Beyond Scorecard Reporting

Beyond Scorecard Reporting
By Robert D. Anderson

Why are managers often uncertain that they are implementing the right strategic plans, even after investing vast amounts of resources into annual strategic planning meetings and installing elaborate drilldown scorecard reporting systems? Were the wrong scorecard metrics used? Were the targets or goals not realistic? Was the strategic planning process inadequate?

In most situations, the problem has little to do with the quality of the performance metric-reporting system or how well the strategic plan was developed. To a great degree it has to do with management unsuccessfully aligning the corporate strategic plans with division, department, and staff-performance goals. It sounds simple, but unless there is organizational alignment of strategic plans, management will not know if it has developed the right strategic plans and will lack confidence in the strategic planning and scorecard-reporting processes.

Looking for Results
Why have so many organizations begun on the "Wrong Track" in validating, aligning, communicating, and monitoring their strategic plans? Part of the reason lies in the fact that many organizations are straining under mounting pressure from the shareholders and board of directors to report results that ensure the organization is achieving the strategic plan's financial targets and goals. In most cases, these oversight groups are receiving reports that basically consist of columns of numbers comparing the previous month's results to the same period of time last year and to outdated budgets. These types of management scorecards have very limited value in demonstrating the success or failure of the current strategic plan, simply because they are a rehash of old information-they try to reconcile current results to outdated budgets, rather than focusing on whether or not the strategic plan is achieving its intended outcomes and its short- and long-term targets.

In today's highly competitive business environment, it is essential that the shareholders and board of directors have continuous access to a strategic, performance-focused scorecard reporting system that monitors the success of how the organization is implementing its entire strategic plan. Before a scorecard report can truly reflect the organization's results, the activities and processes of each division, department, and employee must be aligned in a cause-and-effect relationship with the strategic plan. This means that the first step toward a strategic, performance-focused scorecard reporting system requires that employees understand, accept, and know how they can contribute to the results of the strategic plan. For a strategic plan to have organizational value, it needs to be effectively communicated and understood by the employees, and scorecard reporting processes needs to monitor critical success factors (financial and intangible).

The Scorecard Reporting Trap
In an effort to eliminate the operational management team's frustration over the measurement process, overly zealous executive assistants are saying, "Don't worry about the operational measurement reports-I'll develop them and analyze the numbers for you." When there is no operational ownership to the measurement process, the scorecard reporting process evolves into nothing more than an internal bureaucracy of number crunching.

The senior executive of one large organization was so determined to demonstrate his management control that he hired an executive assistant who had her doctorate in statistical analysis. He then told his new executive assistant what he wanted measured and what he intended the results to reflect. With this charge from her boss, the Ph.D. hired five people to gather and analyze data from throughout the organization. Not once in the first year of gathering data did the executive assistant ever tell the people who were reporting the "numbers" how the data was to be used. One frustrated manager finally went to the executive assistant and told her that the information he was providing for her scorecard reports was of no use to him in managing his operation. Her response: "Why does that matter? It's what the boss wants reported."

This type of management style in scorecard reporting ends up widening the credibility gap between the "numbers" reported and the reality of what is happening within the organization in terms of implementing its strategic plan. Unless strategic plans are aligned with individual job responsibilities and employees take ownership of the measurement system, scorecard reporting systems will serve little value as an effective management tool to implement and monitor the validity of the strategic plan.

As another employee of this same organization said regarding the measurement data he was to provide for his area of responsibility, "I am in a no-win situation. I am being measured against a strategic plan I don't understand, and I am reporting a bunch of numbers that have little relationship to what I am doing or what I believe is important. As a result, my hands are tied, and my work seems to have limited opportunity to create value for the organization."

When employees don't understand the strategic plan they are responsible for implementing, it is no wonder managers are uncertain that they are implementing the right strategic plans. Thus, it shouldn't surprise us when organizational studies show that over 90% of employees today have little or no ideas how they can make a positive contribution to successfully impact the organization's strategic plan.

The strategic plan should be so imbedded in each employee's decision-making process that he/she is continually asking, often on a daily basis, "How is my work creating value and having a positive impact in reaching the strategic plan's operating objectives?"

If organizational leadership really believes that the success of implementing their strategic plan has a direct relationship to their employees' understanding of how their job performance impacts the strategic plan, leadership will have developed a foundation to build an effective operational performance scorecard reporting process that is more than just a bucket of past performance numbers. When organizational behavior is focused on operational strategic plans and is aligned with relevant performance reporting, management will not only be successful in implementing strategic plans, but will know if it is implementing the right strategic plans. Operational efficiency comes from not only doing things right, but doing the right things right.

The Budget Reporting Trap
A major misconception about scorecard reporting is that the budget process will give management and governing boards the assurance that strategic plans are being implemented and properly monitored. Under this assumption, the strategic plan will be dead-on-arrival, since it is now being controlled by the budget process. The scorecard measurement systems will be reduced to a process of reporting on budget variances that are destined for briefing books and have limited value in generating strategic change.

No wonder managers who work in a budget-driven environment say, "Just give me my budget numbers and I will make my plans fit." Worse yet, this attitude toward the budget process is often the cause of dysfunctional, misguided, and unethical managerial behavior in achieving the budget numbers.

In working with numerous for-profit, non-profit, and government organizations, I have found three main reasons why the typical budget variance approach to measuring an organization's results will weaken the strategic plan's implementation and cripple any hope of having a meaningful strategic performance measurement process:

1. When management understands that its main priority is to meet short-term financial targets and eliminate all significant budget variances, incremental organizational thinking is encouraged among staff, which then tends to set a ceiling on growth expectations and a floor for cost reductions. Short-term operating decisions will trump long-term strategic plan decisions when management is always pushing the objective of "meeting the budget numbers." Jack Welch, former chairman and CEO of General Electric, says "The budget is the bane of corporate America. Making a budget is an exercise in minimalisation and it never should have existed."
2. 2.When budget-variance reports are typically extrapolations of existing trends and past performance results, these types of reports will do little to promote management attention to anticipatory strategic outcome values. As a result, these types of budget-variance reports encourage traditional accounting systems that report the cost of everything and the value of nothing.
3. When the budget process is used by management to reinforce the command and control management style, it undermines attempts to promote organizational strategic changes through team building, delegation of authority, and bottom-up empowerment. When budgets are allowed to evolve toward higher levels of detail, they end up supporting bureaucratic and centrally controlled leadership.

Inasmuch as all types of organizations are running fast to set up performance accountability through scorecard reporting processes, they should be aware of the trap of thinking that their budget variance reporting processes enable management to make better decisions and bring ownership among employees in implementing strategic plans.

Unless executives recognize that performance measures and targets need to be relative, not fixed, and based on ever-changing, emerging opportunities or threats, the organization will be constrained, misuse resources, and achieve sub-optimal performance. Combine this with an aggressive management-by-the-numbers leaders and the old adage, "What gets measured is what gets done," will be replaced by "What gets measured is only what the boss wants reported."

Strategy-Focused Measures
Finally, how does one go beyond traditional scorecard reporting, shifting from a performance emphasis attitude of meeting the budget numbers to a metric-reporting process that informs leadership if they are making the desired progress in achieving their intended strategic plan results?

How can a metric-reporting process not only monitor results but bring to life employee attitudes and creativity toward reaching the goals of the strategic plan?

As a start, following are five strategic management processes that can drive an organization to obtain desired results and go beyond the traditional scorecard performance reporting processes:

1. Develop, communicate, and monitor strategic plans in ways that motivate employees to do their best in creating organizational value and strategic alignment. The Balanced Scorecard Strategic Management System, when properly designed and implemented, has been proven to be a highly successful management tool to achieve this implementation goal. The Balanced Scorecard will communicate strategy throughout the entire organization and establish strategic alignment of the annual planning, budgeting, and forecasting processes without excessive detail. Mobil Oil achieved breakthrough profit results through the Speed Pass innovation, which was fostered through implementation of the Balanced Scorecard Strategic Management System.
2. Align the strategic plan's objectives and targets with employee performance goals and cross-departmental initiatives. In other words, engage everyone in the long-term success of the organization. This motivates the workforce to beat the competition, not just beat the budget numbers. Employees need to be able to answer the questions of "How am I doing on what is strategically important?" Without this alignment, self-serving managers are able to choose and manipulate measures solely for the purpose of making themselves look good and receiving a year-end bonus. Development of Personal Scorecards that identify how individual employees contribute to their department's strategic plans is an excellent way to create the desired organizational alignment.
3. Use key performance indicators that demonstrate the operational cause-and-effect relationships that successfully drive the creation of value within the organization and bring understanding and focus to strategies' critical priorities. Be aware of ending with a mass of detailed reports that mainly compare performance to last year and often obscure true assessment of current strategic progress. Report only those aspects of the business that drive the strategic plan and focus on how you want the strategic plan implemented. In addition, balance this reporting process with financial and non-financial key performance indicators that set stretch targets for maximization of long-term value. The U.S. Government Federal Supply Service was able to identify critical success drives that created best value for its customers. The result-the agency now has a measurement system that is focused on strategic priorities, rather than on over 400 activity measures.
4. Align the strategy planning and budgeting efforts into a continuous and inclusive process that promotes employee feedback. This is accomplished by using strategic measures as a tool to communicate how the strategic plan is to be accomplished, not as a way to control people's behavior and performance. Prison Fellowship, the largest U.S. faith-based ministry to prisoners, uses effective strategic communication to coordinate the activities of over 50,000 volunteers and adjusts resources, on a continuous basis, as a result of strategic feedback from the volunteers.
5. Establish a quarterly-rolling financial forecast report that looks five quarters ahead and differentiates between spending for strategic and non-strategic expenditures. This process gets managers away from the year-end focus, allowing targets and forecasts to move as business conditions change. DataHouse, Inc., a large software development company, has survived huge swings in the technology market by adapting a rolling financial forecast system instead of being dependent on the annual traditional budgeting exercises. New customer and market information is continually being fed into the strategic forecasting process to maximize use resources and optimize shareholders' value.

When scorecard reporting relates directly to the implementation of a strategic plan, employees better understand how they can contribute to successfully achieve strategic plan results. Additionally, management is able to answer the question "Is the right strategic plan being implemented?"

In the end, it is people and strategy that need to be successfully managed and communicated with in order to ensure long-term success and to go beyond scorecard reporting.