Balance Scorecard Implementation & Details

The Balanced Scorecard & Performance Improvement: Using the balanced scorecard to combine viewpoints of company success Management often deludes itself that the “bottom line” is everything. But as Polaroid’s millionaire inventor Edwin Land cautioned: “The ‘bottom line’ is in heaven !” No manager can ignore the bottom line – the key indicator of what has happened (i.e., a “lagging indicator”). But you need a “balanced scorecard” to measure not just how you’ve been doing, but also how well you are doing (“current indicators”) and can expect to do in the future (“leading indicators”). Then you’ll have clear picture of reality. Our skill is using our experience to help you zoom in on the indicators tied to your strategic objectives, indicators that clearly measure performance against those objectives. We’ll also help you set “smart targets” – specific, realistic, measurable, agreed-upon and time-bound – so you get where you want to go. Finally, you can count on us to stick with you as long as you need us at your side. Because in the end, persistence and effective allies count, too. Problems with just one measure of success If you were to ask most anyone how they would measure company performance, they might give you a funny look and say, "How much money the company makes, of course! Isn't that obvious?" To a certain extent, they are right. Profitability, gross revenues, return on capital, etc. are the critical, "bottom line" kind of results that companies must deliver to survive. Unfortunately, if senior management only focuses on the financial health of the organization, several unfortunate consequences arise. One of these is that financial measures are "lagging indicators" of success. This means that how high or low these numbers go depends on a wide variety of events (talked about later) that may have happened months or years before and that you have no immediate control of in the present. Being in a plane falling from the sky is a bad time to realize that you should have done routine maintenance, and oh, by the way, filled it with gasoline! Another of the consequences of just focusing on financial measures is that they have nothing to do directly with the customers who use your organization's product or service. Decisions may be made that help your organization financially, but hurt the long-term relationships with one's customers, who may eventually reduce the purchases or leave you altogether. We all may have been in the spot of paying for car repairs that we need, but we know that we are paying too much and will never go back to that service station again. Instead of such a short-sighted, after-the-fact view of company performance, we need a more comprehensive view with an equal emphasis on outcome measures (the financial measures or lagging indicators), measures that will tell us how well the company is doing now (current indicators) and measures of how it might do in the future (leading indicators)

These drivers fall into four categories: . Otherwise. the company is all dressed up but nowhere to go. Without the specific knowledge of what drivers will affect your scorecard. your organization just might spend much time. minimizing quality problems) and human resource systems and development are leading indicators of company performance. the balanced scorecard (or BSC) is useless. Without a tie to a company strategy. strategy and measures have been defined and agreed upon. speed. but do not give a good indication of what is or will be going on in the organization. First of all. strategy and objectives must be defined. money and effort and achieve very little. to use an American expression. as the measure of company strategy. Measures of customer satisfaction. Finding the causes(drivers) of success Once the company mission. growth and retention is the current indicator of company performance. reducing non-value added work. business unit or department success · balancing long-term and short-term actions · balancing different measures of success · Financial · Customer · Internal Operations · Human Resource Systems & Development (learning and growth) · A way of tying strategy to measures to action Four Kinds of Measures Under the balanced scorecard system. the next step is to understand fully the drivers(causes) behind movement (up and down) of your balanced scorecard. the balanced scorecard is a way of: · measuring organizational. so does measurement itself. more importantly.What is the balanced scorecard? The balanced scorecard is just remedy for this kind of problem. and internal operations(efficiency. financial measures are the outcome. A mission. measures of that strategy (the BSC) must be agreed to and actions need to be performed for a measurement system to be fully effective. Context and Strategy Just as financial measures have to be put in context.

etc. A SMART target is: Specific Measurable Agreed upon Realistic & Time-bound In reality. etc. behaviors. · Organizational .· Environmental . workloads. though.work processes. local. work responsibilities. budget assignments. human resource systems.systems inside the organization such as company strategy. the next step is to create a SMART target or objective. the next step is to create a SMART target or objective. Creating SMART targets After a full understanding the relationships among the drivers and between the drivers and measures is reached. timetables and resources needed to accomplish the task: · We will reduce the current cost-per-barrel by 20% by the end of April 2002 by: · Adding a 10% bonus to all employees salaries for every 10% drop of the cost-per-barrel · Moving to a completely asset. skills. so that only critically essential functions are kept. sequence of implementation. work assignments · Individual . organizational structure. pay. national and global politics. management style. but the methods. a SMART target is not enough. including personnel assignments. such as governmental regulations. After a full understanding the relationships among the drivers and between the drivers and measures is reached.or area-based organizational structure · Creating a team to eliminate non-value-added steps from the administrative and operations functions. A SMART project must be created as shown in the following example describing not only the target. · The implementation plans for these steps are attached.personality. the economic cycle.those factors outside the influence of your organization. procedures. A good method of outlining the causes and effects among these drivers is a flowchart or affinity diagram. group relationships. · Group or departmental . policies. etc. A SMART target is: .

much will be done in an organization. timetables and resources needed to accomplish the task: · We will reduce the current cost-per-barrel by 20% by the end of April 2005 by: · Adding a 10% bonus to all employees salaries for every 10% drop of the cost-per-barrel · Moving to a completely asset. a SMART target is not enough. adding or changing customers or products. workloads.Specific Measurable Agreed upon Realistic & Time-bound In reality. Techniques fall into two categories: · Large-scale. addition or change of core competencies. tying pay to measurements. If you don't measure the right things and the measures don't reflect what is really going on. but the methods. · The implementation plans for these steps are attached. or major techniques: Examples include restructuring. The equation I look at the successful implementation of the Balanced Scorecard (BSC) as an equation: Success = Measurement X Technique X Control X Focused Persistence X Consensus Measurement First of all. what Techniques or methods also have a significant bearing on success. success is a function of what Measures you use. sequence of implementation. or minor techniques result in small changes in drivers: . Techniques Second. · Small-scale. etc.or area-based organizational structure Creating a team to eliminate non-value-added steps from the administrative and operations functions. so that only critically essential functions are kept. but little will be accomplished. budget assignments. change of strategy. etc. though. A SMART project must be created as shown in the following example describing not only the target. putting added resources ($ and people). including personnel assignments. re-engineering processes.

a sincere drive to accomplish the tasks. but effects are outside your organization · level 3 action: not in control of action. they must · Concentrate on level 1 & 2 actions · Gain control of. Key power brokers need to be involved in decision-making. Control Another part of the equation is control. then they must expect only modest improvements in balanced scorecard measures.Motivational speeches. otherwise known as project management. with a thorough knowledge of measures. This facts usually causes great distress in the organization. The key to using these techniques is to realize that if major improvements in BSC measures are needed. If management is willing only to use small-scale techniques. Project management includes having a timetable(beginning and end) for each task. or compensate for. rather than making fundamental change. Otherwise. periodic reviews of accomplishments. PERT charts. Among some opportunities for involvement include: . problem-solving teams focused on technical issues. displaying graphs to employees on bulletin boards. drivers. but just as critical factor is consensus. these actions need to be categorized into four levels: · Level 1 action: in control of action and effects are inside your organization · level 2: action: in control of action. The best laid plans. are essential tools in this process. resources and people assigned to each task and most importantly. then large-scale change techniques must be used. Once management has brainstormed a list of possible actions that might accomplish its SMART target. and as many others as possible in the various stages and steps outlined here. it just isn't SMART! Focused Persistence Focused persistence. but it affects your driver · level 4 action: not in control of action. then they must lower their expectations on what they can accomplish and either set a lower target. is another key in the equation. because many think major improvements can be made only by tinkering with the organization. or abandon the target altogether. etc. level 3 actions · And if they do not have sufficient control over the actions necessary to achieve their SMART target. Consensus The last. but does not affect your driver For management to be successful. and with sufficient resources will fail if there is not agreement enough among those with sufficient power to block BSC implementation. etc. Use of such tools as Gantt charts.

Though every factor in the equation above does not have to be perfect.· Communicate with them on the importance and status of the project · As part of planning and decision-making · Implementation of action · Suggestions for improvement In conclusion Keeping in mind these factors when implementing the balanced scorecard will substantially increase your chances of success. and can compensate for one another. all must be present to some extent for BSC to be implemented. .