The Balanced Scorecard was introduced as a performance management tool in 1992 by Robert S. Kaplan and David P. Norton. At this time performance measurements was a topic for discussion in most companies and Kaplan&Norton's articles on BSC became very popular. In 1996 Kaplan&Norton's first book, "The Balanced Scorecard", was published and it still remains their most popular publication.
Today the BSC has evolved into a powerful strategic planning and management system. It is used in companies all over the world to "align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals" (The Balanced Scorecard Institute, 2011).
The primary essence of BSC, which is highlighted in the early publications, is that historically there has been too much focus on only financial measurements as performance indicators. The original thinking behind BSC was for it to be focused on information relating the implementation of a strategy and introduce other perspectives than financial. The four focuses that were introduced are; Customer, Internal Business Processes, Learning and Growths and Financial. The need for complementary focal points is supported by facts that financial data has proven to be a poor tool for forecasting long-term trends in overall company performance.
In Kaplan&Norton's second book, "The Strategy Focused Organization", the method was refined and they focused more on the importance of visually documenting links between measures and proposed their theory on "Strategic Linkage Model" and the diagram tool the "strategy map". In this work they were influenced by Swedish authors Nils-Göran Olves and his studies on the subject.
Since 1992 and the first buzz about the method there has been several refined BSC-systems by other inventors, articles, books and a substantial amount of criticism. The BSC as a management system is nowadays widely acknowledge with increasing amount of user in especially English speaking western countries, Scandinavia, Middle East, Asia and Spanish-speaking countries. In 2009 it was Nr. 6 on the list of the top ten management tools and the usage in global companies around 50% with satisfaction of 4 out of 5 (Rigby&Bilodeau, 2009).
Problem area and Scope
The problem to solve is how to use the Balanced Score Card from Strategy to Measurements. The problem area has been divided into sub-goals to simplify the completion of the investigation. We will assess and clarify the following sub-goals:
What are the steps from strategy to measurements with BSC as management system
How a strategy and a BSC interact
How to set up objectives for performance measurements
How can performance measurements be improved through the use of the BSC.
The scope is to investigate the sub-gaols mentioned above. We will start by looking at the BSC vision, mission and strategy. This will be followed by the Objectives, the Performance Measurements, Targets etc. All in concurrence with the order of the nine steps of implementing BSC as a management system.
The result will be supported by facts from a real case study where an organization has improved its strategy and performance measurements using the BSC.
The real case study of the Rockwater organization (Kaplan&Norton, 1993) is supplied by the Balance Scorecard Institute (BSI) and we need to keep in mind the possible biases of the studies available in BSI portfolio.
We will limit our report by not assessing all the nine steps for implementing BSC as a management system. All nine steps will be mentioned briefly but only the steps until measurements will be investigated in the result chapter.
Methods
All methods used for data collection and processing while investigating BSC, are presented in this chapter. With their help the established problem will be solved and all the sub-parts of the determined scope will to be covered. Methods that were successfully used by the group in the previous (similar to the wide extend) projects will be also employed in the current work. They can be divided into the five groups, namely (SENA, 2010):
"Methods used to decide upon the subject of investigation
Brainstorming
Literature research
Methods used to build theoretical framework of the study
Literature review"
Methods used to collect and analyse empirical data
Analysis of the Rockwater case study (Kaplan&Norton, 1993) as an empirical example
Group discussions
"Methods to control work processes
Scheduling : milestones, meetings, individual and group work
Methods used to ensure quality in terms of reliability and validity
Use of only relevant and reliable literature sources and methods of data collection and processing
Providing description and interpretation for data collected
Use of examples which are generalizable
Avoidance of participant errors: group decision making, preliminary group discussions before executing individual tasks, double check of individual work by all members of the group"
Listed above methods ensure high quality of the work and fulfilment of all the requirements regarding problem, purpose and scope of the work and managing working processes in an efficient way.
Theories and models
Four BSC perspectives
The framework of the balanced score card is made up of four key areas or perspectives. These areas are; The Financial, The Customer, Internal Business Process and the last area, Learning and Growth. These areas form the basis of an organisation as dictated by the balanced scorecard. The scorecard looks at these areas and sets questions or measures for them. These questions act as a check and balance system to ensure that the vision and strategy is being followed.
The Customer
Identifying the measures that an organisation will adopt in this area can be broken down into two areas. One is the Who and the other is the Value Plan we intend to follow. The first of which is easy. A company must identify its target market, who are they making the product for? It is easy for them to slip into complacency and try to attract everybody. This though will not allow for a focus on the customer and what the customer wants.
An organisations value plan will identify how the company plans to image itself to its clients. As an example, does it want to operate efficiently and drive costs down? The focus may also be on customer satisfactory and loyalty.
Internal Business Process'
In this section an organisation must look at the process within the organisation that are key to the organisations success. Which process will ultimately determine if what the organisation is producing will be successful? Successful must also be determined by the organisation. The product must be upholding the values that the organisation wants to be perceived by.
In this area the organisation must also be prepared to put forward new process that the company needs to implement, to satisfy the customer. It may be that the current processes are not covering the complete satisfaction of the customer or value plan of the organisation.
Learning & Growth
This perspective of the balanced score card is fuelled of all three other areas of the balanced scorecard. This area links the other three and makes sure that all three areas are talking to each other. How it does this is by identifying the gaps in between what is actually happening and where the company would like to be. It looks at not only each area but also the needs of the links between the areas. The measures implemented in this area will lead the organisation closer to where the company wants to be.
The Financial
The financial area is linked to all four perspectives. This is because, whatever happens in the other areas will, in time, affect the financial measures. Improvements for instance in one area of measurement will lead to an improved bottom line. In the long run, this area lets us know if the steps taken in the other areas are working.
Figure 1: Balanced Scorecard (Kaplan&Norton, 1996)
Nine steps to develop a BSC
The 9-steps framework, created by Howard Rohm from the Balanced Scorecard Institute (Nine Steps to SuccessTM) is one of the best approaches for strategy planning and a management system development. This approach is the most applicable and easy in implementing. This framework allows building a connection between various components of strategic planning and management system within the organization. It helps to track activities aimed to accomplish the mission, vision and strategy of the organization.
Step 1: Assessment
First step of developing a scorecard starts with assessment of the mission, vision and values of the organization as well as its challenges and enablers. Step 1 is aimed also to create a change management plan for the organization and communication workshop to determine key messages, messengers, timing, and media outlets.
Step 2: Strategy
In Step 2, components of the organization's strategy such as Strategic Results, Strategic Themes and Perspectives, are determined and developed by participants of the workshop in order to concentrate attention of customer needs and the organization's value suggestion.
Step 3: Objectives
In Step 3, the strategic components developed in first two steps are broken down into Strategic Objectives - the basic elements of the strategy. The objectives must be categorized on the Strategic Theme level, categorized by Perspective and linked for each Strategic Theme. Then these objectives must be merged together into one set of Strategic Objectives for the whole organization.
Step 4: Strategy Map
In Step 4, the Strategy Map is developed by means of the cause and effect linkages between the Strategic Objectives. The Strategic Map shows how organization produces the value for its customers and stakeholders.
Step 5: Performance Measures
In Step 5, Performance Measures for each of the Strategic Objectives are created. Furthermore, expected targets and thresholds are set up, measures for leads and lags are determined, and benchmarking and baseline data is refined.
Step 6: Initiatives
In Step 6, Strategic Initiatives are created to support the Strategic Objectives. To develop and maintain system of responsibilities within the organization, ownership of specific Performance Measures and Strategic Initiatives is delegated to the appropriate staff and documented in data definition tables.
Step 7: Automation
In Step 7, the implementation starts by using performance measurement software to deliver the specific performance information to the specific people and in the specific time. Automation helps to structure the process of implementing the Balanced Scorecard system. It is unifying the corporate data, transforming it into information and knowledge, and helps to distribute performance information. In means that automation helps people within the organization to make correct decisions by offering easy access to valid performance information.
Step 8: Cascade
On this step the organizational level scorecard is "cascaded" down into business and support unit scorecards and then to team and individual scorecards. Cascading is translating the high-level strategy into the lower-level objectives, measures and operational details. Organizational objectives and performance measures are getting more effective after cascading down the scorecard management system through the organization.
Step 9: Evaluation
In Step 9, an Evaluation of the finished scorecard must be done. The evaluation helps to find answers to questions such as: "How good are our strategies working?", "Are we measuring the right things?", "Have we changed our environment?", "How good strategically are we budgeting our money?", and etc.
In the literature there are other approaches described. They do not differ drastically but the order of steps is changed or steps overlap. One possible way will be illustrated in the result chapter.
Result: the BSC from strategy to measurement
The result chapter is aimed to illustrate how to use the BSC to translate the strategy into clear measurements. It should be mentioned that this chapter does not describe all the 9 steps within the same level of detail, but highlights the most important steps to get from the strategy to measurement. The order is not exactly equal to the 9 step approach. First the basement including the mission, the vision, the strategy and values is formed, in the next step the objectives and related performance measures are developed, interlinked and investigated in the strategic map before the business goals are set and initiatives are planned. Niven (2002), suggests to create the strategy map after possible objectives and measurements are defined to not harm the creativity.
The main focus of this chapter is set on the strategy, the objectives and the measurements. To ensure the comprehensibility of these three successive steps a case study is applied that illustrates the output as a practical example. The chosen company called Rockwater is a global engineering and construction company that is specialized on underwater engineering and construction and introduced the BSC to increase their competitiveness (Kaplan&Norton, 1993). For the remaining steps the most important facts are shortly summarized, but not illustrated with a real example.
Mission, Values, Vision, Strategy and the BSC
The BSC is not an isolated management tool. It is a vital approach to transfer the mission, values, vision, and strategy of a company into performance objectives and measures of the BSC. (Niven, 2002). Before connecting each of these terms to the BSC, a short description will be given to eliminate any misunderstandings or misinterpretations.
Figure 2: Balanced Scorecard and mission, values, vision, stragety (Niven, 2002)
The mission defines the core propose of the organization - why does this organization exist? A popular example for a mission statement is the one from 3M: "To solve unsolved problems innovatively". The mission's link to the BSC is that the BSC ensures that all employees are aligned to, and work towards the mission. When the objectives and measures are developed, it has to be checked if they align to the mission. A measure and target of cutting down the research and development of 3M will not comply with the mission of being innovative. This example makes it obvious that it is essential that the BSC reflects the mission and does not work against it. The BSC helps to translate the mission to concrete objectives that are affiliated by all employees. (Niven, 2002).
Values are timeless principles guiding the organization and are demonstrated through the daily behaviour. They often represent the personal believes of the founder and should be participated during the daily business of each employee. Linking the values to the BSC means, that the measures of the BSC must be consistent with the values that are set. Only thereby it can be ensured that everyone is heading in the same overall direction. By reviewing the measures it can be checked if the values of the employees are really those that are set as an overall target and if the employees are living these values to contribute to the success. The BSC is used to evaluate how the values are embodied within the organization and to track how the vision is lived. If you value innovative solutions the BSC should include a measure of tracking the innovation and development. A missing of this measure would show that innovativeness is not seen important enough. That would also mean that is not truly lived throughout the company. (Niven, 2002).
The vision is influenced by the mission and values, and defines the way the company want to go in the future. It pictures a concrete desired state to reach within the next 5 - 15 years. A typical example therefore is the desired scope of future business activities. Since the vision is showing the way to go and thereby the scope of business activities it is closely connected to stakeholders like customers, employees and suppliers. As a principle of the Scorecard to balance, and more precisely to measure the balance between skills, processes and customer requirement, the BSC shows if the balance between all the stakeholders will direct towards the chosen vision or if they are conflicting each other. (Niven, 2002)
The strategy is a set of actions or plans, ensuring the accomplishment of the mission and to to lead and ensure the company to its desired future, the vision (Niven, 2002). Some core principles of the strategy are: choose activities that make the company different from the competitors, make trade-offs, define what not to do. Moreover, the strategy should have continuity by describing basic issues like how the company want to offer customer value. Aligning the strategy to the BSC is the most critical and essential link. To explain why, a short quiz will help to understand it better: "Three frogs are sitting on a log. One decides to jump off. How many are left? You might think two, but the answer is three. One has decided to jump off" (Niven, 2002, p.91). How is that quiz linked to strategy and the BSC? The BSC is providing the framework for the move from deciding to actually doing it. From having a strategy and deciding to live it, to actually doing it. The BSC is doing that by breaking down the strategy into smaller subparts. That is done by setting objectives and measures in each of the four areas of the BSC. The objectives and measures in the BSC are formulated much clearer than it is done in the strategy. While the strategy is speaking from "being world class" the concrete measurement of being world class might be to have "zero manufacturing defects". This measurement is concrete and can not be misinterpreted. Thereby all employees can focus on working on that crystal clear goal instead of wondering what could be meant by "world class". Like this example shows the BSC translated the strategy in a much clearer why and thereby increases the common understanding on what to do. Due to the fact, that the strategy should consist of activities, different from those of the competitors, these activities have to be included in the BSC. The BSC should reflect the concept of the strategy. If exemplary the strategy is to have an outstanding customer service, there will be for sure measures in the area of "Customer Perspective". But this is not the only measurement. There will be one in "Internal Process" concerning the relationship management, there will be one in "Learning and Growth" concerning e.g. the customer knowledge management, and finally this will create revenue in the "Financial" area. By having measures of these activities in all four areas of the BSC, the BSC connects the activities to one whole picture. (Niven, 2002)
Rockwater Example:
Vision: "As our customers' preferred provider, we shall be the industry leader in providing the highest standards of safety and quality to our clients."
Strategy to implement the vision:
services that surpass customers' expectations and needs;
high levels of customer satisfaction,
continuous improvement of safety, equipment reliability, responsiveness, and cost effectiveness
high-quality employees;
realization of shareholder expectations.
Objectives
Objectives are strategy components; continuous improvement activities that should be performed to be successful. Objectives define clearly the organization's strategic intent (Balanced Scorecard Institute, 2011).
Objectives should facilitate action but in contrast to goals they don't have to be quantitative. For each objective explanatory statements can be used to capture the meaning correctly and the expected way to meet the established objectives. As many as possible objectives should be identified using brainstorming and diversity in the team members' background and experience. Then number of objectives should be limited to maximum of three key ones per each perspective and later each objective result in two performance measures "to accurately capture the intent of the objective. Each objective should be reviewed to ensure consistency with the mission, values, and vision. The objectives must also be examined to ensure that they represent a faithful translation of your strategy" (Balanced Scorecard Institute, 2011).
Before you start with the determination of the objectives it is important to have a closer look at the four perspectives and evaluate if they suit your business. Instead of traditional perspectives one can create own perspectives depending on own needs, strategy and how competitive advantage is to be created. Possible areas can be e.g. suppliers, research and development, community, innovation. A well-constructed BSC should express the organization's strategy through a relatively small number of measures (which are based on the objectives) developed for all BSC perspectives.
Nevertheless, before the objectives can be properly developed, some preparatory activities are needed. These two steps must be taken in order to ensure effective preparation to development of the strategic objectives.
Define information sources and background material to be used in each perspective. Niven (2002).suggests the following sources:
"Financial: Annual report, Performance reports, Analyst reports, Trade journals, Benchmark reports
Customer: Marketing department, Trade journals, Consulting studies, Project plans, Strategic plan, Performance reports, benchmark reports
Internal Process: Operational reports, Manufacturing reports, Competitor data, Benchmark reports, Trade journals, Consulting studies, Project plans
Employee Learning and Growth: Human resources data, Trade journals, Core values, Benchmark reports, Consulting studies
Mission, Values, Vision, and Strategy: Mission statement, Values, Vision statement, Strategic plan, Organizational histories, Consulting studies, Project plans"
Relevancy, reliability and validity of the sources have to be ensured.
Conduct Interviews to win (ensure support) executive and influencing persons
Interviews can be used to collect reflections from top management and other influencing persons who can affect the results. The idea is to identify their attitude towards objectives and measures critical to the organization's success. The following questions can be asked:
"How will we achieve the strategies you just discussed?
What data or measures do you currently use to gauge success of the organization?
Do you have targets for the measures? If so, what are they?
What data or reports are most useful, and why?" (Balanced Scorecard Institute, 2011).
Conducting such interviews allows informing the audiences of the project's plans and winning their support and assistance.
The objectives developed act as a bridge from the high-level strategy to the specific performance measures to determine the progress in achieving overall goals.
When the overall strategy is developed, the strategic objectives can be defined for each of four BSC 's perspectives answering the following questions:
"Financial perspective: What financial steps are necessary to ensure the execution of our strategy?
Customer perspective: Who are our targeted customers, and what is our value proposition in serving them?
Internal Process perspective: To satisfy our customers and shareholders, at what processes must we excel?
Employee Learning and Growth perspective: What capabilities and tools do our employees require to help them execute our strategy?" (Niven, 2002).
Answering such questions one can develop working objectives on the base of previously determined strategy. In the Rockwater case the following objectives were identified for each of four traditional perspectives.
Rockwater Example:
Financial objectives:
Return on Capital
Cash Flow
Project Profitability
Reliability of Performance
Customer related objectives
Value for Money Tier I
Competitive Price Tier II
Hassle-Free Relationship
High-Performance Professionals
Innovation
Internal Process related objectives:
Shape Customer Requirement
Tender Effectiveness
Quality Service
Safety/Loss Control
Superior Project Management
Employee Learning and Growth related objectives:
Continuous Improvement
Product and Service Innovation
Empowered Work Force
Performance Measures
Performance measures are metrics used to provide an analytical basis for decision making and to focus attention on what matters most. Performance Measures answer the question, 'How is the organization doing at the job of meeting its Strategic Objectives?' (Balanced Scorecard Institute, 2011). Performance measures are the tools we use to determine whether we are meeting our objectives and moving toward the successful implementation of our strategy. Strategic performance measures monitor the implementation and effectiveness of an organization's strategies, determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency (Niven, 2002).
The necessity to define and agree upon measures is the biggest barrier on the way to development of a unified and complete performance measurement system. Measures are to be defined for each established objective. Normally the following number of measures should be defined for each perspective: financial - three or four clearly stated anticipated financial results; customer - five to eight measures with mostly leading indicators; internal process - five to ten measures which is due to the fact that processes can span the entire organization, adding value for customers and financial stakeholders; employee learning and growth - three to six measures that must be given the most serious attention since they enable all other perspectives (Niven, 2002). For highest-level organizational BSCs usually 20-25 measures are being developed.
Measures can be described as quantifiable standards used to communicate and assess performance against planned results. They have to be necessarily included in the organization's BSC since they facilitate desirable actions towards the goals and provide employees with a clear direction while progress can be easily evaluated. In order to be effective, performance measures have to be obviously and clearly linked to the strategy, easily understandable, counterbalanced and relevant. The BSC was created to be a dynamic and flexible tool adjusting to changing conditions; hence the determined measures within the BSC can also change.
Lagging and leading indicators
There are two common categories of performance measures: lagging and leading indicators. The first ones represent the consequences of previously taken actions considering results at the end of predetermined time period. The second ones measure intermediate processes or activities driving the action towards the desirable final results. For example:
For example:
Lagging indicators: sales, market share, and lost time accidents.
Leading indicators: Sales may be driven by hours spent with customers, market share may be driven by brand awareness, and lost time accidents may be driven by the safety audit scores
In other words, lagging indicators are those that show how successful the organization was in achieving desired outcomes in the past whereas leading indicators are those that are a precursor of future success; performance drivers (Niven, 2002).
A BSC can contain a mix of leading and lagging indicators to provide a picture of both past experience and future plans and desirable results together with suggested way to achieve them.
Measures for each BSC perspective
Each perspective measures are effective if they help to determine whether the strategy is working; allow measurement of accomplishments; provide a common language for communication and focus employees' attention on what matters most to the organizational success. They should be explicitly defined in terms of owner, unit of measure, collection frequency, data quality, expected value(targets), and thresholds, They should be valid to ensure measurement of the right things, and verifiable to ensure data collection accuracy (BSI, 2011).
Below the measurements for each BSC perspective are described in details. Moreover, all possible examples of measures are presented in Appendix B.
Financial Measures:
As with all balanced scorecard measures, the financial measures implemented must follow the goals and strategic plans of the organisation. Having said this though studies have shown that companies give the financial measures a greater weighting than all other measurements. Growth, Profitability, Value Creating and Economic Value Added are just some of the measures being employed.
Rockwater Example:
Objectives:
Measure:
Return on Capital
Cash Flow
Project Profitability
Reliability of Performance
Return-on-Capital-Employed
Cash Flow
Project Profitability
Profit Forecast Reliability
Sales Backlog
Customer Measures
Customer measures are dependant on the direction of you customer value proposition. This direction may be based upon three areas; customer intimacy, operational excellence and product leadership. Whatever direction is chosen will lead to a different style of measurement. These measurements will covers areas including but not limited to, customer satisfaction and market share.
Rockwater Example:
Objectives
Measure:
Value for Money Tier I
Competitive Price Tier II
Hassle-Free Relationship
High-Performance Professionals
Innovation
Pricing Index Tier II Customers
Customer Ranking Survey
Customer Satisfaction Index
Market Share
Business Segment, Tier 1 Customers,
Key Accounts
Process Measurements
Process measurements are defining factors when measuring customer and financial progress. What measurements are chosen will be defined by the value proposition of the customer perspective. Should that value proposition for instance, lean towards developing an intimate relationship with their clients. The organisation will focus on what they know about their target market and the process that can affect the relationship with the customer. Or should that company want to operate at exceptionally high levels (operationally excellent) they will focus on manipulating supply chains. Those organisations having a need to lead the market (product leader), will focus on process that affect the innovation and development of the product.
It must not be forgotten though that there will always be new measurements identified that will lead the company closer to their target.
Rockwater Example:
Objectives
Measure:
Shape Customer Requirement
Tender Effectiveness
Quality Service
Safety/Loss Control
Superior Project Management
Hours with Customers in New Work
Tender Success Rate
Rework
Safety Incident Index
Project Performance Index
Project Closeout Cycle
Learning and Growth
Human capital (people, their knowledge and skills, and ways to share them) is one of the most influencing factors when comes to value creation in modern organizations. The Employee Learning and Growth Perspective is concerned with describing the activities that drive this value. Measures in this perspective can be considered as "enablers" of the other perspectives. By means of measure of human efficiency it is possible not only to improve quantified results in other areas but also pave the way for sustaining the achieved success in the long term. Among mentioned measures the most popular are:
Measures of core competencies (to direct and measure skill development of all staff, tool - competence gap);
Personal development planning (PDP)for individuals;
Healthy lifestyles measures (facilitates. Improving the environment)
Training measures
Employee productivity measures ( to determine the value added per employee);
Employee satisfaction measures.
Rockwater Example:
Objectives
Measure:
Continuous Improvement
Product and Service Innovation
Empowered Work Force
% Revenue from New Services
Rate of Improvement Index
Staff Attitude Survey
# of Employee Suggestions
Revenue per Employee
Targets
A measurement without any target is not very meaningful. But a measurement with the corresponding target value is giving a significant feedback, needed for analysis decision making. Thereby targets are essential for the BSC. They motivate, inspire breakthrough and track the company's performance. (Niven, 2002)
Targets are usually defined as quantitative values, desired to be reached at a defined point in the future:
Long-term: 10 - 20 years
Midrange targets 3 - 5 years
Short-term targets: annual basis; to track progress towards the long-term targets
Strategy map
Strategy map is a map which shows cause-and-effect linkages between strategic objectives within the company. By linking measures through a series of cause-and-effect relationships the strategy map displays visually how the organization creates values for its customers and stakeholders.
(Kaplan & Norton, 2001) explains: "Strategy implies the movement of an organization from its present position to a desirable but uncertain future position. Because the organization has never been to this future place, the pathway to it consists of a series of linked hypotheses. A strategy map specifies these cause and effect relationships, which makes them explicit and testable."
Furthermore, the cause-and-effect linkages in the strategy map are able to evaluate Balanced Scorecard of the organization.
The best way to create the cause-and-effect linkages is to examine the organization from the financial perspective through the Customer, Internal Process, and eventually, Employee Learning and Growth perspectives.
The following series of questions helps to build Cause-and-Effect Linkages appropriately (Niven, 2002):
Financial perspectives
Do the financial measures and objectives show how we are going to meet shareholder expectations of our organization?
Customer perspectives
Do the customer measures and objectives represent the value proposition we are going to follow to achieve our financial goals?
Internal Process perspectives
Have we determined the key internal processes we must exceed in order to satisfy customer and financial expectations? Will it help us to improve customer and financial results?
Employee Learning and Growth perspectives
Do the employee learning and growth measures and objectives show the skills, information infrastructure, and alignment that will allow us to improve our internal processes?
Overall Questions perspectives
Do we have a right combination of lagging and leading measures on our Scorecard?
Have we thought-out the timing of our linkages (short-, intermediate-, and long-term value creation)?
Does this Balanced Scorecard shows the whole story of our organization strategy?
Implementing performance measures
Before the performance measures can be implemented initiatives have to be prioritized. Initiatives are projects, helping to achieve the targets. The major benefit of prioritizing BSC initiatives is to identify projects, which simply tie resources, and those which truly drive strategic results. Prioritizing initiatives is a difficult task, but also an important and economic beneficial one (showing non value adding projects). In the following, a short approach of how to prioritize the initiatives is given: (Niven, 2002)
Identifying all current initiatives within the organization
Mapping initiatives to the objectives of the Balanced Scorecard
Eliminating nonstrategic initiatives, developing missing initiatives
Prioritizing the initiatives
Selecting the right things to measure is the first step in implementing performance measures. It can take considerable effort, but it will probably be less than one-third of the total effort required for implementing an efficient and effective measurement system (The Balanced Scorecard Institute, 2011).
The right things are the BSC targets which are controllable and important to company success. They need to be precise and preferably include the units, range and scale of the measurements. The metrics should be selected for capturing the performance essence in a usable form.
To produce the metrics, data collection and processing systems needs to be implemented. The employees handling the measures should be trained in using the systems and the measurements. In this stage some problems are bound to be identified and it's important for the overall performance improvement that the required changes are made to the systems and the measurements. The measurements should always be accurate and one needs to keep in mind the distinction between reality and what is being measured.
Perhaps the greatest challenge faced when implementing performance measurement systems is changing an organization's culture. To maximize the use of the measurements the organization needs to create a culture which encourages change and improvements based on metrics and extinguishes any believe that metrics are treats to be feared or opponents. This culture will require managers and employees to change the way they act and think. The passage towards a new culture will be helped by personal role modelling, communication and rewarding the ones who make use of the right metrics.
Strong leadership will be required to provide appropriate direction and support. The best measurement system in the world will not serve its purpose if the wrong things are being measured, the right knowledge and skills are missing and the values are not developed in the organization.
Developing and implementing effective performance measurement systems requires strong leadership, devotion, knowledge and hard work. The benefits of a well-designed and implemented measurement system will easily exceed the relatively small investments that need to be made. The specific measures to be made for each perspective are described in the Performance Measure chapter.
The key objective with performance measures, based on BSC or any other management system, is to measure the right thing at the right time and use the information for improvement. The managers need this information to be able to make correct decision. If the measures are not correct or sufficient then some of the "good" decisions the organization is making are undoubtedly not very effective - and they may even be harmful.
Discussion
The last chapter summarized the findings and illustrates the most important steps from the strategy to measurement. In this section the work undertaken to create this result will be monitored and investigated further. Areas which are simple to handle as well as areas that needed special effort and research will be discussed in detail.
The BSC is a commonly used management tool and therefore many recognized literature sources are available. The four perspectives and the nine steps are official suggestions from the BSC organization. Other approaches are available, but the differences are insignificant. Besides a general description of the official nine steps, the group chose a slightly different but logical approach for the result area.
The first challenge was to define a clear scope. The seminar topic "use the BSC from strategy to measurement" can be understood in several ways. Explaining all the nine steps in detail would go far beyond the scope of this assignment. Due to this limitation the group decided to concentrate on the most important and prominent steps that are necessary to get from the strategy to the measurement. After intensive research work those could be identified and further investigated in the result part. These key strategy, objectives and performance measurements were the focus.
To find a real or empirical task that support the theories and illustrates the steps in an easy understandable manner was tricky. Most companies do not publish their internal finding and keys to success. There are several success stories obtainable but they don't include the required depth and details. The Rockwater example is not the latest, but sufficient to fulfil the needs of this work. It contains the translation from a vision into a strategy into objectives and finally in measurements.
It is important to know that all of the resources used in that report has linked in same way, shape or form to the word of Kaplan & Norton. It was difficult to find work outside of Kaplan's and Norton's work.
The work showed that the implementation of a BSC as a strategic management tools is efficient and effective, if it's done properly. But it is not done in a short term project and requires huge planning and management efforts. One must understand the complexity of the business and organisation and have special knowledge about performance measurement. Often consultants are acquired to support the introduction and to right usage of the tool and hence to ensure to achieve better business result in the long term.
Conclusion
It was important that before an attempt was made to document the path from Strategy to Measurements in the BSC, that all of the terms and background knowledge was clear. The four perspectives as well as the nine steps of the BSC needed to be clear and unambiguous. The factors influencing strategy, such as a company's mission, values and goals also needed to be understood.
Once these areas have been clarified a link can now be created between them and how they affect an organisation. To properly document how the BSC can influence this organisation the desired direction of that organisation must be known. An organisations direction can be defined by its objectives. Which in turn is influenced by the strategy chosen in each of the four perspectives that are outlined by the BSC.
Defining what can be evaluated in these areas is the basis for performance monitoring within the BSC. Performance measuring within the BSC defines how the four areas will grow. Measures can include set standards that will be analysed to ascertain change within the organisation. It is in essence one of the more difficult and contested areas of the BSC as there is no one path to success.
To make the task of measurement even more complicated there are two types of measurement outputs. Leading measurement outputs will define an organisations success, whilst lagging will show if the methods chosen have resulted in an acceptable outcome. Whichever output though, the result must be linked back to the desired objectives. Have the targets been met? Have the more significant targets and objectives been achieved? Monitoring these questions and responding to the outcome will ultimately determine the success of converting strategy to measurements through the BSC. Taking an organisations strategy through to the measurement phase is an achievement. However if no action comes from these measurements then the work has been pointless. Actions must be taken on these measurements to further the organisation through its strategy and mission, towards its vision.
In the Appendix A the whole process of developing the BSC from strategy to measurement is illustrated in a visual way, showing the 5 steps that have to be performed.
