Balance Scorecard Deloitte PDF

Strategy & Operations
Performance
Management and
Balanced Scorecard
CFO Services Self-Study Guide
Deloitte Consulting LLP

Global CFO Services Curriculum
Self-Study Guide: Performance Management and the Balanced Scorecard
Table of Contents
TABLE OF CONTENTS......................................................................................................I
INTRODUCTION................................................................................................................1
MODULE 1: BALANCED SCORECARD BASICS ............................................................2

Module Objectives: ........................................................................................................................................ 2
Objective 1: Explain the business imperative to improve performance management ................................ 2
Objective 2: Describe how Balanced Scorecards create strategic focus.................................................... 3
Objective 3: Explain what a Balanced Scorecard is and understand the multiple Balanced Scorecard
perspectives ............................................................................................................................ 4
Objective 4: Describe how Balanced Scorecards can be applied to different industries ............................ 7
Objective 5: Explain the concept of “cascading” performance measures utilizing the Balanced Scorecard
methodology ............................................................................................................................ 7
MODULE 2: TRANSLATING STRATEGY INTO ACTION—THE STRATEGY MAP ........9

Module Objectives ......................................................................................................................................... 9
Objective 1: Explain the purpose of a Strategy Map ................................................................................... 9
Objective 2: Describe techniques and approaches to creating Strategy Maps......................................... 10
Objective 3: Discuss a variety of Strategy Map examples ........................................................................ 11
Objective 4: Explain the key success factors for creating Strategy Maps................................................. 14
MODULE 3: DEVELOPING BALANCED SCORECARD PERFORMANCE MEASURES

.........................................................................................................................................16
Module Objectives ....................................................................................................................................... 16
Objective 1: Develop Balanced Scorecard performance measures ......................................................... 16
MODULE 4: THE BALANCED SCORECARD PROCESS..............................................20

Objective 1: Describe the end-to-end Balanced Scorecard process ........................................................ 20
MODULE 5: INTEGRATING THE BALANCED SCORECARD INTO THE INTEGRATED

PERFORMANCE MANAGEMENT FRAMEWORK .........................................................22
Objective 1: Explain how Balanced Scorecards fit into the overall Integrated Performance Management
(IPM) Framework........................................................................................................................................ 22
MODULE 6: BALANCED SCORECARD CASE EXAMPLES .........................................24

Objective 1: Discuss, in general, Balanced Scorecard case examples .................................................... 24
Copyright ©2004 Deloitte Development LLC. All Rights Reserved. i February 2004
Objective 2: Discuss a leading private sector Balanced Scorecard case example .................................. 26
Objective 3: Discuss a leading public sector Balanced Scorecard case example .................................... 28
MODULE 7: IMPLEMENTING BALANCED SCORECARDS..........................................34

Objective 1: Describe high-level implementation approaches for Balanced Scorecard projects.............. 34
Objective 2: List the tools available to support Balanced Scorecards ...................................................... 36
MODULE 8: BALANCED SCORECARD REFERENCE MATERIAL ..............................37

Objective 1: Locate Balanced Scorecard reference material .................................................................... 37
SUMMARY.......................................................................................................................38
Copyright ©2004 Deloitte Development LLC. All Rights Reserved. ii February 2004
Introduction
One of the key responsibilities of executives and managers in any organization is to formulate strategy and
execute on it. Despite the importance of this function, the evidence shows that this widely accepted core
competency of successful organizations is generally done extremely poorly. A Fortune magazine article,
based on a survey of management consultants, found that less than 10% of strategies were successfully
executed. This has led many individuals to ask the question, “If executing strategy is so important, why
don’t more organizations do a good job of it?”
While there can be no doubt that strategic planning remains a challenging task, the last decade has seen
this process enhanced by the proliferation of rich information sources enabled by new technology, the
development of new methodologies, and organizations brimming with MBAs and former management
consultants. What many organizations have come to realize is that actually formulating strategy is, at best,
only half the job. Where many companies are failing is that they cannot translate these high-level strategies
into tangible, actionable objectives for their organizations. And, if the strategy is not translated into action,
what good is it?
Too many organizations still find that the strategic planning process ends with binders filled with Microsoft®
PowerPoint® slides detailing grand strategic visions for the future that never leave the confines of the
executive offices. Pick an organization at random and ask managers and staff how their actions support the
organization’s strategic objectives. The most common response is one of bewilderment or references to a
vague mission statement. Lower organizational levels are left to rely on systems designed based on tactics
or financial reporting, not strategy. The greatest strategy work in the world can become meaningless if it is
never actually implemented.
Leadings organizations have come to see that executing strategy is about more than strategic planning—it
is about creating an organization focused on strategy. In other words, it is about managing performance.
One of the groundbreaking advancements in performance management was the development of the
Balanced Scorecard, first advocated by Robert Kaplan and David Norton in a seminal 1994 Harvard
Business Review article titled “Translating Strategy into Action, The Balanced Scorecard” and since
developed through literally thousands of implementations and expanded upon in numerous books and
articles.
Almost a decade after its first conception, Balanced Scorecards are widely used as a key component of an
overall performance management framework. Approximately 50% of the Fortune 500 companies use
Balanced Scorecards and that percentage continues to grow. Those who currently use Balanced
Scorecards also report that they are working to improve their current processes by utilizing new
technologies, expanding the scope, drilling down more deeply into the organization, and integrating these
processes more closely with other key management processes.
Copyright ©2004 Deloitte Development LLC. All Rights Reserved. 1 February 2004
Module 1: Balanced Scorecard Basics
Module Objectives:
After completing this module, you will be able to:
1. Explain the business imperative to improve performance management
2. Describe how Balanced Scorecards create strategic focus
3. Explain what a Balanced Scorecard is and understand the multiple Balanced Scorecard
perspectives
4. Describe how Balanced Scorecards can be applied to different industries
5. Explain the concept of “cascading” performance measures utilizing the Balanced Scorecards
methodology
Objective 1: Explain the business imperative to improve performance management
Michael Porter has described the foundation of strategy as the selection and execution of literally hundreds
of activities within an organization. The logical conclusion of this definition is that strategy cannot be limited
to a few key executives but rather must permeate the entire organization. In other words, the everyday
activities of everybody in the organization must be somehow aligned to the organization’s strategy. For this
to happen, organizations must have some method of communicating strategy to the organization and
translating high-level strategic objectives into meaningful day-to-day objectives. The role of performance
management is to align the organization with its strategy and measure the success of the organization’s
execution of those objectives.
Performance Management Model Description of the elements

• The domain represents the sphere of control
Manager or Organization Domain and/or responsibility for a manager or
organization
• This is a person or organization responsible for

A MANAGER or ORGANIZATION managing a portion of the business
UNIT
has • The objectives can be strategic, operational,

technical etc.
• The objectives represent what the individual is
trying to achieve
OBJECTIVES • The objectives provide context and relevance to
the measures selected and define what success
looks like in the end state
and monitors performance using

• The measures are the way that the manager or
organization is achieving the objectives that it
initially set out to accomplish
MEASURES
• The manager or organization scorecard
Manager or Organization Scorecard represents an ongoing place to capture and
communicate the objectives and measures of
the organization
Figure 1.1 Source: Deloitte
Traditional performance management systems have often proved to be ineffective in this task. In many
companies, high-level strategic planning is done only at the senior executive level and, other than a few
vague mission statements, never makes it far out of the corporate boardroom. The rest of the organization
focuses its efforts on a massive annual budgeting process which focuses primarily on incremental year-on-
year improvements. This budget is only tenuously linked to strategy and is often unrecognizable after the
final negotiations, iterations, and cuts.
Therefore, in many companies, performance management centers largely on traditional financial targets
that are derived from the annual budgeting process. This information is usually obtained from accounting
systems designed to support external GAAP financial reporting and, as such, is dependable and available.
The problem is that this information is focused only on financial outcomes and provides no guidance as to
the sort of actions or activities that will be needed to achieve them. Nor does it account for the other, non-
financial elements of the firm’s strategy that are as important, if not more so, to the successful execution of
strategy.
Finally, financial measures tend to be lagging indicators. They do an adequate job of telling the organization
what has happened in the past, but are usually poor as predictors of future results and emerging trends.
In recent years, some new performance management frameworks have increasingly focused on quality,
shareholder value, customer satisfaction, and core business processes. While these are positive steps in
expanding the strategic footprint outside of pure financial results, they still represent only a narrow segment
of the broader strategic goals of the organization.
As such, many organizations have a need to improve performance management in order to improve the
execution of strategy and provide decision makers with more robust analysis of whether strategic goals are
being met or not.
Objective 2: Describe how Balanced Scorecards create strategic focus
The message of the Balanced Scorecard is that it is no longer enough to focus on doing things well, it is
now necessary for successful organizations to focus on doing the right things well.
As such, the Balanced Scorecard is a central element in the strategic feedback loop within an organization.
Clarifying and Translating

the Vision and Strategy
•Clarifying the vision
•Gaining consensus
Communicating and Strategic Feedback and

Linking Learning
•Communicating and educating Balanced •Articulating the shared vision
Scorecard
•Setting goals •Supplying strategic direction
•Linking rewards to performance •Facilitating strategy review and
measures learning
Planning and Target

Setting
•Setting targets
•Aligning strategic initiatives
•Allocating resources
•Establishing milestones
The premise of the Balanced Scorecard is that strategy is everybody’s business—from the CEO to the line
worker—and that a performance management system is only useful if it supports this objective. In other
words, a performance measure is only useful if it can be explicitly tied to an agreed strategic objective. In
fact, Balanced Scorecards are often referred to as strategy implementation tools.
The Balanced Scorecard
Financial Tactical
Strategic actions
Vision and enabling
Internal
Goals Customer Business strategy
Process
execution
Learning and
Growth
Objective 3: Explain what a Balanced Scorecard is and understand the multiple Balanced
Scorecard perspectives
In the early 1990s, a research group of senior executives from twelve major companies, led by Dr. Robert
Kaplan of the Harvard Business School and Dr. David Norton of the Nolan Norton Institute, developed a
new corporate performance management framework. The outcome of this work was summarized in a series
of articles and then a best selling book, “Translating Strategy into Action, The Balanced Scorecard.” From
these early writings a wave of interest in implementing the Balanced Scorecard was born and it has since
become an extremely popular approach to performance management.
A Balanced Scorecard is an approach to performance management that cascades strategic objectives into
measurable targets. The scorecard translates the vision and strategy into a tool that communicates the
strategic intent, and then tracks performance against the established goals.
The basic principles of the Balanced Scorecard, since refined through literally thousands of
implementations, are that the role of performance management should be to translate strategy into action.
In order to accomplish this objective, the Balanced Scorecard focuses on:
• All performance measures being explicitly linked to strategic objectives
• Leading rather than lagging performance indicators
• A combination of measures relating to financial, customer, process, and employee value
• Performance measures that cascade down through the organization
• A small number of measures that are the most significant for implementing strategy
The premise behind Balanced Scorecards is that financial information alone is not sufficient to successfully
manage a leading organization. Nor can leading organizations succeed by focusing only on business
process, or quality, or shareholder value, or any number of other equally important areas. Rather,
successful companies must be able to focus on a holistic view of strategy execution. In other words, they
must be able to focus on all these different dimensions of business performance at the same time.
For a moment, think about all the key elements of a successful strategy. For most organizations this
strategy would have to include financial goals, whether these are expressed in traditional accounting terms
like Return on Investment (ROI) or using shareholder value measures like Economic Value Added (EVA®)
and Cash Flow Return on Investment (CFROI®). Even non-profit organizations would be very concerned
about financial issues as they relate to funding, budget deficits, revenue generation, and financial stability.
As important as the financial component is, successful strategies would certainly not stop there. After all,
how is the company going to achieve its financial goals if it does not consider how it will continue to add
value to its customers? If customers are not buying the good or service, then the financial results will
certainly suffer. What about the business processes that actually produce the goods and services? Surely
a successful strategy would need to articulate which business processes the organization must excel at and
describe how those processes would be valued (for example, quality, cost, or speed). Or consider the skills
and attitudes of the people that work in the organization. A good strategy would need to consider the
necessary skills of the people that will actually execute the strategy so that recruiting and training programs
can be aligned. It would also have to consider the types of tools and information that employees will need in
order to fulfill their objectives.
Regardless of the company’s industry or strategic objectives, any successful strategy would have to include
these elements. Yet, as discussed above, many performance management frameworks focus on only one
or two elements of the overall strategy rather than understand how they fit together.
The standard Balanced Scorecard therefore requires measures to be spread across multiple perspectives
including financial performance, customer satisfaction, internal business processes, and organizational
learning.
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rform
rm aan
nccee
“T o su cceed fin
succeed an cially, h ow
finan
shou
sh ould w e ap pear
p ear to ou r
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sh arehoold
lders?
ers?”
C u s to m e r S a tis fa c tio n In te
tern a l B
Buussin
inees
ss P
P ro ccees
s se
s es
“T o ach ieve ou r visio n , how V isio n & “T o satisfy o u r sh areho ld ers

sh ou ld w e ap
shou appp ear to ou r S trateg y and
an d cu sto m ers, w h at b u sin ess
cu sto m ers? ” p ro cesses m u st w e excel at? ”
O rg a n iza tio
tionnaal L e a rn
rnin
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g
“T o ach ieve ou r visio n,n , how
w ill w e sustain
su stain o u r ab ility to
ch ang e and im p ro ve?”
Each of the standard perspectives includes different elements of the overall strategy:
Financial – the strategy for growth, profitability, and risk viewed from the perspective of the organizational
stakeholders.
Customer – the strategy for creating value and differentiation from the perspectives of the customer.
Internal Business Process – the strategic priorities for various business processes, which create customer
satisfaction.
Learning and Growth – the priorities to create a climate that supports organizational change, innovation,
and growth.
The financial perspective remains useful in summarizing the economic consequences of past actions.
These performance measures help managers to understand whether the strategy is being successful in
generating shareholder value. The customer perspective focuses on measuring whether the organization is
successfully executing on its value proposition to customers. It can also help to measure whether the
organization is being successful in those segments of the market that it has targeted. The internal business
perspective identifies the business processes that are critical to success. This forces managers to focus
more of their attention on the processes critical to a given strategy. The learning and growth perspective
defines the internal structure and skills that will allow the firm to grow and improve. By viewing all of these
critical components in a single place, managers can better understand how the performance of one area
impacts the performance of another area.
The four perspectives detailed above constitute the “standard” perspectives suggested by Kaplan and
Norton. Many organizations choose to modify these perspectives to better fit their specific needs. This is
accomplished by either modifying the perspectives or adding or subtracting perspectives. For example, the
City of Calgary uses six perspectives in their Corporate Scorecard—the traditional four perspectives as well
as Employee Satisfaction and Environment. These perspectives were added over time, due to specific
strategic requirements. First, the City determined that improving employee moral was a specific focus area
and so chose to separate Employee Satisfaction from Learning and Growth in order to increase
management attention on this area. Next, they determined that environmental concerns were a leading
issue with their citizens and so they added this perspective to measure how well the needs of the citizens
were being met in this area.
Figure 1.5. Source: City of Calgary
There is no absolute answer as to the number of perspectives that a Balanced Scorecard should have. The
basic four perspectives will apply to most businesses. Some organizations may want to add a few
perspectives to align the Scorecards with their specific strategic objectives. As a general rule, most
organizations that use Balanced Scorecards use at least four perspectives and no more than eight.
Objective 4: Describe how Balanced Scorecards can be applied to different industries
Much like strategy and performance management are ubiquitous to all industries, so too is the Balanced
Scorecard. There are numerous examples of Balanced Scorecard programs being successful in financial
services, energy, health, consumer products, telecommunications, and most other industries. The basic
principles of strategy execution and performance management apply to all of these industries.
The non-profit sector has also begun to use Balanced Scorecards successfully. Again, the basic principles
of strategy execution and the importance of performance management apply equally strongly to these sorts
of organizations.
In other words, the Balanced Scorecard methodology is not confined to any particular industry or set of
industries. Like performance management, Balanced Scorecards are ubiquitous to all industries.
Objective 5: Explain the concept of “cascading” performance measures utilizing the Balanced
Scorecard methodology
One of the major elements of the Balanced Scorecard methodology is cascading high-level strategic targets
down through the organization in the form of operational targets. This process should be viewed as a
communication process rather than a method of control. Obviously, the exact way that measures will flow
down through the organization will be partially dependent on the specific nature of the corporate hierarchy.
Define Corporate
1 strategic map and
Corporate
Strategic Vision
measures
Strategic Themes
Strategic Objectives
Strategic Measures
Align Corporate and Define Division strategic

2 Division Vision, Themes map and measures
and Objectives
Strategic Vision
Division
Strategic Themes
Determine best
measures and align Strategic Objectives
3 between corporate Strategic Measures
and Division levels
Align Division and Define BU strategic
BU Vision, Themes map and measures
and Objectives
Determine best
measures and align Strategic Vision
between Division and
Strategic Themes
BU
BU levels
Strategic Objectives
Strategic Measures
There are a number of key considerations for successfully cascading a company-wide Balanced Scorecard
capability throughout an organization:
• Each organization should go through a process of creating a corporate vision, themes, objectives, and
measures
• Vision, themes, objectives, and measures should cascade into the organization (that is, Corporate to
Division to Business Unit)
• The Balanced Scorecard should stop at the point where strategy is no longer articulated
• The best possible measures for monitoring the strategic measures of each organization, division, or
business unit should be identified
Since the process of cascading strategy down through the organization is such a fundamental element of
the Balanced Scorecard process, organizations must ensure that they have a recurring process in place at
each level to enable it. For example:
Corporate and
Corporate Communicate Communicate preliminary Revise and finalize Business Unit
corporate corporate strategies and corporate strategies, alignment
objectives measures measures, targets
Business
Unit/ Function Review strategies, Approve finalized
Executives Review & measures and strategies,
Approve targets measures, targets
Business Unit and Division alignment
Business 1 2 Communicate
3 4 5
Communicate corporate/ Identify Business Unit
Unit/ Identify Business horizontally and Finalize targets
Business Unit / Function strategies, measures and
Function Unit/ Function align objectives to for measures
direction to Division execs targets, aligning to
Planners objectives other Business Unit/
& planners Corporate strategy map
Function
Division
Executives Review &
approve
Division Identify Division proposed

Planners objectives, strategies, Ensure alignment
Finalize targets
measures and targets with Business Unit
for measures
with input from sub- objectives
Divisions
Module 2: Translating Strategy Into Action—The Strategy Map
Module Objectives
1. Explain the purpose of a Strategy Map
2. Describe techniques and approaches to creating Strategy Maps
3. Discuss a variety of Strategy Map examples
4. Explain the key success factors for creating Strategy Maps
Objective 1: Explain the purpose of a Strategy Map
The Strategy Mapping methodology translates high-level strategic vision into measures, and ensures
alignment of objectives throughout the organization. As discussed previously, the ability of organizations to
create these explicit linkages is one of the key success factors in implementing Balanced Scorecards. In
fact, according to a survey by the Balanced Scorecard Collaborative, 84% of companies that prepared a
Strategy Map reported bottom line benefits from the exercise while companies that implemented the
Balanced Scorecard without Strategy Mapping reported no bottom line benefits.
Strategy Maps begin with several explicit strategic themes and then breaks these themes down into a
series of tactical objectives. Each of these objectives is mapped to both a strategic theme and a Scorecard
perspective (for example, customer, financial, process, learning and growth). Each of the objectives on the
Strategy Map is related to each other in a web of cause and effect relationships. This creates a coherent
and holistic view of the tactical objectives needed to support the strategic themes. Each tactical objective
then has a measure (or measures) assigned to it and this populates the performance measures found in the
Balanced Scorecard.
The use of the Strategy Map can be a very powerful tool enabling managers to work through which
performance measures actually support their stated strategy and therefore should form the basis for their
Balanced Scorecard. It also ensures that performance measures selected are complementary to each other
via cause and effect relationships. The creation of Strategy Maps guards against many managers’
automatic inclinations to populate their Scorecards with a hodgepodge of existing measures. The Balanced
Scorecard is not a repository for a selection of existing key performance indicators. It is a focused
instrument to plan, measure, and track the successful execution of strategy. The rigorous use of Strategy
Maps is a key technique in accomplishing this.
Major benefits of Strategy Mapping include organizational alignment and accountability:
Translates Corporate Objectives – Provides a forum for managers to agree on corporate strategies and
measures while aligning organizational strategies.
Communicates and links the strategy – Depicts the coordinated strategies throughout the organization.
Employs a rigorous management tool – Strategic objectives are translated into performance scorecards
that are used to manage the business and provide the standard for strategic feedback and review.
Establishes criteria for successful performance – Influences behavior to focus on both the success of
corporate strategy and direct line of influence.
Balances the financial and non-financial perspectives – Establishes a rigorous business management
system that goes beyond traditional financial measures to leading indicators of performance.
Objective 2: Describe techniques and approaches to creating Strategy Maps
A Strategy Map is a generic format for describing strategy in concrete terms. The major strategies for the
organizational unit are listed across the top while the various Balanced Scorecard perspectives are listed
along the left hand side. This creates two of the essential elements of a successful Strategy Map: the
explicit formulation of strategy and the use of multiple perspectives. In order to actually construct the map,
managers must work through a cause and effect chain that originates from the strategic themes and flows
through each of the tactical strategic objectives that support it. Each tactical objective in turn has at least
one performance measure assigned to it.
As illustrated below, a Strategy Map is both a powerful pictorial representation of strategy and a concrete
stepping stone between abstract strategy and tangible performance measures.
Strategic The
The vision
vision represents
represents the
the overall
overall strategic
strategic focus
focus
Vision Vision of
of the
the organization
organization
Strategic Strategic
Strategic themes
themes support
support the
the overall
overall vision
vision and
and
Themes provide
provide areas
areas of of emphasis
emphasis forfor the
the organization
organization
to
to focus
focus its
its activities
activities
Financial
The
The strategic
strategic objectives
objectives further
further break
break down
down the
the
vision
vision and
and themes
themes into
into more
more actionable
actionable
Customer elements
elements and
and in
in aggregate
aggregate should
should represent
represent the
the
overall
overall organizational
organizational focus
focus
Strategic The
The Framework
Framework helps
helps to
to ensure
ensure aa balanced
balanced
Objectives emphasis
emphasis among
among leading
leading indicators
indicators of
of value
value
Internal Business Processes creation
creation (employee
(employee performance
performance andand internal
internal
business
business process
process measures)
measures) andand lagging
lagging
indicators
indicators (financial
(financial and
and customer
customer satisfaction
satisfaction
measures)
measures)
Organization & Learning
Measures
Measures areare linked
linked to
to the
the organization’s
organization’s
individual
individual strategic
strategic objectives
objectives
Market
Objective 3: Discuss a variety of Strategy Map examples
Strategy Maps can best be understood by looking at several successful examples.
Example One: Software Company
Figure 2.2 Source: Balanced Scorecard Collaborative, 2003
In the case of this software company, the organization identified increasing shareholder value as their
ultimate strategic objective. As such, the Financial Perspective was placed at the top of their Strategy Map.
In order to achieve this objective, they felt that they needed to obtain three distinct financial goals:
• Be a leader in strategic markets
• Diversify their revenue base
• Be predictably profitable
In turn, they saw the need for three distinct operational strategies to achieve these interrelated financial
objectives:
• Customer Intimacy
• eBusiness Solution Excellence
• Operational Excellence
Each of these three strategic themes is broken down in a cause and effect chain from a customer, internal
business process, and learning and growth perspective. In this way, the actions and outcomes that will be
required to obtain the overall strategic objectives can be clearly articulated.
Each of the objectives displayed in the Strategy Map must in turn be mapped to performance measures that
will gauge whether these objectives are actually reached. Managers can understand how reaching their
specific performance goals will directly tie to the achievements of the organization’s goals.
Example Two: Public Sector
Although Balanced Scorecards were initially created with private sector organizations in mind, the basic
concepts of the Balanced Scorecard have proven to be very effective in the public sector as well. In fact,
given that the public sector is less affected by normal market forces, it has been argued that the Balanced
Scorecard approach is even more suited for the public sector than for profit oriented businesses. Many
public sector organizations have created Balanced Scorecards successfully.
Strategy Maps in the public sector are created in the same way as for private sector companies. Obviously
the types of strategies will often be different, but the basic techniques and tools of the Balanced Scorecard
process remain the same.
Many public sector organizations choose to put the Customer Perspective at the top of the Strategy Map
rather than the Financial Perspective. This reflects the fact that, for many of these organizations, providing
legislated services to the public is their overarching objective.
Example Three: Functional Unit
Strategy Maps are often focused on those organizational units that are most involved in the creation and
implementation of strategy. In practice, this has meant that many Balanced Scorecard efforts are focused
on corporate and the operational business units.
While this is the correct focus of many Balanced Scorecard initiatives, there are other business areas that
can also benefit from the creation of Strategy Maps and Balanced Scorecards. Specific examples of this are
shown below and relate to the IT and finance functional units. In many organizations these functions may
be held in shared services units.
Example 4: Finance Organization
Once again, the basic principles of applying the Strategy Maps are the same.
Objective 4: Explain the key success factors for creating Strategy Maps
There are several key considerations to remember when creating Strategy Maps:
• Start with the strategy. In a perfect world, organizations would have clearly defined strategies that are
well understood down to the operational unit level. In practice, this strategic insight is often lacking. This
does not preclude the use of Balanced Scorecards or the Strategy Map technique, but it does require
that organizations take some time at the beginning of the process to actually map out what the strategic
objectives are for each business unit that will have a Scorecard. In fact, many organizations report that
using Strategy Maps to build Balanced Scorecards actually had the positive follow-on effect of
improving their strategic planning process.
• Focus on the cause and effect chain. A Balanced Scorecard is a collection of performance measures
that, in aggregate, provide a holistic view of strategy. It is not a repository for an ad hoc collection of key
performance indicators that may or may not be related to one another. The Strategy Map is a key way
to ensure that performance measures used in the Scorecard are actually related to one another and
can be tied to agreed strategic objectives.
• Do not jump to conclusions. There is often a tendency for managers to want to jump to the “right
answer” and therefore bypass much of the Strategy Mapping exercise. This is often driven by the desire
to work backwards from existing measures already in use or from areas where existing information is
abundant. The point of Strategy Mapping is to take a fresh look at organizational strategy and
performance measurement, not to merely dump existing Key Performance Indicators (KPIs) into a new
format.
• Get the right people involved. To be successful, the Strategy Mapping exercise and the performance
measures that it spawns must have buy in from both senior management and the managers who will
actually be held responsible for the results. Strategy Maps must be created in conjunction with the right
team of people from the organization. Strategy Maps are generally the most effective when created in a
series of workshops with relevant managers and perfected through a series of reviews with key
stakeholders. Project teams should avoid creating Strategy Maps with only consultants or project staff
involved. This will often be seen as imposing a solution on the business and so buy-in will be
hampered.
Strategy Maps should be viewed as living documents that will evolve over time. They will never be perfect
the first time but rather must be refined with experience over time. In fact, a good measure of a successful
Balanced Scorecard program is that the measures used do change over time. If measures remain static,
the organization has likely lost interest in the program and no continuous improvement is taking place.
Module 3: Developing Balanced Scorecard Performance

Measures
Module Objectives
1. Develop Balanced Scorecard performance measures
Objective 1: Develop Balanced Scorecard performance measures
The previous module explained how Strategy Maps can be used to cascade strategy and to develop clearly
articulated strategic objectives. The next step in the Balanced Scorecard methodology is to actually develop
performance measures that are tied to each of these strategic objectives.
Balanced Scorecard performance measures should be evaluated using several core principles:
• Identify measures that drive performance for each strategy
• Analyze measures to include both leading and lagging indicators
• Find the most important measures and eliminate superfluous measures
• Look at the overall Scorecard and avoid any unbalanced, “game-able” measures
All performance measures should meet a number of key criteria:
• Relevant: Directly linked to critical objectives and strategies
• Reliable: Verifiable and free from subjective judgment or bias
• Valuable: Able to help management make decisions and take actions
• Timely: Available before it loses its capacity to influence decisions
• Cost Effective: Benefits of using measure outweigh the costs of collecting and reporting the
information
• Availability: Data to support the performance measure is available.
Throughout this process it is critical to focus on leading as well as lagging indicators. Well-chosen leading
indicators foreshadow success or failure well before financials can reflect them.
As part of this process, it is important to consider two things:
• Look to measure important business processes, not just results. An important aspect of the
Balanced Scorecard approach is to focus on outcomes, rather than just inputs or activities. At the same
time, it is important to have a blend of different types of measures to capture business performance
from a variety of angles. For example, a result may be a lagging indicator while the process that drives
the result may be a leading indicator of performance.
− Example: Inventory turnover is a result measure while set-up time reduction is a process measure.
− Example: Market share is a result measure while product development lead time is a process
measure.
• Conduct an analysis to determine the cause and effect relationship between measures and identify the
best indicator of performance. In many cases, a measure can be predicted by one or more other
measures. Conducting a cause and effect analysis will help management to understand the full set of
potential measures and choose the most appropriate measures to drive and measure performance.
− Example: Customer satisfaction may be predicted by on-time delivery rates and quality ratings.
Figure 3.1 is an example of how common strategic objectives can be translated into process measures.
O p e ra tio n a l S tra te g ie s S a m p le P ro c e s s M e a s u re s
“D iffe re n tia te th e p ro d u ct” o r • N um b e r o f p ro d u cts o r se rvice s
“S im p lify th e p ro d u ct” • N um b e r o f p a rts
“S e rve th e cu sto m e r a s a first • L e n g th o f th e o rd e r fu lfillm e n t cycle
p rio rity” • Le n g th o f th e m anufa ctu rin g cycle
• N um b e r o f d istrib u tio n p o in ts
“D e ve lop te c hno lo gica lly • P rod u ct d e ve lo p m e n t le a d tim e

a d va n ce d p ro d u cts in a n • N um b e r o f e n g in e e rin g ch a n ge s
effe ctive m anne r”
• N um b e r o f n e w p a te n ts
“P ro cu re m a te ria l e ffe ctive ly” • Ite m s pa ssin g qua lity sta nda rd s
• U n it co st
“E sta b lish a lo w -co st • N um b e r o f p ro fit ce n te rs
ad m in istra tive stru ctu re ” • N um b e r o f ban k re la tion sh ip s
• N um b e r o f in vo ice s
“D e ve lo p o u r h u m a n re so u rce • T ra in in g h o u rs a ch ie ve d
a sse ts” • C oun se lin g fre quen cy
Figure 3.1 Source: “Implementing Your Strategies”, Keegan, Jones, Eiler
For many companies, careful analysis can drive out the right performance measures to support the strategic
objective enunciated in the Strategy Mapping process. In other cases, organizations may choose to take a
more formal approach to determining the final performance measures.
As shown in Figure 3.2, the Cause and Effect Diagram (also called the Fishbone or Ishikawa diagram) is a
tool used to help identify all the possible or probable sources of a given problem. Once developed, this list
of potential causes can be narrowed down to root causes using other methods, such as Pareto Analysis.
The basic tool uses a graphic that allows potential sources of variation or defect to be developed and
recorded using categories of causes such as the “Five M’s”: Man (resources), Machine (or equipment),
Methods (procedures), Materials, and Measurement.
How to Use Example Cause and Effect Diagram

C o n fo rm a n c e C o s t to m a in ta in
• Define the problem to be solved, record on the R e lia b ility C o s t to o p e ra te R e la tiv e
left side of the diagram P ro d u c t m e e ts

p u r c h a s e p ric e
P ro je c te d R O I
P e rfo r m a n c e e x p e c a tio n s
• List the “5 M’s” as categories (or develop your
own more specific categories) listing each on a P ro d u c t m e e ts
needs
C o s t to u s e C o s t to a q u ire
separate thread or bone P ro d u c t

Q u a lity P ric e
• Brainstorm potential causes, listing them under
C u s to m e r
the appropriate category S a tis fa c tio n
S e r v ic e
• Add additional branches or bones to capture Q u a lity
D e liv e ry
causes related to one another S e rv ic e m e e ts

needs A rriv e s w h e n
S e rv ic e m e e ts p ro m is e d
• Review the resulting list to identify others not yet e x p e c ta tio n s
A rr iv e s w h e n
captured. F le x ib ility
R e s p o n s iv e n e s s
needed O n -tim e
d e liv e r y
L e a d tim e s
Figure 3.2 Source: “Challenge Your Balanced Scorecard”, Graham
The standard Fishbone diagram often results in a large number of potential measures being generated.
One of the key elements of successful Balanced Scorecards is that they contain relatively few measures to
ensure that management is focused on the major drivers of strategy. As a rule of thumb, Kaplan and Norton
recommend 25 measures or less for a Balanced Scorecard.
In addition to the standard performance measure criteria discussed previously, there are several other
factors to consider when reducing the number of measures to be used:
• Eliminate measures that are poor indicators of performance. Measures should only be chosen if
they provide a good indication of future performance. The previously discussed Fishbone diagram can
be used to help evaluate various measures in this regard.
How to Use Example Cause and Effect Rating Diagram

Conformance Cost to maintain
• In defining the leading and lagging
indicators, a cause and effect diagram Reliability
H Cost to operate Relative
purchase price
has been drawn. H
Performance
Product meets H Projected ROI
• For each cause, indicate the level of
expecations L L
M
influence on the effect Product meets Cost to use Cost to aquire M
needs L
– High Effect: has high influence over the M
result Product H
M Quality Price
– Medium Effect: Some influence over the
result L H Customer
Satisfaction
– Low Effect: Little influence over the result M M
Service
• Remove all measures that have a low L Quality
Delivery
effect on the result along with its entire Service meets M
branch: needs H H Arrives when
Service meets promised
– Example: in the example diagram, “Product M expectations
Quality” would be removed along with its H
Arrives when H
Flexibility needed On-time
entire branch (“product meets needs”, Responsiveness delivery
“product meets expectations”, etc.) L
Lead times
Source: “Challenge your Balanced Scorecard”, Graham
Figure 3.3
• Delegate measures to lower level Scorecards. Executive-level Scorecards focus on processes that
require executive-level attention, while Scorecards for lower-level managers should focus on processes
in their sphere of responsibility.
• Focus on measures that can be externally benchmarked. When choosing between measures,
preference should be given to those that can be benchmarked to external sources. This helps the
organization to avoid internal bias.
• Ensure that measures work together holistically. A Scorecard should be balanced in breadth of
metrics and avoid sub-optimization (optimizing a portion of the enterprise at the expense of the whole).
To make sure that the measures are balanced, ask the following two questions:
− Can I take an action that would improve performance of the measure but be bad for the company?
− For each of these actions, is there another measure that would prevent me from taking it?
Answering “yes” to either of the above questions would indicate that measures are not balanced.
Finally, it is critical to evaluate each and every performance measure to ensure that the data to support the
measure is readily available and cost effective to collect. A common error in Balanced Scorecard
implementations is that organizations select measures that they would like to measure but do not have the
capability to support. This can quickly lead to disillusionment with the entire process. In the event that some
desired information is unavailable, proxy measures should be considered. Alternatively, organizations may
have to accept using less desirable performance measures until the information gap is closed.
Throughout this process, the organization should always be aware that the performance measures selected
are not set in stone. In fact, the mark of successful Balanced Scorecard organizations is that they
continuously refine the performance measures used based on experience and to reflect changing strategic
objectives.
Module 4: The Balanced Scorecard Process
Module Objectives
1. Describe the end-to-end Balanced Scorecard process
Objective 1: Describe the end-to-end Balanced Scorecard process
The Balanced Scorecard process links performance measurement to strategy execution. Combining the
elements discussed earlier in this training material, Figure 4.1 illustrates the end-to-end Balanced
Scorecard process:
Sample “Bus Unit A” Strategy Map
Corporate Best
Best return
return on
on Simple
Simple and
and World
World -class
-class cost
Objectives information
information rewarding
rewarding
cost Focused
Focused Innovation
Innovation
structures
technology
technology(RoIT)
(RoIT) experiences
experiences
structures
To monitor progress,
Objectives Bus Unit A Build
Build direct
direct
Establish
Establish company
company targets are set for
Capture
Capture the
the XYZ Protect
Protect Supplies as
as aa leader
leaderin
Objectives XYZ Supplies in
support the market
market potential
potential
business
business
capabilities
capabilities
Business
Business specific
specific product
product
area
each measure in
area
overall vision and Maximize market share while
given time period.
provide areas of Financial meeting current year revenue &
profit commitments
Sample Bus Unit A Balanced Scorecard Targets should be
Strategies
emphasis for the based off the
Sample Bus Unit A Strategies
Customer Improve • Revenue / Total •Marketing spend /

organization to Strategies brand
Develop new
products / market
• Operating profit
Revenue
•% increase in
strategic planning
performance solutions
focus its activities
marketing reach
financials and
Operational
Excellence
Develop effective,
sustainable marketing •Brand recognition rating
assumptions.
Strategies programs •New product ramp rates •Global diversity rating
•New product •Meeting employee
revenue/Total revenue retention plans
Employee Attract the diversity,
Strategies skills and competencies
we need
BSC Development Strategy Mapping Primer
-
Measures are directly linked to strategies of the
organization and should include all major
performance drivers for each strategy.
Strategies break down the objectives Measures should be:

into more actionable elements and in • Timely, accurate, focused and relevant
aggregate should represent the overall • Leading indicators of performance
organizational focus. • Linked to controllable events
• Cost effective to collect and compute
• Easy to communicate broadly to the
organization
This example shows how corporate strategy is first cascaded down into strategic objectives at the business
unit level. The Strategy Map is used to generate specific performance objectives linked to these strategies
and distributed across multiple perspectives. These objectives are then broken down into specific
performance measures that are reported in a Scorecard format. Performance monitoring requires clear
targets for each of the measures as well as periodic reporting of actual results. This demonstrates the
feedback loop that Balanced Scorecards create.
To further illustrate this point, Figure 4.2 breaks out the step from Strategy Map to operational plan.
Business Unit Capture

Capture the
the Build
Build direct
direct Protect
Protect Business Management
Objectives XYZ
XYZ market
market business
business Supplies
Supplies
potential
potential capabilities
capabilities Business
Business System
Sample Bus Unit A
Sample Balanced Scorecard

Strategy Map
Financial Maximize market share while meeting

current year revenue & profit
Strategies
Business Unit Strategies
commitments
• Revenue / Total • Marketing spend /
market Revenue
Customer Improve brand Develop new • Operating profit • % increase in
performance products / solutions marketing reach
Strategies
Develop effective,
Operational • Brand recognition
sustainable marketing • Global diversity
Excellence programs
rating
rating
• New product ramp
Strategies rates • Meeting
• New product employee
retention plans
Employee Attract the diversity, skills revenue/Total
revenue
Strategies and competencies we need
Sample Operational Dashboard

Financial Kiosk revenue
Sample Bus Unit A
Financial Improve product % of MFP revenue through direct

Operational Plan
availability and Win rate on deals requiring direct assets

Tactics inventory costs SMB
XYZ leads/month
Business Unit Tactics
Hosting quota
Inventory turnover ratio
Customer Improve partner and Implement segmented Customer On time delivery
customer support satisfaction product/pricing solutions
Tactics Lead times
Return rates
Customer service expense per customer
Operational Implement new Value Consolidate Response time per request
Delivery System to CRM/customer % revenue from new customers
Excellence reduce SC costs data assets Operational Forecast accuracy
Tactics Excellence Warranty claims
Cost excess capacity
Rework
Employee Timely and well- Employee Training hours
communicated roll-out of new
Tactics Training evaluation ratings
training programs On time evaluations
Requisitions open past requisition date
Turnover rate
Again, this demonstrates how the various facets of the Balanced Scorecard process fit together into an
integrated performance management framework.
Module 5: Integrating the Balanced Scorecard into the

Integrated Performance Management Framework
Module Objectives
1. Explain how Balanced Scorecards fit into the overall Integrated Performance Management (IPM)
Framework.
Objective 1: Explain how Balanced Scorecards fit into the overall Integrated Performance
Management (IPM) Framework
Balanced Scorecards should be seen in the context of the overall Integrated Performance Management
(IPM) process.
Organization Reward Strategic

Results Planning
Alignment and Planning,
Accountability Budgeting &
Monitor Forecasting
Individual Business
Results Planning
Shareholder
Value
Analysis Budgeting
Performance
Reporting & Measurement Forecasting
Performance Reporting
(Financial &
Measurement Operational)
Organizations that have been the most successful with Balanced Scorecards have viewed them as an
integrated part of the larger IPM process. Ultimately, a successful Balanced Scorecard program will impact
every part of the Integrated Performance Management framework, particularly Business Planning and
Performance Management.
Business Planning: Balanced Scorecards are critical to translating overall strategic objectives into
tangible business objectives. As discussed previously, a key differentiating factor in the Balanced Scorecard
approach is that all performance measures on a given scorecard should be explicitly linked to strategy.
A huge deficiency in the IPM process in many organizations is the gap between high-level strategic
planning and the operational budget. The former is often long-term in nature and focused on quantum leaps
to new levels of performance. The latter is usually focused on the details of the next fiscal year and
incremental improvement.
Balanced Scorecards help bridge this gap by linking performance targets directly to longer term strategic
goals. Many organizations have used Balanced Scorecards to decrease the financial detail in the budgeting
process by focusing managers on meeting the targets outlined in the Scorecards.
Performance Management and Organizational Alignment: Organizations with established Balanced

Scorecard processes often link incentive pay to meeting performance targets outlined in the Scorecards.
This further solidifies the Scorecard performance measures as being vital to the decision-making process of
the managers. Depending on the level that the Scorecards have been pushed down into the organization,
employees can receive incentive pay based on the achievement of group or individual targets.
It is important to stress that the Balanced Scorecard is just one of many management elements within the
Business Planning and Performance Management segments of the Integrated Performance Management
framework. Balanced Scorecards should not be viewed as the “only” source of performance management
information available to managers, but rather should be seen as one important piece of a large holistic
information system.
Strategy Formulation Business Planning

Market
Market Event
Event
Industry
Industry Triggers
Triggers
Analysis
Analysis
Customer
Customer Strategies
Strategies High
High Level
Level Operating
Operating Plans
Plans
Analysis
Analysis
Business
Business
Model
Model Detailed
Detailed Op.
Op. Financial
Financial Customer
Customer
Initiatives
Initiatives People
People Plans
Plans Partner
Partner Plans
Plans
Analysis Plans
Plans Plan
Plan Plans
Plans
Analysis
Strategic
Strategic Customer
Customer
Performance
Performance Initiative
Initiative Operating
Operating Financial
Financial People
People Partner
Partner
Performance
Performance
Scorecard
Scorecard Performance
Performance Performance
Performance
Scorecard
Scorecard
(Balanced
(Balanced Scorecard
Scorecard Scorecard(s)
Scorecard(s) Scorecard
Scorecard Scorecard
Scorecard Scorecard(s)
Scorecard(s)
Scorecard)
Scorecard)
Individual
Individual
Performance
Performance
Plans
Plans
Corporate View Performance Management
Division-level View
Business Unit-level View
Module 6: Balanced Scorecard Case Examples
Module Objectives
1. Discuss, in general, Balanced Scorecard case examples
2. Discuss a leading private sector Balanced Scorecard case example
3. Discuss a leading public sector Balanced Scorecard case example
Objective 1: Discuss, in general, Balanced Scorecard case examples
There are a wide variety of private sector organizations that have successfully implemented Balanced
Scorecard (BSC) programs. A sample of these organizations are shown in Figure 6.1:
Company Description BSC Objectives Results
Technology Implemented a BSC in one of three • Strategy and measures linked • Performance measures linked to key
Hardware divisions to strengthen management • Monitor the strategic success business strategies and management
Manufacturer processes and develop a set of metrics to of the division goals
gauge the health of the organization. An • Enterprise wide performance mgmt
• Performance management
on-line management tool was developed for streamlined and integrated
streamlined
reporting and visibility
AT&T Implemented a BSC in 2000 to integrate • Integrate 4 entities under • Executive team able to understand
Canada four entities under one common umbrella. common objectives and business more holistically
Used the scorecard in conjunction with the measures • Executives able to efficiently identify
Baldrige criteria framework and its TQM and address low performance areas
system.
Microsoft Implemented a BSC for the IT group (ITG), • Organization aligned under • Cut costs by 20% with same level if
a $1 billion cost center common goals and measures service
• Cost reduction
• Broad understanding of strategy
Mobil Implemented a BSC in 1993 for a division • Employees understand the • Moved from last place to first in
with $20bn in revenue. The scorecard was corporate strategy and how industry profitability and maintained it
put in place to help the company move from they fit in for 5 years
a centralized to a decentralized • Number of employees reporting that
organization. The scorecard was linked to they understand the strategy went
executive compensation from 20% to 80%
Cigna Implemented a BSC in 1993 to help • Return to Profitability • Returned to profitability within 2 years
manage the transformation from a money- that was sustained for 4 consecutive
losing generalist to a top-quartile specialist years
Chemical Implemented a BSC in 1993 to help • Strategic priorities defined • Profitability increased by a factor of
Retail Bank assimilate an acquisition, introduce more • Budgeting and strategy linked 20 over 3 years
(Chase) integrated financial services, and accelerate
the use of electronic banking
Sources
•“OnBalance”, CFO, February 2001
•“Building a strategy-focused organization”, Kaplan and Norton
•Deloitte Consulting
Figure 6.1
The first two examples in the chart above can be expanded into more detail in Figures 6.2 and 6.3:
Case Study: Technology Hardware Manufacturer
Global enterprise with divisions representing major categories

Divisions typically create siloed solutions that overlap and
CONTEXT
compete
Aggressive, centralized management style
Recently shifted leadership through the retirement of several Results
key executives
Relies on a mix of channel relationships and direct sales force
OBJECTIVES
Link strategy and measures

Assure the strategic health of the division is measurable Performance measures
Streamline performance management linked to key business
strategies and management
goals
Implemented a scorecard in 2001 for one of the three major
divisions
Developed a customized portal for the leadership team with Enterprise wide performance
access limited to key executives and direct reports management streamlined
Modified the measures over time to reflect changes in the
APPROACH
and integrated
business
Uses a portal, spreadsheet and existing databases to manage
measures, data and reporting
Linked about 1/3 of the measures to existing systems with the
other 2/3 representing “softer” measures
Supported by finance and the strategy office
Use scorecard in conjunction with the monthly leadership
reviews of the business
Figure 6.2
Sources: “OnBalance”, CFO, February 2001

“Building a strategy-focused organization”, Kaplan and Norton
Deloitte
Case Study: AT&T Canada
Moved four separate organizations to one major organization in

June 2000
CONTEXT
Organization managed by service category

Strong, integrated leadership team with seasoned executives
Results
Distributed leadership and control
Large install base of customers
Over time, the scorecard has
OBJECTIVES
Integrate 4 acquired entities under common objectives and helped the executive team
measures understand the business
Common understanding amongst executives on what the major more holistically and how all
business drivers were and how the pieces fit together the elements interact
Executives met for four hours once a month to review results Have become more efficient
on the scorecard
in its use over time and
Used in conjunction with the Baldrige criteria framework and its typically drill down on poorly
TQM system
performing areas quickly
Modified the measures over time since 2000 to reflect changes
APPROACH
in the business
during the executive meeting
Corporate team responsible to provide the methodology for
measurement and limited consulting services to business units
who are responsible for developing their own scorecards
Uses Excel to manage measures for a majority of the business
Developed a customized web-enabled report card
Linked the scorecard to compensation for individuals variable
pay element (33% customer, 33% revenue, 33% EBITDA)
Figure 6.3 Sources: “OnBalance”, CFO, February 2001; “Building a strategy-focused organization”, Kaplan and Norton; Deloitte
Objective 2: Discuss a leading private sector Balanced Scorecard case example
A more detailed private sector example is shown in Figure 6.4:
Vision The
The company
company provides
provides premier
premier technical,
technical, management,
management, andand directly
directly related
related services
services to
to
develop,
develop, manage,
manage, engineer,
engineer, build,
build, and
and operate
operate installations
installations for
for our
our customers
customers worldwide
worldwide
Objectives Maximize
Maximize Deliver
Deliver Develop
Performance Customer Develop People
People Become
Become Global
Global
Performance Customer Value
Value
Objective Delivering value to Understanding and Promoting Tailoring our

Description: stakeholders through exceeding customer development and planning & resource
every aspect of the expectations so that challenge in a allocation,
business by earning we fully satisfy every healthy and positive developing strong
a fair return on our customer on every work environment local ties, and
delivered value job building a multi-
cultural workforce to
secure a global
marketplace
Figure 6.4 Source: Deloitte, 2002
Of key importance is that the overall vision statement is broken down into a series of more concise strategic
objectives. The next step was to create a Strategy Map to translate these objectives into clearly defined
objectives spread across multiple perspectives.
Vision The
The company
company provides
provides premier
premier technical,
technical, management,
management, andand directly
directly related
related services
services to
to
develop,
develop, manage,
manage, engineer,
engineer, build,
build, and
and operate
operate installations
installations for
for our
our customers
customers worldwide
worldwide
Objectives Maximize
Maximize Deliver
Deliver Develop
Performance Customer Develop People
People Become
Become Global
Global
Performance Customer Value
Value
Earn Sustainable,
Financial Predictable,
Strategies Acceptable Profit
Customer & Develop

Satisfy Customer Manage Business Business and
Business Partner Partners Customer
Needs
Related Strategies
Strategies
Relationships
Internal Business Make Continuous Be Safe and Standardize EPC

Perform Work Ethical
Process Strategies Improvement Processes
Develop and Attract and Develop

Organization and Retain the Best
Build Teams and
Apply Technical
Learning Objectives Technology People Leaders
Infrastructure
This organization then translated these objectives into a series of performance measures that form the
basis of their Balanced Scorecards.
Strategies Strategic Measure

1. Earn Sustainable, Predictable, Acceptable 1.1. New Work Booked OP / Plan OP
Profits 1.2. Work-off OP / Plan OP
1.3. (Obtain Economic Value Added input)
1.4. Working Capital Balance
1.5. Aggregated Total Cost and Schedule Performance
Factor
1.6. Aggregate Risk (by country/customer/receivable, etc)
1.7. Receivables as a % of Principal Revenue

1.8. (Unallowable OH$ + NR$) / OP (BSII only)
1.9. Fee Efficiency (Fee - Non-reimbursable - cost for
project working capital) / Fee (BSII only)
1.10. Cash Margin
2. Satisfy Customer Needs 2.1. NPV as defined by customer
2.2. Repeat Customers as a % of New Work Booked
2.3. Ethics (Customer Survey)
2.4. Customer Survey and Evaluations
3. Manage Business Partners 3.1. Business Partner Survey
3.2. Ethics (Business Partner Survey)
4. Develop Business and Customer Relationships 4.1. % of New Work Booked Operating Profit from
Strategic Customers
4.2. % of New Work Booked Operating Profit working with
Target Business Partners
4.3. % of New Work Booked Operating Profit working from
BEn

5. Perform Work 5.1. Cost Performance Factor (forecast/budget)
5.2. Scheduled (in weeks - ahead, on target, behind)
5.3. Construction Performance Factor (earned/budget)
5.4. Engineering Performance Factor (earned/budget)
5.5. Materials and Subcontractor Performance Factor
(cost/budget)
5.6. Total Installed Cost Reduction
6. Make Continuous Improvement 6.1. Return on Human Capital (OP / non-manual hours)
6.2. OP / non-manual total employee cost
6.3. Kase Quality Gates (success rates of reviews or
attendance of players) (can vary by Division)
6.4. <Obtain six sigma input>
7. Be Safe and Ethical 7.1. OSHA lost time accidents (U.S.)
7.2. OSHA recordable rate (U.S.)
7.3. Ethics (employee survey)
7.3. Sustainable Development (Obtain measures)
8. Standardize EPC Processes 8.1. Work Process Quality (# of audit findings)
8.2. % of bulk procurement on client paper
8.3. <Obtain construction input>
8.4. <Obtain engineering input>
8.5. <Obtain procurement input>
9. Develop and Apply Technology 9.1. Return on Technology Investment (Division specific)
9.2. % of prospects on strategic plan
10. Attract and Retain the Best People 10.1. Mobility of workforce
10.2. Employee turnover
10.3. Skill and Grade mix of people
10.4. # of outstanding recs / total HC
10.5. Employee Satisfaction Survey
10.6. Total HC (by sub-Division or Division etc.)
11. Build Teams and Leaders 11.1. Local vs. Expat project mix (Project)
11.2. Local vs. Expat project mix (Overhead)
11.3. Diversity (EEOC filings U.S.)
12. Develop Technical Infrastructure 12.1. Technical Infrastructure Performance Factor (current
forecast / current budget)
12.2. Current Schedule (+,0,-)
12.3. Quality Assessment (+,0,-)
Figure 6.6 (continued) Source: Deloitte, 2002
Objective 3: Discuss a leading public sector Balanced Scorecard case example
In 1994, the City of Charlotte became the first municipality to implement the Balanced Scorecard. Prior to
this, Charlotte had used a Management by Objectives system since the 1970s. This previous performance
measurement process had focused on a large number of metrics to report on the day-to-day activities within
the city. While this process had been accepted in Charlotte for many years, in the early 1990s, city
management no longer felt that it met the needs of a changing city.
In particular, Charlotte in the early 1990s faced a rapid growth in population with a resultant increase in the
demand for city services. Adding to the demands on city management was a political environment which
prohibited material tax increases. Charlotte quickly realized that the process of reinventing how their
organization functioned could not be accomplished while depending on a performance system that focused
entirely on day-to-day operational metrics. In particular, city management felt that many of the existing
measures were backward-looking rather than forward-looking. Generally the process worked much more as
an audit and control tool rather than a planning process. Finally, management felt that the system caused a
concentration of effort on improving the cost, quality, and cycle time of existing processes. While this had
served the city well in a more stable operating environment, in order for Charlotte to take on the challenges
ahead, it knew that they needed a process that was forward-looking and would help the city rethink the
context of all of their operating processes, not just continue to improve on what they had done before. In
brief, Charlotte came to realize that the existing process was a control tool. What they needed now was a
management tool.
In other words, Charlotte needed a process that would help them communicate the new strategy throughout
the organization and to create a feedback loop to understand if that strategy was being executed effectively.
Leaders within the Charlotte organization began to research the Balanced Scorecard approach and came to
realize that this process fit the needs for their new performance management process. Specifically, they
needed a system that would translate strategy into tangible objectives that could be measured, would be
forward looking, and would be focused on outcomes rather than inputs/outputs. The Balanced Scorecard
fits these requirements perfectly.
Charlotte has created a tightly integrated process that cascades strategic themes developed by the City
Council all the way through the organization. As such, it creates a context for strategy.
V is io n
C it y ’s v is io n s t a t e m e n t
F o c u s A re a s
C o u n c il c o m m u n ic a t e s t h e m e s t o L e a d e r s h ip
S tra te g y
L e a d e r s h ip d e t e r m in e s r e s p o n s e
C o rp o ra te S c o re c a rd
R e s p o n s e b e c o m e s s t r a t e g ic o b je c t iv e s
O r g a n iz a t io n
O r g a n iz a t io n im p le m e n t s
Figure 6.7 Source: City of Charlotte, 2003
Strategic
Themes
Balanced/Corporate
Scorecard
Key Business Unit

Scorecard
Division Scorecard
Employee
PRD
Figure 6.8 Source: City of Charlotte, 2003
Charlotte first created a number of strategic focus areas tied to the overall City strategy. These themes are
then decomposed into a number of objectives across the four traditional Balanced Scorecard perspectives
in order to form the basis of the Corporate Scorecard.
Figure 6.9 Source: International City/County Management Association (ICMA), “Putting Strategy first in Performance Management”, April, 2001
Each of the strategic objectives on the Corporate Scorecard is in turn translated into a specific performance
measure. For example:
Figure 6.10 Source: ICMA, “Putting Strategy first in Performance Management”, April, 2001
Each department then determines which of the Corporate Scorecard objectives apply to their operations.
The Charlotte Department of Transportation (CDOT) serves as an example of this (Figure 6.11).
Figure 6.11 Source: ICMA, “Putting Strategy first in Performance Management”, April, 2001
In turn, each of the objectives at the department level are driven through to final performance measures, as
shown in Figure 6.12.
Figure 6.12 Source: City of Charlotte
Using Charlotte’s process, all departmental performance measures can be explicitly linked to the city’s
overall strategic objectives. An example of a final departmental scorecard for CDOT is found in Figure 6.13.
Many of the departments now cascade Department Performance Measures all the way down to the
individual level, as shown in Figure 6.14.
Corporate DELIVER COMPETITIVE SERVICES C=Corporate

K=KBU
D=Division
E=Employee
DELIVER COMPETITIVE SERVICES
Transportation Develop Competition Plan (KI)
I=Initiative
M=Measure
KBU Total dollars subjected annually to competition,
T=Target
optimization, or benchmark (KM)
Meet MOU requirements and produce savings (KT)

Street Develop and Implement an Optimization Plan for all 3 Districts (DI)
Maintenance Produce audit reports that report cost and measure work produced
against standards (DM)
Meet or exceed standards contained in MOU (DT)

Field Operations Assist with Implementation of Optimization Plan (EI)
Supervisor Ensure materials used, quantities of work produced and
labor hours reported daily and accurately (EM)
Complete all paperwork and reports and present to Audit
within 8 weeks after close of previous quarter (ET)
Module 7: Implementing Balanced Scorecards
Module Objectives
1. Describe high-level implementation approaches for Balanced Scorecard projects
2. List the tools available to support Balanced Scorecards
Objective 1: Describe high-level implementation approaches for Balanced Scorecard projects
The exact nature of the implementation plan will be dependent on the precise needs of the clients and
scope of the project. Figure 7.1 is a high-level roadmap that provides a generic approach to these types of
engagements.
ASSESS
ASSESS DEFINE
DEFINE DESIGN
DESIGN DEVELOP
DEVELOP IMPLEMENT
IMPLEMENT&&INTEGRATE
INTEGRATE MONITOR
MONITOR
Monitor and Manage
This phase involves a quick, high-
high-level This phase involves articulating and linking This phase involves designing the detailed This phase involves developing, testing and This phase involves implementing all the This phase involves monitoring the new
SUMMARY assessment of the organization’s the organization’s vision, mission, goals and structure of performance measures, the implementing a pilot version of the technical aspects of the performance management framework in operation and in effect,
performance management framework in terms objectives. Enterprise, program outcomes control mechanisms, and data acquisition solution. I parallel, the process and change framework and integrating it to the normal conducting a post implementation review to
of current status, and the overall and administrative outputs are defined and strategy. Process, technology and people management initiatives are carried out. operational processes of the organization. identify potential areas for improvement.
organizational readiness and capabilities to linked to a broad management control related issues are considered in an New management controls would be
implement and integrate a performance framework. integrated fashion. operationalized.
management framework
Understanding of agency’s mission and goal Validate/refresh agency mission with agency Develop the performance measurement Implement a pilot of the performance Deploy the performance management Monitor operations and validate that the
linkages to enterprise, program and leadership structure management framework, including: framework across enterprise, program areas performance management framework:
administrative outcome and outputs Identify agency strategic opportunities/threats Identify sources of data and defining data An integrated performance and administrative areas Demonstrates visible improvements
Identifying the optimal starting point in the Align agency goals and objectives to long acquisition strategy including data ownership management system Use performance data integrated with Provides reliable and relevant
OBJECTIVES
performance management implementation term outcomes and operational outputs Develop a management control plan Performance thresholds and possible planning, budgeting and operational control information to executives and line
continuum Factor stakeholder expectations and Perform software selection managerial actions Extend performance reporting to various managers
Assessing areas of strengths and weaknesses influences Develop process change, change Process and people related changes stakeholder groups Meets the information requirements of
Developing key focus areas for agency in Develop performance drivers and cascaded management and leadership development to support the new performance stakeholders (current status & action plan)
terms of demonstrating results set of measures plan management culture Links agency program and
Identifying extent to which current Develop targets for performance – absolute Develop the business case and program Implement a conference room pilot for administrative operations to outcomes
performance framework can be leveraged measures and relative to peers implementation plan performance management systems solution Meets the legislative and regulatory
requirements
Status of current performance management Mission,/goals/strategy linkage in terms of: Analyze casual linkages of all performance Develop and test performance measurement Install performance measurement system and Conduct system and process review studies
framework Integration between enterprise, drivers system implement data integration with other systems Assess systems use patterns by staff
Readiness assessment program areas and administrative Design detailed structure of performance Develop and test interfaces to other systems Implement new processes - including Establish a regular program monitoring
ACTIVITIES
Coverage and capability assessment operations measures Refine new process details to reflect new executing communications plan and training process to ensure continuous improvement of
MAJOR
Linkage of outcome/output measures between Key stakeholder perspectives Map the “as-is” and design the “to be” system characteristics users the system
mission/goals and enterprise, programs and Define agency specific performance performance management process flows Develop detailed systems integration and Conduct unit/integration/regression tests and
administrative processes objectives including data sources, report presentation, refreshed change management plan test system implementation and transition to
Reconcile stakeholder expectation to strategy Define mandatory reporting requirements and frequency production
Priorities for results and performance Define macro-level measures/standards Develop implementation plan for moving the Develop review framework
Performance framework audit vis-à-vis Develop peer groups and conduct agency to the new processes
legislative requirements (e.g. CFO Act) performance benchmark analysis
Assess budgeting processes linking budgets Develop current performance baselines
to performance plan (cost, program performance, etc.)
Performance
PerformanceDiagnostic
Diagnostic Strategy
StrategyAssessment
Assessment&&Scenario-
Scenario--
Scenario Change
ChangeLeadership
Leadership COTS
COTSSolutions
Solutions Benefits
BenefitsTracking
Tracking
SOLUTIONS
& TOOLS
based
basedStrategic
StrategicPlanning
Planning
Value
ValueBased
BasedManagement
Management BI/DW
BI/DWSolutions
Solutions Change
ChangeLeadership
Leadership Performance
PerformanceMonitor
Monitor
Stakeholder
StakeholderAnalysis
Analysis
InformationPrint
InformationPrint eTI
eTIMethodologies
Methodologies Stakeholder
StrategyPrint
StrategyPrint StakeholderAnalysis
Analysis
IndustryPrint
IndustryPrint
Activity
ActivityBased
BasedCosting
Costing
DELIVERABLES
Performance Framework Assessment Report Stakeholder and goal alignment analysis Detailed performance measurement Conference room pilot software solution A operating performance management Detailed performance framework review
Agency Readiness and Capability Map Refined strategy and high-level scorecard architecture Detailed change management initiatives framework Stakeholder analysis
High-level Improvement Plan Agency specific performance drivers Process reengineering plan Detailed process redesigns Implementation of supporting processes Lessons learned
Baseline and benchmark analysis Management control framework Detailed management control framework Operational guidelines Set of improvement initiatives
Transformation plan and major components High-level change management plan Integration plan Design and delivery of educational programs
Software solution recommendation Design and delivery of training programs
Performance management program
components, business cases and
implementation plan
Copyright ©2004 Deloitte Development LLC. All Rights Reserved.. 35 February 2004
Objective 2: List the tools available to support Balanced Scorecards
There are a wide variety of tools available to support Balanced Scorecard implementations. Figure 7.2
illustrates some of the major types of tools. Note that this list is not exhaustive and that the tools themselves
can change rapidly in relatively short periods of time.
Balanced Scorecard Tool Vendors: 2002 Update
Corporate Performance Management Suites
SAP
Broad PeopleSoft Closed Loop
Oracle, InPhase Technologies
QPR Software, Procos, Prodacapo
Hyperion Degree of
Project Scope
Comshare Integration
SAS
Panorama Business Views, Alphablox

Cognos
ShowBusiness Business Objects
CorVu Analytical
ActiveStrategy MicroStrategy
Narrow (Gentia)
More than 20 small ProClarity
vendors
Balanced Scorecard BI Platforms/
Applications Enterprise BI Suites
Low Level of IT Support High
Corporate Performance Management suite. Typically these tools offer a range of functionality,
applications, and technology integrated with the underlying ERP environment.
BI Platforms/Enterprise BI Suites. These tools typically are more generic in their approach to
measurement and can be customized and configured to meet the data reporting requirements.
Balanced Scorecard Applications. Typically these tools feature robust analytic capabilities to support the
balanced scorecard methodology.
Module 8: Balanced Scorecard Reference Material
Module Objectives
1. Locate Balanced Scorecard reference material
Objective 1: Locate Balanced Scorecard reference material
There is a wide variety of reference material available on the topic of Balanced Scorecards. Some of the
most useful books and articles on the subject include the following:
• Kaplan, Robert and Norton, David, “The Strategy Focused Organization”, Harvard Business School
Press, 2001.
• Kaplan, Robert and Norton, David, “The Balanced Scorecard”, Harvard Business School Press, 1996.
• Kaplan, Robert and Norton, David, “The Balanced Scorecard – Measures that Drive Performance”,
Harvard Business Review, Jan–Feb 1992.
• Niven, Paul, “Balanced Scorecard Step-by-Step: Maximizing Performance and Maintaining Results”,
John Wiley & Son, 2002.
• Olve, Nils-Goran, “Performance Drivers: A Practical Guide to Using the Balanced Scorecard”, John
Wiley & Son, Jan–Feb 1992.
In addition, The Balanced Scorecard Collaborative is a professional services firm created by Robert Kaplan
and David Norton to share best practices in Balanced Scorecards with organizations around the world.
Their Web site contains significant useful information: www.bscol.com
The above list of reference material is a sample of the rich sources of information available on this subject
and should not be viewed as exhaustive.
Summary
Performance management is increasingly a “top of mind” issue for the CFO and other senior executives.
This is driven by the need for executives to manage more and more complex businesses successfully.
The essence of performance management is the creation of a feedback loop which communicates strategy
down into the organization and then measures the success of that strategy as it is executed. One of the
leading methodologies for approaching performance management is the Balanced Scorecard.
The Balanced Scorecard approach is a flexible methodology that focuses organizations on a small number
of performance measures, which cross multiple perspectives and are explicitly tied to strategic objectives.
Approximately 50% of Fortune 500 companies use Balanced Scorecards in some way. This points to the
benefits that organizations have enjoyed by implementing the Balanced Scorecard as well as the fact that it
can be applied to any type of business in any industry.

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Strategy & Operations

Deloitte Consulting LLP

MODULE 1: BALANCED SCORECARD BASICS ............................................................2

MODULE 2: TRANSLATING STRATEGY INTO ACTION—THE STRATEGY MAP ........9

MODULE 3: DEVELOPING BALANCED SCORECARD PERFORMANCE MEASURES

MODULE 4: THE BALANCED SCORECARD PROCESS..............................................20

MODULE 5: INTEGRATING THE BALANCED SCORECARD INTO THE INTEGRATED

MODULE 6: BALANCED SCORECARD CASE EXAMPLES .........................................24

MODULE 7: IMPLEMENTING BALANCED SCORECARDS..........................................34

MODULE 8: BALANCED SCORECARD REFERENCE MATERIAL ..............................37

Module 1: Balanced Scorecard Basics

1. Explain the business imperative to improve performance management

2. Describe how Balanced Scorecards create strategic focus

4. Describe how Balanced Scorecards can be applied to different industries

Objective 1: Explain the business imperative to improve performance management

Performance Management Model Description of the elements

• This is a person or organization responsible for

has • The objectives can be strategic, operational,

and monitors performance using

Figure 1.1 Source: Deloitte

Objective 2: Describe how Balanced Scorecards create strategic focus

Clarifying and Translating

Communicating and Strategic Feedback and

Planning and Target

Figure 1.2 Source: Deloitte

The Balanced Scorecard

Figure 1.3 Source: Deloitte

• All performance measures being explicitly linked to strategic objectives

• Leading rather than lagging performance indicators

• A combination of measures relating to financial, customer, process, and employee value

• Performance measures that cascade down through the organization

“T o ach ieve ou r visio n , how V isio n & “T o satisfy o u r sh areho ld ers

Figure 1.4 Source: Deloitte

Figure 1.5. Source: City of Calgary

Objective 4: Describe how Balanced Scorecards can be applied to different industries

Align Corporate and Define Division strategic

Figure 1.6 Source: Deloitte

Business Unit and Division alignment

Division Identify Division proposed

Figure 1.7 Source: Deloitte

Module 2: Translating Strategy Into Action—The Strategy Map

1. Explain the purpose of a Strategy Map

2. Describe techniques and approaches to creating Strategy Maps

3. Discuss a variety of Strategy Map examples

4. Explain the key success factors for creating Strategy Maps

Objective 1: Explain the purpose of a Strategy Map

Major benefits of Strategy Mapping include organizational alignment and accountability:

Objective 2: Describe techniques and approaches to creating Strategy Maps

Figure 2.1 Source: Deloitte

Objective 3: Discuss a variety of Strategy Map examples

Strategy Maps can best be understood by looking at several successful examples.

Example One: Software Company

Figure 2.2 Source: Balanced Scorecard Collaborative, 2003

• Be a leader in strategic markets

• Diversify their revenue base

• eBusiness Solution Excellence

Example Two: Public Sector

Figure 2.3 Source: Balanced Scorecard Collaborative, 2003

Example Three: Functional Unit

Figure 2.4 Source: Balanced Scorecard Collaborative, 2003

Example 4: Finance Organization

Figure 2.5 Source: Balanced Scorecard Collaborative, 2003

Module 3: Developing Balanced Scorecard Performance

Global enterprise with divisions representing major categories

Link strategy and measures

Moved four separate organizations to one major organization in

Organization managed by service category