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How a public sector agency re-invigorated its Balanced Scorecard

A 3rd Generation Balanced Scorecard Case Study

November 2004

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How a public sector agency re-invigorated its Balanced Scorecard This 2GC case study builds upon an earlier research paper called “The Design of a Strategic Management system in a Public Sector organisation” that was presented by 2GC at the Fourth International Conference on Performance Measurement and Management, held in Edinburgh, 20041.

Introduction

This case study concerns a project to design and implement a strategic performance management system within a medium sized public sector enterprise. It looks at how this UK Government Agency found it necessary to re-design its failing strategic performance management system only a year after its introduction, and how the second attempt appears to have been much more successful. The two approaches adopted differed in both the structure of the Balanced Scorecard being designed and in the design methods used. The advantages of one approach is demonstrated by comparing the two approaches used.

The case study describes the consequences of this work, and offers insights and recommendations concerning the application of strategic performance management methods and systems derived from this experience.

Three distinct Generations of Balanced Scorecard design have been identified since the idea was first widely publicised in the early 1990s. These Generations are described in more detail in “The Development of Balanced Scorecard as a Strategic Management Tool”, a 2GC Research Paper available from 2GC at http://www.2gc.co.uk/resources-papers.asp.

The case study enables comparison between 2nd and 3rd Generation Balanced Scorecard applications in relation to their practical value in a public sector organisation. It seeks to answer the following three questions:

• How do the results of a 3rd Generation Balanced Scorecard design process differ from those of a 2nd Generation design process?

• Why would a management team, that had recently attempted to design and implement a strategic management system using Balanced Scorecard, be persuaded to redesign their Balanced Scorecard?

• Is the 3rd Generation Balanced Scorecard approach more applicable to a public sector organisation?

Background

The case organisation, the Defence Storage and Distribution Agency (DSDA), is a semi-autonomous central government agency working in the UK’s defence sector. DSDA’s main activity is the provision of key elements of logistics support to the armed forces in UK and North West Europe. In 2003, it had a budget of about £250 million a year and about 5,000 employees, of whom over 95 % are civilians. The Agency is a functional element of the Defence Logistics Organisation (DLO) – which in turn is one of the core services comprising the UK’s military capability. However, due to its semi-autonomous Agency status, DSDA’s Board and Chief Executive are accountable for Agency performance directly to the Minister for Armed Forces.

1 The original PMA case-study was written by William Barney, 2GC Active Management, Dr. Zoe Radnor, Professor Robert Johnston both Warwick Business School, and William Mahon, Defence Storage and Distribution Agency

2GC Case Study: How a public sector agency re-invigorated its Balanced Scorecard Page 1

http://www.2gc.co.uk/resources-papers.asp

The first attempt

In January 2002, the Board of DSDA took the decision to introduce a Balanced Scorecard based performance management system for use at management board level. The choice to use Balanced Scorecard as a framework was influenced by two factors. First, a Balanced Scorecard based system was already in use at the Ministry of Defence and the DLO. Second, through benchmarking with the United States Defence Logistics Agency and in particular, the US DDC (Defence Distribution Centre), DSDA had established that a Balanced Scorecard based system was also used in equivalent organisations in the USA.

Prior to starting the design project, DSDA paid for members of the project team (drawn from its Human Resources and Corporate Plans Departments) to receive two days training in Balanced Scorecard design from an external organisation. This training focused on the design and implementation of “2nd Generation” Balanced Scorecard designs, and accordingly the team constructed and executed a project plan to create a Balanced Scorecard of this type.

2nd Generation Balanced Scorecard designs focus on the development of a number of linked ‘strategic objectives’ that in turn become the basis for the selection of appropriate performance measures and targets that are used to inform Balanced Scorecard reports made to managers. Notoriously hard to design, management engagement in the process itself is hard to obtain. The DSDA project team, working on their first Balanced Scorecard with just two days training (and a book) to work from, struggled to get good contributions from the management team. The result was (as is common) a set of strategic objectives that were notable primarily for their vagueness. This vagueness was thought by the design team to be a direct result of insufficient senior management engagement during the design process used. Three examples of the original vague objectives are:

• “Secure new investments” • “Long-term beneficial partnerships” • “Embrace diversity”

This vagueness made measure selection and target setting difficult: since they could mean most things to everybody, picking a specific measure was hard to justify. However, the design was completed, and reporting against the Balanced Scorecard commenced at the October 2002 DSDA board meeting, but at that point the majority of objectives had no measures defined. The design elements that made up this Balanced Scorecard are illustrated in Figure 1 below.

ActiveManagementC2G© 2GC Limited, 2004.

DSDA designed a Balanced ScorecardBut it was not a success

MissionMission

CustomerCustomer

InternalInternal

Learning and GrowthLearning and Growth

FinancialFinancial

LG-4Develop an innovative

customer focused cultureLG-3Embrace diversity

LG-2Provide quality

HR programmes

LG-1Deliver the proper

knowledge and skills

F-2Achieve optimum

service cost reductions

F-3Secure

new investments

F-1Deliver best-in-class costs

C-1Deliver effective and efficient

supply chain support

C-3Provide best value

total logistics solutions

To provide an effective and efficient materiel distribution, processing and storage service within the

supply chain to sustain the fighting power of UK Armed Forces worldwide

IP-1Achieve optimumRSMI processes

IP-2Provide business

enhancing information

IP-3Increase supplychain velocity

IP-6Develop beneficial

long-termpartnerships

IP-7Provide total logistics

solutions

C-2Provide enhanced specialised militarylogistics capability

IP-4Develop seamless

supply chain service

IP-5Provide a single supply

chain gateway

DSDA - BSC SUMMARY PAGEStatus Comment

F3

F2 a

F1

LG4

IP6

IP7

C3 a

LG3

IP5

IP4

C2

LG2

LG1

IP3

IP2

IP1

C1

DataDate

LastMonth

StatusMeasure Report Frequency

C3 b

F2 b

Owner

Quarterly

Monthly

Quarterly

Monthly

Quarterly

Quarterly

Quarterly

Six Monthly

TBD

Six Monthly

Quarterly

Quarterly

Quarterly

QuarterlySix Monthly

Quarterly

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OPS

OPS

OPS

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PLANS 74% of Target Achieved

EFFECTIVE SUPPLYCHAIN SUPPORTOPTIMUM RSMI PROCESSES

BUSINESS ENHANCINGINFORMATIONSUPPLY CHAINVELOCITY

DELIVER KNOWLEDGE AND SKILLS PROVIDE QUALITY HRPROGRAMMESSPECIALISED MILITARYLOGISTICS CAPABILITYDEVELOP A SEAMLESSSUPPLY CHAIN

SINGLE SUPPLY CHAINGATEWAYEMBRACE DIVERSITY -BETTER TALENT POOL PERCENTAGE OF VALUEOF BUSINESS WON

% OF VALUE OF BIDDSDA COMPETES FORPROCESSES TO DELIVER TOTAL LOG SOLUTIONSLONG TERM/ BENEFICIALPARTNERSHIPSINNOVATIVE/ CUSTOMERFOCUSSED CULTURE

DELIVER BEST IN CLASSCOSTS

COST OF SERVICES VICEAGREED FUNDING (CSA’S)

5% REDUCTION IN THE UNIT COST OF OUTPUT

SECURE NEW INVESTMENTS

SEP 02

TARGET ACHIEVED 90% - 99% OF TARGET ACHIEVED < 90% OF TARGET ACHIEVED MEASURES AND TARGETS NOT QUANTIFIABLE

All Satisfactory or aboveJAN 03

JAN 03

JAN 03 BSC - 28.13% CSA - 30.53% STBP - 100%

JAN 03

JAN 03 All RSMI Costs of output below target

91.18% being met. Revised target 80%. DEC 02

HRD to report on skills matrix framework

Interim measure established

Analysis of working patterns underway

Issues meeting SCPT 94.98%

Awaiting BenchmarkingJAN 03

Eight partnerships agreed

‘Blue’ measures show all the objectives for which ‘Measure and Target Not

Quantifiable’ – i.e. no measure / target set for 12 out of 19 objectives!

Figure 1 – The Original DSDA Balanced Scorecard Design.


No useful clarification of the specific meaning of these objectives for DSDA was subsequently obtained from the management team, which made improvements to the design difficult. By January 2003 only seven out of nineteen objectives could be reported on some nine months after the start of the initiative. The absence of ‘hard’ data at management meetings undermined the utility of the device, and so little time was allocated to discussion of the Balanced Scorecard at management meetings. Frustration mounted with the tool itself and the lack of tangible benefits arising from the activity associated with it. In January 2003, use of the system had been put on hold.

Nevertheless, DSDA’s underlying need for better performance management information and tools remained, and the project team and Corporate Plans department who had driven the initial work were still sure that the Balanced Scorecard could benefit DSDA if only it could be made to work. Following an internal review and a change in the Board membership, the Board commissioned a new project in March 2003 to overhaul the existing mechanism with a view to improving the utility of the system, re-establish its credibility, and incorporate recent organisation changes to the management of DSDA. A part of this process was the decision to engage an external party (2GC Active Management) to assist with the redesign.

The second attempt

Discussions with the DSDA team responsible for the first attempt highlighted the following perceived flaws in the design approach used to develop the original Balanced Scorecard:

1. A tendency to indulge in “blue sky” thinking which did not reflect the realities facing the organisation for the foreseeable future;

2. Lack of clear Board level sponsorship;

3. Mixing of long-term strategic issues with operational matters;

4. Limitations on available internal resources to encourage completion of tasks, keep up the momentum and ensure buy-in with the widest possible group;

5. Disconnect between the Board who were designing the Balanced Scorecard – choosing objectives – and the team responsible for embedding the measurement and reporting system in the organisation. There was poor understanding of the meaning of much of what the Board produced.

The first three of these points are all addressed by the 3rd Generation Balanced Scorecard approach. It deliberately involves all members of the management team supposed to be using the resulting Balanced Scorecard in its design. It relies on a series of facilitated workshops, which uses a pre-determined design framework to force managers to articulate their priorities for the future, the key objectives that need to be met and how they will be monitored and measured, all of which is based on consensus decision making. It achieves this by using a quick design process easy for executive managers to participate in – a direct consequence of the inclusion of an additional design element to the Balanced Scorecard design. This element – the Destination Statement – neatly and effectively addresses both the issue of design process difficulty, and that of target setting, two of the issues found with 1st and 2nd Generation Balanced Scorecard designs.

In June 2003, the re-design project began, using the 3rd Generation design and design methods. The project involved a set of externally facilitated Board workshops during which the main strategic choices for DSDA would be clarified by the Executive Management team, and a series of Implementation Team meetings that would verify and expand on this to complete the definition of the Balanced Scorecard and its associated work processes. The process is outlined in Figure 2.


Document Review & Interviews Board Workshop 1

Homework and Implementation

Team 1Board Workshop 3Board Workshop 2

Homework and Implementation

Team 2

Review of DSDA strategic documentation to identify strategic choices

Structured interviews with key DSDA management to identify areas of agreement and divergence

What is involved

Facilitated discussion between all members of the management team to identify the strategic choices facing the organisation and to select among these choicesWorking sessions to describe the organisation at some future point in timeOutputs

•Project & Workshop Plan

Homework to review and amend the Draft Destination Statement and to begin proposing related Strategic Objectives

Implementation team meeting to go through Board output and ensure it is fully understood and practicable

Homework to complete Strategic Objectives definitions and to begin defining potential Measures for each Objective

Implementation team meeting to go through Board output and ensure it is fully understood and practicable

Revisit and update the Draft Destination Statement from Meeting 1, incorporating Homework outputDebate and develop the medium term Strategic ObjectivesDevelop a Draft Strategic Linkage Model (SLM)

Obtain final agreement on contents of Destination Statement and SLMReview and finalise Strategic Objectives Develop Measure definitions and targets

•Draft Destination Statement

•Revised Destination Statement•Draft Strategic Objectives

•Final Destination Statement•Draft Strategic Objectives and SLM

•Draft Objective Definition Forms

•Final Destination Statement•Final SLM•Completed Objective Definitions •Draft Measures Definitions and Targets

Managementengagement

Smallfacilitation

team

Low “tech”process

Normally 3-5Meetings

1 2 3 4 5 6

Figure 2: DSDA Balanced Scorecard Design Process

The major differences between the second project compared to the first are:

• Ownership of the design process and content was clearly invested with the Board and Executive Management team, and the design process involved directly the key people expected to implement and embed the system in the organisation;

• The project was designed to run over a relatively short timescale (three months) to ensure momentum and impetus;

• Active alignment of all Board members behind the outputs arising from each workshop – through direct follow-up / interview etc.;

• A focus on ensuring that the design developed was specifically relevant to the needs of the organisation’s leadership team – to make sure the design was clearly useful to them once the design work was complete.

This change in design process had the desired effect – the project progressed as planned from June 2003 with the full involvement of executive Board members in all three workshops. A fully designed Balanced Scorecard was in use by the Board six months after the design work commenced. As Corporate Plans Director, Group Captain William Mahon, observed, “we are now using and benefiting from it”. The major outputs from this design process are illustrated in Figure 3 below.

The focus on getting the management team to directly engage in the design process had some useful side-effects too, as illustrated by these quotes from DSDA representatives after the process was complete:

“[The process …] created far more communication between Directors – the project was a catalyst for this”

“[The process …] helped Board and Implementation Team members have a better understanding of DSDA business in the round”

“Assisted in managing some Defence Supply Chain (one of DSDA’s key stakeholders) expectations”.

These illustrate some of the indirect, but never the less important, benefits of the 3rd Generation Scorecard approach adopted.



DSDA set out to re-design and invigorate their failing performance management system

Key elements of new project approach• Project team – Internal and External• Management board doing the work• Focus on consensus• Clear picture of the future• Making choices on objectives• Activities and Outcomes• Clear objective descriptions• A blend of measures – some projects some

hard numbers• Adoption of a 3rd Generation Balanced

Scorecard Design23/07/2004 DSDA - Final Destination StatementPage 2© 2GC Limited, 2003.

DSDA - Destination Statement April 2008Stakeholder Expectations & Financial Resources

S&F1 - DSDA has grown its total income (external and internal) to £300 M *(NIL NIL)

NIL)

SEVEN)

NIL)

NIL)

NIL)

FIVE )

FIVE)

NIL)

S&F2 - 70% of DSDA income comes from direct and indirect MOD funding ( £210M - £235M now) *(NIL

S&F3 - 30% of DSDA income is derived from commercial revenue of which £30M is non -explosive related and £60M is explosive related (£90M -£16M now) * ( FIVE

S&F4 - DSDA has achieved a level of profit on total revenue that is at least x%* ( TWO

S&F5 - DSDA has created a capital investment plan to ensure it can ach ieve its growth & profit targets ( NIL

S&F6 – DSDA has met its return on capital employed (ROCE) targets of x %*(ONE NIL)

S&F7 - DSDA has at least 90% of internal defence related processing, d istribution and storage business ( NIL

S&F8 - DSDA has achieved total operating cost savings of at least 30% on a like for like basis, against April 2003 costs (Query – Operating Cost Ratio?)* ( THREE

S&F9 - DSDA has reduced its assets and manpower to the minimum require d to maintain core business – Manpower reduction 1,000 posts or 20%; Asset reduction £110M or 20% against an April 2003 baseline (Query – where is the extra 10% coming from – other expense items and more output?) ( ONE

S&F10 - DSDA will have satisfied regulating authorities (through contin ual examination and performance) that the conduct of explosives operations (and the rest of the business) on DMC is inherently safe (NIL

23/07/2004 DSDA - Final Destination StatementPage 9© 2GC Limited, 2003.

Strategic Linkage Model Financial & Efficiency OutcomesRelationship OutcomesActivities with External BeneficiariesActivities with Internal Beneficiaries

A11 Set up CRM for key

customers/ consumers

A9Set up key supplier

management

A7 Control and enhance tracking

A1 Set and Secure Distribution Boundaries

A4 Execute strategies to meet

data needsA2 Analyse“Core”

and plan cost savings

A8 Establish pay/conditions

strategy

A5 Prepare TF case

A10 Lobby to influence

stakeholders re TF status

O1 DSDA TF status by April 06

O3 Higher DSDA performance –Profit and ROCE

targets

A6 Develop wider marketing capability

O6 Increased sales (commercial and MOD) % and £m

O9 Stakeholders understand DSDA capabilities and responsibilities

O10 Workforce Increased efficiency

O8 Provide a more coherent supply

chain

O11 Increased consumer satisfaction

O2 Increased value for money from

suppliers

O12 More effectiveefficient

processes

O4 Increased customer

satisfaction

O7 Better defined CSAs and contracts

A3 Use output costing

O5 Improved management information


DSDA – Balanced Scorecard 2003O1 - DSDA Trading Fund status by April 2006

Trading Fund is one of the FDSCi In -house options. DSDA has been given the lead by the HLB on develo ping the Business Case for Trading Fund to be considered against the othe r FDSCi options - initially in Jan 04. FDSCi Main Gate is scheduled for Autumn 04.#

Do you need to explain what is meant by Shadow trading?

Owner / Target Setter: Objective issues:

Responsible Team:

Measure Implementation Issues

Description :

Suggested Measures :

Dir Plans

Plans staffFinance staffExternal consultancy team

�We have to ŅwinÓFDSCi - we cannot do this independently of FDSCi. Link to A5.�FDSCi options may stop this in its tracks.�Timeline may be out of our control�Requires HQ DLO buy -in and support�Links strongly to Objective A10

1 - Progress against agreed timelines 1

Measure

Objective Name DSDA Trading Fund status by April 2006 (shadow trading by April 2005)

Measure Reporter

1. Dir Plans

Actions:�Establish TF Team, to inc TUs�Establish TF options�Liaison with HMT, DGMO, HQ DLO as necessary�Identify preferred option�Develop Business Case and Investment Appraisal�Win FDSCi competition and pass IAB scrutiny.

2 Š Probability of ŌYesÕfrom key stakeholders 2. Requires CE qualitative assessment via 2 -star fora and OAB 2. CE

3 Š % of surveyed customers stating that this is a good idea 3. Include relevant question in customer survey 3 Trading Fund Team

4 4. Need to co -ordinate with measures to be used for A10 4

Swapped with A6 Description

Figure 3 – Major outputs from the DSDA 3rd Generation Balanced Scorecard project

It could be argued, therefore, that the revised 3rd Generation Balanced Scorecard methodology, and use of external intervention to facilitate the organisation through the process, produced a DSDA Balanced Scorecard that could more effectively support the Board in driving the organisation forward. The next section will discuss this point in more detail.

Discussion

In this section, we aim to place the case study in the context of wider Performance Management theory and thinking. Specifically, this discussion use the case study to illustrate consideration of the following questions:

• How do the results of a 3rd Generation Balanced Scorecard design process differ from those of a 2nd Generation design process?

• Is the 3rd Generation Balanced Scorecard approach more applicable to a public sector organisation?

3rd Generation versus 2nd Generation There were considerable uncertainties and even concern over using a Balanced Scorecard approach within the Board of DSDA, and these increased following the failure of the first project to create one. Persuading the management to participate in the redesign was a critical enabling step for the project to succeed. This was achieved by illustrating to them the plan for the second Balanced Scorecard design project. The plan was based on a well-defined and disciplined process facilitated by experienced external experts, whose role was as much to ensure that momentum was maintained and the project finished on time, as it was to contribute best-practice advice. Redesigning the Balanced Scorecard as opposed to abandoning the tool due to the initial frustration with its utility, not only salvaged the initial investments made in a new approach to performance management, but also strengthened the Board’s learning about strategic control. It was important to highlight at this early stage why a performance management solution had to be sought in the first place – the need for this increased control of the organisation had not diminished during the time of developing the first Balanced Scorecard.


However, persuading the executive management team to start the project was not enough for success. Their interest and support for the work needed to be maintained across the project, such that when it finished they would be inclined to use it ‘in practice’.

The 2nd Generation design processes necessarily starts with having to address the difficult and potentially contentious issue of determining the ‘most important’ strategic objectives for the organisation. The activity of making these choices of ‘most important’ objectives is difficult, and so is often avoided in one of two ways. One option is to select vaguely worded objectives (to which all can subscribe without the need to make actual choices). A second is to delegate the decision making process outside of the management team itself (e.g. by using a Consultant to make the decisions, which are then ‘approved’ by the management team). Either option (or both together, as happened in the first DSDA design process) allows the design process to complete more quickly, and requires minimal participation from the leadership team. The consequence is that vagueness leads to major issues concerning measure definition and target setting. Disengagement during the design process also increases the risk of the management team rejecting the resulting tool as not being useful. We see both these failure modes appearing in DSDA after the design of the first (2nd Generation) Balanced Scorecard.

By contrast, the 3rd Generation Balanced Scorecard design process starts with the need to develop a clear articulation of the hoped for ‘future state’ of the organisation, documented in the device called a Destination Statement. Most management teams find the development of a Destination Statement easy to do (as it describes what managers want or need to achieve, rather than how it will be done). It provides a clear consensus based ‘fixed point’ in the future that the management formally agrees to reach before having to resolve the hard questions about near-term priority goals. This makes the opening activities in the design project relatively easy for managers to engage in. The activity tends to build co-operation and consensus rather than promote turf-wars and divisions over ‘most important’ objectives. An excerpt from DSDA’s Destination Statement is shown below:


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DSDA - Destination Statement April 2008 External Relationships

ER1 - DSDA has win / win flexible relationships with key customers / consumers ( NIL NIL )

NIL)

NIL )

NIL )

NIL)

ONE)SEVEN)

NIL

NIL)NIL )

ER2 - DSDA has benefited from its benchmarking relationships with the DDC, Trading Funds, government agencies and other organisations in that busin ess improvement can be linked directly to these alliances/ liaisons ( NIL ER3 - DSDA has identified its key markets and is the first choice pro vider within them (NIL

ER4 – Customers / consumers use DSDA because they perceive we meet th eir needs (ONE ER5 - DSDA meets customer / consumer needs as promised ( NIL ER6 - DSDA knows the value / worth of its services and charges accord ingly ( FOUR

ER7 - DSDA has win / win flexible relationships with key suppliers ( FOUR ER8 - To meet business needs DSDA has partnered to complement and sup plement its capabilities ( NIL )ER9 - DSDA has excellent relationships with politicians, HMT, the cab inet office and the DLO HQ ( NILER10 - DSDA is the first choice employer locally ( NIL

4 HeadingsStakeholder & Financial ExpectationsExternal RelationshipsProcesses & CapabilitiesOrganisation & Culture

Focus on things within control

Quantified where possible

Based on group consensus

Focused and clear statements

How DSDA re-invigorated their Balanced ScorecardThe DSDA Destination Statement

Figure 4 – Excerpt from DSDA Destination Statement

In the case of DSDA, a high degree of consensus was reached within the Board (many of whom had never worked with each other before these workshops) concerning the Destination for DSDA by 2008. This had two beneficial effects. First, the Destination Statement laid the groundwork for a subsequent set of meetings to address the issue of ‘strategic objectives’ and the choices they required. Second, it strengthened and reinforced the commitment made to the decision to ‘re-design’ the


Balanced Scorecard, by providing the leadership team with quick positive engagement in the design process – thus it protected the project as a whole. Further, when it came to the meetings to choose the near-term strategic objectives, the management team could resolve disagreements by referring back to the previously agreed ‘end-point’: this proved very valuable in maintaining a consensus while the hard choices about priorities were being made. Figure 5 shows the DSDA strategic objectives selected in graphical format. Comparing the objective names from first and second attempts, the difference in some ways is small. But the understanding and clarity of the underlying objective definitions, as well as the extent of active support for the choices made on the second diagram, is much greater.


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Strategic Linkage Model Financial & Efficiency OutcomesRelationship OutcomesActivities with External BeneficiariesActivities with Internal Beneficiaries

A11 Set up CRM for key

customers/ consumers

A9Set up key supplier

management

A7 Control and enhance tracking

A1 Set and Secure Distribution Boundaries

A4 Execute strategies to meet

data needsA2 Analyse“Core”

and plan cost savings

A8 Establish pay/conditions

strategy

A5 Prepare TF case

A10 Lobby to influence

stakeholders re TF status

O1 DSDA TF status by April 06

O3 Higher DSDA performance –Profit and ROCE

targets

A6 Develop wider marketing capability

O6 Increased sales (commercial and MOD) % and £m

O9 Stakeholders understand DSDA capabilities and responsibilities

O10 Workforce Increased efficiency

O8 Provide a more coherent supply

chain

O11 Increased consumer satisfaction

O2 Increased value for money from

suppliers

O12More effectiveefficient

processes

O4 Increased customer

satisfaction

O7 Better defined CSAs and contracts

A3 Use output costing

O5 Improved management information

OutcomesWhat outcomes DSDA expected to see along the way to the Destination?

Arrows show major causal links

ActivitiesWhat DSDA were doing to achieve the Destination?

23 Objectives

Not too many linkages

Simple and focused thinking

Clear and well labelled design

How DSDA re-invigorated their Balanced ScorecardThe DSDA Strategic Linkage Model

Figure 5 –DSDA Strategic Objectives (graphical summary)

A second key benefit observable between the two design methods concerns measure selection and target setting. One of the reasons why measures and targets were not set for so many of the original DSDA objectives was that those charged with determining the measures and targets really didn’t understand what the very vague objectives chosen ‘meant’. If you are not sure what the objective means within the specific context of the organisation, working out how to measure progress towards it is hard, setting a meaningful target for how much of the measure is required, harder still. All that happens when they are presented back to the management team for ‘approval’ is that whatever measures and targets are chosen, debate ensues about what the original objectives ‘really’ meant, often concluding that the measures / targets chosen are ‘wrong’ but without new insight into what the ‘right’ ones might be. By contrast, the development of 3rd Generation Balanced Scorecards, not only support a more focused choice of objectives (thanks to the context provided by the Destination Statement), which allows for easier measure selection, but the Destination Statement’s specific description of what will have happened a few years into the future aids target setting too.

Public sector applicability The case study illustrates that the Balanced Scorecard can have equal value as strategic management tool in the Public sector as it has had in private sector. Despite the rigorous lists of targets passed down from Central Government, for example, Key Targets in the NHS and Continuous Performance Assessment (CPA) items for local authorities, there is still a requirement and desire by management to agree their own priorities within these and to add other items based on local strategic factors. The 3rd Generation Balanced Scorecard approach supports this requirement by enabling public sector management teams to combine these various factors into a coherent representation of what they would like their organisational unit to look like in the future, the Destination Statement. This degree


of clarity allows the mangers to translate the future goals into shorter-term objectives, metrics, and targets. This was also the situation for the board at DSDA. Whilst having objectives to meet for the Secretary of State and the DLO/MOD, DSDA also had many other priority areas to address. A 3rd Generation Balanced Scorecard, complete with Destination Statement, more relevant Strategic Objectives, measures and targets allowed them to see the whole picture and manage more effectively by making active use of the performance data generated.

Conclusions

Implementing strategy is hard, with or without a management framework. The 3rd Generation Balanced Scorecard provides the type of strategic control framework suggested as best practice in the academic literature (e.g. by Muralidharan in 2002). Having relevant metrics for priority strategic objectives can usefully inform managers of their progress and allow corrective actions or improvement plans to be initiated as required. The need to communicate information and receive feedback comprising of a mixture of financial information and measures of performance or value, such as those pioneered by Frederick Winslow Taylor in the early part of the 20th Century (Huczynski & Buchannan, 1985), has always been an essential element of commercial activity. A similar demand for information and performance related feedback has become more pronounced in public sector organisations in recent years.

Efficient performance management relies on clear communication of the strategic objectives to be pursued by an organisation, and the provision of sufficiently relevant feedback to enable public sector managers to manage toward the achievement of those organisational goals. The introduction of tools like e.g. Balanced Scorecard, EFQM Excellence Model, and Public Service Excellence Model, clearly has the potential to support these varying internal and external communication needs and support strategic performance management. The way they are designed and applied, however, has a significant impact on their effectiveness. The critical success factors that these tools rely upon, including use of open communication and participative management styles are easily forgotten if they are not sufficiently considered during the design and implementation of the approach used.

The 3rd Generation Balanced Scorecard represents the current ‘state of the art’ in the processes needed to choose strategic performance management metrics accurately and efficiently. Further, the strong relevance and ownership developed through the design process used by the 3rd Generation Balanced Scorecard ensures that managers are more likely to use the information the Balanced Scorecard provides.

In this case study, it is clear from the experiences at DSDA that the first attempt at introducing a Balanced Scorecard based strategic performance management system failed due to problems inherent in the type of Balanced Scorecard being introduced, problems that were compounded by the inexperience of the team charged with the design activity. When DSDA moved to use the more modern 3rd Generation Balanced Scorecard design, and obtained design and implementation advice from experienced consultants, the results were much better.

More Information

The Resources section of the 2GC web site contains other 2GC documents relating to the Balanced Scorecard and modern 3rd Generation Balanced Scorecard and also recommendations for books and articles on the subject and links to useful web sites. For information on 2GC’s services including our consultancy and training programmes, visit our services section of the web site or email [email protected]

About 2GC

2GC is a research led consultancy expert in addressing the strategic and performance management issues faced by organisations in today's era of rapid change and intense competition. Central to much of 2GC's work is the application of 3rd Generation Balanced Scorecard, an approach to strategic implementation, strategy management and performance measurement.


http://www.2gc.co.uk/resources.aspmailto:[email protected]

y: How a public sector agency re-invigorated its Balanced Scorecard Page 9

References

Cobbold, I.C. and Lawrie, G.J.G. (2002) “The Development of the Balanced Scorecard as a Strategic Management tool”, Proceedings PMA2002, Boston, MA, USA May 2002

Huczynski, A and Buchannan, D, (1991), “Organizational Behaviour”; Second Edition, Prentice Hall, London

Muralidharan R. (1997). “Strategic Control for Fast-moving Markets: Updating the Strategy and Monitoring the Performance”, Long Range Planning, Vol.30, No.1, pp.64-73

Shulver M., Antarkar, N. (2001), “The Balanced Scorecard as a Communication Protocol for Managing Across Intra-Organizational Borders”, Proceedings, 12th Annual Conference of the Production and Operations Management Society, Orlando, Florida, USA.

2GC Case Stud

Appendix - 3rd Generation Balanced Scorecard Design Component Summary The three key components of 3rd Generation Balanced Scorecard are as follows:

Destination Statement: Used to build management consensus, a Destination Statement is a concise but detailed description of what the organisation looks like at a specified point in the future (typically 3-5 years). Once agreed, the document provides a single basis for tailored messages to support effective strategic communication in- and ex-ternally as well as up and down the organisational hierarchy.

© 2GC Limited, 2003.

Destination Statement

Sales Volume:50,000 MT

Distribution:50 Cities

Sales Revenue: £ 50 Million

One Manufacturing Site

ROCE: 7%Capital Employed: No more than £45 million

Product Manager

Marketing Director

Factory Director

Manufacturing Director

Regional Sales Manager

Sales Director

Managing Director

No more than 6 Core Brand ProductsMinimum sales volumes:– 5,000 MT for each core brand– 2,000MT for each product

Employer of Choice: (# 1 in industry and ranked in FMCG top 10)

Marketing Sales

Branding: Clear brand propositi/ systems established for the six core brands

• DBX has two of the top five category product brands• Product/house brand awareness targets in DBX city

strategies achievedMedia and promotional strategy: City market

share targets achieved within agreed budget• Models and measures of the relative impact of all

marketing levers available to assist in the evaluation / targeting of marketing activity

Improved Skills and Processes: Standardised and transparent marketing processes developed and agreed within DBX and with Group

• Marketing team skills targets (based on external benchmark comparisons) achieved through training and recruitment (where applicable)

Overall: DBX seen as one of top 10 FMCG Co.’s servicing key accounts in the country (and #1 in category)

Customer Market Focus: Sales staff achieving set targets in line with city strategies for focus on customer and market issues

• Assess using distribution by channel, visibility and trade promotions

Improved Skills and Processes: Standardised and transparent sales processes developed and agreed within DBX and with Group

• Sales team skills targets (based on external benchmark comparisons) achieved through training and recruitment (where applicable)

Organisational Structure• Clear scope and role statements exist for all functi(including Sales

& Marketing):• Supporting functi(including supply chain) will be achieving all

agreed service level targets with sales & marketing

Supply ChainCost efficient supply chain based on flexible production lines will deliver:• Increased responsiveness to market demands • Lower cycle times• Product / channel freshness targets

Information SystemsAppropriate information systems that will meet DBX’s needs• All necessary management information produced within pre-agreed timelines and

scales Management• Senior management will be committed to working on strategy and evaluated on

their ability to coach / advise / guide and ensure that tasks are delegated effectively.

• Professional middle management will exist that will be able to act more independently within defined guidelines, and have the skills required for their job / role

– Succession plans for key positiwill exist– Recruiting and training policies will aim to raise middle management

competence to meet international standards

Strategic Linkage Model: Used to establish what are the key short / medium term activities that are required to deliver the key short / medium term outcomes. These key activities and outcomes are known as the organisation’s ‘Strategic Objectives’ and are organised in a strategic linkage model to identify causal relations between various objectives (if we do X, we should achieve Y; achieving Y will contribute to achieving Z, etc.)



Strategic Linkage Model

Out

com

esA

ctiv

ities

A4: Develop our people (ROC3, ROC4)

A2: Maintain Quality (14001 / 9001) (ROC1, AP6)

A1: Deliver Procurement

Improvements (ROC3, RO5)

A6: Improve Health and

Safety (ROC1)

A5: Implement Change

Programmes (ROC1, AP1)

A8: Improve Productivity

(ROC5, AP2, AP7)

A7: Change our Systems (ROC4, ROC5, ROC7, AP7,

AP8)

A3: Better Processes for

Better Services (ROC5, AP7)

A9: Go and meet people

O4: Environmental Footprint (EO2)

O9: Delivery of Programme

(EO6)

O2: Environmental

Impact (EO7)

O8: EA is Trusted Advisor / Partner

(ER2,ER4,ER6)

O3: Agency Estate (EO8)

O1:Partners & Customers use EA

eBusinesssolutions(ER7)

O13: Environmental Incidents (EO4)

O12: Awareness (EO5)

O6: Customers rate EA as Best in

Class (ER3)

O5: Partners & Customers

influenced by EA (ER1)

O10: Informing Government

(EO3)

O11: Advocacy (EO1)

O7: Brand(s) known by

clients (ER5)

Measures and Targets:

Used to track the achievement of the objectives specified in the strategic linkage model


Balanced Scorecard Measures & Targets

F1.1

F1.2

-30p

8

150p

18Dividend expected kept at 28 p. for whole year, but share price still around 1,000 pence leading to low P/E compared with sector and results from previous years

NG

Measure Value Target Performance comments for objective Objective OwnerObjective Status

Outperform capital markets

F4.1

F4.2

17

257

24

600No major M&A targets in sight yet. Pipeline cover - 50% due to aggressive growth targets combined with severe scarcity of targets. Profit mix and growth market numbers not available yet

NGSuccessful deal doing

F3.1

F3.2

F3.3

1,550

652

93%

1,442

488

90%

Division E still far behind budgets. C positive, but below budget. A on budget (flat budgets). L4L sales positive in D driven by brands. C index 120 on L4L

NGSales & profit growth from

existing businesses

F5.1 7.65% 7.44%Cost on average 10% > Category 1 competitors. On level with category 2 competitors

NG

F2.1

F2.2

200

-6

185

4Increasing cash inflow from divisions A and D but levels of investments in B,C and E makes the group cash negative for at least another 12 months

NGCash & asset management

Competitive cost of capital via

capital structure

Rsh1.1

Rsh1.2

65%

8More shareholders vary about our future earnings potential due to drop in TSR and general negative press. All is down to next big announcement indicating new thrust and direction

ESShareholders

support and back strategies

7

74

.


IntroductionBackgroundThe first attemptFigure 1 – The Original DSDA Balanced Scorecard Design.

The second attemptFigure 2: DSDA Balanced Scorecard Design ProcessFigure 3 – Major outputs from the DSDA 3rd Generation Balanc

Discussion3rd Generation versus 2nd GenerationFigure 4 – Excerpt from DSDA Destination StatementFigure 5 –DSDA Strategic Objectives (graphical summary)Public sector applicability

ConclusionsMore InformationAbout 2GCReferencesDestination Statement:Strategic Linkage Model:

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