Insight: balanced scorecard

Tesco uses it, yet many companies fail to make the Harvard model work. Sue Grist of Egremont asks why

Driving performance with Balanced Scorecard

Sir Terry Leahy, CEO of Tesco, the company
that now takes 1 of every 8 spent in British
shops, has often cited the use of Balanced
Scorecard as the key factor in the companys
ongoing success. Yet research suggests that
70% of companies are not satisfied with how
scorecards have been implemented in their
companies. How can Balanced Scorecard be
both a primary driver of success at Tesco and
a dismal failure elsewhere? And how can
Balanced Scorecard drive profit improvement
in the leisure sector?
The Balanced Scorecard approach was first
described in 1992 by Harvards David Norton
and Robert Kaplan, who believed that in
increasingly competitive and complex markets, financial measures alone were no longer
adequate for assessing the health and likely
future success of a business. They added measures in the areas of customers, operations and
people, designed also to include a mix of lead
measures that predict success and lag measures that record success. These measures
and targets were linked directly to the
achievement of the companys strategy.
Each department would have a scorecard
that identified the results they needed to
achieve for the company to deliver the
business plan and longer-term strategy in the
four dimensions.
Now 44% of UK companies are using Balanced Scorecard and probably very few have
properly translated the strategy into who
needs to do what by when, captured as targets
on scorecards with action being taken when
the company is off track.
One company (see below) did translate its
retail strategy in the four dimensions. It
defined measures that would record success
against each of the objectives and added them
to the relevant departmental scorecards.
Similarly, Saatchi and Saatchi progressed
with Balanced Scorecard after a crisis in 1997.
It said: With it we were able to clearly explain
to every employee throughout the world
what the strategy was. For the first time we
were able to say heres our vision, heres our
corporate strategy, heres how were going
to get there and heres the part you play.
At Egremont we have found that many
companies, including retail and leisure
companies, simply use the scorecard as a

Strategy

Increase
contributions
to business

Increase
sales

Finance

Customer

Operations

More customers
buy more products

Attract customers
to the store

The store looks

good at all time

People

Stock is on
sale (focus on
top 50)

Hold only the

stock to meet
customer demands

Well trained staff

and management

Reduce
shrinkage

Give customers
excellent service

Right staff in the

right place at the
right time

Simple processes
to run the store
efficiently

Highly motivated
store team

An early outlet scorecard

performance-reporting tool. They take the

traditional outlet or store budget, add a
couple of measures such as staff satisfaction
and mystery shop results to make the
measures look a little more balanced and
report results monthly. Sometimes they will
use a traffic light system to add a bit of
colour to the report where green means the
measure is on track, amber going off track and
red actually off track.
Alternatively, a much worse scenario is that
they add every measure under the sun, until
everyone drowns under a mass of conflicting
measures with no sense of which are the most
important. The optimum number of measures
and targets that any one person can keep top
of mind as they go about their daily work is
generally accepted to be seven, plus or minus
two. We have seen scorecard with 48
different measures! It is no wonder that
Balanced Scorecard gets a bad reputation
all that data collection and analysis and no
discernible improvement in the quality of
decision making or speed of taking action
when measures go off track.
Lets review why a company like Tesco is
successful in its use of Balanced Scorecard.
1 Easy to use: Tesco links it to the strategy
and makes it very easy to use. The store scorecards are displayed in prominent places so
everyone can see how well the store is doing.

Financial
perspective

Customer
perspective

Operational
perspective

People
perspective

If we succeed
how will we
look to our
shareholders?

To achieve our
vision, how must
we look to our
customers?

To satisfy our
customers, what
processes must
we excel at?

To achieve our
vision, how must
staff learn and
improve?

8 M&C Report June 2005

Keep costs low

while maintaining
standards

Wherever possible, the IT systems drive the

results reporting so that it is not a long-winded job to update the scorecard every week.
The illustration above is an example of an
early outlet scorecard, which will be reduced
over time.
2 Full ownership: Tesco has transferred
ownership of the targets and measures to
individuals who are fully committed to delivering them. The steering wheels across the
business are used as tools to motivate staff,
to help them make decisions about priorities
and to manage by exception. The teams only
work on improving measures that are red or
amber, leaving alone those that are green.
3 Management commitment: Senior management are fully committed to Scorecard.
If they make a field visit they are likely to ask
any member of staff in the outlet what is
happening on their steering wheel.
4 Smart target setting: Staff set their own
targets, in the knowledge that they must keep
to the budget. For example, if an outlet has
had an unexpected competitor hit and is
trading 20% down, the team may set a target
of clawing back 2% in the next month. This
is more likely to motivate them on a wet
Monday morning when it would be easy to
give up trying to deliver the budget.
5 Slick review: Performance review meetings take place beside the scorecard and have
the feel of a half-time sports huddle. Everyone
has come prepared to comment on why
results are as they are and with recommendations for immediate actions to take.
6 Business-wide: All departments will have
scorecards, with targets cascaded down
through the company from the strategy. Any
new business venture is planned and delivered
in scorecard format. For example, the plan to
introduce financial products to a company

Insight: balanced scorecard

operating fitness centres would be written

from the financial, customer, people and operational perspectives and targets set accordingly: 5% of our customers will have been
sold financial products within six months, as
noted by the measure on our scorecard.
7 Linked to reward: Salary and bonus
awards are related back to scorecard performance and the degree to which the teams
have set themselves stretch targets.
8 Reduce complexity: As understanding
grows about how the drivers of the business
impact results, teams can reduce huge
volumes of reports and checks down to a
bare minimum. Scorecard can also provide
the confidence to reduce range breadth, with
all the related benefits of lower stock levels
and less wastage.
In summary, these companies are using
Balanced Scorecard in the belief that it will
substantially improve their chances of delivering their budgets and longer-term strategy.
As one retail director said: Weve found
Scorecard to be motivational, because everyone has the same focus for what were trying
to achieve. It gets people close to the business
and because it generates understanding, it
drives responsibility.

Relevance for the leisure industry

Balanced Scorecard is just as relevant for
the leisure industry as any other. The complicated and spidery diagram below shows

Staff turnover reduction over time

%
70
60
50
40
30
20
10
0

60 28

37 18

Phase 0

39 33

47 41

Phase 1 Phase 2 Phase 3

60 36

Total

the underlying and interrelated drivers of a

pubs performance.
Having a simple scorecard that makes
visible how the important elements of outlet
performance are working can allow the
outlet team to fine tune their performance
and drive incremental sales and profit.
We used this approach with a fast food and
convenience store operator, across all its
main operations in Europe, and were able to
see it underpin sales increases of more than
10%. Each outlet only had a few staff but they
became so engaged in the process that there
was a dramatic reduction in staff turnover.
The chart above shows how staff turnover
kept dropping over time (Phase 0 was the earliest set of outlets to receive Scorecard and has
seen the biggest drop in staff turnover).
There are two other really valuable uses of
Balanced Scorecards in the leisure sector:

Wheel of fortune: an outlet scorecard for a retail business

ses

es
Ab
sen
c

on
ontributi

en
exp
ect

Wag
e

ka
g

Trading

Dir
Sh
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Direct c

Fi
na
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e

Pe
op
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it
Ex

iew

rale
f mo
Staf

Cos
t

Egremont retail case study

bility
Top 50 availa

Sales

ATV

Con

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Aud

Cu
sto
me
r

Sto
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vel
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Op
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tiv
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ry
sh
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Stan
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Refun

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for business turnarounds and mergers and

acquisitions.
In both cases, it is very important that everyone is clear what needs to be done by when
for the tough improvement agenda to be delivered. In the case of an acquisition this is often
encapsulated in the 100-day plan, which typically describes the restructuring of the business and the cost base using a similar process
to that used for a business turnaround.
The key elements of these plans are
described in terms of turnaround objectives:
for example, reduce stock levels by 25%.
The objectives are then turned in to timed
targets for individuals or departments and all
activities are reported and managed using
scorecards.
This gives a rapid red-amber-green status
on a weekly basis and the process ensures that
the tough targets are delivered to schedule,
with everyone able to see progress and understand the role they are playing.
Because the business has had a rapid introduction to Scorecard and has quickly seen
the value that the approach has brought when
in extremis, they will in future continue with
the process to drive ongoing sustainable
improvement.
In summary, if we could use one word to
describe why Tesco is using Scorecard to
drive serious results improvement while
other companies are writing it off as a failure,
the word would be belief. Tesco has hardwired the scorecard into the heart of its business because it believes that it motivates and
focuses its teams on their clear strategic
goals. It is hard to disagree with a company
that reports profits of 2bn per annum.
Egremont (www.egremontgroup.com) is a
consulting company that specialises in working
with some of the UK and Europes best-known
consumer businesses in the retail, travel &
leisure and FMCG sectors to accelerate growth
and profitability. The team developed the scorecard approach that was used in Tesco.

A major high street retailer first implemented the Balanced Scorecard in 1999
and has continued to refine it, reducing
the original 19 measures on the store
scorecard down to the nine measures that
represent the most important drivers of
store performance.
The retailers director of operations said:
Weve used the scorecard in the context
of a wider programme that is driving
improvements in the shopping experience
for customers. This programme aims to
help store teams take ownership of retail
issues within their store and helps store
teams identify what is good within the
store, what is average, and what needs
improvement. It helps drive pace, focus
and alignment to the company targets.
M&C Report June 2005 9