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Using The Balanced Scorecard To Align
1.
Using the Balanced
Scorecard to Align Your Organization By Howard Rohm President and CEO, the Balanced Scorecard Institute Balanced Scorecards, when developed as strategic planning and management systems, can help align an organization behind a shared vision of success, and get people working on the right things and focusing on results. A scorecard is more than a way of keeping score…..it is a system, consisting of people, strategy, processes, and technology. One needs a disciplined framework to build the scorecard system. This article is the first in a series describing how to build and implement a balanced scorecard system using a systematic step-by-step approach. “Balanced Scorecard” means different things to different people. At one extreme, a measurement-based balanced scorecard is simply a performance measurement framework for grouping existing measures into categories, and displaying the measures graphically, usually as a dashboard. The measures in these systems are usually operational, not strategic, and are used primarily to track production, program operations and service delivery (input, output, and process measures). At the other extreme, the balanced scorecard is a robust organization-wide strategic planning, management and communications system. These are strategy-based systems that align the work people do with organization vision and strategy, communicate strategic intent throughout the organization and to external stakeholders, and provide a basis for better aligning strategic objectives with resources. In strategy-based scorecard systems, strategic and operational performance measures (outcomes, outputs, process and inputs) are only one of several important components, and the measures are used to better inform decision making at all levels in the organization. In strategy-based systems, accomplishments and results are the main focus, based on good strategy executed well. A planning and management scorecard system uses strategic and operational performance information to measure and evaluate how well the organization is performing with financial and customer results, operational efficiency, and organization capacity building. Performance measurement balanced scorecards are not very interesting, and add little business intelligence to help an organization chart strategic direction and measure the progress of strategic execution. Balanced scorecards built with the goal of “organizing the measures we have” hardly justify the energy it takes to build them. We’ll start our balanced scorecard journey not from performance measures but from the results we want the organization to accomplish. In other words, we’ll start with the end in mind, not with the measures we currently have. One of Stephen Covey’s quote captures the essence of our journey: “People and their managers are working so hard to be sure things are done right, that they hardly have time to decide if they are doing the right things.” Doing the right things and doing things right is a balancing act, and requires the development of good business strategies (doing the right things) and efficient processes and operations to deliver the programs, products and services (doing things right) that make up the organization’s core business. While there are differences in development and implementation of scorecard systems for private, public and nonprofit organizations, the disciplined process of strategic discovery used to develop scorecard systems has more Page 1 of 4 ©2008 Balanced Scorecard Institute, a Strategy Management Group company. All Rights Reserved. January 2008
2.
similarities then differences,
so the framework we will describe applies equally well to different types of organizations, as well as to different size organizations. We have applied the framework to businesses, nonprofits, and government organizations with less than 10 employees to organizations with more than 100,000. Developing a balanced scorecard system is like putting a puzzle together, where different pieces come together to form a complete mosaic. In the balanced scorecard, the “pieces” are strategic components that are built individually, checked for “fit” against other strategic components, and assembled into a complete system. The major components of a balanced scorecard system are shown in the table below, and summarized briefly in the paragraphs that follow. Future newsletter articles will explore each of the major system components and describe how each piece of the puzzle is build and connected to other pieces. Engaged Leadership Strategic Objectives Interactive Communications and Change Customer-Facing Value Creation Strategy Management (Strategy Map) Vision and Mission Performance Measures, Targets and Thresholds Core Values Strategic Initiatives Organization Pains and Enablers Performance Information Reporting Customers and Stakeholders Department and Individual Scorecards (Cascade) Customer Value Proposition Rewards and Recognition Program Strategy (Perspectives, Strategic Themes, and Evaluation Strategic Results) Table 1: Balanced Scorecard System Elements Engaged Leadership, Interactive Communications and Change Management. Developing a scorecard system is transformational for an organization….it’s about changing hearts and minds. Leaders who are engaged in the discovery process, communication via two-way dialogue, and planning and managing change are important first steps in the process. Organization Mission, Vision, and Values. Critical to an aligned organization are a well defined mission, a shared vision, and organization values that are built on strong personal values. Most organizations have these components, but often there is no connecting tissue among the components that allow employees to “get it” easily. A compelling and clear “picture of the future” (the shared vision) is where the scorecard development process starts……employee buy-in follows as hearts and minds are engaged in creating and executing the organization’s strategies. Organization Pains (Weaknesses) and Enablers (Strengths). An organization environmental scan (“climate survey”) will identify internal and external pains and enablers that will drive strategy creation and the approach to achieving future results. Customers and Stakeholders, and the Value Proposition. Effective strategy incorporates a view from the customer and stakeholder perspective, and includes an understanding of customer needs, product and service characteristics, desired relationships and the desired “corporate image” that the organization wants to portray. Perspectives, Strategic Themes, and Strategic Results. To view strategy through different performance lenses (balanced scorecard perspectives), the organization needs to define strategic perspectives, key strategies and expected results. Key strategies are the main focus areas or “pillars of excellence” that translate business strategy into operations, and make strategy actionable to all employees. Strategic Objectives and Strategy Map. Strategic objectives are the building blocks of strategy (strategy “DNA”), and objectives linked together in cause-effect relationships create a strategy map that shows how an organization creates value for its customers and stakeholders. Page 2 of 4 ©2008 Balanced Scorecard Institute, a Strategy Management Group company. All Rights Reserved. January 2008
3.
Performance Measures, Targets
and Thresholds. Performance measures are linked to objectives and allow the organization to measure what matters and track progress toward desired strategic results. Targets and thresholds provide the basis for visual interpretation of performance data, to transform the data into business intelligence. Strategic Initiatives. Initiatives translate strategy into operational terms, and provide a basis for prioritizing the budget and identifying the most important projects for the organization to undertake. Performance Information Reporting. Automated data collection and reporting processes are used to visualize performance information and better inform decision making throughout the organization. Cascade Scorecards to Departments and Individuals. Align the organization through strategy, using the strategy map, performance measures and targets, and initiatives. Scorecards are used to improve accountability through objective and performance measure ownership. Rewards and Recognition. Incentives are tied to performance to make strategy actionable for people, and help build buy-in for the behavior changes needed to create a high-performance organization. Evaluation. The results of the organization becoming more strategy-focused are evaluated, and changes in strategy, measures, and initiatives reflect organization learning. Each scorecard component is developed in a logical sequence, using a disciplined framework of discovery and strategic thinking. Our framework, Nine Steps to Success™, is shown in the figure below. Each step links to another step until the complete scorecard system is developed. Building & Implementing A Balanced Scorecard System: Nine Steps To Success™ • BSC Development Plan • BSC Development Plan • Strategic Elements • Strategic Elements • Strategy Results • Strategy Results • Change Management • Change Management • Revised Strategies • Revised Strategies • Alignment • Alignment • Customer Value • Customer Value • Unit & • Unit & • Strategic Themes • Strategic Themes Individual Individual • Strategic Results • Strategic Results Scorecards Scorecards Financial Processes Customer Internal Mission Vision • Software • Software • Strategy Action • Strategy Action Organization • Performance • Performance Components Components Capacity Reporting Reporting • Knowledge • Knowledge Sharing Sharing •Cause-Effect Links Cause- •Cause-Effect Links • Strategic Projects • Strategic Projects • Performance Measures • Performance Measures • Targets • Targets • Baselines • Baselines © 2007 by the Balanced Scorecard Institute, a Strategy Management Group company. All rights reserved. Figure 1: Balanced Scorecard Nine Steps to Success™ Framework Following development of the strategic components, the scorecard system is assembled and communicated throughout the organization. The figure below shows one graphical representation of how key components of a finished scorecard system are connected together to form a strategic plan for moving the organization to a higher level of performance. Page 3 of 4 ©2008 Balanced Scorecard Institute, a Strategy Management Group company. All Rights Reserved. January 2008
4.
Association Balanced Scorecard
Mission: Serve our members with strong advocacy, quality information, and responsive member services Vision: Continue building on our unique position -- the only research association serving an international membership Strategy Map Strategy How the components strategy will The level of Programs Increased to achieve be measured performance required to Members Value for Money Advocacy success and tracked improvement achieve Results needed objectives Economics of Membership Financial/ Stewardship Relationship Image Objectives Measurement Target Initiative Increase Advocacy Improved • Improved • Plan • 85 % • Develop Process Advocacy Advocacy acceptance advocacy Internal Planning Business Efficiency rate by database Planning Processes Improve members Information • Time spent • Develop Quality, Quantity, • 20% new, & Timeliness with policy innovative makers programs Improve Improved Knowledge Capacity to People, Of Member Respond Needs Tools, & Organization Capacity Improve Improve Create Skills “We” Mix Tools Culture © 2007 by the Balanced Scorecard Institute, a Strategy Management Group company. All rights reserved. Figure 2: Example Balanced Scorecard Graphic In this example, the scorecard system includes a strategy map, to show how value is created for members (customers), strategic objectives to describe what needs to be accomplished to produce value, what performance measures will be used to measure progress against targets, and what strategic initiatives have been identified to make strategy actionable and operational. Developing a balanced scorecard is a journey, not a project. The real value of a scorecard system comes from the continuous self-inquiry and in-depth process of discovery and analysis that is at the heart of the process. Start your balanced scorecard with the idea that you are in it for the long term, and that you will learn a lot about how your organization needs to work to satisfy customers, stakeholders, and employees. How long does it take to build a scorecard system? Depending on the size of the organization, two to four months is typical. In later articles, we will explore each of the steps involved in developing a scorecard system, and discuss how to use and mange the system to improve your organization’s performance. Howard Rohm is President and CEO of the Balanced Scorecard Institute, and is an international trainer, educator, consultant, and facilitator. Howard developed the Institute’s Nine Steps to Success™ balanced scorecard framework in 1997. He has 40 years of experience in industry, government, and nonprofit organizations. He can be reached at: (919) 460-8180, or via email at: hhr@balancedscorecard.org. The Balanced Scorecard Institute, a Strategy Management Group company, helps organizations succeed through improved strategic focus and performance by providing training and consulting services related to best practices in balanced scorecard (BSC), strategic performance management and measurement, and transformation and change management. You can reach the Institute at: info@balancedscorecard.org or through the number one balanced scorecard site on the internet: www.balancedscorecard.org Page 4 of 4 ©2008 Balanced Scorecard Institute, a Strategy Management Group company. All Rights Reserved. January 2008
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