Balance Scorecard Deloitte

Deloitte Consulting LLP

Strategy & Operations

Performance Management and

Balanced Scorecard CFO Services Self-Study Guide

Global CFO Services Curriculum Self-Study Guide: Performance Management and the Balanced Scorecard

Copyright ©2004 Deloitte Development LLC. All Rights Reserved. i February 2004

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

Module Objectives ....................................................................................................................................... 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

Module Objectives ....................................................................................................................................... 22 Objective 1: Explain how Balanced Scorecards fit into the overall Integrated Performance Management (IPM) Framework........................................................................................................................................ 22

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

Module Objectives ....................................................................................................................................... 24 Objective 1: Discuss, in general, Balanced Scorecard case examples .................................................... 24


Copyright ©2004 Deloitte Development LLC. All Rights Reserved. ii 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

Module Objectives ....................................................................................................................................... 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

Module Objectives ....................................................................................................................................... 37 Objective 1: Locate Balanced Scorecard reference material .................................................................... 37

SUMMARY.......................................................................................................................38


Copyright ©2004 Deloitte Development LLC. All Rights Reserved. 1 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.



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.

Manager or Organization Domain

Manager or Organization Scorecard

A MANAGER or ORGANIZATIONUNIT

has

OBJECTIVES

and monitors performance using

MEASURES

Performance Management Model Description of the elements

• The domain represents the sphere of control and/or responsibility for a manager or organization

• This is a person or organization responsible for managing a portion of the business

• The objectives can be strategic, operational, technical etc.

• The objectives represent what the individual is trying to achieve

• The objectives provide context and relevance to the measures selected and define what success looks like in the end state

• The measures are the way that the manager or organization is achieving the objectives that it initially set out to accomplish

• The manager or organization scorecard represents an ongoing place to capture and communicate the objectives and measures of the organization




has

OBJECTIVES


MEASURES




has

OBJECTIVES


MEASURES

Performance Management Model Description of the elements

• The domain represents the sphere of control and/or responsibility for a manager or organization

• This is a person or organization responsible for managing a portion of the business

• The objectives can be strategic, operational, technical etc.

• The objectives represent what the individual is trying to achieve

• The objectives provide context and relevance to the measures selected and define what success looks like in the end state

• The measures are the way that the manager or organization is achieving the objectives that it initially set out to accomplish

• The 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.

BalancedScorecard

Strategic Feedback and Learning•Articulating the shared vision•Supplying strategic direction•Facilitating strategy review and learning

Clarifying and Translating the Vision and Strategy•Clarifying the vision•Gaining consensus

Communicating and Linking•Communicating and educating•Setting goals•Linking rewards to performance measures

Planning and Target Setting•Setting targets•Aligning strategic initiatives•Allocating resources•Establishing milestones

BalancedScorecard

Strategic Feedback and Learning•Articulating the shared vision•Supplying strategic direction•Facilitating strategy review and learning

Clarifying and Translating the Vision and Strategy•Clarifying the vision•Gaining consensus

Communicating and Linking•Communicating and educating•Setting goals•Linking rewards to performance measures

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

Learning and Growth

CustomerInternal

Business Process

Tactical actions

enabling strategy

execution

Strategic Vision and

Goals

The Balanced Scorecard

Financial

Learning and Growth

CustomerInternal

Business Process

Tactical actions

enabling strategy

execution

Strategic Vision and

Goals


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.

Financial Perform anceFinancial Perform ance

“To succeed financially, how should w e appear to our

shareholders?”

“To succeed financially , how should w e appear to our

shareholders?”

O rganizational LearningO rganizational Learning

“To achieve our vision , how w ill w e sustain our ab ility to

change and im prove?”

“To achieve our vision, how w ill w e sustain our ab ility to


Custom er SatisfactionCustom er S atis faction

“To achieve our vision , how should w e appear to our

custom ers?”


custom ers?”

In ternal Business ProcessesInternal Business P rocesses

“To satisfy our shareholders and custom ers, w hat business processes m ust w e excel at?”


V ision &V ision &StrategyStrategy

Financial Perform anceFinancial Perform ance

“To succeed financially, how should w e appear to our

shareholders?”

“To succeed financially , how should w e appear to our

shareholders?”

O rganizational LearningO rganizational Learning

“To achieve our vision , how w ill w e sustain our ab ility to


“To achieve our vision, how w ill w e sustain our ab ility to


Custom er SatisfactionCustom er S atis faction


custom ers?”


custom ers?”

In ternal Business ProcessesInternal Business P rocesses



V ision &V ision &StrategyStrategy




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.

Strategic VisionStrategic Themes

Strategic ObjectivesStrategic Measures

BU


Strategic ObjectivesStrategic MeasuresC

orpo

rate


Strategic ObjectivesStrategic MeasuresD

ivis

ion

Align Corporate and Division Vision, Themes and Objectives

Determine best measures and align between corporate and Division levels

Determine best measures and align between Division and BU levels

Align Division and BU Vision, Themes and Objectives

Define Corporate strategic map and measures

Define Division strategic map and measures

Define BU strategic map and measures

1

2

3


Strategic ObjectivesStrategic Measures

BU



orpo

rate



ivis

ion








1

2

3



orpo

rate



ivis

ion








1

2

3




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:

Business Unit/ Function Planners

Division Executives

Business Unit/ Function Executives

Division Planners

Identify Business Unit/ Function objectives

Review & Approve

Communicate horizontally and align objectives to other Business Unit/ Function

Communicate corporate/ Business Unit / Function direction to Division execs & planners

Identify Business Unit strategies, measures and targets, aligning to Corporate strategy map

Identify Division proposed objectives, strategies, measures and targets with input from sub-Divisions

Ensure alignment with Business Unit objectives

Review & approve

Business Unit and Division alignment

Approve finalized strategies, measures, targets

Review strategies, measures and targets

Finalize targets for measures


Corporate and Business Unit alignment

Corporate Communicate corporate objectives

Communicate preliminary corporate strategies and measures

Revise and finalize corporate strategies, measures, targets

1 2 3 4 5Business Unit/ Function Planners

Division Executives

Business Unit/ Function Executives

Division Planners

Identify Business Unit/ Function objectives

Review & Approve

Communicate horizontally and align objectives to other Business Unit/ Function

Communicate corporate/ Business Unit / Function direction to Division execs & planners

Identify Business Unit strategies, measures and targets, aligning to Corporate strategy map

Identify Division proposed objectives, strategies, measures and targets with input from sub-Divisions

Ensure alignment with Business Unit objectives

Review & approve

Business Unit and Division alignment

Approve finalized strategies, measures, targets

Review strategies, measures and targets



Corporate and Business Unit alignment

Corporate Communicate corporate objectives

Communicate preliminary corporate strategies and measures

Revise and finalize corporate strategies, measures, targets

1 2 3 4 5




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.

The vision represents the overall strategic focus of the organizationThe vision represents the overall strategic focus of the organizationVision

Financial

Customer

Internal Business Processes

Organization & Learning

Market

Strategic Vision

Strategic Themes

Strategic Objectives

The strategic objectives further break down the vision and themes into more actionable elements and in aggregate should represent the overall organizational focus

The Framework helps to ensure a balanced emphasis among leading indicators of value creation (employee performance and internal business process measures) and lagging indicators (financial and customer satisfaction measures)

Measures are linked to the organization’s individual strategic objectives




Strategic themes support the overall vision and provide areas of emphasis for the organization to focus its activities


The vision represents the overall strategic focus of the organizationThe vision represents the overall strategic focus of the organizationVision

Financial

Customer



Market

Vision

Financial

Customer



Market

Strategic Vision

Strategic Themes

Strategic Objectives












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.

• T ra in ing hours ach ieved• Counseling frequency

“Develop our hum an resource assets”

• Num ber o f profit centers• Num ber o f bank re la tionsh ips• Num ber o f invo ices

“Establish a low-cost adm in istra tive structure”

• Item s passing quality standards• Unit cost

“P rocure m ateria l effective ly”

• P roduct developm ent lead tim e• Num ber o f engineering changes• Num ber o f new patents

“Develop technologica lly advanced products in an effective m anner”

• Length o f the order fu lfillm ent cycle• Length o f the m anufacturing cycle• Num ber o f d istribution po in ts

“Serve the custom er as a first priority”

• Num ber o f products or services• Num ber o f parts

“D ifferentia te the product” or “S im plify the product”

Sam ple P rocess M easuresO perational S trategies

• Train ing hours ach ieved• Counseling frequency

“Develop our hum an resource assets”

• Num ber o f profit centers• Num ber o f bank re la tionsh ips• Num ber o f invo ices

“Establish a low-cost adm in istra tive structure”

• Item s passing quality standards• Unit cost

“P rocure m ateria l effective ly”

• P roduct developm ent lead tim e• Num ber o f engineering changes• Num ber o f new patents

“Develop technologica lly advanced products in an effective m anner”

• Length o f the order fu lfillm ent cycle• Length o f the m anufacturing cycle• Num ber o f d istribution po in ts

“Serve the custom er as a first priority”

• Num ber o f products or services• Num ber o f parts

“D ifferentia te the product” or “S im plify the product”

Sam ple P rocess M easuresO perational S trategies

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.



• Define the problem to be solved, record on the left side of the diagram

• List the “5 M’s” as categories (or develop your own more specific categories) listing each on a separate thread or bone

• Brainstorm potential causes, listing them under the appropriate category

• Add additional branches or bones to capture causes related to one another

• Review the resulting list to identify others not yet captured.

Example Cause and Effect Diagram

C u sto m erS a tis fac tio n

P ro d u ctQ ua lity P ric e

S e rvic eQ u a lity D e live ry

P rod u ct m e etse xp eca tio n s

P ro d u ct m ee tsn eed s

C o s t to aq u ireC o st to u se

S erv ice m eetsex p ec ta tio n s

S erv ice m e etsne ed s A rrives w h e n

p ro m ised

A rrives w h e nn ee ded

R e la tivepu rchas e p rice

P ro jected R O I

C o s t to m a in ta in

C o s t to o p e ra te

C o n fo rm an ce

R e liab ility

R esp o n s iven essF lex ib ility O n -tim e

d e liv ery

L ea d tim es

P erfo rm ance

How to Use

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.

• In defining the leading and lagging indicators, a cause and effect diagram has been drawn.

• For each cause, indicate the level of influence on the effect– High Effect: has high influence over the

result– Medium Effect: Some influence over the

result– Low Effect: Little influence over the result

• Remove all measures that have a low effect on the result along with its entire branch:– Example: in the example diagram, “Product

Quality” would be removed along with its entire branch (“product meets needs”, “product meets expectations”, etc.)

Source: “Challenge your Balanced Scorecard”, Graham

CustomerSatisfaction

ProductQuality Price

ServiceQuality Delivery

Product meetsexpecations

Product meetsneeds

Cost to aquireCost to use

Service meetsexpectations

Service meetsneeds Arrives when

promised

Arrives whenneeded

Relativepurchase price

Projected ROI

Cost to maintain

Cost to operate

Conformance

Reliability

ResponsivenessFlexibility On-time

delivery

Lead times

Performance

How to Use Example Cause and Effect Rating Diagram

M

H

M

L

L

H

HM

H

L

H

M

M

L

L LM

M

M

H

H

HH

How to Use Example Cause and Effect Rating Diagram

M

H

M

L

L

H

HM

H

L

H

M

M

L

L LM

M

M

H

H

HH

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:

Objectivessupport the overall vision and provide areas of emphasis for the organization to focus its activities

Strategies break down the objectives into more actionable elements and in aggregate should represent the overall organizational focus.

Measures are directly linked to strategies of the organization and should include all major performance drivers for each strategy.

Measures should be:• Timely, accurate, focused and relevant• Leading indicators of performance• Linked to controllable events• Cost effective to collect and compute• Easy to communicate broadly to the

organization

To monitor progress, targets are set for each measure in given time period. Targets should be based off the strategic planning financials and assumptions.

BSC Development

-

Strategy Mapping Primer

World -class cost structures

World -class cost structures Focused InnovationFocused Innovation

Simple and rewarding

experiences


experiences

Best return on information

technology (RoIT)


technology (RoIT)

Corporate Objectives

Capture the XYZ market potentialCapture the XYZ market potential

Establish company as a leader in

specific product area



Build direct business

capabilities


capabilitiesProtect Supplies

Business Protect Supplies

Business

Bus Unit A Objectives

Financial Strategies

Customer Strategies

OperationalExcellenceStrategies

Sam

ple B

us U

nit A

Stra

tegi

es

EmployeeStrategies

Improve brand

performance

Attract the diversity, skills and competencies

we need

Maximize market share while meeting current year revenue &

profit commitments

Develop effective, sustainable marketing

programs

Develop new products / solutions

Sample Bus Unit A Balanced Scorecard

• Revenue / Total market

• Operating profit

•Marketing spend / Revenue•% increase in marketing reach

•Brand recognition rating•New product ramp rates•New product revenue/Total revenue

•Global diversity rating•Meeting employee retention plans

Sample “Bus Unit A” Strategy Map

Objectivessupport the overall vision and provide areas of emphasis for the organization to focus its activities

Strategies break down the objectives into more actionable elements and in aggregate should represent the overall organizational focus.

Measures are directly linked to strategies of the organization and should include all major performance drivers for each strategy.

Measures should be:• Timely, accurate, focused and relevant• Leading indicators of performance• Linked to controllable events• Cost effective to collect and compute• Easy to communicate broadly to the

organization

To monitor progress, targets are set for each measure in given time period. Targets should be based off the strategic planning financials and assumptions.

BSC Development

-

Strategy Mapping Primer

World -class cost structures

World -class cost structures Focused InnovationFocused Innovation


experiences


experiences


technology (RoIT)


technology (RoIT)

Corporate Objectives World -class cost

structuresWorld -class cost

structures Focused InnovationFocused InnovationSimple and rewarding

experiences


experiences


technology (RoIT)


technology (RoIT)

Corporate Objectives

Capture the XYZ market potentialCapture the XYZ market potential






capabilities




Business

Bus Unit A Objectives Capture the XYZ

market potentialCapture the XYZ market potential






capabilities




Business

Bus Unit A Objectives


Customer Strategies


Sam

ple B

us U

nit A

Stra

tegi

es

EmployeeStrategies

Improve brand

performance

Attract the diversity, skills and competencies

we need

Maximize market share while meeting current year revenue &

profit commitments


programs


Sample Bus Unit A Balanced Scorecard



•Marketing spend / Revenue•% increase in marketing reach

•Brand recognition rating•New product ramp rates•New product revenue/Total revenue

•Global diversity rating•Meeting employee retention plans

Sample “Bus Unit A” Strategy Map


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.

Busin

ess U

nit T

actic

s

Sam

ple

Bus

Uni

t A

Ope

ratio

nal P

lan

Sam

ple

Bus

Uni

t ASt

rate

gy M

apCapture the XYZ market

potential

Capture the XYZ market

potential


capabilities


capabilities

Protect Supplies Business


Business Unit Objectives


Customer Strategies


Busin

ess U

nit S

trate

gies

EmployeeStrategies

Improve brand performance

Attract the diversity, skills and competencies we need

Maximize market share while meeting current year revenue & profit

commitments


programs


Sample Balanced Scorecard



• Marketing spend / Revenue

• % increase in marketing reach

• Brand recognition rating

• New product ramp rates

• New product revenue/Total revenue

• Global diversity rating

• Meeting employee retention plans

Financial Tactics

Customer Tactics

OperationalExcellenceTactics

EmployeeTactics

Improve partner and customer support satisfaction

Timely and well-communicated roll-out of new

training programs

Improve product availability and inventory costs

Implement new Value Delivery System to reduce SC costs

Implement segmented product/pricing solutions

Consolidate CRM/customer

data assets

Sample Operational DashboardKiosk revenue% of MFP revenue through directWin rate on deals requiring direct assetsSMB leads/monthHosting quotaInventory turnover ratioOn time deliveryLead timesReturn ratesCustomer service expense per customerResponse time per request% revenue from new customersForecast accuracyWarranty claimsCost excess capacityReworkTraining hoursTraining evaluation ratingsOn time evaluationsRequisitions open past requisition dateTurnover rate

Financial

Operational Excellence

Customer

Employee

Business Management System

XYZ

Busin

ess U

nit T

actic

s

Sam

ple

Bus

Uni

t A

Ope

ratio

nal P

lan

Sam

ple

Bus

Uni

t ASt

rate

gy M


potential


potential


capabilities


capabilities





Customer Strategies


Busin

ess U

nit S

trate

gies

EmployeeStrategies




commitments


programs












Financial Tactics

Customer Tactics


EmployeeTactics



training programs





data assets


Financial


Customer

Employee


XYZ

Sam

ple

Bus

Uni

t A

Ope

ratio

nal P

lan

Sam

ple

Bus

Uni

t ASt

rate

gy M


potential


potential


capabilities


capabilities





Customer Strategies


Busin

ess U

nit S

trate

gies

EmployeeStrategies




commitments


programs












Financial Tactics

Customer Tactics


EmployeeTactics



training programs





data assets


Financial


Customer

Employee


XYZ


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.

Reward Results

Monitor Individual Results

Reporting(Financial & Operational)

Forecasting

Budgeting

Business Planning

Strategic Planning

Analysis

Performance Measurement

ShareholderValue

Planning, Budgeting & Forecasting

Organization Alignment and Accountability

Reporting & Performance Measurement

Reward Results

Monitor Individual Results

Reporting(Financial & Operational)

Forecasting

Budgeting

Business Planning

Strategic Planning

Analysis

Performance Measurement

ShareholderValue

Planning, Budgeting & Forecasting

Organization Alignment and Accountability

Reporting & Performance Measurement


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.

Performance Management

Strategy Formulation Business Planning

IndustryAnalysisIndustryAnalysis

CustomerAnalysis

CustomerAnalysis StrategiesStrategies High Level Operating PlansHigh Level Operating Plans

Strategic Performance

Scorecard (Balanced Scorecard)



Financial Plan

Financial Plan People PlansPeople Plans

Financial Performance

Scorecard


Scorecard

People Performance

Scorecard

People Performance

Scorecard

InitiativesInitiatives Detailed Op. Plans

Detailed Op. Plans

Initiative Performance

Scorecard


Scorecard

Operating Performance Scorecard(s)


Business Model

Analysis

Business Model

Analysis

Market Event Triggers


Corporate View

Division-level ViewBusiness Unit-level View

Customer Plans

Customer Plans Partner PlansPartner Plans

Customer Performance

Scorecard


ScorecardPartner

Performance Scorecard(s)

Partner Performance Scorecard(s)

Individual Performance

Plans


Plans

Performance Management

Strategy Formulation Business Planning

IndustryAnalysisIndustryAnalysis

CustomerAnalysis

CustomerAnalysis StrategiesStrategies High Level Operating PlansHigh Level Operating Plans





Financial Plan

Financial Plan People PlansPeople Plans


Scorecard


Scorecard

People Performance

Scorecard

People Performance

Scorecard

InitiativesInitiatives Detailed Op. Plans

Detailed Op. Plans


Scorecard


Scorecard



Business Model

Analysis

Business Model

Analysis



Corporate View

Division-level ViewBusiness Unit-level View

Customer Plans

Customer Plans Partner PlansPartner Plans


Scorecard


ScorecardPartner

Performance Scorecard(s)

Partner Performance Scorecard(s)


Plans


Plans




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:

Figure 6.1

• Executive team able to understand business more holistically

• Executives able to efficiently identify and address low performance areas

• Integrate 4 entities under common objectives and measures

Implemented a BSC in 2000 to integrate four entities under one common umbrella. Used the scorecard in conjunction with the Baldrige criteria framework and its TQM system.

AT&T Canada

• Performance measures linked to key business strategies and management goals

• Enterprise wide performance mgmt streamlined and integrated

• Strategy and measures linked• Monitor the strategic success

of the division• Performance management

streamlined

Implemented a BSC in one of three divisions to strengthen management processes and develop a set of metrics to gauge the health of the organization. An on-line management tool was developed for reporting and visibility

Technology Hardware Manufacturer

Implemented a BSC in 1993 to help assimilate an acquisition, introduce more integrated financial services, and accelerate the use of electronic banking

Implemented a BSC in 1993 to help manage the transformation from a money-losing generalist to a top-quartile specialist

Implemented a BSC in 1993 for a division with $20bn in revenue. The scorecard was put in place to help the company move from a centralized to a decentralized organization. The scorecard was linked to executive compensation

Implemented a BSC for the IT group (ITG), a $1 billion cost center

Description

• Profitability increased by a factor of 20 over 3 years

• Strategic priorities defined• Budgeting and strategy linked

Chemical Retail Bank (Chase)

• Returned to profitability within 2 years that was sustained for 4 consecutive years

• Return to ProfitabilityCigna

• Moved from last place to first in industry profitability and maintained it for 5 years

• Number of employees reporting that they understand the strategy went from 20% to 80%

• Employees understand the corporate strategy and how they fit in

Mobil

• Cut costs by 20% with same level if service

• Broad understanding of strategy

• Organization aligned under common goals and measures

• Cost reduction

Microsoft

ResultsBSC ObjectivesCompany

• Executive team able to understand business more holistically

• Executives able to efficiently identify and address low performance areas

• Integrate 4 entities under common objectives and measures

Implemented a BSC in 2000 to integrate four entities under one common umbrella. Used the scorecard in conjunction with the Baldrige criteria framework and its TQM system.

AT&T Canada

• Performance measures linked to key business strategies and management goals

• Enterprise wide performance mgmt streamlined and integrated

• Strategy and measures linked• Monitor the strategic success

of the division• Performance management

streamlined

Implemented a BSC in one of three divisions to strengthen management processes and develop a set of metrics to gauge the health of the organization. An on-line management tool was developed for reporting and visibility

Technology Hardware Manufacturer

Implemented a BSC in 1993 to help assimilate an acquisition, introduce more integrated financial services, and accelerate the use of electronic banking

Implemented a BSC in 1993 to help manage the transformation from a money-losing generalist to a top-quartile specialist

Implemented a BSC in 1993 for a division with $20bn in revenue. The scorecard was put in place to help the company move from a centralized to a decentralized organization. The scorecard was linked to executive compensation

Implemented a BSC for the IT group (ITG), a $1 billion cost center

Description

• Profitability increased by a factor of 20 over 3 years

• Strategic priorities defined• Budgeting and strategy linked

Chemical Retail Bank (Chase)

• Returned to profitability within 2 years that was sustained for 4 consecutive years

• Return to ProfitabilityCigna

• Moved from last place to first in industry profitability and maintained it for 5 years

• Number of employees reporting that they understand the strategy went from 20% to 80%

• Employees understand the corporate strategy and how they fit in

Mobil

• Cut costs by 20% with same level if service

• Broad understanding of strategy

• Organization aligned under common goals and measures

• Cost reduction

Microsoft

ResultsBSC ObjectivesCompany

Sources•“OnBalance”, CFO, February 2001•“Building a strategy-focused organization”, Kaplan and Norton•Deloitte Consulting



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

Performance measures linked to key business strategies and management goals

Enterprise wide performance management streamlined and integrated

Implemented a scorecard in 2001 for one of the three major divisionsDeveloped a customized portal for the leadership team with access limited to key executives and direct reportsModified the measures over time to reflect changes in the businessUses a portal, spreadsheet and existing databases to manage measures, data and reportingLinked about 1/3 of the measures to existing systems with the other 2/3 representing “softer” measuresSupported by finance and the strategy officeUse scorecard in conjunction with the monthly leadership reviews of the business

Link strategy and measuresAssure the strategic health of the division is measurableStreamline performance management

Global enterprise with divisions representing major categoriesDivisions typically create siloed solutions that overlap and competeAggressive, centralized management styleRecently shifted leadership through the retirement of several key executivesRelies on a mix of channel relationships and direct sales force

ResultsCO

NTE

XTO

BJE

CTI

VES

APPR

OAC

H

Performance measures linked to key business strategies and management goals

Enterprise wide performance management streamlined and integrated

Implemented a scorecard in 2001 for one of the three major divisionsDeveloped a customized portal for the leadership team with access limited to key executives and direct reportsModified the measures over time to reflect changes in the businessUses a portal, spreadsheet and existing databases to manage measures, data and reportingLinked about 1/3 of the measures to existing systems with the other 2/3 representing “softer” measuresSupported by finance and the strategy officeUse scorecard in conjunction with the monthly leadership reviews of the business

Link strategy and measuresAssure the strategic health of the division is measurableStreamline performance management

Global enterprise with divisions representing major categoriesDivisions typically create siloed solutions that overlap and competeAggressive, centralized management styleRecently shifted leadership through the retirement of several key executivesRelies on a mix of channel relationships and direct sales force

ResultsCO

NTE

XTO

BJE

CTI

VES

APPR

OAC

H

Figure 6.2

Sources: “OnBalance”, CFO, February 2001 “Building a strategy-focused organization”, Kaplan and Norton Deloitte



Case Study: AT&T Canada

Over time, the scorecard has helped the executive team understand the business more holistically and how all the elements interact

Have become more efficient in its use over time and typically drill down on poorly performing areas quickly during the executive meeting

Executives met for four hours once a month to review results on the scorecardUsed in conjunction with the Baldrige criteria framework and itsTQM systemModified the measures over time since 2000 to reflect changes in the businessCorporate team responsible to provide the methodology for measurement and limited consulting services to business units who are responsible for developing their own scorecardsUses Excel to manage measures for a majority of the businessDeveloped a customized web-enabled report cardLinked the scorecard to compensation for individuals variable pay element (33% customer, 33% revenue, 33% EBITDA)

Integrate 4 acquired entities under common objectives and measuresCommon understanding amongst executives on what the major business drivers were and how the pieces fit together

Moved four separate organizations to one major organization in June 2000Organization managed by service categoryStrong, integrated leadership team with seasoned executivesDistributed leadership and controlLarge install base of customers

ResultsCO

NTE

XTO

BJE

CTI

VES

APPR

OAC

H

Over time, the scorecard has helped the executive team understand the business more holistically and how all the elements interact

Have become more efficient in its use over time and typically drill down on poorly performing areas quickly during the executive meeting

Executives met for four hours once a month to review results on the scorecardUsed in conjunction with the Baldrige criteria framework and itsTQM systemModified the measures over time since 2000 to reflect changes in the businessCorporate team responsible to provide the methodology for measurement and limited consulting services to business units who are responsible for developing their own scorecardsUses Excel to manage measures for a majority of the businessDeveloped a customized web-enabled report cardLinked the scorecard to compensation for individuals variable pay element (33% customer, 33% revenue, 33% EBITDA)

Integrate 4 acquired entities under common objectives and measuresCommon understanding amongst executives on what the major business drivers were and how the pieces fit together

Moved four separate organizations to one major organization in June 2000Organization managed by service categoryStrong, integrated leadership team with seasoned executivesDistributed leadership and controlLarge install base of customers

ResultsCO

NTE

XTO

BJE

CTI

VES

APPR

OAC

H

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:

Develop PeopleDevelop People Become GlobalBecome GlobalDeliver Customer Value

Deliver Customer Value

MaximizePerformanceMaximize

Performance

The company provides premier technical, management, and directly related services to develop, manage, engineer, build, and operate installations for our customers worldwideThe company provides premier technical, management, and directly related services to

develop, manage, engineer, build, and operate installations for our customers worldwideVision

Objectives

ObjectiveDescription:

Tailoring our planning & resource allocation, developing strong local ties, and building a multi-cultural workforce to secure a global marketplace

Promoting development and challenge in a healthy and positive work environment

Understanding and exceeding customer expectations so that we fully satisfy every customer on every job

Delivering value to stakeholders through every aspect of the business by earning a fair return on our delivered value




Performance


develop, manage, engineer, build, and operate installations for our customers worldwideVision

Objectives

ObjectiveDescription:

Tailoring our planning & resource allocation, developing strong local ties, and building a multi-cultural workforce to secure a global marketplace

Promoting development and challenge in a healthy and positive work environment

Understanding and exceeding customer expectations so that we fully satisfy every customer on every job

Delivering value to stakeholders through every aspect of the business by earning a fair return on our delivered value

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.




Performance

Make Continuous Improvement

Develop Technical

Infrastructure

Build Teams and Leaders

Satisfy Customer Needs

Perform Work Standardize EPC Processes

Develop and Apply

Technology


develop, manage, engineer, build, and operate installations for our customers worldwide


Internal BusinessProcess Strategies

Vision

Objectives

Stra

tegi

es

Organization andLearning Objectives

Earn Sustainable, Predictable,

Acceptable Profit

Develop Business and

Customer Relationships

Be Safe and Ethical

Attract and Retain the Best

People

Manage Business Partners

Customer & Business Partner Related Strategies




Performance

Make Continuous Improvement

Develop Technical

Infrastructure

Build Teams and Leaders

Satisfy Customer Needs

Perform Work Standardize EPC Processes

Develop and Apply

Technology


develop, manage, engineer, build, and operate installations for our customers worldwide


Internal BusinessProcess Strategies

Vision

Objectives

Stra

tegi

es

Organization andLearning Objectives

Earn Sustainable, Predictable,

Acceptable Profit

Develop Business and

Customer Relationships

Be Safe and Ethical

Attract and Retain the Best

People

Manage Business Partners

Customer & Business Partner Related Strategies


This organization then translated these objectives into a series of performance measures that form the basis of their Balanced Scorecards.

Strategies Strategic Measure1.1. New Work Booked OP / Plan OP1.2. Work-off OP / Plan OP1.3. (Obtain Economic Value Added input)1.4. Working Capital Balance1.5. Aggregated Total Cost and Schedule Performance Factor1.6. Aggregate Risk (by country/customer/receivable, etc)

1.7. Receivables as a % of Principal Revenue1.8. (Unallowable OH$ + NR$) / OP (BSII only)1.9. Fee Efficiency (Fee - Non-reimbursable - cost for project working capital) / Fee (BSII only)1.10. Cash Margin2.1. NPV as defined by customer2.2. Repeat Customers as a % of New Work Booked2.3. Ethics (Customer Survey)2.4. Customer Survey and Evaluations3.1. Business Partner Survey3.2. Ethics (Business Partner Survey)4.1. % of New Work Booked Operating Profit from Strategic Customers4.2. % of New Work Booked Operating Profit working with Target Business Partners4.3. % of New Work Booked Operating Profit working from BEn

1. Earn Sustainable, Predictable, Acceptable Profits

2. Satisfy Customer Needs

3. Manage Business Partners

4. Develop Business and Customer Relationships

Strategies Strategic Measure1.1. New Work Booked OP / Plan OP1.2. Work-off OP / Plan OP1.3. (Obtain Economic Value Added input)1.4. Working Capital Balance1.5. Aggregated Total Cost and Schedule Performance Factor1.6. Aggregate Risk (by country/customer/receivable, etc)

1.7. Receivables as a % of Principal Revenue1.8. (Unallowable OH$ + NR$) / OP (BSII only)1.9. Fee Efficiency (Fee - Non-reimbursable - cost for project working capital) / Fee (BSII only)1.10. Cash Margin2.1. NPV as defined by customer2.2. Repeat Customers as a % of New Work Booked2.3. Ethics (Customer Survey)2.4. Customer Survey and Evaluations3.1. Business Partner Survey3.2. Ethics (Business Partner Survey)4.1. % of New Work Booked Operating Profit from Strategic Customers4.2. % of New Work Booked Operating Profit working with Target Business Partners4.3. % of New Work Booked Operating Profit working from BEn

1. Earn Sustainable, Predictable, Acceptable Profits

2. Satisfy Customer Needs

3. Manage Business Partners

4. Develop Business and Customer Relationships




Strategies Strategic Measure5.1. 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 Reduction6.1. Return on Human Capital (OP / non-manual hours)6.2. OP / non-manual total employee cost6.3. Kase Quality Gates (success rates of reviews or attendance of players) (can vary by Division)6.4. <Obtain six sigma input>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)8.1. Work Process Quality (# of audit findings)8.2. % of bulk procurement on client paper8.3. <Obtain construction input>8.4. <Obtain engineering input>8.5. <Obtain procurement input>9.1. Return on Technology Investment (Division specific)9.2. % of prospects on strategic plan

5. Perform Work

6. Make Continuous Improvement

8. Standardize EPC Processes

7. Be Safe and Ethical

9. Develop and Apply Technology

Strategies Strategic Measure5.1. 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 Reduction6.1. Return on Human Capital (OP / non-manual hours)6.2. OP / non-manual total employee cost6.3. Kase Quality Gates (success rates of reviews or attendance of players) (can vary by Division)6.4. <Obtain six sigma input>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)8.1. Work Process Quality (# of audit findings)8.2. % of bulk procurement on client paper8.3. <Obtain construction input>8.4. <Obtain engineering input>8.5. <Obtain procurement input>9.1. Return on Technology Investment (Division specific)9.2. % of prospects on strategic plan

5. Perform Work

6. Make Continuous Improvement

8. Standardize EPC Processes

7. Be Safe and Ethical

9. Develop and Apply Technology

Strategies Strategic Measure10.1. Mobility of workforce10.2. Employee turnover10.3. Skill and Grade mix of people10.4. # of outstanding recs / total HC10.5. Employee Satisfaction Survey10.6. Total HC (by sub-Division or Division etc.)11.1. Local vs. Expat project mix (Project)11.2. Local vs. Expat project mix (Overhead)11.3. Diversity (EEOC filings U.S.)12.1. Technical Infrastructure Performance Factor (current forecast / current budget)12.2. Current Schedule (+,0,-)12.3. Quality Assessment (+,0,-)

10. Attract and Retain the Best People

11. Build Teams and Leaders

12. Develop Technical Infrastructure

Strategies Strategic Measure10.1. Mobility of workforce10.2. Employee turnover10.3. Skill and Grade mix of people10.4. # of outstanding recs / total HC10.5. Employee Satisfaction Survey10.6. Total HC (by sub-Division or Division etc.)11.1. Local vs. Expat project mix (Project)11.2. Local vs. Expat project mix (Overhead)11.3. Diversity (EEOC filings U.S.)12.1. Technical Infrastructure Performance Factor (current forecast / current budget)12.2. Current Schedule (+,0,-)12.3. Quality Assessment (+,0,-)

10. Attract and Retain the Best People

11. Build Teams and Leaders

12. Develop Technical Infrastructure

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.

F o c u s A r e a sC o u n c i l c o m m u n i c a t e s t h e m e s t o L e a d e r s h i p

S t r a t e g yL e a d e r s h i p d e t e r m i n e s r e s p o n s e

C o r p o r a t e S c o r e c a r dR e s p o n s e b e c o m e s s t r a t e g i c o b j e c t i v e s

O r g a n i z a t i o nO r g a n i z a t i o n i m p l e m e n t s

V i s i o nC i t y ’ s v i s i o n s t a t e m e n t

F o c u s A r e a sC o u n c i l c o m m u n i c a t e s t h e m e s t o L e a d e r s h i p

S t r a t e g yL e a d e r s h i p d e t e r m i n e s r e s p o n s e

C o r p o r a t e S c o r e c a r dR e s p o n s e b e c o m e s s t r a t e g i c o b j e c t i v e s

O r g a n i z a t i o nO r g a n i z a t i o n i m p l e m e n t s

V i s i o nC i t y ’ s v i s i o n s t a t e m e n t

Figure 6.7 Source: City of Charlotte, 2003



Strategic Themes

Balanced/Corporate Scorecard

Key Business Unit Scorecard

Division Scorecard

Employee

PRD

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.

DELIVER COMPETITIVE SERVICES

DELIVER COMPETITIVE SERVICESDevelop Competition Plan (KI)Total dollars subjected annually to competition, optimization, or benchmark (KM)Meet MOU requirements and produce savings (KT)

DELIVER COMPETITIVE SERVICESDevelop and Implement an Optimization Plan for all 3 Districts (DI)Produce audit reports that report cost and measure work producedagainst standards (DM)Meet or exceed standards contained in MOU (DT)

DELIVER COMPETITIVE SERVICESAssist with Implementation of Optimization Plan (EI)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)

TransportationKBU

Field Operations Supervisor

StreetMaintenance

C=CorporateK=KBUD=DivisionE=EmployeeI=InitiativeM=MeasureT=Target

Corporate DELIVER COMPETITIVE SERVICES

DELIVER COMPETITIVE SERVICESDevelop Competition Plan (KI)Total dollars subjected annually to competition, optimization, or benchmark (KM)Meet MOU requirements and produce savings (KT)

DELIVER COMPETITIVE SERVICESDevelop and Implement an Optimization Plan for all 3 Districts (DI)Produce audit reports that report cost and measure work producedagainst standards (DM)Meet or exceed standards contained in MOU (DT)

DELIVER COMPETITIVE SERVICESAssist with Implementation of Optimization Plan (EI)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)

TransportationKBU

Field Operations Supervisor

StreetMaintenance

C=CorporateK=KBUD=DivisionE=EmployeeI=InitiativeM=MeasureT=Target

Corporate




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.


Copyright ©2004 Deloitte Development LLC. All Rights Reserved.. 35 February 2004

Monitor and Manage

Understanding of agency’s mission and goal linkages to enterprise, program and administrative outcome and outputsIdentifying the optimal starting point in the performance management implementation continuumAssessing areas of strengths and weaknessesDeveloping key focus areas for agency in terms of demonstrating resultsIdentifying extent to which current performance framework can be leveraged

Validate/refresh agency mission with agency leadershipIdentify agency strategic opportunities/threatsAlign agency goals and objectives to long term outcomes and operational outputsFactor stakeholder expectations and influencesDevelop performance drivers and cascaded set of measuresDevelop targets for performance –absolute measures and relative to peers

Mission,/goals/strategy linkage in terms of:Integration between enterprise,

program areas and administrative operations

Key stakeholder perspectivesDefine agency specific performance objectivesDefine mandatory reporting requirementsDefine macro-level measures/standardsDevelop peer groups and conduct performance benchmark analysisDevelop current performance baselines (cost, program performance, etc.)

This phase involves a quick, highThis phase involves a quick, high--level level assessment of the organization’s assessment of the organization’s performance management framework in terms performance management framework in terms of current status, and the overall of current status, and the overall organizational readiness and capabilities to organizational readiness and capabilities to implement and integrate a performance implement and integrate a performance management frameworkmanagement framework

This phase involves articulating and linking This phase involves articulating and linking the organization’s vision, mission, goals and the organization’s vision, mission, goals and objectives. Enterprise, program outcomes objectives. Enterprise, program outcomes and administrative outputs are defined and and administrative outputs are defined and linked to a broad management control linked to a broad management control framework.framework.

This phase involves designing the detailed This phase involves designing the detailed structure of performance measures, the structure of performance measures, the control mechanisms, and data acquisition control mechanisms, and data acquisition strategy. Process, technology and people strategy. Process, technology and people related issues are considered in an related issues are considered in an integrated fashion. integrated fashion.

This phase involves developing, testing and This phase involves developing, testing and implementing a pilot version of the technical implementing a pilot version of the technical solution. I parallel, the process and change solution. I parallel, the process and change management initiatives are carried out.management initiatives are carried out.

This phase involves implementing all the This phase involves implementing all the aspects of the performance management aspects of the performance management framework and integrating it to the normal framework and integrating it to the normal operational processes of the organization. operational processes of the organization. New management controls would be New management controls would be operationalized. operationalized.

This phase involves monitoring the new This phase involves monitoring the new framework in operation and in effect, framework in operation and in effect, conducting a post implementation review to conducting a post implementation review to identify potential areas for improvement.identify potential areas for improvement.

Develop the performance measurement structureIdentify sources of data and defining data acquisition strategy including data ownershipDevelop a management control planPerform software selectionDevelop process change, change management and leadership development planDevelop the business case and program implementation plan

Analyze casual linkages of all performance driversDesign detailed structure of performance measuresMap the “as-is” and design the “to be” performance management process flows including data sources, report presentation, and frequencyDevelop implementation plan for moving the agency to the new processes

Implement a pilot of the performance management framework, including:

An integrated performance management system

Performance thresholds and possible managerial actions

Process and people related changes to support the new performance management culture

Implement a conference room pilot for performance management systems solution

Develop and test performance measurement systemDevelop and test interfaces to other systemsRefine new process details to reflect new system characteristicsDevelop detailed systems integration and refreshed change management plan

Deploy the performance management framework across enterprise, program areas and administrative areasUse performance data integrated with planning, budgeting and operational controlExtend performance reporting to various stakeholder groups

Install performance measurement system and implement data integration with other systemsImplement new processes - including executing communications plan and training usersConduct unit/integration/regression tests and test system implementation and transition to productionDevelop review framework

Monitor operations and validate that the performance management framework:

Demonstrates visible improvementsProvides reliable and relevant

information to executives and line managers

Meets the information requirements of stakeholders (current status & action plan)

Links agency program and administrative operations to outcomes

Meets the legislative and regulatory requirements

Conduct system and process review studiesAssess systems use patterns by staffEstablish a regular program monitoring process to ensure continuous improvement of the system

Stakeholder and goal alignment analysisRefined strategy and high-level scorecardAgency specific performance driversBaseline and benchmark analysisTransformation plan and major components

Performance Framework Assessment ReportAgency Readiness and Capability MapHigh-level Improvement Plan

Detailed performance measurement architectureProcess reengineering planManagement control frameworkHigh-level change management planSoftware solution recommendationPerformance management program components, business cases and implementation plan

Conference room pilot software solutionDetailed change management initiativesDetailed process redesignsDetailed management control frameworkIntegration plan

A operating performance management frameworkImplementation of supporting processesOperational guidelinesDesign and delivery of educational programsDesign and delivery of training programs

Detailed performance framework reviewStakeholder analysisLessons learnedSet of improvement initiatives

ASSESSASSESSASSESS DEFINEDEFINEDEFINE DESIGNDESIGNDESIGN DEVELOPDEVELOPDEVELOP IMPLEMENT & INTEGRATEIMPLEMENT & INTEGRATEIMPLEMENT & INTEGRATE MONITORMONITORMONITOR

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MM

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LUT

ION

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& T

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LIV

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Performance DiagnosticPerformance DiagnosticPerformance Diagnostic Strategy Assessment & Scenario-based Strategic Planning

Strategy Assessment & ScenarioStrategy Assessment & Scenario--based Strategic Planningbased Strategic Planning

Stakeholder AnalysisStakeholder AnalysisStakeholder Analysis

StrategyPrintStrategyPrintStrategyPrint

Change LeadershipChange LeadershipChange Leadership

Value Based ManagementValue Based ManagementValue Based Management

InformationPrintInformationPrintInformationPrint eTI MethodologieseTIeTI MethodologiesMethodologies

Change LeadershipChange LeadershipChange LeadershipBI/DW SolutionsBI/DW SolutionsBI/DW Solutions

Benefits TrackingBenefits TrackingBenefits Tracking

Performance MonitorPerformance MonitorPerformance Monitor

COTS SolutionsCOTS SolutionsCOTS Solutions


OB

JEC

TIV

ES

OB

JEC

TIV

ES

Status of current performance management framework

Readiness assessmentCoverage and capability assessment

Linkage of outcome/output measures between mission/goals and enterprise, programs and administrative processesReconcile stakeholder expectation to strategyPriorities for results and performancePerformance framework audit vis-à-vis legislative requirements (e.g. CFO Act)Assess budgeting processes linking budgets to performance plan

Activity Based CostingActivity Based CostingActivity Based Costing IndustryPrintIndustryPrintIndustryPrint

Monitor and Manage

Understanding of agency’s mission and goal linkages to enterprise, program and administrative outcome and outputsIdentifying the optimal starting point in the performance management implementation continuumAssessing areas of strengths and weaknessesDeveloping key focus areas for agency in terms of demonstrating resultsIdentifying extent to which current performance framework can be leveraged

Validate/refresh agency mission with agency leadershipIdentify agency strategic opportunities/threatsAlign agency goals and objectives to long term outcomes and operational outputsFactor stakeholder expectations and influencesDevelop performance drivers and cascaded set of measuresDevelop targets for performance –absolute measures and relative to peers

Mission,/goals/strategy linkage in terms of:Integration between enterprise,

program areas and administrative operations

Key stakeholder perspectivesDefine agency specific performance objectivesDefine mandatory reporting requirementsDefine macro-level measures/standardsDevelop peer groups and conduct performance benchmark analysisDevelop current performance baselines (cost, program performance, etc.)

This phase involves a quick, highThis phase involves a quick, high--level level assessment of the organization’s assessment of the organization’s performance management framework in terms performance management framework in terms of current status, and the overall of current status, and the overall organizational readiness and capabilities to organizational readiness and capabilities to implement and integrate a performance implement and integrate a performance management frameworkmanagement framework

This phase involves articulating and linking This phase involves articulating and linking the organization’s vision, mission, goals and the organization’s vision, mission, goals and objectives. Enterprise, program outcomes objectives. Enterprise, program outcomes and administrative outputs are defined and and administrative outputs are defined and linked to a broad management control linked to a broad management control framework.framework.

This phase involves designing the detailed This phase involves designing the detailed structure of performance measures, the structure of performance measures, the control mechanisms, and data acquisition control mechanisms, and data acquisition strategy. Process, technology and people strategy. Process, technology and people related issues are considered in an related issues are considered in an integrated fashion. integrated fashion.

This phase involves developing, testing and This phase involves developing, testing and implementing a pilot version of the technical implementing a pilot version of the technical solution. I parallel, the process and change solution. I parallel, the process and change management initiatives are carried out.management initiatives are carried out.

This phase involves implementing all the This phase involves implementing all the aspects of the performance management aspects of the performance management framework and integrating it to the normal framework and integrating it to the normal operational processes of the organization. operational processes of the organization. New management controls would be New management controls would be operationalized. operationalized.

This phase involves monitoring the new This phase involves monitoring the new framework in operation and in effect, framework in operation and in effect, conducting a post implementation review to conducting a post implementation review to identify potential areas for improvement.identify potential areas for improvement.

Develop the performance measurement structureIdentify sources of data and defining data acquisition strategy including data ownershipDevelop a management control planPerform software selectionDevelop process change, change management and leadership development planDevelop the business case and program implementation plan

Analyze casual linkages of all performance driversDesign detailed structure of performance measuresMap the “as-is” and design the “to be” performance management process flows including data sources, report presentation, and frequencyDevelop implementation plan for moving the agency to the new processes

Implement a pilot of the performance management framework, including:

An integrated performance management system

Performance thresholds and possible managerial actions

Process and people related changes to support the new performance management culture

Implement a conference room pilot for performance management systems solution

Develop and test performance measurement systemDevelop and test interfaces to other systemsRefine new process details to reflect new system characteristicsDevelop detailed systems integration and refreshed change management plan

Deploy the performance management framework across enterprise, program areas and administrative areasUse performance data integrated with planning, budgeting and operational controlExtend performance reporting to various stakeholder groups

Install performance measurement system and implement data integration with other systemsImplement new processes - including executing communications plan and training usersConduct unit/integration/regression tests and test system implementation and transition to productionDevelop review framework

Monitor operations and validate that the performance management framework:

Demonstrates visible improvementsProvides reliable and relevant

information to executives and line managers

Meets the information requirements of stakeholders (current status & action plan)

Links agency program and administrative operations to outcomes

Meets the legislative and regulatory requirements

Conduct system and process review studiesAssess systems use patterns by staffEstablish a regular program monitoring process to ensure continuous improvement of the system

Stakeholder and goal alignment analysisRefined strategy and high-level scorecardAgency specific performance driversBaseline and benchmark analysisTransformation plan and major components

Performance Framework Assessment ReportAgency Readiness and Capability MapHigh-level Improvement Plan

Detailed performance measurement architectureProcess reengineering planManagement control frameworkHigh-level change management planSoftware solution recommendationPerformance management program components, business cases and implementation plan

Conference room pilot software solutionDetailed change management initiativesDetailed process redesignsDetailed management control frameworkIntegration plan

A operating performance management frameworkImplementation of supporting processesOperational guidelinesDesign and delivery of educational programsDesign and delivery of training programs

Detailed performance framework reviewStakeholder analysisLessons learnedSet of improvement initiatives

ASSESSASSESSASSESS DEFINEDEFINEDEFINE DESIGNDESIGNDESIGN DEVELOPDEVELOPDEVELOP IMPLEMENT & INTEGRATEIMPLEMENT & INTEGRATEIMPLEMENT & INTEGRATE MONITORMONITORMONITOR

SU

MM

AR

YS

UM

MA

RY

MA

JOR

M

AJO

R

AC

TIV

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SA

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LUT

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LUT

ION

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& T

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Performance DiagnosticPerformance DiagnosticPerformance Diagnostic Strategy Assessment & Scenario-based Strategic Planning

Strategy Assessment & ScenarioStrategy Assessment & Scenario--based Strategic Planningbased Strategic Planning


StrategyPrintStrategyPrintStrategyPrint

Change LeadershipChange LeadershipChange Leadership

Value Based ManagementValue Based ManagementValue Based Management

InformationPrintInformationPrintInformationPrint eTI MethodologieseTIeTI MethodologiesMethodologies

Change LeadershipChange LeadershipChange LeadershipBI/DW SolutionsBI/DW SolutionsBI/DW Solutions

Benefits TrackingBenefits TrackingBenefits Tracking

Performance MonitorPerformance MonitorPerformance Monitor

COTS SolutionsCOTS SolutionsCOTS Solutions


OB

JEC

TIV

ES

OB

JEC

TIV

ES

Status of current performance management framework

Readiness assessmentCoverage and capability assessment

Linkage of outcome/output measures between mission/goals and enterprise, programs and administrative processesReconcile stakeholder expectation to strategyPriorities for results and performancePerformance framework audit vis-à-vis legislative requirements (e.g. CFO Act)Assess budgeting processes linking budgets to performance plan

Activity Based CostingActivity Based CostingActivity Based Costing IndustryPrintIndustryPrintIndustryPrint


Global CFO Services Curriculum

Self-Study Guide: Performance Management and the Balanced Scorecard


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.

Narrow

SAPPeopleSoft

Oracle, InPhase TechnologiesQPR Software, Procos, Prodacapo

HyperionComshare

SAS

CognosCorVu

(Gentia)

AlphabloxBusiness ObjectsMicroStrategyProClarity

Panorama Business Views,ShowBusiness ActiveStrategy

More than 20 small vendors

Balanced Scorecard Tool Vendors: 2002 Update

Level of IT SupportLow High

Closed Loop

Analytical

Degree of Integration

Broad

Project Scope

Corporate Performance Management Suites

BI Platforms/Enterprise BI Suites

Balanced Scorecard Applications

Narrow

SAPPeopleSoft

Oracle, InPhase TechnologiesQPR Software, Procos, Prodacapo

HyperionComshare

SAS

CognosCorVu

(Gentia)

AlphabloxBusiness ObjectsMicroStrategyProClarity

Panorama Business Views,ShowBusiness ActiveStrategy

More than 20 small vendors

Balanced Scorecard Tool Vendors: 2002 Update

Level of IT SupportLow High

Closed Loop

Analytical

Degree of Integration

Broad

Project Scope

Corporate Performance Management Suites

BI Platforms/Enterprise BI Suites

Balanced Scorecard Applications


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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