defined measures that would reveal how effectively the CACSO organization is achieving its strategy and supporting Boeing’s strategic objectives. and financial performance). BPMMs are developed to indicate the performance of these teams and projects. with detailed information covering the first five years. Each project team (for new product development or products/ processes) is commissioned for the year to achieve a certain objective. 22% 78% 0 20 40 60 80 100 Percentage Sponsors (n=9) Partners (n=9) Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC Figure 16 47 . Parties Responsible for Identifying Measures Used on the Scorecard 89% 33% Cross-functional team 67% 67% Strategic planning group 44% 11% Quality group 33% 33% 44% Financial group 0 20 40 60 80 100 Percentage Sponsors (n=9) Partners (n=9) Figure 15 Boeing CACSO: Boeing CACSO’s leadership began the process to identify performance measures by examining Boeing’s vision. and business plans during its annual strategic planning process. DPD frequently reevaluates the matrices to ensure that the measures are driving the right behaviors.

Nortel Networks CCS focused on: the 1999–2000 strategic plan. Nortel Networks CCS: Performance measurement at Nortel Networks historically has been linked with the strategic planning process. the company will require different data to gauge its ability to meet the strategies. and the five focus areas (employee performance and satisfaction. to focus the human resources organization on the achievement of its people imperatives. market share. As GTE’s business strategies change. GTE HR developed 17 questions related to its ability to support this business strategy. customers. 48 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . its existing metrics. which became the measures that make up GTE HR’s balanced scorecard. With the aid of consultants from Hewitt Associates. and finance). The GTE HR balanced scorecard is designed to be flexible.KEY FINDINGS GTE Human Resources: As described in Finding 1. changing when business strategies change. internal processes. GTE identified the data required to answer these questions. To develop the scorecard. GTE developed a new human resources strategy.

Results need to be accessible in a timely manner. Most organizations initially manage performance measurement data and results with manual systems. Many organizations anticipate further advances in automation as enterprisewide solutions (such as SAP and Oracle) become available. Excel spreadsheets) to collect and analyze the data. However. Reports have to be structured. which usually means within days of the reporting period’s close.. often based on simple spreadsheets and graphics packages. Data are centrally collected using fax or e-mail and published from a single location. they used simple software programs (e. Narrative explanations of significant performance gaps need to be disseminated. perhaps using color-coding. to draw attention in a potential maze of data to those few areas requiring management attention. T he balanced scorecard and its associated set of performance measures can create a major logistical challenge. often generated at remote locations. Most responding organizations that have selected a technology solution or software package did so after they implemented their performance measurement system (Figure 18. they can transition to one of the many custom software packages designed for automating the scorecard logistics. Other organizations start with these automated solutions and use their hardwired framework as the template for their scorecard implementation (Figure 17. Data. In each case. performance measurement solutions are not completely automated. Some best-practice partners use a commercial balanced scorecard software package (Panoramic Business Views or PB Views) to compile and distribute periodic performance measurement reports. need to be input periodically into the performance measurement system. a technology solution is not necessary for the successful Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 49 . The critical element of simplicity is demonstrated in study participants’ choices of tools used to manage performance measurement.g. page 50). page 50).MEASURE WHAT MAT TERS KEY FINDINGS Finding 7: Simple. Even among best-practice organizations. intuitive tools are most effective for managing and communicating performance measurement information. Once the organizations have a clear understanding of their data needs.

when applicable. identifies which measures will be used to determine the performance of each product and functional group. definitions. There is. Consequently. and other information vital to the performance measurement system. Corporate auditors ensure common measures required by law. because their day-to-day performance influences their performance measures. but divisions measure other activities that apply to their business. which are accumulated by the manager using a corporate-standard software package.KEY FINDINGS Collection Methods for Performance Measurement System Data Mix of automation and manual effort 78% 89% 22% 11% Manual effort only 0 20 40 60 80 100 implementation of the balanced scorecard. The steering committee. do not have a technology solution 56% 38% 0 20 40 60 Percentage Sponsors (n=9) Partners (n=9) Figure 18 50 80 100 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . metric owners. A business process management matrix is created each year. goals for those measures. These tools are often paper-based matrices that display vital measures. and encourages the business units to share learnings with each other. however. All DPD employees have access to divisional performance measurement along with their team’s measurement results on the LAN. Best-practice organizations have developed simple tools for displaying and communicating performance measurement data. there is little commonality for definition of operational measures at a corporatewide level. All employees have an interest in monitoring performance using this tool. Many of the partners and sponsors do not have a performance measurement software package to complement their performance measurement initiatives. Percentage Sponsors (n=9) 3M: Partners (n=9) The dental products division steering committee implements performance measures. Figure 17 Timing for Selection of a Technology Solution Before performance measurement system implementation 11% 13% After performance measurement system implementation 33% 50% N/A. which enables DPD to achieve performance measures that are leading indicators of business success. Everyone within the DPD can access the BPPM on a shared directory on the file server. 360-degree feedback results. based in part on peer. Each division is responsible for designing and implementing its own performance measurement system. with input from DPD employees. a corporate quality group that supports consistency of measures. Employees develop their own EC & DP. This matrix has evolved over the years and changes based on what makes sense to measure and drive the division’s actions.

KEY FINDINGS When 3M tried to roll up the divisions’ numbers. accountability. This open environment and the Nortel Networks culture. drill-down capability and interface with existing systems. The performance measurement teams can audit the BSC measure definition templates to ensure compliance with definitions and consistency in application of methods. it is hard to see the real numbers because some divisions are doing great. Boeing CACSO has not yet automated the collection and analysis of performance-related data. This template documents and communicates critical information about each measure. In the long term. Corporate measures are directions and provide guidance to divisions. This individual has responsibility. Nortel Networks CCS: Nortel Networks CCS ensures the integrity and accuracy of its data by making it available to everyone. If a manager skewed data to show improved performance. Each indicator has a process owner. Some divisions within CACSO are ready to begin further automating their performance measurement systems. such as Excel spreadsheets and Access databases. while others are not doing as well. which supports accuracy and accountability. and the reporting format. the operational definition. Boeing CACSO: Most data collection and analysis is performed using simple tools. another manager would likely question the data via internal benchmarking while trying to improve his or her own processes. and authority pertaining to his or her indicator. CACSO’s strategy group will work with those divisions to establish the enterprise requirements for performance measurement software. targets for the current and future periods. and manage process performance daily rather than once per month. then evaluate off-the-shelf products and pilot the selected tool. Most aggregates are created merely to see overall improvement within 3M. has allowed the organization to self-audit its data. These definitions are available online using the PB Views software so that if there is a question about how to measure something. the automated tool will simplify routine tasks and help to ensure data integrity. In addition. CCS made it a priority when it designed its performance measurement system to apply consistent definitions to all of its metrics. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 51 . Implementation of an automated tool will enable CACSO’s personnel to monitor. CACSO uses a balanced scorecard measure definition template to ensure that everyone in the organization shares a common understanding of each balanced scorecard indicator. it did not see significant benefit or improvement as a result. information about data collection. When 3M reports a single aggregate number to represent all divisional results. Because of the diversity of businesses. the purpose of the measure. assess. it makes sure everyone understands how the number was calculated. such as the measure name. the definition is easily accessible. CACSO plans to incorporate into the performance measurement system a Web front-end.

52 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . the biggest weaknesses of the system are the limited reporting functions and the inability to allow data feeds from other applications. Using technology has encouraged CCS to set goals for all of its measures. not averages of percentages for reporting. Second. it created a wish list of everything that it wanted its software to do. CCS has been very happy with its selection of PB Views.KEY FINDINGS When CCS was looking for a technology application to aid its balanced scorecard implementation. CCS has been extremely pleased with the service it has received from software vendors. Additionally. “benchmarkable” data. it wanted the system to track performance measurement data at several locations in order to compare data among CCS’s multiple locations. and it has helped the company measure its metrics consistently across the organization. it wanted the system to roll up raw data. it wanted a tool that offered color-coded performance indicators. flexible reporting. and a package that could be used to determine trends over time. including on-site visits and suggestions for upgrades to the system. According to CCS. First.

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M E A S U R E W HAT M AT T E R S Section Three Communicating and Driving Behaviors Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 55 .

This challenge is as timeless as management itself. It is these details that ultimately separate the winners from the losers in today’s highly competitive marketplace. and well-informed work force will encourage the desired behavior. The primary vehicle for motivating behavioral change swings back and forth between empowerment and financial reward. 56 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . This may eventually lead to open publication of balanced scorecards (much like financial results) and strategic objectives and the transition from a “need to know” to a “can know” communication strategy. in their own words. Consequently. well-trained. Some organizations believe that empowering a stable. seeing too many opportunities for counter-productive behavior that might result in enhanced performance of individuals that ultimately suboptimizes overall performance. how they are contributing to the overall success of their organization. many organizations view performance-driven bonus or at-risk systems linked to the achievement of balanced scorecard goals as their primary incentive for desired change. Today. The ultimate test of any scorecard is the ability of the employees who are executing the measured processes to explain. Others are leery of this approach. Any “secrets” kept from employees only cloud their view of the organization’s overall objectives and contributes to their potential confusion. many organizations reevaluate their past policies of restricted internal access to information and data.KEY FINDINGS MEASURE WHAT MAT TERS Introduction T he ultimate objective of performance measurement and the balanced scorecard is to favorably change individual and group behaviors to achieve organizational objectives. Where organizations stand with respect to the ebb and flow of this tide determines their approach to linking performance measurement to both career advancement and individual compensation. Others believe that individual compensation and rewards promote the desired behavior. This is important not only to boost selfesteem but also to guide the employees in decisions not covered by written policies and procedures.

MEASURE WHAT MAT TERS KEY FINDINGS Finding 8: Few organizations effectively use incentive compensation to manage individual performance and contribution to scorecard goals. nine of 17 survey respondents (53 percent) base employee incentive compensation on a combination of financial and nonfinancial performance measures results. and • only four of 17 respondents (24 percent) report that incentive compensation is based mostly on nonfinancial performance measures results. two sponsor organizations reported executive incentive compensation ranges from 1 percent to 10 percent of salary (n=12). Who will argue against the precept that you should be rewarded only for performance that you essentially completely control? Yet few. this is a question of accountability. Rewarding or penalizing people for outcomes over which they have little or no control violates the basic principles of fairness and equity. except where noted. At the heart of this controversy is a question of control. However. if any. At best. AMOUNT OF COMPENSATION TIED TO PERFORMANCE MEASURES The percentage of total compensation that is dependent on performance measurement varies across positions (Figure 19. Responses from best-practice organizations did not differ significantly from sponsor responses. performance measures cleanly align themselves with this rule. it represents a form of gambling in the workplace. In addition: • 13 of 17 respondents (76 percent) report that incentive compensation is based mostly on financial performance results. P erhaps the most controversial performance measurement issue is linking individual and/or group compensation to performance measures results. On the other hand. Should a significant component of pay should be based on performance. (The number of study participants completing this part of the survey varied by question. Seventy-five percent of both study sponsors and best-practice partners report that their employee compensation is tied to performance.) Key observations include: • Executive incentive compensation generally ranges from 21 percent to 40-plus percent of salary. page 58). Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 57 . Further.

(The number of affirmative responses was either five or six for each of the six positions listed. 58 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . • Five or six respondents (33 percent or 40 percent) link employee promotion with performance measures for the various levels of the organization. director. and/or promotion) that are linked to performance measures for various positions within their organizations. By far. Additional observations include: • Only five respondents (33 percent) tie employee salary to performance measures. the most common element of compensation that is tied to performance measurement is bonus or incentive compensation (Figure 20).) • No respondents tie employee benefits to performance measures.KEY FINDINGS FIGURE 19: Percentage of Total Compensation Dependent on Performance Measures Up to 10% Up to 20% Up to 30% Up to 40% 90% 80% 70% 60% Nonexempt and union n=8 Exempt n=12 Manager n=13 Director n=9 100% 80% 60% 40% 20% 0% Other Compensation • • Tied to Compensation All eight respondents reported that incentive compensation for nonexempt and union employees ranges from 1 percent to 10 percent of wages. APPROACHES Most organizations accept the premise that tying compensation to performance is the best way to motivate people to do the right things. and manager salaries to performance measures. TYPES OF COMPENSATION TIED TO PERFORMANCE MEASURES Survey respondents were asked to identify the components of compensation (bonus/incentive. raise. Ten of 12 respondents reported that exempt employees are eligible to receive from 1 percent to 10 percent of wages in incentive compensation. benefits. salary. Responses did not vary significantly between best-practice partners and sponsor organizations. These organizations tie primarily executive. • Eight respondents (53 percent) tie raises to performance measures for employees at almost all levels of the organization. Two respondents reported ranges of 11 percent to 20 percent. The resulting tension drives organizations to invent a wide variety of approaches.

successful project teams receive rewards based on completion of milestones and goals. rather than on their individual contribution to those measures. corporate bold goals tie to individual SMART goals. create an overall index that reflects aggregate performance across a wide variety of performance measures. thus creating a “safe scorecard” (e.g. In most cases. stock option programs such as 3M’s payout to individuals based on overall financial performance. Others. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 59 . At Caterpillar WLED. At GTE HR. like Caterpillar WLED. We are unaware of any organizations that deploy their corporate Figure 20 performance measures down to the level of individuals’ scorecards linked to their compensation. Caterpillar WLED: Caterpillar WLED’s incentive compensation program ties a percentage of each employee’s salary to certain WLED financial and nonfinancial performance measures within the system. one of the initial measures selected was based on employee understanding of the new operating system and the associated performance measures.) Some organizations. However. The hope is that this will average out the “noise” in the metrics.. But individual incentives are not based on these SMART goals. an approach taken by the Hoshin Kanri method widely used in Japan. it is easy to lose sight of the underlying metrics and their linkage to strategy. with such global indexes. individuals are compensated based on overall performance measures.KEY FINDINGS • • • • Some try to resolve the dilemma by using group rather than individual performance-driven incentives. as described below. For example. set nonfinancial performance “hurdles” that must be overcome for availability and distribution of incentive pay. Still others base their variable compensation entirely on financial results. such as GTE Human Resources and Boeing CACSO (work in progress). At 3M. Percentage of Respondents That Tie Bonus/Incentive Compensation to Performance Measurement for the Following Parties Executive 100% 100% Manager 88% 100% 88% Director 71% 63% Employee 86% 25% Functional team 57% 0 20 40 60 80 100 Percentage Sponsors (n=8) It is unclear if any approach most effectively produces Partners (n=7) the desired changes in individual behavior. Nearly all study participants voiced a desire to eventually link their performance management and compensation systems to their balanced scorecards. Caterpillar WLED and GTE Human Resources have formalized and implemented performance incentive programs tied to their balanced scorecards. they were gradually and cautiously moving toward this long-term objective.

Overall performance indices must meet a minimum threshold for incentive compensation to be paid. but each employee is given a packet that details its intricacies. Caterpillar initiated a program called the “Business Understanding Plan. HR department administers the program at a corporate level. The payout system is relatively complex. the greater the percentage of salary at risk.” a strategic initiative focused on increasing employee understanding and support of organizational changes. 60 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . When Caterpillar first converted to the ICP system. Incentive compensation amounts vary from 10 percent of base pay for managers up to 40 percent for directors and above. If the WLED’s overall performance does not reach this level. Although GTE HR is early in its implementation of the balanced scorecard. To combat this problem. when the scorecard was rolled out. there is no upper limit on the amount of compensation any person can receive. It is limited by a defined maximum. there is little input from the WLED level into the system. The ICP percentages for each measure vary depending on which bold goals are emphasized each year. The business resources group is in charge of calculating all of the ICP payouts for employees at Caterpillar. Theoretically. Those with more importance will have a greater ICP percentage. incentive compensation amounts may increase based on actual performance along a predefined continuum. no money is paid out for that measure. there are levels of compensation concurrent with WLED’s performance. For every measure. To date. Incentive compensation is paid based on GTE performance as indicated by the scorecard. About one-half of the incentive and compensation amount is tied to financial performance of the company. the other half is tied to functional scorecard measures. The higher in the organization. Once that trigger point is surpassed. there was some discontent among employees who felt they could have made more money using the old formulas. The percentage of each employee’s pay that is tied directly to the performance measures varies depending on the level of the employee. GTE Human Resources: GTE HR employee incentive compensation was linked to scorecard performance measures as of the first quarter of 1999. there is a baseline number that acts as a trigger point. Although specific targets are set for each performance measure.KEY FINDINGS Caterpillar believes that tying measures to compensation increases the measure’s perceived importance to employees. the link appears to have created this desired result. Linking compensation to performance measures was Caterpillar’s biggest challenge in implementing its performance measurement system. only measures with targets and weights influence incentive compensation. the organization’s leaders felt that linking compensation to performance measures would get “everyone’s eyes on the ball” quickly and keep employees focused on what is important to the business.

survey responses about the timing of the link between compensation and performance measures are largely inconclusive. However. survey respondents’ time frames varied from less than one year to more than 10 years. Amount of Time Measurement System Was in Place Before Compensation Was Tied to It 38% More than 10 years 0% 13% Five to nine years 29% 0% 0% Three to five years One to three years 25% 29% Less than one year 25% 43% 0 20 40 60 80 100 Percentage Sponsors (n=8) Partners (n=7) Figure 21 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 61 .KEY FINDINGS TIME FRAME FOR TYING COMPENSATION TO PERFORMANCE MEASUREMENT RESULTS Linking employee compensation to performance measurement results is one of the biggest challenges associated with implementation of a performance measurement system. As shown in Figure 21. The rollout of compensation changes can be a sensitive issue among employees who are not accustomed to this type of individual accountability for performance.

GTE Human Resources’ scorecard is provided to all HR employees and is purposefully composed for this audience. • Openness about performance results can help to overcome the resistance to measurement.” The approaches to communication vary according to the culture of each organization. • Communication to all levels of employees is important. with the exception of the line-employee level. Best-practice practitioners have recognized the need for continuous communication of the balanced scorecard if its message is to “stick. the initiative is quickly forgotten or written off as the fad of the month. high-profile role in communicating about the scorecard. Companywide access to data can increase acceptance and accountability. As shown in Figure 23 (page 64).KEY FINDINGS MEASURE WHAT MAT TERS Finding 9: Best-practice organizations enhance employee understanding of and support for performance measurement through customized. Regardless of the specific communication approach. such as the vice president and general manager at Boeing CACSO. Examples include the Nortel Networks “road show” and the manager-employee performance development process at Caterpillar WLED. page 63). • Face-to-face communication is most effective in enhancing employee understanding and support of performance measurement. a new initiative is introduced with much fanfare and corporatewide visibility. nearly all study participants report that communication about performance measurement and results has increased employees’ understanding of how they contribute to the overall success of the organization (Figure 22. ongoing communication. survey respondents reported a similar level of understanding at most levels in the organization. several common factors appear effective: • Executive leaders. T oo often. take an ongoing. Partners rated their employees as having a higher understanding of the performance measures system than did sponsor organizations. 62 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . Without continuing reinforcement and promotion of the message under this scenario. However.

At the same time. with the widespread corporate use of Figure 22 Internet/intranet-based LANs and WANs. However. director. reinforcement. manager. they develop network-based communications tools for ongoing reinforcement. This technology is more effective than company newspapers and periodic rallies as a communication. Partners (n=9) Today. 63% Intranet more than 65 percent of study participants reported using 78% employee discussions in executive. and manager positions. director. More than one-half of study participants 50% Hard-copy reports reported using “general perception” to assess line employee 22% understanding of the performance measurement system. Individual employees can easily access and analyze performance measurement data and results. Boeing CACSO: Communication about the balanced scorecard at Boeing CACSO takes many forms. 25% Word of mouth Early balanced scorecard pioneers recognized the 44% potential role of information technology in communication 13% and management of the balanced scorecard. For most global Sponsors (n=8) Percentage organizations. All employees can access this information. fewer partners than sponsors rely on general Bulletin board 44% perception across all levels of the organization. a Video 33% decade ago this translated into a complex and expensive infrastructure of mainframe computers with remote color 0 20 40 60 80 100 terminals and high-speed modem access. and promotion vehicle. All of the study partners use traditional tools such as leadership meetings and broad-based involvement to promote the balanced scorecard. 78% Meeting 88% In describing the methods used to assess employee understanding of the performance measurement system.KEY FINDINGS The following scale was used: Methods of Communicating • 1: does not know what is being measured Performance Measurement Results • 3: knows what is being measured. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 63 . employee). this proved unfeasible in practice. In addition to the leadership meetings described below. About one-third of study participants use surveys to assess 50% E-mail 44% employee understanding at one or more of the positions listed (executive. 50% Generally. the CACSO Strategy Group Web site serves as a resource for performance management methodologies. but does not fully understand the link to strategy Within the Organization • 5: understands the link between their work and overall company performance. the previous technological roadblocks have been overcome.

0 3. Levels of Knowledge About the Measurement System Caterpillar WLED: Communication about performance measurement at Caterpillar WLED has created value by offering an opportunity for employees from different departments within the plant to share best practices.6 all employees across the organization.9 organization. and other leaders within CACSO 4. Caterpillar believes that sharing information and creating a form of internal competition creates ownership and pride within the departments. providing information as well as listening for issues and opportunities. including literature. 5 = understands the link between their work ees from across the organization to attend two-hour and overall company performance Sponsors (n=8) forums. HR surveys a random sample of about 100 employees every month. and verbal communications from supervisors in either a one-on-one meeting or a group discussion. Caterpillar uses various methods to enable all employees to access performance measurement data. the company newspaper. online systems. Each member of the CACSO leadership team then distributes the information to his or her respective leadership team. coaches. data.8 the company Web site. 1. videos.0 5.0 4. CACSO’s leadership meets monthly to review performance and strategy.2 reinforce the flight deck and performance measurement through open forums with all levels of employees. Partners (n=9) This medium provides an opportunity for leadership to Figure 23 interact directly with line employees.8 messages from the all-leaders meeting can be viewed on Manager 3.0 2. and results. In addition.KEY FINDINGS Boeing kicked off communication about its flight deck at a CACSO all-leaders meeting. Communicating the overall strategy of the organization to employees empowers them to make decisions that company leaders feel will positively impact the organization. Boeing CACSO has set aggressive targets for these “people” measures. All information gathered from survey responses is rolled up into three measures that are reported at the leadership’s monthly scorecard review. To ensure employees understand Boeing strategy. All-leaders meetings take place every six months and include 400 managers. This brief survey (seven questions with essay-style answers) includes two questions about how well employees understand the business strategy.3 from this meeting is captured on video and shared with Director 4. In addition.0 The communications group randomly selects employ1 = does not know what is being measured. key 3. These meetings continue to provide a Executive 4. key information is communicated to the entire organization via the customer support Web site. The information 4.3 Employees 3. mentors. The front-line employees’ preferred methods of communication are 64 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . which take place about once every two weeks. The vice president and general manager continue to 2.8 vehicle for communication about performance measurement processes.

Other employees soon will be able to view performance measures reports on the intranet. • a table showing all measures. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 65 . In 2000. The 1999 quarterly scorecards were distributed to all HR employees in hardcopy form. during the annual performance development process. By communicating the performance measurement information. Scorecard results and news briefs will be posted on the GTE HR intranet. GTE HR hopes to gain a broader audience for the scorecard. where applicable. These two methods are used to address issues that affect employees on a daily basis. The scorecard includes: • an introduction that can be easily understood by all 2. such as quality. all managers and employees look at the organization’s critical success factors and bold goals to develop individual SMART goals. The employees gain a better understanding of the impact that their work has on the success of the company. where applicable. and sharing best practices within the plant. CCS has helped all employees understand how they contribute to the mission and vision of CCS. In addition. actual results for the quarter and the year to date. as well as with GTE’s business leaders and board of directors. In addition. which allow them to view and analyze the data that are most relevant to the process for which they are responsible. and it has growing acceptance throughout Nortel Networks customer service.KEY FINDINGS the front-line supervisor and the online system.000 GTE HR employees. This has fostered a sense of ownership in all employees. In addition to press releases. and they are more focused on the important issues and are able to make data-driven decisions. GTE Human Resources: GTE HR produces its balanced scorecard quarterly and shares it with all 2. • a high-level summary of HR performance in each of the four perspectives. and • charts and graphs. Employees see the link between their work and the goals of the organization. the print forms of communication primarily are used to convey messages about overall company performance.000 HR employees. • interpretive commentary noting items of interest. Directors and operational managers can use the PB Views system to review performance measurement data at any time. The scorecard is well understood. and targets for the measures. Nortel Networks CCS: Nortel Networks CCS business performance measurement team has conducted road shows within the company to tell all employees about the performance measurement system. They are encouraged to view the data at least monthly to ensure that their objectives are being met. safety. • definitions of important terms to help the reader understand the scorecard. The software also enables the PMA group to create “briefing books” for customers of HR. • news briefs that detail significant accomplishments and demonstrate the value of HR to the business. the PMA group uses PB Views software to manage the performance measures system.

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M E A S U R E W HAT M AT T E R S Critical Success Factors Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 67 .

ENSURING DATA INTEGRITY Implementing a successful performance measurement system and gaining organizational buy-in to the system is impossible if the organization cannot rely on the integrity of study data. developing individual accountability. 3. calibration of expectations. the study team observed several additional features of balanced scorecard implementations at bestpractice partners that merit mention. 2. and 5. However.KEY FINDINGS MEASURE WHAT MAT TERS Introduction T he successful implementation of a performance measurement system depends on the convergence of many factors. ensuring data integrity. These critical success factors are described in this section. Most partner organizations use internal auditing teams to ensure data integrity. These include: 1. A higher percentage of sponsors than partners reported lacking a formal approach to ensuring data integrity. The major overriding themes that emerged from study research are described in the nine findings of this report. discussed in Finding 7. 4. The performance measurement teams can audit the templates to ensure compliance with definitions and consistency in application of methods. starting small to ensure big success. ensures that all employees understand each balanced scorecard indicator in the same way. page 69). 68 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . Boeing CACSO: Boeing CACSO’s balanced scorecard measure definition template. Study participants took a number of approaches to ensuring the integrity of performance measurement data (Figure 24. change management through positive positioning of performance measurement initiatives.

This prevents “gaming” (and suspicion of gaming) in terms of unrealistically low expectations. 63% 67% 38% 11% 0 20 40 60 80 100 Percentage Sponsors (n=8) Partners (n=8) Figure 24 CALIBRATION OF EXPECTATIONS Another key to successful implementation of a performance measurement system is to ensure that expectations for performance targets are uniformly set for all organizational units. the executive vice president of HR personally reviews and calibrates the quarterly targets for each of the HR departments to ensure consistency and rigor of target-setting. How Integrity of the Data Used in the Measurement System Is Ensured Through “peer pressure” or culture of integrity 13% Internal auditing team 56% 25% 33% External auditors No formal approach to ensuring data integrity Nortel Networks CCS: CCS places the data in a public forum to ensure its accuracy. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 69 . Leaders must also clearly communicate this requirement across the organization. resulting in suspiciously stellar performance results. which supports accuracy and accountability. divisional managers meet to review the SMART goals of all employees within their divisions. At GTE. In addition to PricewaterhouseCoopers. Additionally. has allowed managers to self-audit their data. the CEO and a group of presidents have the responsibility to ensure that all of the profit centers in the company apply the measures consistently. Audits that Caterpillar WLED feels are more crucial to the success of its business are conducted at least once a year. They confirm that definitions are applied consistently to all employees and all SMART goals are linked to the bold goals for the department.KEY FINDINGS Caterpillar WLED: Caterpillar WLED ensures the integrity of data by hiring an outside consultant (PricewaterhouseCoopers) to audit all of its data and collection processes and the financial and nonfinancial performance data. Caterpillar has its own inhouse auditing team that visits the plant annually to conduct audits. This open environment and the Nortel Networks culture. Leadership must take responsibility to ensure that uniform expectations are set. Caterpillar WLED: To ensure consistency of measures among employees. These definitions are available online using the PB Views software. Caterpillar’s self-auditing unit is capable of performing several types of audits on the plant and ensures that at least one of each of the different audits is completed every three years. CCS made it a priority when it designed its performance measurement system to apply consistent definitions to all of its metrics.

Sponsors and the team leaders are jointly accountable for the team’s progress. Caterpillar WLED: All employees are well aware of their SMART goals because they are the basis for employee evaluation. but it feels that the resulting shared vision.KEY FINDINGS DEVELOPING INDIVIDUAL ACCOUNTABILITY Tools to Assist Employees in Achieving Performance Measures 43% Management support 89% 43% Clearly defined goals 89% 71% 78% Performance incentives Key to engendering a performance measurement culture in the organization is gaining individual commitment and accountability for performance measures. Boeing CACSO: Boeing CACSO’s leadership aims to involve the organization in the performance measurement system through extensive two-way dialogue in order to develop commitment and buy-in to the process. All of these tools were created using simple spreadsheets so that anyone could access and use the performance measurement tools. Providing standards and tools to employees increases their understanding of performance measurement concepts and creates a common performance measurement vocabulary across the organization (Figure 25). and weighting. priority. 43% Training/education 3M: 78% 43% Technology tools 56% 0 20 40 60 Percentage Sponsors (n=7) Partners (n=9) Figure 25 80 100 Each of the individual teams that compose the Dental Products Division works with its sponsors (steering committee members) to determine criteria. accountability for. During the annual steering committee strategic planning meeting. every line item is discussed. as are the key values that should be the framework for all 70 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . Boeing CACSO’s leadership foresees that implementing performance measurement technology tools and putting these tools in the hands of employees will effectively increase ownership and understanding among employees. Each indicator has a process owner who holds responsibility for. and authority over the measure. and results will be more durable. Another critical success factor for CACSO was the development of tools and methods to populate and display the balanced scorecard. The links between employee goals and the critical success factors are apparent. All best-practice organizations take steps to ensure that individuals understand and have a sense of ownership of performance results. Each sponsor explains how he or she obtained the numbers. commitment. The strategy group acknowledges that this approach lengthens the time required for implementation.

GTE Human Resources: GTE’s HR Operation Center enlisted subject matter experts from each area of the Operations Center to participate in the measurement initiative. The organization also must facilitate change by easing the transition for those affected by the change. Caterpillar WLED: Caterpillar WLED combated employee skepticism by using its business understanding plan. As with other organizational changes. These leaders played a major role in positioning the performance measurement initiative as a learning experience and a constructive. positive process of improvement. and the impact that their work has on the overall success of the company. goals. the implementation of performance measurement can present logistical and technical challenges as well as personal challenges as employees grapple with newfound accountability and attempt to become more results-driven. GTE Human Resources: GTE HR’s workforce development group recognized that the strategic performance measurement would require extensive communication and education of personnel to secure buy-in.KEY FINDINGS employees at Caterpillar. This group modeled the development process for the overall HR organization and addressed change issues and becoming the “early adopter” of the balanced scorecard. such as the vice president of workforce development. Key to overcoming resistance to the change was the leadership and active involvement of senior sponsors. managers and employees design the employee’s SMART goals for the year. CHANGE MANAGEMENT THROUGH POSITIVE POSITIONING OF PERFORMANCE MEASUREMENT INITIATIVE To effectively manage change. specifically the executive vice president of HR and departmental vice presidents. The organization’s positioning of the balanced scorecard as a positive improvement effort rather than a mechanism for assigning blame enabled employees to feel more Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 71 . The first step in the process is for employees and managers to look at the higher levels of the performance measurement system (CSFs and bold goals) to develop measures for employees that support these goals. an organization must aggressively identify and acknowledge the effects of change on individuals and organizations as a whole. The idea behind the PDP system is to give employees a better understanding of their performance measures. which helped the employees understand why the organization was changing and thus helped gain their support for the program. During the PDP process. This ensured that the new system considered process-specific knowledge and helped to gain buy-in from those participants and their respective departments. Successful organizations recognize this challenge and devote resources to facilitating the change.

the organization should become accustomed to the idea that measures may change along with strategies and processes. “quick wins.” or displaying early benefits from the effort. As with any change initiative. over-designing the performance measurement system before rollout can delay the implementation and can lose momentum. can garner support for the change. Similarly. the balanced scorecard implementation would have been substantially delayed. STARTING SMALL TO ENSURE BIG SUCCESS Another key recurring theme among the study’s best-practice organizations is the willingness to launch the performance measurement effort as soon as possible. The learn-as-you-go approach has encouraged innovation and garnered support. This type of change will be ongoing. even if this entails launching before fully developing a complete set of metrics or without a sophisticated method for analysis or communication. Oftentimes. existing metrics can be identified and reported immediately. The organization can adjust to accountability for performance metrics using familiar measures. enthusiasm.KEY FINDINGS comfortable during the change without worrying about what the scorecard might reveal about their individual performance. GTE Human Resources: GTE HR’s willingness to measure easily measurable items jump-started the initiative. If the organization had waited until perfect systems were in place to gather perfect data. Further. and even credibility. Best-practice organizations agreed that beginning to communicate the concepts of performance measurement early can help to allay discomfort and avoid surprises. 72 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . even as performance measurement processes are finalized.

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M E A S U R E W HAT M AT T E R S Partner Organization Profiles 76 3M 78 The Boeing Company—Commerical Airline Customer Support Organization 80 Caterpillar—Wheel Loader and Excavator Division 82 GTE–Human Resources Organization 84 Nortel Networks—Canadian Customer Service Division Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 75 .

3M prides itself on its ability to produce diverse products and uses its experience in new product development to build a strong base of technology and learning. • bring enthusiasm. One of 3M’s most successful divisions. 3M is able to introduce more than 500 new products each year. and • being a company employees are proud to be part of. Paul. • providing investors with an attractive return. and optics. and service.000-plus dentists. melt processing. and fun to the workplace. coated abrasives. The company develops a wide range of technologies. and Thinsulate.639 Web Page: www. Its values include: • satisfying customers with superior quality. films. • respecting the social and physical environment.PROFILES MEASURE WHAT MAT TERS 3M 3M SNAPSHOT Industry: Manufacturing Headquarters: St. including Scotch tape. It produces more than 1. ceramics.3m. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . DPD’s numerous goals and objectives are summarized in what it calls its Vision 2005: To become the supplier of choice to global dental professional markets. drug delivery. happiness. Revenue: $15. 3M is a global company with offices in more than 62 countries and sales in 200 counties.300 products for 600. providing world-class quality and innovative products. • know the problem and fix it. • release the power of our people. Because of its vast knowledge of technology and innovation. • take personal responsibility for the success of the team. Post-it Notes. 3M DPD was awarded the Malcolm Baldrige National Quality Award in 1997. Minn. microstructured surfaces. joy.07 billion Employees: 75. it has a strong culture that permeates geographical boundaries. including adhesives. The division has 700 employees worldwide and locations in 83 countries. Although the company is so widespread. 3M’s dental products division (DPD) is focused on in this study. The division’s values are: • emphasize character values of all employees. 3M is proud of its culture and feels it is important to communicate its values and culture to all employees. value.com 76 is a major manufacturer of consumer products.

and economic profit. honesty. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 77 . 3M learned about the balanced scorecard in the mid-1990s. innovation. • more than 50 percent improvement in waste reduction since 1990. and • increasing economic profit as a percent of sales. 3M DPD has seen many tangible benefits from its quality journey. and practice trust. • consistently high channel partner satisfaction with products and services and technical support. in keeping with 3M’s value of autonomy for its 40 to 45 divisions. and challenge to the status quo. understanding. The division identified goals and established a business process to track programs and ensure these goals were achieved. The driving force behind every business decision is DPD’s commitment to its customers. and honor. 3M uses a balanced measurement system companywide at all levels.) 3M recognizes that financial results are lagging measures and emphasizes the management of operational indicators in real time.PROFILES • • • be committed to greatness in our work. Like its parent. DPD is committed to customer satisfaction. The organization wished to focus on elements beyond financial measures (operating income. including divisions. • more than 40 percent (1999) of annual global sales from new projects. The form of the balanced measurement system is flexible. respect and self-respect. • sales growth of 250 percent (projected) based on 1987 base. 3M DPD began its measurement efforts as a means to fix recurring field problems and win back customers it had lost in the late 1980s. delight each other by listening. This commitment led to the division’s focus on quality and performance measurement. The division steering committee adapted performance management in the early 1990s and developed its balanced scorecard. PERFORMANCE MEASUREMENT AT 3M AND 3M DPD Although 3M values outside the box thinking. and feeling. the organization sought a framework around which to align the efforts and energies of its employees. enabled through effective performance measurement. cost of capital. business units. called the business process performance matrix. Today. • dramatically improved safety results. The performance measures communicate what is important to the company across diverse locations and operations. and employees. Among these results are: • consistent revenue performance. products.

military aircraft and missiles. Airbus. which is an operating unit of the commercial airplane group. 767. Boeing is planning to offer satellite communication services. and 777 jets. Boeing also is the prime contractor for the International Space Station. Boeing’s only competition comes from the French consortium. and space and communications systems. the Delta family of rockets.boeing. the venerable F-15E Eagle fighter-bomber. the AH-64D Apache Longbow helicopter. the commercial airplane group. Major Boeing space systems include the space shuttle (with Lockheed Martin). 757. The company’s commercial planes (63 percent of sales) include the Boeing 737 (the world’s most popular commercial aircraft). and the military aircraft and missile systems group. CACSO is responsible for supporting and maintaining the existing fleet of 11.100 (1998) Web Page: www. Missiles include the Standoff Land Attack Missile (SLAM ER) and the Joint Direct Attack Munition (JDAM). global positioning systems (GPS). including the space and communications group. It has divisions devoted to commercial airplanes. is part of the commercial aviation services unit. Through partnerships with other companies. and the C-17 Globemaster III transport. The group also offers more than 250 products. The dominant producer of large commercial aircraft. Wash. Boeing is the world’s largest aerospace company. Boeing’s military aircraft include the F/A-18 Hornet strike fighter.000 Boeing aircraft currently in service. Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC .com 78 he only maker of big commercial jets in the United States. which represent a variety of passenger and cargo configurations and range capabilities. and communications satellites.1 Boeing consists of multiple business units. Revenue: $56. The Boeing commercial airplane Customer Support Organization (CACSO). such as technical documentation and parts.2 billion (1998) Employees: 231. 747.PROFILES MEASURE WHAT MAT TERS The Boeing Company— Commercial Airplane Customer Support Organization T SNAPSHOT Industry: Manufacturing Headquarters: Seattle.

hoovers. CACSO rolled out its flight deck performance measurement system about a year ago. The CFO has championed the scorecard as a tool to communicate to analysts Boeing’s focus on value and its near.PROFILES PERFORMANCE MEASUREMENT AT BOEING CACSO Boeing introduced its value scorecard system in the second quarter of 1999. and to drive the development of performance at lower levels of the organization.and long-term goals. CACSO believes that the performance measurement system has resulted in great focus on what is important to the organization. to increase the organization’s focus on process management. The organization uses the flight deck tool as a vehicle for change.com Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 79 . The entire Boeing organization must align with the measures expressed on this companywide scorecard. And though it is difficult to identify the ROI for performance measurement initiatives. 1 www. It seems to have more of a sense of direction. CACSO has seen some immediate process improvements gained from its focus on process management.

Caterpillar distributes its own line of boots. • forest products.S. In an effort to modernize its processes and facilities. caps.com aterpillar is the world’s leading manufacturer of earthmoving machinery and a leading supplier of agricultural equipment.9 billion (1998) Employees: 65. One of Caterpillar’s 17 profit centers. Already a global organization—non-U.caterpillar. Ill. the company has expanded into engine manufacturing and financing. Central Europe. the former Soviet republics. • large wheel loaders and compactors. logging. This program enabled the company to reduce manufacturing space and reduce cycle times from 24 days to six days. it provides jobs to 2. In an attempt to combat downturns in these industries. and jeans. Caterpillar began the Plant With a Future program in 1983 and put it into practice between 1985 and 1993 at all of its facilities worldwide. 80 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . and oil industry equipment. and a number of other developing markets. and • powertrain components. PERFORMANCE MEASUREMENT AT CATERPILLAR WLED In the early 1980s. • hydraulic excavators.2 Caterpillar’s Wheel Loader and Excavator Division (WLED) began operations in 1958.800 (1998) Web Page: www. sales account for 49 percent of the company’s sales—Caterpillar is investing in new markets such as China..900 employees. Ill. It also provides insurance to Caterpillar customers and dealers and makes mining. Caterpillar has manufacturing operations in 22 countries and a global network of 195 dealers serving 166 countries. as well as other manufacturers’ (DaimlerChrysler and Puma). Revenue: $20. the division is composed of the following principal businesses: • medium wheel loader. located on 370 acres of land just south of Aurora.PROFILES MEASURE WHAT MAT TERS Caterpillar—Wheel Loader and Excavator Division C SNAPSHOT Industry: Manufacturing Headquarters: Peoria. Caterpillar experienced a severe decline in its business growth due to foreign competition.

WLED focused on reducing costs instead of customers. Caterpillar reorganized into four service centers and 13 process centers. To become more customer oriented and a leaner manufacturing organization. The key for each of the product managers was to identify key business measures for the new organizational structure.com Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 81 .PROFILES Before Caterpillar reorganized in the 1990s.hoovers. Its function was to build tractors. Although on paper Caterpillar appeared to be performing well. Product managers began by using a tool called the product manager’s business statement to track all of their financial and nonfinancial measures every month. its measurement system was not a true reflection of the business. 2 www. and it did just that—far more than it could sell. The corporate office deemed that a balanced scorecard would be the most effective tool for these profit centers to manage their business. This formed the basis for the balanced scorecard performance measurement system used at Caterpillar today.

000 (1998) Web Page: www. and 3. and managers. The 2. After the merger. In addition. the Telecommunications Act deregulated GTE’s business. GTE is buying about half of Ameritech’s wireless business. offers consumer Internet access through GTE. business partners. The company realized it would need different strategies to compete in this new environment. GTE senior management from across the organization addressed these changes and challenges and developed strategies and targeted business results for the next five to 10 years. GTE also provides telecom services in Argentina. competitors had gained new capabilities. Through a process called Leadership 2000. benefits enrollment) to employees and managers. which creates and implements HR programs. payroll processing. In a joint venture with investment firm Georgetown Partners. which deliver traditional transactional HR services (e. and the labor market had tightened. and Venezuela. employees.net. and strategies. PERFORMANCE MEASUREMENT AT GTE HR Three years ago. the largest non-Baby Bell recently agreed to be acquired by Bell Atlantic. the center of expertise.. 82 Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC .PROFILES MEASURE WHAT MAT TERS GTE Corporation— Human Resources Organization G SNAPSHOT Industry: Telecommunications Headquarters: Irving. policies.gte. China.g.000-person GTE HR organization supports six strategic business units. the largest Baby Bell. GTE serves more than 23 million local phone customers in the United States and offers long-distance service in every state.3 GTE’s human resources (HR) organization is made up of three major components: 1. It provides cellular and PCS phone service to 5 million subscribers through subsidiary GTE Wireless. 2.000 employees and will be the leading local phone company in the United States. which provide on-site consulting and assessment to business leaders. Texas Revenue: $25.4 billion (1998) Employees: 120.com TE. Canada. each of which has a vice president of HR and a staff of HR business partners. the Dominican Republic. the new organization will have 240. customers had become more demanding. service delivery/operations centers. and has cable franchises in California and Florida.

and 5. talent. then identified the employee-focused imperatives to grow that talent and increase the value delivered by GTE employees. • measuring the enterprisewide results of HR initiatives. 4. To focus the HR organization on the achievement of these imperatives. and capabilities to drive business results. During the Leadership 2000 effort. four members of a newly formed planning measurement and analysis (PMA) team translated the GTE HR strategy into a measurement model for the future. 3 www. GTE would need new behaviors. • promoting a culture of continuous improvement. organizational integration.com Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 83 .hoovers. The benefits of GTE HR’s scorecard include: • improving communication throughout the organization. • enhancing HR’s ability to provide effective solutions. and the PMA team introduced the first quarterly balanced scorecard one year after beginning the initiative. customer service and support. In the first quarter of 1998. leadership. 2. This strategy included five strategic thrusts: 1. • assessing organizational health and competitive capability. GTE HR senior management approved the balanced scorecard as the communication vehicle for GTE’s strategy. and • focusing on the key factors of business success. The scorecard concept has been readily adopted within many areas of the GTE HR organization. GTE HR leaders inventoried the current skills and capabilities that would provide value in the future. The group selected the balanced scorecard approach and developed a proof for the concept. • monitoring critical work force indicators. 3. HR capability. actions.PROFILES GTE realized that its people were key to its future success. GTE developed a new HR strategy to support the business strategy.

Widespread use of the Internet brought new types of customers to the company. Canada-based Nortel Networks provides communications infrastructure equipment and services for many of the world’s largest telecommunications providers. N. The company realized it needed a performance measurement system that would help it compete in this dynamic environment.com 84 he No. including cellular and personal communication services (PCS). Brampton. BCE. decided to use a balanced scorecard system. wireless networks. This second group.nortelworks. data. and broadband networking products for telecom carriers. Canada Revenue: $17. CCS began its performance measurement efforts in early 1998 by creating two separate groups: one tasked with creating the strategic vision for the company and the other to track organizational performance. Richardson. Ontario. Other similar business centers are located in Raleigh-Durham. In July 1998 CCS developed its vision and mission and communicated them to all CCS employees.2 maker of phone equipment (behind Lucent Technologies) is pushing to become a leader in the convergence of voice. enterprise networks (primarily private digital switching systems). TX.000 (1998) Web Page: www. This was the first step in gaining employee buy-in for the performance measurement system. the business performance measurement (BPM) team. The company’s expertise encompasses public data networks.4 Nortel Networks Canadian customer service (CCS) division is located in Brampton. The next significant step was linking the organization’s metrics to its strategic and operational scorecards. owns about 40 percent of the company. More than half of its sales are in the United States. Notel Networks CCS supports Nortel Networks’ Canada region.PROFILES MEASURE WHAT MAT TERS Nortel Networks—Canadian Customer Service Division T SNAPSHOT Industry: Telecommunications Headquarters: Ontario. the parent of Bell Canada.5 billion (1998) Employees: 75.. Nortel Networks also saw new network carriers and the dawn of deregulation of the industry.C. Beginning the following year all managers Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC . PERFORMANCE MEASUREMENT AT NORTEL NETWORKS CCS In recent years Nortel Networks has found its industry to be changing rapidly. and Atlanta. and video on the same network.

This will help the company maintain strategic direction and focus should its leadership change. 4 www. Nortel Networks has seen many benefits from its performance measurement initiative. • All of the measures are strongly linked to the strategic plan. • The balanced scorecard has given the organization a secure foundation of measurements that are indicative of organizational direction and independent of management. which has enabled CCS to track its progress toward its strategic goals. CCS has focused on communicating the benefits of the balanced scorecard to all employees. and they began to report all of their data using this tool. • Focusing its efforts on only 16 measures has helped create a narrowly focused work force that has concentrated on what is most important to the organization. Following the rollout of this device.hoovers. • CCS now is able to make decisions based on data rather than instinct.com Measure What Matters: Aligning Performance Measures with Business Strategy • ©2000 APQC 85 . This has been helpful in staffing.PROFILES were trained how to use the balance scorecard.

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