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Business Today
Page 99
Copyright 1999 Living Media India Ltd


On balance, it proved to be a disaster. When a software start-up

adopted the Balanced Scorecard to track its non-financial
performance, it implemented this innovative concept on its own. Two
years later, its developers were sure that the Scorecard was forcing
them to conform while its managers were convinced that their TQM
program had rendered it redundant. And Evergreen's CEO, Milind
Pant, didn't care whether the problem lay in the technique or the
implementation. Renaissance Consulting's Sanjiv Anand, Ashok
Leyland's R. Seshasayee, KPMG's Atul Pradhan, and Godrej-GE
Appliance's Vijay Crishna debate Evergreen's disillusionment with the
Scorecard. A BT Case Study.

Nineteen hundred and ninety-six had been a good year for Evergreen
Software (Evergreen), the Rs 125-crore financial services software-
developer. Still, Milind Pant, Evergreen's 36-year-old founder-CEO,
was not a happy man as he pulled into the parking-lot in front of his
office in central Mumbai one April morning. He was returning from a
meeting with Assessors India (Assessors), one of the country's 3
credit rating agencies.

Just over 5 months ago, Pant had decided that a $40-million (Rs
16.80 crore) Euroloan was the best way to finance Evergreen's
expansion plans. And a high credit-rating would help. The problem?
While Assessors had factored in the fundamentals, it had ignored
Evergreen's superb performance on non-financial parameters--
specifically, its 6 per cent employee -turnover rate, and its 80 per cent
customer-retention ratio-- resulting in a modest rating of B+, which
meant good, not excellent.

However, Assessors' CEO, Sunil Pande, 41, had thrown up his hands
in despair: "I do not have any objective way of measuring Evergreen's
performance in the areas you have highlighted. Why, even internally,
you don't have such systems."

That explained Pant's pique. Pande was right. They didn't.

Evergreen's Euroloan came through without much difficulty in July,

1996. The effective rate of interest worked out to 8 per cent--2.25 per
cent over the LIBOR (London Inter-Bank Offered Rate). But Pant
neither forgot--nor let any of his managers forget--that a better credit-
rating may have shaved a point off the premium. And even a rate of
interest of 7.90 per cent would have reduced the company's interest-
burden by $40,000 (Rs 16.80 lakh) a year.

Tired of his criticism, his A-team renewed its quest for a yardstick that
could help them measure Evergreen's non-financial performance,
which would also be invaluable from the strategic perspective. Then,
someone suggested the Balanced Scorecard. While Pant was
sceptical, that did not stop him from calling up William Robertson, a
31-year-old consultant who had earlier worked with the company, but
had returned to Boston for a year-long teaching assignment at a B-

"Bill, someone told me that I could use the Balanced Scorecard to

measure our performance on non-financial parameters. Do you know
anything about it?" he asked.

Robertson, who had just woken up, promised to e-mail Pant a short
note on the Scorecard. Next morning, Pant had his answer.

"Dear Milind," began Robertson's missive, "You can't go wrong in

using the Scorecard. It is particularly relevant in a knowledge-
intensive business like Evergreen's, where employee -retention and
customer- satisfaction are critical. Most companies that adopt OE
techniques--such as TQM, BPR, and TPM--find that, often, the results
do not match the promises. Several factors contribute to this: the
initiatives may be fragmented. Or they may not be linked to the
company's strategy. Or they may not be focused on specific
outcomes. I have my own theory: you can't use yesterday's
performance tools to navigate your way to tomorrow. Financial
measures provide no more than a historical snapshot of performance.
But business is more complex than that. You need to bring a wider
set of measures together so that managers use indicators that
measure their performance against the critical success-factors that
drive their business. That is why you need the Scorecard."

"The Scorecard combines several performance-evaluation measures:

the customer perspective; an internal perspective, which assesses
the quality of people and processes; a financial perspective, which
looks at the way shareholders view performance; and a future
perspective, which measures how effectively a company learns,
adapts, and grows. All 4 are combined to provide a balanced,
integrated view. That, in a nutshell, is the Scorecard for you. However
much I would like to work with Evergreen on this, I do not plan to
return to India for at least the next 2 years. I think you should find a
consultant who has had some experience with the Scorecard to help

The rest of the year passed by in a blur. Evergreen's senior

managers read everything there was to read on the Scorecard. They
discovered that it was a fairly simple technique at the bottom of it all.
In effect, the Scorecard provided answers to 4 basic questions:

How do customers see us (the customer perspective)?

What must we excel at (the internal perspective)?

Can we continue to improve and create value (the learning and

innovation perspective)?

How do shareholders see us (the financial perspective)?

Evergreen's senior management team was quick to notice the

technique's dual benefits. First, it brought together, in a unified report,
the disparate elements of the company's competitive efforts: reducing
lead- times, meeting customer needs, improving quality, reducing
time-to- market, and emphasising teamwork. Second, it guarded
against sub- optimisation by forcing them to consider all the crucial
operational measures together.

Around the same time, Pant met several consultants to identify

someone who could help Evergreen deploy the Scorecard. None met
his criteria: some were merely cost accountants masquerading as
Scorecard experts; others wanted to reengineer the company before
starting work on the Scorecard; and yet others wanted to rework the
company's strategy. Finally, Pant decided to go it alone. A few of his
senior managers had attended workshops on the Scorecard, and he
believed that Evergreen had acquired the in-house expertise to
implement such a project.

Pant addressed all his people before launching the initiative. At each
meeting, he would say the same thing: "We already have a vision
statement: To Be The Best Infotech Solutions Provider In The Global
Software Industry And To Consistently Achieve Excellence In
Everything We Do. As an organisation, we are also aware that the
only way to realise our vision is to build long-term relationships with
our employees and customers. Each of us knows what the key
success factors in our business are: people, speed of response, and
cost-effective delivery. I am aware that we are half-way through the
implementation of a TQM program. We have also been examining the
possibility of putting a number to our brand-equity, and our intellectual
capital. But these can go hand-in-hand with the Scorecard project.
Let's do it."

Evergreen faced its first problem in March, 1997, when some of its
software-developers--different, as that breed normally is--felt that the
company was using the Scorecard to get them to subsume the
individual's objectives to those of the organisation's. As Adite
Khanna, a 26-year- old programmer, put it: "There is some dichotomy
between the stated objective of the Scorecard to build an open
organisation, and the culture of acquiescence that it indirectly

Pant presumed these were teething problems. Every employee in

future would, he decided, be given the run-down on the Scorecard by
either himself, or one of his senior managers. And to ensure that his
top team's resolve to implement the Scorecard did not waver, Pant
factored it into the performance appraisals of all his managers. For
almost a year after that, Evergreen's initiative did not encounter any
major hitches. The training-sessions seemed to have helped, and the
Scorecard evaluation-sheet that Pant received every month indicated
2 benefits: employees were not just aware of the company's strategy,
they knew the roles they, as individuals, and they and their peers, as
departments, had to play in implementing it.

Then, in February, 1998, everything went wrong. The trouble began

at Evergreen's annual Strategy Development Conference. Rajesh
Vyas, 29, the strategic planning consultant Pant had hired, made a
presentation in which he highlighted 2 factors that could affect
Evergreen's competitiveness: "Historically, 50 per cent of our revenue
comes from overseas projects. Our competitiveness in this segment
stemmed from our low wage-costs. While the absolute numbers are
still in our favour, salaries in the software sector have been jumping
by 40 per cent a year as opposed to between 10 and 20 per cent in
the US. Secondly, 5 large clients--3 overseas and 2 domestic--
account for 60 per cent of our revenues. We should find a way to
minimise this concentration without diluting our focus on infotech-
intensive organisations."

Even as Pant was trying to understand the Scorecard's inability to

shed any light on these aspects of Evergreen's competitiveness, his
executive assistant, Sanjay Salwan, 28, who was responsible for
ensuring that the right numbers went into the Scorecard, came up
with another problem. "You know, Milind," he started as he placed the
month's evaluation-sheet in front of Pant, "there seems to be a
fundamental flaw in the technique. I think what gets measured is,
often, what is easier to measure--not what should actually be
measured. Look at how we measure our marketshare. Evergreen has
a presence in several distinct segments in the software market.
Ideally, we need to monitor our share in each but, since such micro-
level data is not available, we measure our overall marketshare."

"I think what you are saying does make sense. But my approach was
a little different. Just as you prepare a Scorecard evaluation-sheet
every month, Vijay Mehta, down at quality, prepares one on our TQM
initiative. As you must be aware, we use the European Foundation of
Quality Management (EFQM) Model to assess our progress on that
front. Here, take a look at this month's evaluation-sheet," replied
Pant, and waited for Salwan to go through the sheet.

"As you can see, there is some similarity between this and the
Scorecard. Vijay, for one, believes that we do not need the Scorecard
at all when we have a TQM model that measures our performance on
several non-financial parameters too."

"By that logic, we should also look at the Flamholtz Model that we
used to put a number to our human capital," ruled Salwan.

"I was coming to that. Last year, for instance, we valued our people at
Rs 120 crore. And there's more. We also have the annual Employee
Satisfaction Survey. I believe what the Scorecard has actually done is
contributed to the information-overload. We are generating far too
much data. Sometimes, I feel this Scorecard thing has not worked for
us. It has not helped us improve strategy-generation; we already
have techniques that measure some of the parameters it purports to
measure; and our people are neither happy with the process nor with
us. It has created its own bureaucracy. I think I should call it quits with
the Scorecard," concluded Pant.

Why is Milind Pant facing so many problems in implementing the

Scorecard? What are the problems companies typically encounter
while employing the technique? What kind of training do employees
need to go through to be ready for the Scorecard? Is Evergreen
facing an information-overload because of the sheer number of
initiatives it has launched? Is there a conflict between the objectives
of a TQM model-- like the EFQM Model Evergreen uses--and those
of the Scorecard? Does the genesis of these problems lie in
Evergreen's reluctance to seek professional assistance to implement
the Scorecard?


SANJIV ANAND Head (India & Middle East), Renaissance

Evergreen Software (Evergreen) has made a series of strategic

errors in the implementation of the Balanced Scorecard. The first is in
its attempt to implement the concept on its own. There is a reason
why a Scorecard cannot be implemented internally. The first phase of
execution requires the team designing a Scorecard to meet the
company's senior managers, and discuss their opinions about the
company's strategy. An in-house design team will not work as you
cannot expect complete transparency between peers.

Additionally, some experience in working the Scorecard is required

since the objective of using it is to identify performance-measures
that work, and are inter-linked. The latter requires that they be
classified as lead- and lag-indicators, or measures related to the
cause and the effect. An internally-designed Scorecard, based on far-
from-transparent inputs from senior managers, will result in the
selection of incorrect performance-measures even while missing the
linkages. The result is an incorrect model. Each of Evergreen's
subsequent problems flows from here.

For instance, consider the company's concern about the threats that
increasing wage-costs and an over-dependence on a few customers
pose to its competitiveness. A correctly-designed Scorecard would
have addressed these issues. An experienced creator would have
inserted an objective that focused the business on being a value-
added provider of services. The resulting primary measure would
have been `x' per cent of sales from solutions.

Nor would have a seasoned creator left it at that. The follow-up would
have been a series of objectives in the other "Perspectives," as the
Scorecard terms them: the development of value-added products,
and the enhancement of skill-sets. Similarly, a correctly-designed
Scorecard would have addressed the over-dependence issue with a
measure on "Sales >From New Customers In The Last 24 months."

The second critical issue involves the understanding of the concept

within the organisation. If the Scorecard is cascaded down to the
individual level--this does not happen in a corporate-level Scorecard--
it will measure individual performance. At the corporate level, it is
important to understand that it is a corporate performance-
management system, not an individual performance-measurement
system. It aligns the skill-sets and personal objectives of the
organisation's employees with the strategy that is to be implemented.
Of course, things get complicated when implementing a particular
strategy requires skills that do not exist within the organisation. In that
case, a number of learning initiatives need to be taken up to upgrade
both individual and organisational skills.

Our experience at Renaissance proves that it is best to link

compensation to the Scorecard at a secondary stage after it has been
institutionalised, and the quirks have been removed. It is common to
have some measures in the original Scorecard that are perceived to
be critical to delivering strategy, but you will find--usually, after using
the Scorecard for 6-8 months--that there were other, more
appropriate measures. Meanwhile, if you have already gone ahead
and introduced compensation-linkages, it will be hard to undo the

Evergreen's third fault is a lack of recognition of the true value of the

Scorecard. It is a management system, not a performance-
measurement system. Nor is it an operations-oriented initiative, such
as erp or TQM. It is difficult for a group of intelligent senior executives
to identify a set of non-financial performance-measures. Besides, the
Scorecard is a lot more than that. For one, it is designed to reflect the
strategy of the organisation. Secondly, the objectives--or parameters-
-are carefully selected to balance the cause-and-effect relationship
within an organisation.

If all the objectives selected are lag--or effect--indicators, the

technique will be of no value. Additionally, the measures that support
the technique have to be carefully selected, where, again, Evergreen
has erred. It has selected measures that are easy to measure rather
than letting the Scorecard drive the measures. Our experience shows
that it may not be possible to implement all the measures
immediately. Rather than drop the measure, and select an easier
one, the solution is to pick proxy measures that reflect the original
measure, and use them till such time that the latter can be included in
the system.

It is important to recognise that TQM, ERP et al are all change-

management initiatives whereas the Scorecard is not. It is a
management system that encompasses all the initiatives in an
organisation. In fact, one of the biggest benefits of a Scorecard-
exercise is that it takes an inventory of initiatives in place, and
reviews their linkages to strategy. All too often, we find that there are
initiatives that have no linkages to strategy, and can be discontinued.

Measurement data generated from the TQM Model should be

integrated into the Scorecard. In the Indian--and, specifically, in
Evergreen's-- context, where the quality and completeness of
strategy-formulation is, often, inadequate, the Scorecard's role as an
"assessor" of strategy is significant. It can serve as a tool for both
strategy-formulation and implementation. Evergreen may not have
recognised this, and has, therefore, created a Scorecard with
incorrect strategic objectives.

If Evergreen intends to use the Scorecard the way it should be used--

as a strategy-management system in the company--it needs to tap
the d long- term goals, and financial and non-financial objectives by
encompassing, in its sweep, all the stakeholders in a business:
shareholders, employees, suppliers, and customers. Where the
concept scores is in its ability to get everyone to view issues in the
proper perspective. This is particularly true if the situation involves a
conflict of interests between functions or departments.

Consider, for instance, a product-launch. The marketing team would

be keen on a time-bound launch, irrespective of the constraints, while
the quality department would be keen on ensuring that the product
conforms to customer-specified norms. The failure to launch the
product on time will, obviously, hit sales volumes, which would, in
turn, impact the company's growth and profitability. But a failure to
sort out quality issues will lead to poor customer satisfaction in
addition to increasing the costs of quality.

What should an organisation do when facing such a problem? Should

it follow the diktats of the marketing manager or the quality controller?
A Scorecard sets the priorities right by reinforcing the broad linkages
between functions, and their relevance to business goals. In this
particular case, it will be able to indicate which decision--launch or
hold--will help the organisation in the long run. However, in their
enthusiasm to develop and implement a Scorecard, corporates are
likely to go overboard in 3 directions.
It is pertinent to bear in mind that this technique is only one of the
many tools at the disposal of managers. It is no substitute for
managerial initiatives. Nor is it a replacement for other improvement
drives--such as TQM, JIT, or BPR--each of which has its unique role
to play in enhancing corporate performance. In fact, to answer Pant's
specific question about the technique causing an information-
overload, I see no conflict of objectives between a Scorecard and the
EFQM Model adopted by Evergreen. Both are compatible as long as
there is clarity about what the company seeks to achieve from each.

Secondly, any company that has just adopted the concept is prone to
underplay financial measures. This can be quite dangerous. No
company can compete in the absence of strong financial
fundamentals. It is important not to lose track of this while designing
and implementing the Scorecard. Finally, the format is not sacred.
Over time, every format keeps changing. Pant should immediately
initiate an extensive communications exercise, targeted at all his
employees, so that they understand the benefits of the tool.

Simultaneously, he should select a pilot project, which can be

administered easily and, preferably, where the benefits are seen in a
tangible way in the short run. Most well-managed Scorecard
initiatives start with such a project. That will not only allay any
apprehensions in the minds of his employees, but also ensure their
willing participation in the implementation of the tool. Once that is
achieved, Pant can think of enhancing the scope of the technique to
include more measures.

ATUL PRADHAN Director, KPMG (India)

At the outset, I would like to make three points. First, the measures
used in a Scorecard are always arranged in a hierarchical mode. It is
the pyramidal structure of its reporting that gives the concept its
richness. The measures that would interest the top management are
fewer, but qualitatively more significant. The measures that would
interest the operations, or middle-level management involve detailed
number- crunching. A Scorecard, as a whole, will incorporate many
measures. The actual number varies across organisations, and is a
function of size, business profile, and the critical success-factors. But
any report is customised for its end-user. It presents only those
measures that are appropriate to the relevant target-group.

Second, Scorecard measures are not static; they MORPH with the
changing business dynamics. That is what makes it contemporary.
Third, the technique is a means of implementing corporate strategy.
This means that you first need to have a strategy, and, of course, a
vision in place. The relevance, and the relative importance of the
various measures used in the technique is a function of the strategy.
In short, strategy bestows the concept with a sense of direction and
purpose. Without a strategy in place, the tool must work in a vacuum,
which is not only self-defeating, but also detrimental to the larger
interests of the organisation.

While there is a strategy in place at Evergreen, Pant must revisit it

with the purpose of defining it in greater detail, and secure, in the
process, a buy-in from his people since, in my view, the Evergreen
Scorecard lacks balance. It is tilted heavily in favour of the People
factor. This is justified to an extent because Evergreen's strategic
intent is to "build long-term relationships with employees and
customers." But the emphasis on the other measures is inadequate,
and that is what imbalances its Scorecard.

It would be futile to build long-term relationships with customers who

do not contribute significantly to the company's profits. Or to focus on
people-management without any emphasis on learning. I would,
therefore, suggest the following additional measures that Evergreen
should incorporate into its Scorecard, even while redefining its


Resource utilisation is an important measure for a knowledge-

intensive enterprise. Evergreen needs to ensure that its resources
are optimally utilised.

Evergreen should also look at the profitability of its products. This is

particularly relevant for new products and services. It is not enough
for Evergreen to ascertain how many products and services it
launches; it needs to measure the impact of the launches on its
No organisation can afford to overlook cost-management measures
even at the best of times; certainly not Evergreen, which is burdened
with spiralling wage-costs that it needs to offset elsewhere.

If the spiralling costs threaten Evergreen's competitiveness, the

company would do well to monitor its working-capital cycles.


Evergreen should find out whether its customers are taking a long-
term view of its ability to meet their needs, both current and future. Do
its customers view the company as the one-point source for all their
future infotech-solution needs?

A related measure would be the number of referrals the company

receives from its customers. A referral from a customer is the best
evidence of the company's ability to meet customer requirements.

Internal Process Measures:

The company needs to measure its recruitment process in several

ways. Has it recruited the right kind of programmers? Has it provided
them with the right training inputs? Do the fresh recruits fit into the
organisation's culture?

Evergreen should also measure its ability to estimate the time and
resources required to complete a project. This is easily done by
comparing the company's estimates with the actual time taken to
complete projects. The quality of the estimate is an important criterion
for a software-developer. A regular monitoring of this measure will
indicate what the company needs to do to improve its operational
effectiveness. After all, fallacious assumptions at this stage can lead
to incorrect deployment of resources at the wrong time in the wrong
project. There are a number of time-cost-quality benchmarks that
Evergreen can deploy to this end.


Evergreen's Scorecard can be supplemented with the Do Well Model.

Essentially, it encourages every employee to ask: "What is it that I
must do well in my area of work so that the company achieves its
objectives?" It is, however, essential for the company to spell out
these objectives clearly to its employees. In seeking an answer to this
question, each employee will, automatically, move towards aligning
his/her personal objectives with organisational strategy. Alternatively,
Evergreen could also implement the Software Engineering Institute-
Capability Maturity Model (SEI-CMM), which measures the capability
and maturity of management processes in delivering customer value.

The problems associated with designing and implementing a

Scorecard are two-fold: knowing what constitutes performance, and
identifying the right measures of performance. Clarity on these issues
should be followed up by effective communication across-the-board.
Evergreen, for instance, should explicitly state what it hopes to
achieve by deploying the technique. Companies don't always need
external help in designing and implementing the Scorecard which is,
after all, unique to each organisation. Where an outsider helps is in
providing conceptual clarity--and that seems to be lacking inside

VIJAY M. CRISHNA Managing Director, Godrej-GE Appliances

Having just implemented a Scorecard ourselves, this is an extremely

interesting situation for us at Godrej-GE Appliances. I am sure that
any organisation trying to implement the Scorecard is driven, like
Evergreen, by an overriding imperative. In our own case, we had to
transform ourselves into a lean, mean, consumer-driven machine.
The Scorecard focuses all the company's initiatives under a single
template so as to give each initiative its proper priority and, at the
same time, show each individual in the team how he/she can
contribute to what the organisation is striving to achieve.

The Scorecard is not just a bunch of inter-related measures; these

measures reflect the company's strategy. While Evergreen does have
a vision, it seems to lack the second-layer operational goals that flow
from this vision. This is the trap that Pant has fallen into while
implementing the concept. I also do not see what strategy Evergreen
proposes to use to achieve its vision; not surprisingly, most of the
company's operational initiatives are misaligned.
Under these circumstances, the Evergreen team seems to have
picked up the available measures and information, and constructed a
Scorecard by fitting them into a template. No thought has been given
to articulating and communicating the company's strategy, even at
the senior management level. The implementation, obviously, will
suffer. Whether external consulting would have helped is debatable.
Not all Scorecard Consultants are equally competent when it comes
to the strategy bit. Often, the strategy implemented in the technique is
based on the limited understanding of the industry and the company
by external consultants.

If Evergreen does decide to use the services of an external

consultant, it should choose either a firm or an individual who
understands both the industry (software) and the company
(Evergreen). A limited understanding of the strategy and the linkages
between the measures used in the Scorecard are the common
reasons behind the failure of such projects. The concept appears to
be deceptively simple in published literature; in reality, it is
treacherously complicated. Understanding the cause-and-effect
relationships between the various elements of the Scorecard is not

To add to the woes of self-taught experts like Pant, the printed word
oversells the conceptual bit (strategy), and downplays the process
(cause-and-effect relationships). Every company that has ever
implemented the Scorecard, like Evergreen, has faced the problem of
not being able to measure the parameters that it actually wants to
measure. However, what everyone seems to forget is that
measurement is the second phase. The tool requires a company to
align organisational initiatives, new or old, towards achieving the
company's objectives.

Measuring how these initiatives have performed comes later. I do not

think identifying measures alone, is an adequate substitute to actually
launching initiatives. Pant's approach is also lacking. He appears to
be content to restrict his participation to defining the measures, and
monitoring the process through regular reviews. Not surprisingly, the
hard decisions and actions that need to follow the identification of the
measures have been ignored. And the Scorecard, certainly, cannot
succeed if the fundamental understanding of the senior management-
-especially the CEO--is either flawed or fragmented.

Pant also appears to be confused over the several techniques being

used at Evergreen. The EFQM model of TQM-assessment is a fine
tool for assessing business excellence. It does a good job of
measuring the effectiveness of processes (which it calls enablers).
Indeed, various elements of EFQM--such as leadership, people
development, strategy- formulation, resource management, and
process management--are essential pre-requisites to building a good
business. The Scorecard takes it for granted that this foundation
already exists. In that sense, the EFQM assessment is a macro-audit
that companies need to go through once a year; the Scorecard,
however, is a continuous performance-measure. Several EFQM
winners have, in fact, used the Scorecard to support their efforts.

Incidentally, Pant also thinks of Evergreen's TQM and human

resources development initiatives as things that can run parallel to
the Scorecard-implementation. This indicates a fundamental flaw in
the way he views the concept. The Scorecard is not another initiative
that Evergreen can add to its list of initiatives already in place; it is a
way of linking initiatives towards achieving the organisation's
strategy. Thus, Evergreen's Employee Satisfaction Survey, TQM
evaluation, and Intellectual Capital measure will all be part of the

At Godrej-GE Appliances, we avoided most of the

mistakes Evergreen made primarily due to the fact that
we had external consultants facilitating the
implementation of the concept. I would, therefore,
recommend that Evergreen find a competent
consultant, at least in the initial stages of Scorecard-
implementation. This will help it avoid all the mistakes
it has made in its first attempt at implementing the