Library of Congress Cataloging-in-Publication Data. Niven, Paul R. Balanced scorecard step-by-step: maximizing performance and maintaining results / Paul R. S. Kaplan and D. P. Norton, “The Balanced Scorecard: Measures That Drive . Balanced Scorecard Step-by-Step is comprised of five parts, encompassing. Types of measures. ◇ Where to use a Balanced Scorecard. ◇ 9 Steps to Developing a Balanced. Scorecard. ◇ Putting some of the steps into action.
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PRAISE FOR Balanced Scorecard Step-By-Step: Maximizing Performance and Maintaining Results, Second Edition. "As a practitioner and. Dave Norton and I initially proposed the Balanced Scorecard 10 years ago Since that time, the concept has been adopted by all types of organizations—. Steps to Build up a Balanced Scorecard. ▫ Successful BSC Implementation Case – Mobile. ▫ How to Use BSC in E-Business? ▫ Conclusion. 2. Edited by IDMC.
Administrative agencies— Management—Evaluation.
Nonprofit organizations—Management—Evaluation. Benchmarking Management 5. Performance standards. Organizational effectiveness—Measurement. T67N58 My first book, written with the private sector as the target audience, had recently been released and, coincidentally, I had begun to receive correspondence from public sector and nonprofit leaders posing the same question.
Many had downloadd my first book, and while the overall guidance offered was relevant, they craved a text customized to fit the unique challenges they faced when implementing a performance measurement system. Intrigued, I engaged in some additional study and research, and found overwhelming evidence of the need for such a book.
Many months of research, interviews, and writing later, in early , Balanced Scorecard Step-by -Step for Government and Nonprofit Agencies was released. I have been amazed and very humbled at the success of the First Edition, which has been translated widely and used by organizations around the globe committed to improving their performance by focusing on the execution of strategy.
This Second Edition contains the same core implementation guidance offered in the first volume, but has been significantly updated and enhanced to ensure it reflects the latest theory and practice of performance management for the nonprofit and public sectors. Every single word covering the pages of the First Edition was put to the tests of relevancy, accuracy, and importance during the alteration process.
In addition to modifying topics appearing in the earlier edition, this text contains expanded coverage of subjects that have matured significantly since its first printing in My coverage of Strategy Maps—powerful communication tools signaling to everyone, within the organization and beyond, the drivers of organizational success—has been completely revamped with entirely new sections on how to facilitate a Strategy Map session as well as increased coverage of developing objectives for each perspective.
The book also features a robust ix fpref. I have provided my latest thinking, based on years of field experience, on how to conduct productive meetings that put strategy at the heart of the agenda.
The dynamics of business were changing rapidly; globalization, customer knowledge, and the rise of intangible assets were all converging to forever change the way business was conducted.
Strategy was considered a potent defense for succeeding in this changing landscape.
Kaplan and Norton made the startling discovery that performance measurement systems utilized by most firms were incapable of providing the information needed to compete in this new knowledge economy.
Most were unchanged from those developed by the early industrial giants at the turn of the twentieth century.
Characterized by an almost exclusive reliance on financial measures of performance, these systems were ill-prepared for the challenges faced by modern organizations. Kaplan and Norton believed that organizations should attempt the introduction of balance to their measurement systems. Specifically, the historical accuracy and integrity of financial measures must be balanced with the drivers of future financial performance in an attempt to view a wider spectrum of performance and execute strategy.
Since its introduction in , the Balanced Scorecard has been embraced by corporations around the world. For-profit companies have used the system to generate improved financial results, foster accountability, align employees with corporate goals, enhance resource allocation decisions, improve collaboration, and most critically, execute their strategies. Increased public scrutiny, fpref.
In the years to come, enhanced productivity, performance improvements, and strategy execution will be transformed from private sector topics that drive bestseller lists to survival imperatives for every public sector agency. Nonprofit organizations are certainly not immune to the tempest of change swirling about our modern world. The laser of scrutiny is being applied with unprecedented vigor everywhere in the nonprofit world; even charitable foundations established by professional athletes have come under the glare of public inquiry.
The Wall Street Journal recently dedicated a two-page feature story to an examination of philanthropy in the sports world. Take another look at the list of achievements private sector firms have seen from their investment in the Balanced Scorecard: Each and every one of those benefits is equally available to government and nonprofit agencies willing to implement the Balanced Scorecard system with rigor and discipline.
The City of Charlotte, North Carolina, profiled in Chapter 12, embraced the Scorecard framework over a decade ago and has reaped many of the benefits noted above. So too have countless other public sector and nonprofit agencies around the globe. Making the transition to this new world of measurement, management, and strategy execution is not without its share of potential pitfalls.
This book has been written to help you navigate this sea of change, and capitalize on the many benefits of the Balanced Scorecard, while concurrently avoiding costly implementation errors. The opening chapter introduces the Balanced Scorecard tool, providing an historical perspective and discussing the many facets of this tool. Adapting the Balanced Scorecard to the public and nonprofit sectors is the subject of Chapter 2.
In fact, the Scorecard will touch many disparate elements of your organization. The next four chapters outline the many and varied elements that must be in place to ensure your Scorecard outcomes are successful.
Many organizations rush into the Scorecard building process without the aid of training on the subject. Poorly designed Scorecards, and little if no alignment throughout the organization, frequently result from this decision.
Chapter 4 provides a training curriculum for your Balanced Scorecard initiative and also discusses the importance of communication planning. In Chapter 5, we begin our transition to the core elements of the Balanced Scorecard beginning with mission, values, and vision. The Scorecard will ultimately act as a translation of these critical enablers of organizational success.
Strategy is at the core of every Balanced Scorecard, and Chapter 6 examines this widely discussed, but often poorly understood subject. A straightforward approach for developing strategy is offered. The next block of chapters will provide you with a guided tour through the development of a Strategy Map of objectives and Balanced Scorecard of performance measures. Chapter 7, which has been extensively updated for fpref. Chapter 8 ushers in an examination of how to populate your Balanced Scorecard by examining measures, targets, and initiatives.
The final five chapters of the text are dedicated to helping you get the most out of your Balanced Scorecard system. We begin in Chapter 9 which probes the concept of cascading the Balanced Scorecard. This term refers to the process of generating goal alignment throughout the organization by the development of Strategy Maps and Balanced Scorecards at each and every level of the agency.
Chapter 10 provides a method of linking the Balanced Scorecard to your budgeting process, and in so doing aligning spending with strategy. Chapter 11 canvasses the many reporting options available to Scorecard-adopting organizations. This chapter also includes a robust dialog on the concept of strategy-centered management meetings. These Scorecard pioneers share their secrets for success, and offer pitfalls that must be avoided on the road to strategy execution.
The final chapter provides you with a glimpse into what is necessary to sustain your Scorecard success. The book concludes with an appendix outlining the critical nature of terminology to your implementation and a glossary of key Scorecardrelated terms. My goal is to steer you through the terrain that follows by offering a text that is exhaustive in scope without being excessively complex or unduly simplistic. February fpref. The individuals mentioned below, and countless others, are largely responsible for giving me the opportunity to share the ideas in this book with you.
In many ways, I am merely a vessel through which their ideas, inspiration, and wisdom pass to you, and hopefully from you to many others. This being a second edition, rigorous scrutiny was applied to every page, with an eye towards updating, clarifying, and enhancing each subject covered. Upon reading the previous paragraph, however, I was unable to change a single word. It rings as true today as it did over five years ago when I completed the first manuscript for this text.
Without the kindness, knowledge, and spirit of learning I received from those listed below, this book would never have reached your hands.
Food for the Hungry U. FHUS provided perhaps xv flast. My sincerest thanks to the entire senior management team, but in particular: At the Rural Health Resource Center, an outstanding organization demonstrating passionate commitment to the ideals of performance improvement, my thanks to Terry Hill and his enormously talented staff. In addition to clients, I have benefited from the insights and kindness of many others, including my consulting partner Dennis Barnhart.
Thank you for your wise counsel and boundless capacity for learning. To Tor Inge Vasshus and Eric Peterson of Corporater, thank you for embracing the true spirit of partnership as we work together to expand the frontiers of the Scorecard.
And finally, to Gerardo Pustelnik and Claudio Nassar of Strategy Execution Consulting in Mexico City my Latin American partners , thank you for your energy, commitment, and dedication to strategy execution. Upon turning the cover he found the inscription: My deepest gratitude is extended to the many individuals kind enough to share their time and information with me. An innumerable number of other individuals have an imprint on this book.
Let me conclude by mentioning just a few: They were gracious enough to submit to interviews for both editions of this book. Joe and Catherine Stenzel have been wonderful friends and great supporters for many years; my thanks to both of you.
Steve Mann provided invaluable assistance with early interviews and research for the First Edition of this book, despite recently retiring! Andra Gumbus of Sacred Heart University offered insight and assistance that is greatly appreciated.
Finally, I would like to thank Teri Anderson. Teri gave me my start in the performance measurement field many years ago, and has been a supporter and great friend ever since. This chapter will provide that base. Financial measurements and their significant limitations will then be examined. The final factor escalating the growth of the Balanced Scorecard is the inability of most organizations to effectively execute their strategies.
The Balanced Scorecard has emerged as a proven tool in meeting the many challenges faced by the modern organization. The remainder of the chapter introduces you to this dynamic tool.
So it is in the vein of connecting measurement to virtually any field of endeavor that I offer this historical account to begin our expedition together. In the dense fog of a dark night in October , Great Britain lost nearly an entire fleet of ships.
There was no pitched battle at sea; the admiral, Clowdisley Shovell, simply miscalculated his position in the Atlantic and his flagship smashed into the rocks of the Scilly Isles, a tail of islands off the southwest coast of England.
The rest of the fleet, following blindly, went aground and piled onto the rocks, one after another. Four warships and 2, lives were lost. For such a proud nation of seafarers, this tragic loss was distinctly embarrassing. But to be fair to the memory of Clowdisley Shovell, it was not altogether surprising.
Although the concept of latitude and longitude had been around since the first century B.
Balanced Scorecard: Step-by-Step for Government and Nonprofit Agencies
Professional seamen like Clowdisley Shovell estimated their progress either by guessing their average speed or by dropping a log over the side of the boat and timing how long it took to float from bow to stern. Forced to rely on such crude measurements, the admiral can be forgiven his massive misjudgment. But for those of you who spend your days leading public and nonprofit organizations, how far have you come in meeting the measurement challenge?
Can you measure all those things you know to be critically important? That knowledge leads to a demand of accountability on your part to show results from the financial and human resources entrusted to you.
To do that, you must demonstrate tangible results which are best captured in performance measures. Welcome to your Balanced Scorecard journey! Promising near instant success in a hyper-competitive world, most of these panaceas have come and gone with barely a whisper and yet the Scorecard drumbeat marches on, gaining momentum with each successive beat.
The question is, why? An assembled throng of twenty-first century pocket-protector-wearing geeks at Google creating the next killer app of the Internet perhaps? Or maybe you wondered what the Red Bull—driven minds at Apple or Microsoft might dream up next? In , when a timber ship dropped anchor at the dock in London, it took men about five days to unload it, equating to man days.
Today, that same ship would be stripped of its cargo in one, yes one, day. What could possibly account for this extraordinary enhancement? Steroid-popping stevedores? The diminishing time requirement is a function of three things: Two out of those three of are quintessential examples of c Take a look at Exhibit 1. Margaret Blair of the Brookings Institute suggests that tangible assets have continued to tumble in value: If you just look at the physical assets of the companies, the things that you can measure with ordinary accounting techniques, these things now account for less than one-fourth of the value of the corporate sector.
The challenges represented by this switch are not going unnoticed in Washington, DC. David M. At many agencies, human capital shortfalls have contributed to serious problems and risks.
Unfortunately, our measurement systems have failed to keep pace with the rate of change occurring in the workplace. However, the new economy, with its premium on intangible value creating mechanisms, demands more from our performance measurement systems.
As we will see throughout this book, particularly in our discussion of the Employee Learning and Growth perspective, the Balanced Scorecard provides a voice of strength and clarity to intangible assets, allowing organizations to benefit fully from their astronomical potential. Perhaps tradition—where the measurement of all organizations has been financial—is serving as a guide unwilling to yield to the present realities.
Bookkeeping records used to facilitate financial transactions can literally be traced back thousands of years. At the turn of the twentieth century, financial measurement innovations were critical to the success of the early industrial giants like General Motors. The financial measures created at that time were the perfect complement to the machine-like nature of the corporate entities and management philosophy of the day.
Competition was ruled by scope and economies of scale with financial measures providing the yardsticks of success. Here are some of the criticisms levied against the over-abundant use of financial measures: Tangible assets no longer serve as the primary driver of enterprise value. It is employee knowledge the assets that ride up and down the elevators , customer relationships, and cultures of innovation and change that create the bulk of value provided by any organization—in other words, intangible assets.
Traditional financial measures were designed to compare previous periods based on internal standards of performance. These metrics are of little assistance in providing early indications of customer, quality, or employee problems or opportunities. This is perhaps the classic criticism of financial metrics.
You may be highly efficient in your operations one month, quarter, or even year. But does that signal ongoing financial success? As you know, anything can, and does, happen. A history of strong financial results is not indicative of future performance. As an illustration of this rear view mirror principle, look no further c Forbes published a 70th anniversary issue in , and of the companies that graced the inaugural roll, 61 were dead and gone, with only memories of their former fiscal glory remaining.
Of the 39 companies that existed, many were on life support, with only 18 still named on the list. Forty years after it began in , only 74 of the initial companies existed. Working in mission-based organizations, you know the importance of collaboration in achieving your goals. Typically, financial reports are compiled by functional area.
This does little to help you in meeting your noble causes. If you face a funding cut, what are the first things to go in your attempt to right the ship? Many organizations reach for the easiest levers in times of crisis: The short-term impact is positive, but what about the long-term impact?
Ultimately, organizations that pursue this tactic may be sacrificing their most valuable sources of long-term advantage and often to no avail. Recent research suggests that tools such as downsizing not only damages workers who are laid off, but destroy value in the long-term.
One study found that downsizing in the corporate world never improved profits or stock market returns. Financial reports by their very nature are abstractions. Abstraction in this context is defined as moving to another level leaving certain characteristics out. When we roll-up financial statements throughout the organization, that is exactly what we are doing: Employees at all levels of the organization need performance data they can act on.
This information must be imbued with relevance for their day-to-day activities. We just reviewed their many limitations, and with only a modicum of exaggeration, it could be suggested that a single-minded focus on financial c So, do financial metrics deserve a place on your Balanced Scorecard?
Despite their many shortcomings, financial yardsticks are an entirely necessary evil. This is especially the case in the public and nonprofit sectors. In an era of limited, often decreasing, funding you must consistently tread the delicate balance between effectiveness and efficiency.
Results must be achieved, but in a fiscally responsible manner.
Your stakeholders will be looking to you to achieve your missions, and thus, nonfinancial measures of performance become critical in your efforts. However, pursuing your goals with no regard to the financial ramifications of your decisions will ultimately damage everyone: Your funders will be discredited, and potentially, unwilling to support you in the future. Most importantly, your target audiences will not receive the services they need as a result of your inability to reach them in both an effective and efficient way.
Execution is Everything When I was conducting research for my book on private-sector Balanced Scorecard development, I knew I would come across many references to strategy. After all, strategy is probably among the most discussed and debated topics in the world of organizations.
Professional sports teams all have a strategy to beat their opponents and their owners have a strategy to separate us fans from our money! The interesting thing about strategy in the business sense of the word is that nobody seems to agree on what it is specifically. There are as many definitions as there are academics, writers, and consultants to muse on the topic.
In fact, a favorite book of mine on the subject nicely summarizes both the confusion and the ultimate quest of those pursuing the strategy development challenge: Strategy Safari. One thing strategy gurus seem to agree on is this: For those who can execute, the rewards are significant. Unfortunately, the vast majority of organizations fail miserably when attempting to execute their strategies.
Research and experience in the area have suggested a number of barriers to strategy execution, and they are displayed in Exhibit 1. The Vision Barrier Employee empowerment, two-way communication, and information sharing are terms whose benefits executives and managers alike frequently espouse.
Talk is cheap. The fact of the matter is that the vast majority of organizations have a long way to go when it comes to communicating their most important messages—vision and strategy—to their most important constituents: An earlier section discussed the fact that many financial measures were developed at the turn of the twentieth century. Transport yourself back there for a moment and put yourself inside one of those fortresses of industry, complete with towering walls and smokestacks billowing who-knows-what into the atmosphere.
Kaplan and David P. Probably not. But today the world is an entirely different place. Value is created largely from intangible assets such as customer knowledge and information-rich networks. Only then can you combine your talents with others from across your agency to create value for your stakeholders and ultimately achieve your mission.
The People Barrier For decades, debate has raged on whether incentive compensation plans really do lead to improved performance. We may never know the answer, but it is probably safe to suggest that an incentive of any kind tends to increase focus—at least temporarily.
The danger with incentive plans is the possibility that managers will sacrifice long-term valuecreating activities and initiatives in order to reach a short-term financial target and receive a monetary award. Strategy cannot be executed if the focus is continually on the short term.
This is a particularly damaging blow to the hopes of executing strategy. What is a budget if not a detailed articulation of the priorities of the enterprise for the next fiscal year? Do they even possess any, or are they simply spinning their wheels and wasting precious resources in the process.
Many would argue there is literally no time to slow down, not even for a minute. Undoubtedly, we live in an era of brutally fast-paced organizations, but virtually all of us attend regular management meetings. In order to have any chance of executing strategy, these meetings must be transformed.
Instead, these meetings must be used to discuss, learn about, and debate our strategy. But their umbrellas, the traditional methods of monitoring and managing performance, are ill-equipped to navigate us through the changes we face on a seemingly daily basis. In the remainder of this chapter, we will begin our exploration of the Balanced Scorecard by discussing its origins, reviewing the conceptual model of the Scorecard, and considering what separates the Balanced Scorecard from other systems.
The model is presented graphically in Exhibit 1. In , Kaplan and Norton led a research study of a dozen companies exploring new methods of performance measurement. The impetus for the study was a growing belief that financial measures of performance were ineffective for the modern business enterprise.
The study companies, along with Kaplan and Norton, were convinced that a reliance on financial measures of performance was affecting their ability to create value. The group discussed a number of possible alternatives but settled on the idea of a Scorecard featuring performance measures capturing activities from throughout the organization—customer issues, internal business c Customer Who are our target customers, what are their expectations, and what is our value proposition in serving them?
Internal Process Strategy At what business processes must we excel to drive value for customers? Employee Learning and Growth How do we align our intangible assets to improve our ability to support our strategy? Adapted from material created by Robert S. Kaplan and Norton discovered these organizations were not only using the Scorecard to complement financial measures with the drivers of future performance, but were also communicating their strategies through the measures they selected for their Balanced Scorecard.
As the Scorecard gained prominence with organizations around the globe as a key tool in the implementation of strategy, Kaplan and Norton summarized the concept and the learning to that point in their book, The Balanced Scorecard.
So widely accepted and effective has the Scorecard become that the Harvard Business Review recently hailed it as one of the 75 most influential ideas of the twentieth century.
Once considered the exclusive domain of the for-profit world, the Balanced Scorecard has been translated and effectively implemented in both the nonprofit and public sectors.
Success stories are accumulating from all corners of the globe as eager public and nonprofit sector leaders apply the Balanced Scorecard, enhancing their capacity, strengthening their core processes, and better serving their constituents. While empirical evidence of c The measures selected for the Scorecard represent a tool for leaders to use in communicating to employees and external stakeholders the outcomes and performance drivers by which the organization will achieve its mission and strategic objectives.
A simple definition, however, cannot reveal everything about the Balanced Scorecard. In my work with many organizations, and in conducting Scorecard best-practices research, I see this tool as three things: For any strategy to be effective, it must contain descriptions of financial aspirations, markets served, processes to be conquered, and of course the people who will steadily and skillfully guide the ship to success.
Therefore, when developing a Balanced Scorecard we use the following four: Take for example the word quadrant. The word reflects the number four and in that sense is almost limiting to the flexible approach inherent in the Scorecard.
You may wish to have five perspectives or only three. With its focus on viewing performance from another point, perspective is far more representative of the spirit of the Balanced Scorecard and I encourage you to be disciplined in the use of this term. Strategy Maps When Kaplan and Norton originally developed the Balanced Scorecard, their creation was a direct response to what some might realistically describe as the tyranny of financial measures.
The Balanced Scorecard posited a simple yet revolutionary idea: The Balanced Scorecard represented a profound and simple idea, but as with many such notions, it was not always easily implemented. Pioneers of the system, while anxious to develop the breakthrough metrics that would ensure strategy execution, often struggled when it came to actually articulating what they would track in each of the perspectives.
Understanding the definitions of these terms is critical should you hope to derive the maximum benefit from your efforts. An objective is a succinct statement, normally beginning with a verb, describing what we must do well in each of the four perspectives in order to implement our strategy.
Examples vary widely but could include: Tracking our success in achieving the objective is the domain of the measure, a typically quantitative device used to monitor progress. When charting your course on a map, you move sequentially from one location to the next and the Strategy Map serves a similar function.
The objectives appearing on the Map should not be viewed as isolated elements but should be woven together, taking you on a journey that leads to the execution of your strategy. Why just one page for the Map? One page is critical; many strategic plans suffer from severe information overload for readers—dozens if not hundreds of pages of dizzying graphs, numbing narratives, and 8-point Excel financial tables.
A sample Strategy Map, representing a fictitious performing arts organization is shown in Exhibit 1. Ensure the long-term future of performing arts by producing and presenting high-quality and diverse offerings that are both artistically excellent and innovative. Exhibit 1. Customer Perspective When choosing objectives for the Customer Perspective of the Strategy Map, organizations must answer three critical questions: Strategy guru Michael Porter says that this lack of focus will prevent an organization from differentiating itself from competitors.
Finally, choosing an appropriate value proposition also represents a formidable test to most organizations. What is a value proposition? It simply represents how you propose to add value for your customers, what makes you stand out from others.
Constantly innovating, they strive to offer simply the best product in the market. Who could now live without Post It Notes, for example? In the retail industry, Nordstrom epitomizes the customer intimate organization. A more practical approach is to choose one discipline in which you possess particularly strong attributes, and maintain at least threshold standards of performance in the other disciplines.
In Chapter 7, we will take a closer look at the Customer Perspective, and identify what specific steps your organization should take to develop customer objectives. Internal Process Perspective In the Internal Process Perspective of the Strategy Map, we identify the key processes at which the organization must excel in order to continue adding value for customers.
Each of the customer disciplines outlined above will entail the efficient operation of specific internal processes in order to serve our customers and fulfill our value proposition.
Our task in this perspective is to identify those processes and develop the best possible objectives with which to execute our strategy. To satisfy customers, you may have to identify entirely new internal processes rather than focusing your efforts on the incremental improvement of existing activities. Service development and delivery, partnering with the community, and reporting are examples of items that may be represented in this perspective. We will examine the development of performance objectives for Internal Processes in greater depth in Chapter 7.
Financial Perspective Financial objectives are an important component of the Strategy Map, in the for-profit, public, and nonprofit worlds. Typical examples include: Employee Learning and Growth Perspective If you want to achieve ambitious results for internal processes and customers, where are these gains found? The objectives appearing in the Employee Learning and Growth Perspective of the Strategy Map are really the enablers of the other perspectives.
In essence, they are the foundation upon which this entire house of a Strategy Map is built. Once you identify objectives in your Customer and Internal Process Perspectives, you can be certain of discovering some gaps between c The objectives you design in this perspective will help you close that gap and ensure sustainable performance for the future.
No matter how valid the rationale seems, this perspective cannot be overlooked in the development process. As I mentioned earlier, the objectives you develop in the Employee Learning and Growth perspective are really the enablers of all other measures on your Map. As with the other three perspectives, we will re-examine this important topic in Chapter 7.
Rather than focusing on financial control devices that provide little in the way of guidance for long-term employee decisionmaking, the Scorecard system uses measurement as a new language to describe the key elements in the achievement of the strategy.
Conversely, performance measures serve as powerful monitoring devices, but without the benefit of a clear and compelling Strategy Map, much of their contextual value is lost.
Strategy Maps communicate the strategic destination, while performance measures housed within the Balanced Scorecard monitor the course allowing c Are you confused over the difference between a Strategy Map and a Balanced Scorecard? Step number one in the overall process is creating a Strategy Map that tells the story of your strategy on one page, remember through the use of objectives—concise statements of what must be done well in each of the four perspectives.
The measures are housed in a Balanced Scorecard since they are the ultimate arbiters of success, providing the actual score for us to tally and analyze. Chronology should shoulder the blame for this perplexing situation. They were focused entirely on solving a measurement issue and through their efforts, and those of the pioneering firms with which they worked, the Balanced Scorecard was born. Several years later, the concept of Strategy Maps emerged primarily from the struggles of early Scorecard adopters.
And guess what? Used in this way, the Scorecard alleviates many of the issues of effective strategy implementation we discussed earlier in the chapter. The translation of vision and strategy forces the executive team to specifically determine what is meant by often vague and nebulous terms contained in vision and strategy statements, for example: Cascading the Scorecard Overcomes the People Barrier To successfully implement any strategy, it must be understood and acted upon at every level of the firm.
Some organizations have taken cascading all the way down to the individual level with employees developing personal Balanced Scorecards that define the contribution they will make to their team in helping it achieve overall objectives. In Chapter 9, we will take a closer look at the topic of cascading and discuss how you can develop aligned Scorecards throughout your organization.
All employees can now focus on the performance drivers of future value, and what decisions and actions are necessary to achieve those outcomes. Strategic Resource Allocation Overcomes the Resource Barrier Developing your Balanced Scorecard provides an excellent opportunity to tie resource allocation and strategy.
When we create a Balanced Scorecard, we not only think in terms of objectives, measures, and targets for each of our four perspectives, but just as critically, we must consider the initiatives or action c If we create longterm stretch targets for our measures we can then consider the incremental steps along the path to their achievement. The human and financial resources necessary to achieve Scorecard targets should form the basis for the development of the annual budgeting process.
Instead, the necessary costs and profits associated with Balanced Scorecard targets are clearly articulated in their submission documents. This enhances executive learning about the strategy, as the group is now forced unless they have unlimited means to make tough choices and trade-offs regarding which initiatives to fund and which to defer.
The building of a Balanced Scorecard also affords you a tremendous opportunity to critically examine the current myriad initiatives taking place in your organization. Initiatives at every level of the organization and from every area must share one common trait: The Balanced Scorecard provides the lens for making this examination.
Obviously, the resource savings are beneficial, but more importantly, you signal to everyone in the organization the critical factors for success, and the steps you are taking to achieve them.
Chapter 10 is devoted to a greater review of this topic and provides guidance on how you can link your budgets to strategy. Much has been written in recent years about knowledge management strategies within organizations, and many schools of thought exist.
One common trait of all such systems is the desire to make the implicit knowledge held within the minds of your workforce explicit and open for discussion and learning. There may be no greater challenge facing your organization today than codifying and acting on that knowledge.
In fact, Peter Drucker, widely considered the father of modern management, has called managing knowledge worker productivity one of the great management challenges of the twenty-first century.
The balanced scorecard helped the company focus on what it had to do well in order to become the industry leader. Similarly, Joseph De Feo, chief executive of Service Businesses, one of the three operating divisions of Barclays Bank, had to transform what had been a captive, internal supplier of services into a global competitor.
The scorecard highlighted areas where, despite apparent consensus on strategy, there still was considerable disagreement about how to make the strategy operational.
With the help of the scorecard, the division eventually achieved consensus concerning the highest priority areas for achievement and improvement and identified additional areas that needed attention, such as quality and productivity.
It provided a shared understanding of our goals and what it took to achieve them. It still does when we focus attention on particular areas, such as the gross margins on new products. But its main impact today is to help sustain programs that our people have been working on for years.
AMD competes in a single industry segment. The top 12 managers are intimately familiar with the markets, engineering, technology, and other key levers in this segment. The summary and aggregate information in the scorecard were neither new nor surprising to them.
And managers of decentralized production units also already had a significant amount of information about their own operations. The scorecard did enable them to see the breadth and totality of company operations, enhancing their ability to become better managers for the entire company. But, on balance, the scorecard could only encapsulate knowledge that managers in general had already learned.
The scorecard enables managers to see the breadth and totality of company operations. At Advanced Micro Devices, the scorecard only encapsulated knowledge that managers had already learned. Some companies link compensation of senior executives to achieving stretch targets for the scorecard measures.
Most are attempting to translate the scorecard into operational measures that become the focus for improvement activities in local units. The scorecard is not just a measurement system; it is a management system to motivate breakthrough competitive performance.
In fact, the scorecard does not translate easily to the investment community. A scorecard makes sense primarily for business units and divisions with a well-defined strategy. Most companies have several divisions, each with its own mission and strategy, whose scorecards cannot be aggregated into an overall corporate scorecard.
But most important, as a relatively recent innovation, the scorecard would benefit from several years of experimentation within companies before it becomes a systematic part of reporting to external constituencies. Even if the scorecard itself were better suited to external reporting, at present the financial community itself shows little interest in making the change from financial to strategic reporting.
The financial community is skeptical about long-term indicators and occasionally tells us about some empirical evidence of a negative correlation between stock prices and attention to total quality and internal processes.
Could this be an early sign of a shift to strategic thinking? Brady FMC Corporation is one of the most diversified companies in the United States, producing more than product lines in 21 divisions organized into 5 business segments: industrial chemicals, performance chemicals, precious metals, defense systems, and machinery and equipment.
Coupled with a major recapitalization in , these returns resulted in an increasing shareholder value that significantly exceeded industrial averages.
In , the company completed a strategic review to determine the best future course to maximize shareholder value. As a result of that review, FMC adopted a growth strategy to complement its strong operating performance.
This strategy required a greater external focus and appreciation of operating trade-offs. To help make the shift, the company decided to use the balanced scorecard. In this interview conducted by Robert S. Kaplan, Larry D. Larry D. Brady: Although we are just completing the pilot phase of implementation, I think that the balanced scorecard is likely to become the cornerstone of the management system at FMC. It enables us to translate business unit strategies into a measurement system that meshes with our entire system of management.
For instance, one manager reported that while his division had measured many operating variables in the past, now, because of the scorecard, it had chosen 12 parameters as the key to its strategy implementation.
Seven of these strategic variables were entirely new measurements for the division. The manager interpreted this finding as verifying what many other managers were reporting: the scorecard improved the understanding and consistency of strategy implementation.
He may be reached through his Web site at www.
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2. Interviews: First Round
If you do not receive an email within 10 minutes, your email address may not be registered, and you may need to create a new Wiley Online Library account. If the address matches an existing account you will receive an email with instructions to retrieve your username. Skip to Main Content. Maximizing Performance and Maintaining Results Editor s: Paul R. First published: Print ISBN:This Second Edition contains the same core implementation guidance offered in the first volume, but has been significantly updated and enhanced to ensure it reflects the latest theory and practice of performance management for the nonprofit and public sectors.
Collins hypothesizes that this is an uncommon commodity in the social sectors and suggests most leaders of public and nonprofit organizations must rely at least equally on legislative power. Finance has been plagued with errors and as a result has poor customer satisfaction.
We sometimes make decisions that are beneficial in the short-term, but may harm long-term value creation. See for example www. Two out of those three of are quintessential examples of c Would you agree to fly in a small airplane across the Atlantic at night, in a storm, with a pilot boasting of his two hours of solo flight time?
We had initiated many of the popular improvement programs: total quality, managing by objectives, organizational effectiveness, building a high-performance organization. The translation of vision and strategy forces the executive team to specifically determine what is meant by often vague and nebulous terms contained in vision and strategy statements, for example:
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