A Balanced Scorecard Hall of Fame™ Profile

Chrysler Group

HARVARD BUSINESS
SCHOOL PUBLISHING
What is the Balanced Scorecard Hall of Fame?
The Balanced Scorecard Hall of Fame for Executing Strategy™, administered by Balanced
Scorecard Collaborative, recognizes organizations that have achieved breakthrough
performance largely as a result of applying one or more of the five principles of the
Strategy-Focused Organization. These principles, formulated by Balanced Scorecard
creators Robert S. Kaplan and David P. Norton, are described in detail in their book
The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the
New Business Environment (Harvard Business School Press, 2001). BSC Hall of Fame
members are personally selected by Drs. Kaplan and Norton.
To learn more about Hall of Fame selection criteria and Hall of Fame members,
visit bscol.com.

The Five Principles of the Strategy-Focused Organization

Each of the five principles of the Strategy-Focused Organization include specific
management best practices that contribute to the achievement of breakthrough
results. These best practices—validated through ongoing research with Hall of Fame
organizations and hundreds of other users of the Balanced Scorecard around the world—
must be embedded in any organization that wants to make strategy execution a core
competency.

Principle #1. Mobilize Change Through Executive Leadership

Executive leadership, driven by a need for change, supports the drive to
establish a new way of managing based on a performance-oriented culture.

Principle #2. Translate the Strategy into Operational Terms

The Balanced Scorecard is used to translate the strategy into a language
that everyone understands.

Principle #3. Align the Organization to the Strategy

The scorecard is used to cascade the strategy to all parts of the
organization and align resources needed to accomplish the strategy.

Principle #4. Motivate to Make Strategy Everyone’s Job

The reward and recognition system is used to align
individual behavior with performance objectives called for
by the strategy.

Principle #5. Govern to Make Strategy a Continual Process

Strategy execution is linked to the budget, and a reporting system
based on scorecard measures is used to provide feedback on
strategic performance.
Balanced Scorecard Hall of Fame Profile: Chrysler Group

Barely five years after being named Forbes magazine’s

Table of Contents 1996 Company of the Year, Chrysler Corp. was sputter-
ing. Competition had heated up in the minivan and
Profile ..................................................................................1 SUV markets it had pioneered, while costs were running
Key Results, Takeaways ................................................8 out of control. Moreover, the company was trying
SFO Spotlight (best practices)....................................9 to adapt to a major merger with Daimler-Benz.
Goals Pyramid and Strategy Map ..........................11 Management turned to a tool that was already in use
To Learn More ................................................................12 at the company to a limited degree: the Balanced
Scorecard. Within three years, profits, market share,
and productivity were all up smartly, and in 2004
ABOUT Chrysler Group the company had its most ambitious rollout of new
products yet—including the award-winning new
Industry: Automobiles Chrysler 300 sedan.
Born in 1925 out of the former Maxwell
Motors—a turnaround company of automotive
business legend Walter Chrysler—Chrysler
At Chrysler, the art of the turnaround is as old as
Group is one of the flagship Big Three U.S. auto the company itself. Maxwell Motors, the company’s
manufacturers. It became one of five divisions forerunner (which became Chrysler Corp. in 1925),
of DaimlerChrysler after a 1998 merger with Ger- was another turnaround success of automotive
man auto giant Daimler-Benz. Chrysler Group industry veteran Walter Chrysler. Earlier, Chrysler
manufactures passenger cars and light trucks had turned around the struggling Willys-Overland
under the Chrysler, Jeep, and Dodge brand in two years. That followed his stellar success as
names. Since 2004, it has successfully introduced
numerous new models, including the Chrysler president of General Motors’ Buick division, which
300, the Dodge Magnum wagon, the Pacifica, he turned into GM’s biggest moneymaker.
and the Crossfire. Today, Chrysler Group is one of America’s Big Three
Chrysler Group operates internationally with automakers, the manufacturer of the Chrysler, Dodge,
its own manufacturing facilities in Venezuela, and Jeep lines of passenger cars and light trucks.
and through cooperative or joint ventures And like its Big Three brethren, it has spent the last
agreements in Austria, Brazil, China, and Taiwan. quarter-century driving a bumpy road—in between
stretches of comfortable cruising. First, the company
Headquarters: Auburn Hills, Michigan
came famously near to bankruptcy in 1981. Rescued
Employees: Approximately 84,400 by a federal loan guarantee, it charged back to life
(U.S. employees: 68,000) under the legendary Lee Iacocca, its CEO at the time.
This rejuvenation lasted a decade, until 1991 found
Total revenues: $67 billion the veteran automaker again on the brink of bankruptcy.
Operating profit: $1.9 billion This time, it was design ingenuity that saved Chrysler—
specifically its creation of the SUV and the minivan.
Vehicles sold: 2.7 million worldwide Fueled by these models’ success, Chrysler roared to
U.S. dealers: 5,000 an operating profit of $6.1 billion in 1996—its best
year ever—and coronation by Forbes magazine as
Inducted into the Balanced Scorecard Company of the Year. Yet, even as the manufacturer
Hall of Fame: 2004 gained a reputation as a lean and mean risk-taker
and innovator, it began to lose its edge, fearful of
(All figures as of year-end 2004)
changing the business model that had brought so
much success. It coasted into the twenty-first century,
tweaking old designs rather than creating new ones,
as rivals stormed into the SUV and minivan markets
with their own new lines. Its 1998 merger with
Daimler-Benz brought additional complications, due
to the inevitable adjustments and staff concerns that
ensued.

1 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group
Meanwhile, the whole industry was under tremen-
dous cost pressure. The slowing economy, strong
dollar, and surging imports were forcing all domestic
car manufacturers to slash prices; but Chrysler couldn’t
seem to keep its balance sheet under control. Its
costs were among the highest—and its productivity
the lowest—in the U.S. industry. In 2000, the company
lost money for the first time in a decade. By year-
end, CEO Jim Holden was gone, and there was
speculation in the press that DaimlerChrysler might
even sell off its Chrysler division. Clearly, it was time
for some serious rethinking.
CEO Zetsche wanted to emphasize the
quality of the product, not its price. He
knew that to transform the company,
he would have to foster a new corporate
culture, a sense of entrepreneurship—
and the accountability that came with it.
In the fall of 2000 Dieter Zetsche, a Daimler veteran,
arrived from Germany as the new Chrysler Group
CEO and president. To control costs and boost
revenue, he demanded that suppliers trim their prices
5% immediately. He also cut the Chrysler workforce
by more than 35,000 between 2001 and 2004.
While immediate action was crucial for a financial
turnaround, the company needed a process for
ensuring long-term stability. Simply reining in
spending would not be enough. In an environment
where other U.S. automakers were focused on
discounting to meet the competition from lower-
priced imports, Zetsche feared that the automobile
business was becoming commoditized. He wanted
to emphasize the quality of the product, not its price.
He knew that to transform the company, he would
have to foster a new corporate culture, a sense of
entrepreneurship—and the accountability that came
with it.
That was when William Russo suggested the
Balanced Scorecard.
Chrysler had actually been using variations of the
scorecard since 1993, but never as part of its high-
level, overarching strategy management process.
Russo, then the company’s director of business strategy,
believed that the scorecard could provide a template
for aligning management behind both short- and
long-term goals. He explained his idea to Zetsche in
a conversation in November 2000, shortly after the
new CEO had arrived. “We needed top managers to
own balance-sheet elements that contribute to the
Group’s financial performance—and to mobilize
behind a common set of objectives,” Russo says.
(Russo has since moved to China, where he is now
vice president of Chrysler Business Operations.
Thomas Smith now oversees BSC functions, along
with other aspects of strategic planning, as one of
several managers in Business Strategy under Russo’s
successor, Melissa Holobach.)
Zetsche agreed with Russo’s proposal. “The intent
of the Balanced Scorecard is to communicate to the
organization a common set of results that we are
collectively seeking to deliver as an organization,”
he notes.
With Zetsche’s support, Russo and the company’s
executive committee—its top eight executives—spent
the winter of 2000–2001 brainstorming strategic
objectives and ways of translating those objectives
into operational terms. The objectives had to meet
the company’s overall vision: “Building cars and
trucks that people want to buy, enjoy driving, and
want to buy again, while leveraging the best of
American design and German engineering.” The
committee emerged in March 2001 with Chrysler’s
“Goals Pyramid,” a sort of pared-down strategy map
that uses a familiar shape to represent what it calls
“the five constant goals” of the Chrysler Group:
• Increase shareholder value
• Delight the customer
• Deliver aspirational products
• Achieve lean processes
• Optimize employee performance
The third and fourth goals—“Deliver aspirational
products” and “Achieve lean processes”—are
combined under the slogan “Disciplined Pizzazz”
to indicate the company’s mandate to link the two.
As Smith explains, “We are a successful company
because we build products with pizzazz. But we
have to do it cost effectively.” (Initially, the phrase
caused a bit of confusion among some of the parent
company’s German executives, who thought the
word “pizzazz” was the plural of “pizza.”)
But how to measure success in achieving these
goals? Starting with more than 50 possible metrics,
2 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group
the executive committee pruned the list to 15 “vital
few.” Each contender had to satisfy strict conditions:
Was reliable data available that could measure
performance toward the goal? How frequently was
the data updated? Could the measure show a clear
cause-and-effect relationship between action taken
and results? Luckily, Chrysler already had at its
disposal the widely accepted third-party yardsticks
used in the auto industry, such as the annual J.D.
Power and Associates Initial Quality Study, as well
as annual surveys by Consumer Reports magazine.
But because those use lagging indicators, the Chrysler
team decided to develop its own internal metrics,
including a Quality Tracking System that tracks
quality metrics throughout the year.
About half of the vital 15 metrics are financial
(for instance, operating profit, cash flow, and
warranty expense per unit sold), the preponderance
justified by the company’s critical financial state at
the time. Early on, other “turnaround” measures
included reducing fixed, material, and plant costs.
The others include criteria such as retail network
effectiveness and the J.D. Power quality study
(to gauge success in the objective “Delight the
customer”). Another nonfinancial measure is an
internal employee satisfaction survey (to track the
objective “Optimize employee performance”).
Mapping a Strategic Architecture with
Two Versions of a Blueprint
The Goals Pyramid is, in a sense, a stripped-down
version of Chrysler’s strategy map, notes Thomas
Smith. “It is also the underlying structure of the
Chrysler Group’s BSC,” he explains, “since all the
measures align to one of the five specific goals.
Because the company’s scorecard was created as
part of a financial turnaround, survival was really the
initial strategy. The starting point for our scorecard
was really with high-level goals”—as represented in
the Goals Pyramid—“and not the strategy map.”
The strategy map, used chiefly by the company’s
senior team, contains classic scorecard perspectives
and more specific objectives. A fifth perspective,
Product, encompasses the two pyramid goals
“Deliver aspirational products” and “Achieve lean
processes.”
Certain objectives straddle the line between
perspectives. For example, “Optimize retail network
structure,” which sits between the internal and
customer perspectives, involves dealers (an external
party whom the company influences but doesn’t
directly control) interfacing with customers. “Product
cycle, with regular cadence of product intros,” is so
tied to serving customer goals that it, too, straddles
two perspectives.
Chrysler Group’s BSC contains not just strategic
measures but measures the company calls “memo
item” measures. These diagnostic measures, explains
Smith, are “items we want to keep in front of the
executive committee, but that aren’t strategic enough
to warrant target setting.”
Aligning Employees, Instilling Accountability
The next step was to make sure that employee
performance was aligned in concrete ways to BSC
goals and metrics. “The BSC provided a tool to
ensure that everyone in the company understood
and could align their individual and departmental
targets to the overall company target,” Zetsche says.
“The discipline and focus which results from this
linkage to our governance system is invaluable.”
Chrysler already had a set of performance appraisal
processes in place for its 22,000 salaried and executive
employees to which the BSC could be linked. The
process for salaried employees is called Employee/
Manager Assessment Process, or E/MAP, while
executives go through a similar effort called Leadership
Evaluation and Development, or LEAD. At the begin-
ning of each year, all salaried employees—all the
way up to the executive committee level—negotiate a
“target agreement” with their supervisors. They meet
at midyear to review their progress toward the targets
and make any necessary adjustments. At year-end,
every employee’s performance is reviewed again.
Before Chrysler implemented the scorecard, these
reviews were based only on the supervisor’s evaluations
of each individual’s performance. By linking the
BSC to this existing process, the company is now
able to tie the performance evaluation to the overall
corporate strategy—and cascade the strategy through-
out the organization. When setting the initial target
agreement, employees and their supervisors at all
levels now align their performance goals to Chrysler’s
Balanced Scorecard goals. For executive committee
members, accountability is solidified contractually;
each committee member signs an agreement to deliver
on the scorecard targets for which he or she is
responsible. These agreements are framed and
posted prominently in the 15th-floor boardroom. The
primary determinant of incentive compensation for
all salaried employees is how well the employee has
achieved his or her contribution to the overall strategic
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Balanced Scorecard Hall of Fame Profile: Chrysler Group
objectives. As Bill Russo points out, “There’s no faster
way to get people’s attention than to pay them based
on achieving business-plan targets.”
Cascading the Scorecard
Over the five years from 2000 to 2005, all of the
major functional departments—Sales & Marketing,
Product Development, Manufacturing, and Procurement
“As a functionally driven organization,”
Smith notes, “we can’t dictate to a
business group like manufacturing or
engineering. Every group has its own
culture, each organization worries about
its own shop. We’re not in a position to
tell them how to run their shop.”
& Supply—decided to develop departmental score-
cards that were aligned with the enterprise-level
scorecard, focusing on the measures and goals specific
to that department’s responsibilities. For example,
the Sales & Marketing department’s BSC emphasizes
the “Delight the customer” objective, while Product
Development’s focuses more on “Deliver aspirational
products.” Departments further customize the score-
cards at the team level, assigning responsibility
for specific metrics to individual teams within the
department. To illustrate, the Small Vehicle Product
team (one of 11 teams in Product Development)
has as one of its metrics the percentage of small
vehicles produced by Chrysler that are recommended
by Consumer Reports—not the percentage of all
Chrysler vehicles that may be recommended.
“We did not make a concerted effort to force depart-
ments to have scorecards,” Tom Smith explains.
Chrysler doesn’t micromanage the use of the BSC
deep within the organization; instead, it allows business
group heads to decide how far down they want to
cascade it. “As a functionally driven organization,”
Smith notes, “we can’t dictate to a business group
like manufacturing or engineering. Every group has
its own culture, each organization worries about its
own shop. We’re not in a position to tell them how
to run their shop.” Furthermore, in a company the
size of Chrysler, every internal organization works
differently—with its own operating rules. “Your
measurement tools have to reflect those rules,”
Smith adds. The company certainly reviews the
lower-level BSCs, but regards them as “pulse checks.”
Reviewing Performance, Refreshing Strategy…
Chrysler has instituted a number of ways to track the
results of its strategic transformation effort. The top
executives report on their performance toward their
targets at monthly executive committee meetings,
using the “traffic light” system, where a green light
means “expected to reach or exceed target,” yellow
means “some risk of not achieving target,” and
red means “not expected to achieve target.” Results
are also reported quarterly at two other important
management meetings: the meeting of the officer’s
council, which consists of the company’s top 25
officials (Zetsche, his direct reports, and other officers),
and the senior management meeting, which brings
together the top 300 managers at director level and
above. Zetsche personally leads these meetings.
This system, Russo says, “creates ownership of the
measures and a positive dialogue between the
members for resolving scorecard performance issues.
I can’t imagine being without this discipline. It helps
people see how they affect the company’s overall
performance and aligns functional strategies with
company goals.”
…and Planning
Every December, senior executives meet to examine
the BSC in light of a wide range of factors, including
Chrysler’s year-end results, industry averages, upcoming
trends, historical data, and their own analysis. The
executives develop financial commitments and revenue,
cost, and other targets for the next three years, using
the BSC review as a starting point. They may also
revise the method of calculating their measurements
or replace some of the metrics.
The BSC also plays a crucial role in DaimlerChrysler’s
long-term strategic planning and evaluation, a process
that begins every spring and concludes in the summer.
Senior executives from DaimlerChrysler and its
five divisions, including Chrysler, get together to
plan out the next ten years. Each division produces
its own three-year “Operative Business Plan,”
incorporating annual budget-setting plus short-term
strategic planning. Operative Business Plans are, in
effect, detailed rolling forecasts that confirm the next
three years from a financial perspective; they are
updated every fall. The DaimlerChrysler Board of
Management—CEO Jorgen Schremppe, Chrysler
Group CEO Zetsche, and other key business unit
heads and leaders—approves these plans at the end
4 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group
of the year, and all five groups’ three-year commit-
ments are then reflected in the parent company’s
long-term strategic plan, which has a 10-year horizon.
“The [long-term] vision of the future is organized
by key factors and themes, and multiple alternative
scenarios are developed,” Russo says. The executives
try to predict future trends in auto manufacturing,
consumer tastes, the economy, global trade,
competitors’ designs and other crucial areas. The
Chrysler executive committee uses these scenarios as
the basis for developing “core challenges” for the
organization, which must be approved by the parent
company’s Board of Management at its regular strate-
gic business discussion meeting in July. These core
challenges represent, in Russo’s words, “the key strate-
gic hurdles” that the company will face. The Chrysler
executive committee then takes those core challenges
and develops operational strategies for achieving
them. Next, it translates them into strategic initiatives;
some challenges are hefty enough to require multiple
initiatives. Core challenges are assigned to Smith
and his colleagues in the Business Strategy group
to project manage “in the same way a venture
capital firm might shepherd a new company,”
Smith explains.
When appropriate, these initiatives “can serve to
feed into the scorecard,” Smith says. For instance, the
Board of Management recently identified improving
the extended dealer network as a core challenge.
(Chrysler Group doesn’t own or control retail dealers,
but dealers, of course, have a major impact on how
the automaker’s products sell.) The resulting initiative
involved establishing a measurement system that
cascades throughout the entire sales organization.
That was slotted into the strategy map under “Delight
the customer,” and “Retail network effectiveness” was
added as a metric.
Generally, two executive vice presidents sponsor an
initiative, and Smith or one of his peers in Business
Strategy will liaise with the teams that the EVPs assign
to carry out the initiative. Generally, the initiatives
are already accounted for through discussions at the
executive committee level and budgeted for by each
function. If additional funding is required, executives
go back to the appropriate level to obtain it.
Another planning tool related to the BSC are
Chrysler’s “Brand Bibles.” These are detailed definitions
of what the Chrysler, Dodge, and Jeep brands each
represent, backed up with market research, customer
demographics, and product specifications. Created by
the executives who oversee the BSC, these are one
of the considerations used in determining
product spending.
Strategic Education: Building a
Strategy-Focused Culture
Communicating strategy to an enormous workforce,
and one with many different subcultures, is no small
endeavor, and, from the start, executives understood
the need for keeping the message simple and
straightforward. The most powerful tool in Chrysler
Group’s strategy communications arsenal has been
the Goals Pyramid. With its five clear-cut, easy-to-
remember goals, it has served as a rallying point
since the company adopted the scorecard. Although
the Pyramid was created with the urgent goal of
turning around an organization in financial crisis, to
this day it remains the prevailing graphic depiction
of Chrysler Group’s strategic goals—general enough
that it can be shared with employees at all levels,
generic enough that its content is enduring.
Russo notes that “the scorecard is part of the common
dialogue for communications in the company at
every level of the organization.” One particularly
innovative communications tool is DCtv, the company’s
internal television station, which is broadcast to
every Chrysler Group location, including factories.
DCtv makes the scorecard goals the central theme
of its daily broadcasts. Programs are categorized
according to which BSC goal they cover. Moreover,
a graphic of the relevant goal is shown before each
broadcast segment and is also featured onscreen
during the segment.
In addition, to remind them of the meaning and
importance of the BSC, management employees get a
detailed mailing each year that includes a letter from
Zetsche, a brochure with detailed definitions of all
the BSC measures, a description of how the score-
card relates to the employee evaluation process, a
primer on the company’s strategy, and any changes
in the measurements or targets for the year.
To foster strategic-mindedness among managers,
particularly those overseeing day-to-day operational
areas, Chrysler developed strategy simulation
games as part of its training curriculum. Managers
can play strategy games that let them simulate
running Chrysler—or a rival—over a 10-year period.
The simulations, Smith says, have been especially
effective in areas not normally exposed to strategy
formulation, such as manufacturing and some parts
of engineering.
5 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group
Finally, Russo points to one more way the scorecard
works as a communication tool: it provides “a context
for employees to relate news stories directly to the
strategy of the organization.” If, for instance, an
employee reads a newspaper article praising the new
Chrysler 300 sedan, the employee can relate that
back to the BSC process and strategic objectives that
led to that automotive design, and consider how the
sedan may meet the goals of “Delight the customers”
and “Deliver aspirational products.”
An Office of Strategy Management
When Chrysler first launched its BSC, strategy and
planning were combined with product development
in one central, strategic management function.
As strategy head, Bill Russo oversaw three broad
scorecard responsibilities. He helped develop the
original strategic direction; thus, he was the business
strategist. As a member of the executive committee,
he also reported on BSC performance and measures;
thus, he played the role of scorekeeper. And as
secretary of the committee, focusing top manage-
ment’s attention on any performance shortfalls and
overseeing corporate governance, he was also the
strategic gatekeeper.
It soon became clear, however, that combining
business organizational strategy with product
development strategy created too big a mandate for
one office. So the 35-person office was split into two
separate departments—Business Strategy and Product
Strategy. While they share responsibility for corporate
governance, strategic planning, and BSC maintenance,
each area has its own director, employees, duties,
and functional reporting lines. Over time, as roles
have changed and strategic responsibilities evolved,
the number of personnel for each area has expanded
and contracted.
Today, Business Strategy (Smith’s group) has eight
full-time employees, led by Melissa Holobach,
Russo’s successor. The group reports directly to
the CEO, and serves the executive committee, the
officer’s council, and other senior-level groups. It is
responsible for shepherding the strategic planning
and execution processes, corporate governance, and
the BSC, including performance monitoring. Smith
spends about one-third of his time overseeing the
BSC and the rest carrying out core challenges he is
assigned through the strategic planning process.
Among his team’s BSC responsibilities are refining
strategy map objectives and linkages as needed, and
making the strategy map link more firmly to the
Goals Pyramid. As company strategy evolves to
address the challenges of the next 10 to 20 years,
executive committee members will reevaluate the
strategy map to reflect new themes and goals by
which it plans to meet those challenges.
Meanwhile, Product Strategy, with 14 full-time
staffers, reports to the executive vice president
of product development. Its staffers work with
Chrysler’s Product Development department,
overseeing product idea development.
In both strategy groups, every staffer is assigned to
serve one of the company’s three executive-level
committees, in the same way that a sales representative
would be assigned to handle a client account. The
two departments also act as liaisons with the company’s
business units to determine which of their projects
and priorities get on executive committee agendas.
From Reverse to Overdrive:
A Remarkable Turnaround
Four years into its scorecard-guided transformation,
Chrysler Group is definitely on the fast track in terms
of both finance and product.
From 2002 to 2004, the company enjoyed 11 quarters
of profitability—including the past six quarters
straight—missing only the second quarter of 2003.
Moreover, it has beaten expectations almost every
year since the BSC was implemented. Its forecasted
$5.1 billion loss in 2001 turned out to be only $2
billion. For 2002, it predicted that it would break
even, then went on to garner a $1.4 billion profit.
Profitability slipped in 2003 (the company forecast
a $2 billion profit, but instead experienced a $637
million loss). But it bounced back in the first quarter
of 2004 and hasn’t slid since, ending the year with
an operating profit of $1.9 billion—its best year since
1999. Because Chrysler accounted for 57.5% of
DaimlerChrysler’s 2004 profit, its strong returns have
helped the parent company counter lagging perform-
ance by its Mercedes division. These successes are all
the more remarkable as the company’s U.S. competitors
continue a downward spiral.
One factor contributing to those strong numbers
is that Chrysler has brought its costs solidly under
control. Labor productivity, as measured by the
independent Harbour Report, improved 19% from
2000 to 2004. Warranty costs, meanwhile, have
dropped 34% from 2001 to 2004, while materials
costs were reduced by approximately 20% during
the same period.
Meanwhile, even as other U.S. auto makers have
watched their market share steadily decline in the
6 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group
face of a powerful surge of lower-priced imports,
Chrysler’s share has actually increased by 1% since
2001, reaching nearly 13% of the market (albeit
down from its 1999 peak of 14.2%). In 2004, in fact,
Chrysler was the only U.S. manufacturer to gain
As Chrysler strengthened, staffers were
less likely to leave, and talent retention
was dropped from the BSC metrics. “It’s
like moving that measure from the major
leagues down to the triple-A farm team,”
Smith explains. “It’s still important, but
it’s not a core challenge.”
market share, with Chrysler, Dodge, and Jeep brand
sales rising 5% worldwide.
Even Chief Executive magazine has noted, albeit
indirectly, the importance of the scorecard. In a July
2004 cover story, it praised Zetsche for, among other
things, “establishing companywide benchmarking.”
Says Zetsche, “It comes back to the old, but true
saying: ‘What gets measured, gets done.’ It is
amazing to see that once you set targets and measure
progress, how far you can stretch the organization
to achieve a new level of performance.”
Disciplined Pizzazz
Success hasn’t been measured only in dollars and
cents. Chrysler launched nine new vehicles in 2004,
its most ambitious product program ever, led by the
Chrysler 300 sedan (nicknamed the “Baby Bentley”),
the Dodge Magnum wagon, and updated versions
of the Dodge Caravan and Chrysler Town & Country
minivans. Other new entrants since 2003 include
the Chrysler Pacifica crossover vehicle, the Crossfire
sports car, and a new version of the mainstay
Dodge Durango SUV, with a Dodge Caliber compact
on the runway for 2006. Especially impressive is
the fact that the products run the gamut in size and
style from small to SUV. Chrysler is indeed fulfilling
its goal of Disciplined Pizzazz, launching many
alluring products while cutting program spending a
whopping 30%.
Undoubtedly the star has been the Chrysler 300,
which has won more than a dozen top awards,
culminating in being named Motor Trend Car of the
Year for 2005. “The Chrysler 300 is an extremely
compelling combination of power, responsiveness,
room and refinement,” said Angus MacKenzie, Motor
Trend’s editor-in-chief, in announcing the award. He
went on to call the car “a home run on significance,
a slam dunk on value, and clearly superior to its
rivals in every way.”
The Wheels of Strategy Keep on Turning
No matter how successful its strategy is, Chrysler
knows it can’t stand still. Times change, competitors
bring out new models, customers’ tastes evolve,
and suppliers raise prices or go out of business.
The original BSC, after all, began at a time when the
company needed to focus on a financial turnaround.
Now, with the financial picture much stronger, the
executive committee is in the process of revising its
strategy map.
To give one example: “Talent retention” was originally
one of the “vital few” measures, because amid the
company’s financial crisis there was concern that
good employees might be lured to a stronger rival
automaker. As Chrysler strengthened, staffers were
less likely to leave, and talent retention was dropped
from the BSC metrics. “It’s like moving that measure
from the major leagues down to the triple-A farm
team,” Smith explains. “It’s still important, but it’s not
a core challenge.”
In fact, adapting to change is built into Chrysler’s
thinking. As Russo explains, the strategy involves “a
message of continuous improvement and innovation
that is focused not on specific numbers or targets,
but on surpassing the competition. This articulation
of the strategy evolves with the business and can
adapt to the ever-changing competitive landscape.”
Of course, Chrysler—like its fellow American auto
companies—still faces a tough market. Imports
continue to gain market share, and the need for
innovation never ends. But as Zetsche affirms, “The
Balanced Scorecard provided the organization with a
clear road map of where we needed to go, as well as
the methodology to measure our progress in reaching
the aggressive targets we’ve set. Simply put, the BSC
got our management team on the same page and has
played an important role in our success so far.”
7 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group

KEY RESULTS

• The Balanced Scorecard helped Chrysler Group achieve a rapid turnaround. Its financial
performance has exceeded expectations almost every year since adopting the BSC.
The company has enjoyed six straight quarters of profitability, and in the past three years,
11 out of 12 quarters have been profitable.

• Chrysler is the only U.S. automaker to gain market share since 2001.

• Chrysler launched a record nine new vehicles in 2004; the Chrysler 300 has won more than
a dozen industry awards, including being named Motor Trend Car of the Year for 2005.
These successful launches were achieved while the company cut program spending by 30%.

• Productivity has steadily increased, as warranty and materials costs have gone down
by double-digit percentages.

TAKEAWAYS

• Choose a “vital few” metrics that can be gauged by reliable, up-to-date data—both leading
and lagging indicators.

• Make sure that executives take ownership of BSC goals by not only tying their progress
to their compensation, but by also having a public accounting of their targets and success.

• A pared-down version of the strategy map can help keep the strategy message simple for
organizations with thousands of employees, while keeping strategically sensitive information,
such as BSC objectives, secure.

• Use different, and where possible, innovative media (such as an internal TV network) for
communicating to a large, diverse, and geographically spread out workforce.

8 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group

SFO SPOTLIGHT

All Balanced Scorecard Hall of Fame organizations exemplify the five principles of the Strategy-
Focused Organization. Chrysler Group is especially noteworthy as an exemplar of the following
SFO best practices:

• Targets established: The executive committee recognized the importance of economy

in choosing metrics for Chrysler Group’s five “constant goals,” and edited its list of 50
possible metrics to 15 “vital few.” It used strategic criteria to select them, such as whether
the measure could show clear a cause-and-effect relationship between action and results.
The committee took advantage of the many available industry metrics, but saw the need for
leading indicators as well, and developed its own. Every year, when senior executives review
scorecard performance, they update financial targets and, if necessary, revise metrics or the
means of calculating them. [Principle #2: Translate the Strategy into Operational Terms]

• Initiatives identified and rationalized: Initiatives are developed top-down in connection

with the strategic planning process. From the scenarios the executive committee devises in its
yearly strategic planning, it produces a list of “core challenges” (key strategic hurdles). From
this list, committee members develop a list of strategic initiatives, which are assigned to the
strategy management office as projects to oversee. [Translate principle]

• Accountability assigned: Each executive committee member signs an agreement to deliver

on those BSC targets for which he or she is responsible, and agreements are framed and
posted in the company’s boardroom. In addition, executive vice presidents sponsor initiatives
(which are carried out by the business and product strategy teams) and have ultimate
responsibility for their execution. [Translate principle]

• Personal goals aligned: Chrysler linked the BSC to its existing performance appraisal
processes to associate employees’ individual performance to the corporate strategy. With
each process (E/MAP for salaried employees, LEAD for executives), employees negotiate a
target agreement with their supervisors at the beginning of the year, and review their
progress at midyear and year-end. [Principle #4: Motivate to Make Strategy Everyone’s Job]

• Personal incentives aligned: How well salaried employees achieve their goals—their
contribution to Chrysler’s overall strategic objectives—is the main determining factor in their
incentive compensation. [Motivate principle]

• Planning, budgeting, and strategy integrated: As part of its yearly BSC analysis, the
executive committee updates financial and other targets for the following three years. This
information is folded into the Operative Business Plan, the short-term strategic plan produced
by each of DaimlerChrysler’s five divisions. Core challenges and their supporting initiatives
often yield new metrics or end up embedded in the scorecard as objectives. [Principle #5:
Govern to Make Strategy a Continual Process]

9 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group

SFO SPOTLIGHT

• Strategy management office established: Chrysler’s strategy management function has

evolved since the company adopted the BSC. At first, Chrysler combined BSC management,
business strategy and planning, and product development strategy under one central function.
Later, product strategy and business strategy were separated, since their mandates were each
too large for one office to manage. Today, the two offices share responsibility for coordinating
governance, strategic planning, and BSC maintenance. Each works with the company’s
business units to get units’ projects and priorities on the appropriate executive committee
agenda. Every staff member serves one of the three executive-level committees. Business
strategy staff members help translate core challenges into specific initiatives that they oversee;
each initiative is sponsored by two executive vice presidents. [Govern principle]

10 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group

THE CHRYSLER GROUP GOALS PYRAMID AND STRATEGY MAP

Increase
shareholder
value

Goals Pyramid This stripped-down version of a strategy

Delight
the map is disseminated throughout the organization as a
customer key communication tool. It expresses what the company
considers enduring goals.
“Disciplined pizzazz“
Deliver Achieve
aspirational lean
products processes

Optimize employee performance

Strategy Map This strategy map, for senior management,

Maximize
Financial shareholder has been in use from the inception of Chrysler's BSC
Perspective value
through 2003. It is being revised to reflect a change in
Sustain Sustain
emphasis from a turnaround to a stable situation.
profitability cash flow

Customer Deliver brand Build Product

Perspective quality on par with sustainable Perspective
industry leaders brand value

Optimize Product cycle Enhance

retail network with regular cadence product leadership
structure of product intros through innovation

Efficiencies
Internal through flexibility
and platform
Perspective architecture

Transition to Achieve world-class Partner to

optimized asset productivity and improve effeciencies
business model cost targets and access to
technology

Learning & Cultivate Align workforce Align

Growth leadership and strategy to compensation to
management corporate strategy
Perspective talent
performance

Chrysler shows strategic themes under each perspective label (removed here due to space constraints).
The financial, internal, and learning and growth perspective themes reiterate key objectives within these
perspectives. Those of the customer and product perspectives, however, represent overarching concepts:
“Deliver a total ownership experience that emphasizes quality, value, design, and engineering” (customer)
and “Produce uniquely styled and positioned vehicles that are sought by customers” (product).

11 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
Balanced Scorecard Hall of Fame Profile: Chrysler Group
TO LEARN MORE
To learn more about Chrysler Group and its Balanced
Scorecard program, see:
• Balanced Scorecard Report articles:
“Driving Strategy at the Chrysler Group,” by
Katherine Kane, Contributing Writer, BSR
January–February 2005 (Reprint #B0501D).
“The Chrysler Group Comes Back: Using the BSC
to Drive a Turnaround,” by Lauren Keller Johnson;
adapted from a presentation by Bill Russo, Director
of Business Strategy, the Chrysler Group, BSR
September–October 2002 (Reprint #B0209B).
• Balanced Scorecard Hall of Fame Report 2005,
which features a brief profile on Chrysler Group
and the 17 other Hall of Fame inductees from
2004 (Product #9157).
• The BSC library: BSC portal members with access
to the library can search the key word “Chrysler
Group” for a complete list of resources, including
conference presentations and executive video
interviews. (For information on becoming a BSC
Portal member, go to www.bscol.com)
• Web site: www.daimlerchrysler.com/dccom
ADDITIONAL RESOURCES
• For more information on the Strategy-
Focused Organization (SFO) principles, visit
BSC Online. Membership is free. Go to
www.bscol.com/bsc_online.
• For additional guidance on the SFO principles,
and to learn about best practices in use at other
organizations that have successfully executed strate-
gy, go to www.bscol.com/toolkits. Here you’ll find
many resources available for purchase, including
Strategy Execution Toolkits.
• For access to the largest compilation of
published materials on the Balanced Scorecard
and the Strategy-Focused Organization, visit
www.sfo.harvardbusinessonline.org.
Editorial Advisers
Robert S. Kaplan
Professor, Harvard Business School
David P. Norton
President, Balanced Scorecard Collaborative
Edward D. Crowley
Executive Director–HBR Specialty Publications
Publisher
Robert L. Howie Jr.
SVP, Balanced Scorecard Collaborative
Director of Research
Randall H. Russell
Balanced Scorecard Collaborative
Editor
Janice Koch
Balanced Scorecard Collaborative
Design
Robert B. Levers
About Balanced Scorecard Collaborative
Balanced Scorecard Collaborative (BSCol), a Palladium
company, is a global family of professional service firms
that helps clients use the Balanced Scorecard to successfully
execute strategy. BSCol offers a wide range of services,
including education (conferences, publications, research),
training (public seminars, in-house, online), consulting
(strategy, performance, change), and technology (“BSC
Portal™,” “BSC First Report™,” toolkits). To learn more,
visit www.bscol.com, or call 781.259.3737.
About Harvard Business School Publishing
Harvard Business School Publishing is a not-for-profit, wholly
owned subsidiary of Harvard University. The mission of
Harvard Business School Publishing is to improve the
practice of management and its impact on a changing
world. We collaborate to create products and services in
the media that best serve our customers—individuals and
organizations that believe in the power of ideas.
Ordering Information
To order additional copies of this profile (in print or by
download), call HBSP at 1-800-668-6705 (617-783-7474
outside the U.S.) and request product #1258 or visit
www.sfo.harvardbusinessonline.org and insert the product
number into the search field, or type in “Hall of Fame.”
Here you’ll find a list of all available Hall of Fame profiles
and other products for the Strategy-Focused Organization.
© 2005 by Harvard Business School Publishing and Balanced Scorecard
Collaborative, a Palladium company. Quotation is not permitted. Material
may not be reproduced in whole or in part in any form whatsoever
without permission from the publisher. Balanced Scorecard Hall of Fame
for Executing Strategy™ and Balanced Scorecard Hall of Fame Profiles™
are trademarks of Balanced Scorecard Collaborative. The trademarks
referenced in this publication are the property of their respective owners.
12 © 2005 by Harvard Business School Publishing and Balanced Scorecard Collaborative, a Palladium company
 TRANSLATE STRATEGY
INTO ACTION WITH THE
BALANCED SCORECARD REPORT

The ability to execute strategy is the most important

capability an organization needs to quickly adapt and
thrive in today’s global economy. But implementing
strategy may be the single most difficult task you face.
For twelve years, Strategy-Focused Organizations like Motorola, Hilton Hotels,
Equifax, Thomson Financial, Siemens, and literally thousands of others have
been using the Balanced Scorecard to transform strategy into action.

Now you too can benefit from an invaluable tool that’s helping companies
around the world get the most from their Balanced Scorecards—the
Balanced Scorecard Report newsletter. Every issue is packed with the
latest thinking of BSC founders Robert Kaplan and David Norton and
their five principles of the Strategy-Focused Organization—principles
that can help you translate ideas into action—

MOBILIZE change through executive leadership

TRANSLATE the strategy into operational terms

ALIGN the organization to the strategy

MOTIVATE to make strategy everyone’s job

GOVERN to make strategy a continual process

Each bimonthly issue of
Balanced Scorecard Report The Balanced Scorecard Report
takes you behind the scenes is a resource you’ll return to again
through case studies of actual
and again—subscribe today.
BSC implementations. These
case studies showcase organi-
zations that have achieved 1-800-668-6705
tremendous results with the bsr.harvardbusinessonline.org
BSC and will help speed
your own BSC program.
The Balanced Scorecard Hall of Fame™ Profile Series
Learn how each of these Balanced Scorecard Hall of Fame organizations
became strategy-focused. Each individual profile provides a source of
information on how to “do it right”, including a profile narrative, Strategy-
Focused Organization spotlight best practices, key results and takeaways.

The City of Charlotte

Crown Castle International

Economic Development Administration

(U.S. Department of Commerce)

E-Land

Hilton Hotels

Media General

Mellon Europe

Mobistar

Motorola’s Government and Enterprise Mobility Solutions

Royal Canadian Mounted Police

Tennessee Valley Authority

Unibanco

U.S. Army

To learn more visit: www.sfo.harvardbusinessonline.org

or call 1-800-668-6705 (617-783-7474 outside U.S.)

Product Number 1258