bsc balanced business scorecard

8/10/2019 Bsc Balanced Business Scorecard

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The Balanced

Business

Scorecard

Product or Process?


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Someday

is not a

day of

the week

Anon


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n

1

The Balanced Business Scorecard

Executive Briefings is a series published by Axon designed to explore and

share insights about the pressing concerns of todays business leaders as they

reach for the opportunities of the new millennium. Each issue tackles a specific

challenge facing corporations, defines the problems firms encounter as they rise

to the challenge, and provides discussion and practical applications.

Few can doubt the scale and complexity of issues that organisations face if they

are to be successful in the 21stcentury. To achieve this success business leaders

will have to address emerging global issues such as electronic commerce, industry

convergence, worldwide alliances, virtual organisations and corporate citizenship.

But even more importantly, they will need to find new ways to excel at

the fundamentals of business: leadership, management, strategy and

implementation.

Almost three-quarters of major corporations have used the concept of the

Balanced Business Scorecard in some form or other, yet only 3 out of 10

achieved the expected benefits from this tool. We consider the success factors

which were commonly present in those winning organisations, and ask What Is

the Balanced Scorecard?and challenge whether that is even the right question

to be asking.

We hope this publication adds value to you as you continue to build your business,

and we encourage you to write or call us with your questions, observations and

suggestions.

Mark Hunter

Chief ExecutiveAxon


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Executive Briefings

Product or ProcessAccording to IMAs Cost Management Group survey, of those companies currently

undertaking a review of their performance measurement systems, 80% are either

using, or plan to use, the Balanced Scorecard approach. Indeed, it is believed

that the use of the Balanced Scorecard concept by the Fortune and European

500 has now exceeded 75%. A success rate that Kaplan and Norton could never

have envisaged when they invented the concept less than a decade ago.

Yet the first comprehensive study on Balanced Scorecard implementations

conducted by Professor Claude Lewy of the University of Amsterdam, found that

fewer than 30% of Scorecard projects achieved their stated objectives a far

from impressive performance. But what can explain this significant gap between

acceptance of the concept and success in implementation? Is the Balanced

Scorecard a flawed approach, or are so many companies simply getting it wrong?

Forget the Balanced Scorecard

The beginning is always a great place to start, and for the Balanced Scorecard

the key findings from the early research project from which it was developed

tells it all. It concluded:

90% of companies fail to execute strategy

85% of Executives spend less than 1 hour per month discussing strategy

60% of companies do not link budgets to strategy

Only 25% of managers have incentives linked to strategy

Less than 5% of the workforce understand the strategy.

So there clearly is a critical need for an approach to bring strategic clarity, a

method for communication and alignment and a process to focus Executives on

the strategic, not operational issues. The Balanced Scorecard was developed for

that purpose, but has, in many ways, been a victim of its own success. Too

often, it is seen as a product to solve a symptom, where in fact what is needed

is a process to transform an underlying problem. That process is strategic

performance management, and it will be critical that CEOs and Senior


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Executive Briefings

Alignment happens through

measures and money

value-added partnerships and technical supremacy can also be understood. With

these three customer differentiators and a focus on being number 1 or 2 in each

market they operate in, the overall enablers for long-term value can be understood,

when this market dominance is combined with expense minimisation and asset

productivity. A highly complex and inter-related strategy, encompassing every

aspect of the business, but able to be communicated through a single picture.

Sitting behind each oval on the strategy map, is the objectives statement and

performance measures which explain it, and it is these three simple tools which

provide the overall framework for strategy deployment

the Balanced Scorecard.

Alignment and Integration

But having the top level Balanced Scorecard is only the start aligning it through

the two Ms of measures and money are the key to getting the whole organisation

pulling in the same direction.

Measures are a powerful lever because they can link upwards and downwards,

either through cause and effect relationships, or via direct deployment. Take

Exhibit 1: ChemCo Strategy Map

BusinessProcess

Innovation

Shareholder

Customer

PerformanceCulture

ManufacturingExcellence

TechnologyAdvantage

PeopleCapability

BestPractices

Value-AddedPartnerships

DominantKey Markets

TechnicalExcellence

Long TermValue

ExpenseOptimisation

A&IProductivity

ProductAvailability

Market-focusedselling

HS&EPerformance


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Executive Briefings

Dont link pay to the

scorecard for 6-18 months

Personal money. Pay and bonus. So often the issue of using measures to drive

behavioural change is mentioned by companies who have implemented Scorecard

systems. And linking it to personal remuneration is the most powerful way of

doing that. But also the most dangerous. If customer satisfaction is the objective,

and number of complaints the measure, how will that drive behaviour on the

manager whose bonus is linked to driving the complaint levels down? Improving

customer satisfaction for sure. But also not reporting some of the complaints,

forgetting to log them on the complaints system? Perhaps. What we measure,

is indeed what we get.

Three conclusions seem to emerge from the learnings of many companies attempts

to link personal reward to the Balanced Scorecard process:

Ensure the Balanced Scorecard is fully deployed and has been fine tuned

through implementation to be driving the right behaviours before linking to

pay (typically 6-18 months)

Get everybody on performance related pay linked in to the Balanced Scorecard

goals after that bedding in period. If you state your strategic aims through

one set of objectives and then pay bonus against another set, conflicting

priorities and misalignment is an obvious and unwelcome outcome

Only link Balanced Scorecard to bonus, not to base pay. Scorecard goals are

business outcomes, and are rightly rewarded through bonus

or other exceptional pay methods. Base pay is primarily

around capability and market rates, and should reflect

assessments in these areas.

Implementation Speed

So the Balanced Scorecard is designed at both an Executive level and through

deployment right down the business. We now want to start using it to run the

business, which involves a fair degree of change, as well as straight resource

and effort. Will we make it work or not? The answer to this question is the one

golden rule of Balanced Scorecard implementation:


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If the Scorecard is not in operational use

within 60 days of the design phase finishing,

it probably never will be

And achieving the 60-day goal is actually far more about what needs to be

stopped, versus what needs to be started. Indeed, there are a number of

dimensions to consider.

Not surprisingly, the physical production of the data required to bring the Scorecard

to life can be a significant barrier. And this is where the use of Balanced Scorecard

automation software can really assist. Not only can they integrate the data

together, they also provide, in many cases, intranet front-ends for ease of use,

and flexibility to rapidly deploy changes to measures or targets. The marketplace

is full of such applications. So understanding your success criteria and breadth

of deployment are important in picking the right model.

Plan-Do-Review

The fundamental difference between the process of Strategic Performance

Management as opposed to a product focused approach is the Plan-Do-Review

improvement cycle. Yet for so many companies this improvement loop is not in

place as it is about behavioural change not documentation, measures or reports.

Exhibit 3: Balanced Scorecard Implementation Criteria

MeasurementBehaviour

Not supporting strategyConflictingToo many

Not linked to strategyMultiple sources/formulae

Many and conflicting"Personal" in ormation

Does not existVariable and too low level

oo slowMultiple demands

A stick to beat withFailure ocused

toppedMerged and aligned

ationalised and aligned

ismantleCommon definitions

ingle at each levelDismantled

Create PDR cyclelign to PDR principle

ingle systemPriority to vital few

oaching and root causePerformance driven

Dimension Typical Issue Action

Existing Initiatives

Existing Measures

Existing Reports

Review Process

Data Provision


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Executive Briefings

Plan-Do-Review is the

link to improvement

There are three key behaviours that the Plan-Do-Review cycle drives and they

are very real and highly inter-dependent.

1. Under performing areas or processes that were previously hidden are quickly

exposed forcing Managers to take accountabilityfor their performance

2. Heads of Business Units who are leading the performance reviews must

challengepoor performance and seek out root causes

3. Corrective actions agreed around root causes of poor performance must be

closed out on a timely basis. Managers are thus forced to take accountability

for delivering resultsif the review process is to add any value.

In many organisations the introduction of a focused review

process is the first time Managers have been challenged

around certain areas of performance. Many find themselves challenged again

when they have not closed out on corrective actions agreed at previous meetings.

In companies where poor performance or avoidance of issues has been tolerated,

this kind of structured improvement approach is a real shock. But the foundation

stone for the performance culture to which so many firms aspire.

Exhibit 4: Comparison of Balanced Scorecard Software

If customised

If customised

If customised

VendorCategorisation

ProductCategorisation

Web-enablement Limited

E-mailLinkages

CommentCapability

Data Source/Links toother Applications

Show Cause/EffectRelationships One Level One Level One Level One Level

OLAPCapabilities Link Link Link Link

Graphing BarFunctionality Basic Basic Basic Charts Basic Basic Basic Basic

Cognos

BusinessIntelligence

Provider

DIYSolution

CorVu

BusinessApplication

Vendor

'Out of Box'Stand-alone

Gentia

BusinessApplication

Vendor


Hyperion


Provider

SystemIntegrated

Oracle

SystemProvider

SystemIntegrated

Panorama

BSCApplication

Vendor


Pilot

BSCApplication

Vendor


QPR

BSCApplication

Vendor


SAP

SystemProvider

SystemIntegrated

SAS


Provider

Tailor-made


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Seize the PrizeSo if, by taking on-board the key success criteria, the Balanced Scorecard is

effectively integrated as an on-going strategic performance management tool,

what is the prize? Is it really worth the effort and energy necessary to make it

deliver? Well, according to William Schiemann, the spoils are indeed great.

Exhibit 5: Plan-Do-Review Cycle

Daily15 minutes

Weekly30 minutes

Fortnightly1 hour

Monthly2 hours

trateg

icire

c on

Pero

rman

ce v

auatio

n

3

4

1

2

Effectiveness of Action

Results Root Cause

Action

LowProductivity

WorkPermits

Costs High

Bad Weather

WHO

1 More active supervision

2 Renegotiate contracts

3 Re-communicate procedures

4 Review long range forecast

MJ

PE

PB

CJD

Pla

nRevie

w

Do

Pla

nRevie

w

Do

Pla

nReview

Do

Supervisor

Manager

Director

ManagingDirector

Exhibit 6: The Value of Measure Management

74%

83%

97%

44% 5

2%

55%

Measurement-Managed

Organisations

Non-Measurement-Managed

Organisations

100 -

80 -

60 -

40 -

20 -

0 -

Perceived as an

industry leader

over the past 3 years

Reported to be

financially ranked

in the top third

of their industry

Last major cultural or

operational change

judged to be very

or moderately

successfull


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Executive Briefings

Measurement-managed

organisations enjoy nearly

twice the success ratefor major change initiatives

Perhaps the most interesting finding from this 200-company research project is

the difference in the last factor success of the most recent

major change programme. Performance management

provides agility and a readiness to change, that can be

deployed from top to bottom very rapidly. Financial

performance and industry leadership are no doubt a simple outcome of these

companies ability to change quickly and successfully.

So what nowDesigning and implementing a strategic performance management system,

whether that be based on the Balanced Scorecard framework or not, is a lengthy

process. It covers the design of the original strategy map, through to its

deployment, and then its integration into budgets and pay. Finally, the continuous

improvement, plan-do-review cycle, needs to be instilled as the method for driving

real organisational value and behavioural change. For a firm beginning this

process for the first time, it is probably a 2-3 year journey. But along that road,

there are two critical milestones. The first is the start point setting the

initiative up in a way that leverages the lessons learned from others and the

second is the commencementof implementation. For while during the design

phase we can always go back to the drawing board, there is no such luxury once

we push the green light for implementation. We hope that the pointers contained

inThe Executive Agenda, which covers these two areas, are helpful as you

plot the performance path for your own organisation


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The Executive Agenda

Starting Up

Does the Executive Team understand the length and

implications of the journey they are starting?

Is there already a clearly articulated strategy at Executive

level?

Do you have an expert resource, either internal or external,

who can support strategic mapping?

Have you a clear communication and deployment plan to

support the process?

Are the linkages to existing business planning, reporting,

budgeting and bonus processes understood up-front and

aligned?

Implementation Readiness

Have you an agreed plan-do-review process which aligns

upwards and downwards?

Have all existing reports and measures been physically

dismantled?

Have all initiatives and projects which do not support one

of the Scorecard objectives been either stopped or

integrated into ones that do?

Have the behavioural impacts of the chosen measures been

role-played to test their validity?

Is there a clear and simple (and ideally automated) process

for providing the data into the review process?

(Check)


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Executive Briefings

At the heart of the Axon consulting approach is a focus on

delivering long-term sustainable improvements to the

organisations key stakeholders. Axon consultants work alongside

client senior teams, to help them set direction and analyse their

current performance, identify the gaps and then put in place achange effort that will close those gaps.

But designing new strategies, processes or organisations is not

where it stops. At Axon we see that as the beginning.

Implementing those designs so that they become embedded as

the new way of doing business as usual is what matters. And

helping companies do that is what we see as our greatest

strength.

Strategic performance management sits at the heart of a firms

ability to lead and manage it is the glue which brings the

different elements together. And setting that process in place

must be a role performed by an organisations own leadership

structure. That is why our vision is to support companies through

self-managed change efforts.

For more information on Axons services, please visit

www.axonglobal.comor contact:

Phil Kingsland in Europe (+44) (0)1784 480 800

George Russel in the Americas (+1) 203 973 0344Chris Bailey in the Middle East (+971) 4 391 0820

Saeed Sadek in the Asia Pacific (+61) 2 9238 6869

Axon is a leading business transformation consultancy with over

twenty one years experience of helping companies achieve their

ambitions.


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The measure of

success is not

whether you have

a tough problem

to deal with,

but whether it is

the same problem

you had last year

John Foster Dulles


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Europe

AxonCentre

Church Road

EghamSurrey TW20 9QB

England

Tel: (+44) (0)1784 480 800

Fax: (+44) (0)1784 480 900

America

Two Stamford Landing68 Southfield Avenue

Stamford

CT 06902

U.S.A.

Tel: (+1) 203 973 0344Fax: (+1) 203 973 0345

Middle East

Suite 1601B

City Tower 2

P.O. Box 28966

DubaiUnited Arab E mirates

Tel: (+971) 4 332 1418

Fax: (+971) 4 332 1367

Asia Pacific

Level 67, MLC Centre

Cnr King/CastlereaghSydney NSW 2000

Au st ra li a

Tel: (+61) 2 9238 6869

Fax: (+61) 2 9870 8456

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