Establishing Balanced Scorecards
American Productivity & Quality Center
Organizations tend to juggle a number of improvement initiatives at the same time, ranging from process mapping to benchmarking to administering customer satisfaction surveys. But they often lack the alignment to cohesively structure these initiatives in a way that addresses an overall strategy.
The balanced scorecard, a framework that links business strategies with day-to-day activities, is one solution that has worked wonders for many.
"If profits go down, you don't know what's driving profits," said Cynthia Raybourn, an APQC custom engagement specialist. "Measurement is a whole lot more than a yard stick. It doesn't just measure where we are but helps us get to where we want to be. The balanced scorecard is a means of focusing people's attention on desired behaviors and desired results."
A balanced scorecard aligns measures with strategies in order to track progress, reinforce accountability, and prioritize improvement opportunities. Unlike a bottom-line analysis, a balanced scorecard integrates four related perspectives: finance, customers, internal processes, and innovation and learning. "Essentially, it's a means of understanding-in an accurate and complete way-the overall performance of an organization," said Raybourn.
Raybourn explained that the balanced scorecard is the most popular and widespread framework for developing performance measures. Even so, implementation has proven to be a challenge in most organizations. Part of this difficulty is the scorecard's reliance on fully articulated strategic objectives. Successful implementation breaks down if an organization lacks direction. Furthermore, identifying critical success factors is an involved process. And changing measurements from an emphasis on finance to a more balanced approach with multiple emphases has significant cultural implications, ranging from changes in compensation and career advancement to increased dependence on teamwork. So, like any other culture change initiative, the balanced scorecard process carries a set of challenges to successful implementation.
The good news is these challenges can be overcome with a detailed balanced scorecard implementation process. The following is a basic framework upon which an organization can formulate links between its business strategy and day-to-day activities.
Step 1: Plan the Project
This step is critical to the success of the implementation process. The following activities should be considered by the process sponsor and owners.
Confirm the scope of the project and establish a project time line. "A clear sense of the mission, values, and strategic objectives is the single, most critical thing to establish," said Raybourn. Once this has been done, the sponsors and owners determine the scope of the project, which will likely begin with a small number of teams or departments.
The project time line should allow for sufficient refining of the project, as well as initial resistance from cultures unfamiliar with performance measures. "People may be resistant to judging performance. It can lead to one of the more emotional discussions around process improvement," said Raybourn.
Outline a project communication approach. "We really try to gear it so that everybody understands what this thing is and what they will walk away with," said Gretchen Gemeinhardt, an APQC project manager. "The people who do the work understand what customers expect. Rather than have senior management talk about what people do, the people who do the work design the balanced scorecard because they know best how the process works."
As a result of intensive employee involvement, employees gain a sense of ownership, instead of considering performance measurement an imposition. The implementation process must communicate with those not entirely involved.
Determine organizational participation and roles. Raybourn and Gemeinhardt recommend using team members with a solid understanding of the processes that will be measured to ensure alignment between processes and measures as well as to build buy-in for the effort.
Confirm expected project deliverables. Defining project deliverables will create support by revealing a long-term commitment, as well as long-term benefits. "If it's introduced as yet another initiative, it becomes just another fad of the week. And employees feel that if they wait long enough, it will go away," Gemeinhardt said.
According to Raybourn, in the beginning, it is important to set the stage and ensure that measurement helps you do your job better and enables your group to meet its goals-rather than punishing you "every time a number goes down."
This step involves creating the balanced scorecard and developing an implementation plan. Teams need to be coached through the design process to support their strategic direction.
Design a balanced scorecard, with focus on specific measures that support business strategy. Emphasize practical measures that can be tracked. "You have to be incredibly detailed about measures," said Raybourn. "We're looking for those vital few things that matter the most. Somewhere between five and nine measures is ideal-not 127. And then we have to start thinking about where to get the data. And where are we now? So how will we know if we are improving?"
Identify critical success factors for implementation. Rather than plug measures in from a financial perspective, teams should consider the aforementioned four perspectives (finance, customers, internal processes, and innovation and learning) and assess the critical success factors of each point.
Team members should assess the few things they do exceptionally well and then decide how to measure those success factors. "It's something that typically takes several days. And it's something that's rarely done on the first try," said Raybourn.
Develop an action plan to support implementation. "Measures are only useful if they are collected and reported to the people who can influence them on a very regular basis," said Raybourn. "Measures aren't the end; it's really the improvement that's the end. Measures will never give you all the answers, but they can tell you what questions need to be asked and what kind of opportunities exists. And then you have to go into the process improvement activities to get the results."
Collect and prepare data. Raybourn said, "Take a look at the group that you're responsible for and ask, 'How do we contribute to the organization's strategic objectives?' Then, identify your customer and what they want. What is the process to satisfy customer wants? What kind of input to the process do you need? And who supplies that?" Then the team establishes a methodology that includes data collection and validation.
Track measures. Within their daily operations, team members will collect data, reveal unanticipated hurdles, and take action to overcome them. After many intervals, the teams will begin to identify trends.
"What's appealing to a lot of organizations is that once it's all said and done, it's relatively simple to use," said Gemeinhardt. "We're not talking about a cumbersome, additional process. This blends into daily activities and becomes part of standard operations, driving strategic performance.
Step 3: Employ and Refine Measures
This step will take between four months and a year to complete, depending on the selected measures and the necessary revisions.
Employ scorecards. Practical application requires time to establish an infrastructure and collect data over several cycles. The cycles must be frequent. "So what we're looking at is measures of feedback on how you're performing, sooner-weekly or monthly. When it gets to the end of the year, you don't want to be surprised," said Gemeinhardt.
Monitor performance gaps. The measures themselves won't explain performance gaps, but they will point clearly to a real problem.
Refine measures of the scorecard. "At some point, you say, 'This scorecard is right. This is going to give us what we need for the next year,'" Raybourn said. "Down the road-if your process changes dramatically, if the market changes, or if the strategic direction of the organization changes-you'll have to revisit it."
Identify implementation issues. Top-level management should ensure that the scorecard guides the entire organization in its chosen direction. There must be a sense of urgency and a convincing argument that the proposed solution will mitigate wasteful, whimsical changes.
Applications
The balanced scorecard can be implemented across an organization. It also can measure the performance of a small team or department, and it can exist at multiple levels within an organization. Raybourn and Gemeinhardt recommend gradually implementing it within every division, department, and process.
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