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Balanced Scorecards
as Strategic
Navigational Charts

How to Implement Rapid


Sustainable Change
By J. Philip Kirby
& Sumner J. Schmiesing
Organization Thoughtware International
& Visum Solutions, Inc.
April 2003

S
Confidential
E-Paper

Introduction

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While most
companies have
adopted balanced
scorecards, only 6
percent of average
companies rely on
balanced scorecard
metrics
The Hackett Group 2003

The Balanced Scorecard is


not another measurement
tool. Rather it is a logical
design for translating
strategy into bottom line
impact. Executing Strategy
is more important than the
quality of the strategy itself.

In order to insure success and provide velocity to the Balanced Scorecard and significantly
increase the performance of the organization, we propose using the Balanced Scorecard as a
Strategic Navigational Chart. We accomplish this by using the Thoughtware Scorecard (SNC)
methodology and QPR ScoreCard Software.

An Overview of The Balanced Scorecard


The Balanced Scorecard is an organizational framework for implementing and managing
strategy at all levels of an enterprise by linking objectives, initiatives, and measures to an
organizations strategy. The scorecard provides an enterprise view of an organizations overall
performance. It integrates financial measures with other key performance indicators around
customer perspectives, internal business processes, and organizational growth, learning, and
innovation. Since the concept was introduced in 1992, Balanced Scorecards have been
implemented at corporate, strategic business unit, shared service function, and individual
levels at hundreds of organizations in both the private and public sectors worldwide.
Why Scorecarding?

To Scorecard Successfully

What Youll Get

Translate strategy to action, making


strategy everyones job

Reach cross-functional agreement on


strategic direction

Alignment and focus of the organization


around a common purpose and strategic
direction

Manage the intangible assets


e.g. customer loyalty, innovation, employee
capabilities

Translate the strategy into staffs everyday


speak

Leverage cross functionality without


changing the structure of the business
Measure what matters
the critical few vs. the important many
in real-time, not just after the fact
Create a daily management system for
the day-to-day navigation of the business

Understand the cause and effect of linkages


between strategy/process capability
Identify the measures of success; critical
strategic initiatives; and process drivers
Set up accountability contracts

Resource prioritization and allocation


An on-going feedback mechanism to make
real-time, mid-course adjustments to
priorities
A set of balanced metrics
Now I understand how I contribute to the
business strategy and the bottom line!

Cascade the Scorecard into the organization

The idea of the Balanced Scorecard has been around for a number of years now (Robert Kaplan
and David Nortons article introducing the Balanced Scorecard appeared in the Harvard Business
Review Press in 1992). However, as more and more enterprises embrace the ideas of the
Balanced Scorecard and attempt to implement a scorecard the success rate seems to be less
than expected. It is not that the scorecard is not in place or even that it is not used, but rather it
has not offered the bottom line impact and organizational transformations it has the capability of
delivering. The scorecard should allow people to think differently, to better achieve a cultural
transition, and get the larger group to move in the same direction. Otherwise it is just another
flavor of the month like reengineering or EVA or some other leadership dogmas. There are
three fundamental problems with the Balanced Scorecard work to date, the scorecards are not
balanced, the scorecards are not linked to the enterprises strategic directions, and the scorecards
are not institutionalized within the organizations.

The Scorecards are not Balanced


The Balanced Scorecard Collaborative, the official organization of the authors of The Balanced
Scorecard (Kaplan and Norton), report that based on a survey of the Hackett Group, for most
users (those claiming to use the Balanced Scorecard), 75% of their measures were financial.
This compares to 82% financial measures for those not using the Balanced Scorecard.
In other words, the Balanced Scorecard is a name only; it has not fundamentally changed the
organizations measurement systems. In order for a scorecard to be balanced, the authors
claim that the Financial Measures should make up about 22% of the Scorecard (as should the
Customer Perspective and the Learning & Growth Perspective, with the final 34% allocated to
Internal Processes measures). Further, an independent study of best practices researched
2003 Visum Solutions, Inc. & Organization Thoughtware International
All Rights Reserved.

22 organizations that had successfully implemented the Balanced


Scorecard and found a break-down as follows:

Financial 20%
Customer 24%
Internal Process 37%
Learning and Growth 18%

Fundamentally the story suggests that Balanced Scorecards reflect


the understanding that internal processes drive the financials, and
that 80% of any scorecard must be non-financial.

Strategy Execution?
Nine out of ten organizations fail to execute strategy
successfully. Recent statistics provided by the Harvard
Business Review help explain the problem:
Only 5% of the workforce understands their
companys strategy
Only 15% of executive teams spend more than one hour
per month discussing strategy
Only 25% of managers have incentives linked to strategy
Only 40% of organizations link budgets to strategy

The Balanced Scorecards are not Linked


to the Enterprises Strategic Directions
There seems to be a prevailing and ultimately dangerous view that the Balanced
Scorecard is another measurement system. This belief continually manifests itself when an
organization harvests all of its Key Performance Indicators (KPIs), both the existing and the desired,
and dumps them into a new framework that represents perspectives beyond the merely financial
view. Although the effort to identify a more complete set of performance drivers beyond the
traditional financial architecture is to be applauded, we need to be sure that this is not
merely a process of taking another metrics inventory or an accumulation of the
measurable targets articulated in the annual salary/performance plan and representing
them in a new model. Often this so called new balanced measurement model is no
more that a representation of the voices of the organizations critical constituents
usually identified as customers, shareholders and employees. In any case, the Balanced
Scorecard can only have value if it is linked to the organizations strategic direction. The
missing link is the strategic link.

The Scorecards are not Institutionalized


within Organizations

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QPR ScoreCard Management Booklet

Many organizations treat the balanced scorecard as a report that must be completed on
a periodic basis. When asked to see the organizations scorecard the scorecard manager
will dust off the three-ring binder on the shelf behind their desk and pull out a ser ies of
Excel spreadsheets and
PowerPoint slides which are
at least a month but most
likely a quarter old. In some
instances these reports will
be posted in the
organizations common areas
or e-mailed. The problem is
that these reports are
snapshots in-time and do not
reflect the current measure
status and may not even
reflect the current scorecard
structure. It will be
impossible for the
organization to become
strategy focused if the
scorecard is not
communicated and
institutionalized.

2003 Visum Solutions, Inc. & Organization Thoughtware International


All Rights Reserved.

The Strategy-Focused
Organization
The follow-up book to the Balanced Scorecard
article and book is The Strategy-Focused
Organization. In this book, founders Robert Kaplan
and David Norton show how the following five
principles transform the Balanced Scorecard from a
tool for performance measurement to a tool for
creating a strategy-driven performance management
company:
Translate the strategy into operational terms
Align the organization to the strategy
Make strategy everyone's job
Make strategy a continual process
Mobilize change through executive leadership
By adhering to these principles the organization will
make strategy work.

The idea of the scorecard is to provide an on-going, living, sustainable


framework which is communicated to the organization on-demand or
even pushed at employees. This is accomplished in two ways:

The scorecard needs to be sustainable and easy to roll-out. Scorecards


should leverage technology to provide automated links to measure,
text, and initiative management data.

The scorecard must become part of the organizations culture and


employees work experience. Weve found that an easy to deploy and
embrace web based system will allow for rapid institutionalization of
the scorecard.

Making the Balanced Scorecard Work


In an effort to significantly increase the performance of an organization,
we focus on the Balanced Scorecard as a Strategic Navigational Chart
(SNC) from three unique perspectives:

1. The Thoughtware Scorecard (SNC) is a navigational tool (not only measuring after the fact
financials) designed to manage the business from the future using lead performance indicators
embedded in the internal processes of the business.
2. The Thoughtware Scorecard (SNC) recognizes and deploys the scorecard as a strategic business
plan that allows for action and implementation.
3. QPR ScoreCard implements the Strategic Navigational Chart and allows for it to be structured,
easy to embrace, and routine when it comes to achieving results.

The Thoughtware Scorecard (SNC):

The Story of the Organizations Strategy


The true Thoughtware Scorecard (SNC) is a story of the organizations strategy. It is a version of the
companys strategic intent as to how it will create value. The SNC is a visual representation of the
cause-and-effect chain linking the desired outcomes with the drivers of those outcomes. The
desired outcomes are those elements revealed in the strategy of the company. Strategic Navigational
Charts tell you the knowledge, skills, and systems your employees will need (learning and growth
perspective), to build the right strategic capabilities and efficiencies (internal processes) that deliver
specific value to the market (customers), which will eventually lead to higher shareholder value
(financial). In a word, the SNC must depict the chartered course that is to be followed to meet the
business strategy.

Strategy is all about Implementation


The SNC is all about Implementation
Strategy implies going from the current as is situation, to the want to be (but as yet dubious)
position. However, the projected road is no more than a cause-and-effect hypothesis. Strategy, then,
is a projection of the cause-and-effect linkages
required to achieve the future state. The
Balanced Scorecard is a tool to chart these
navigational linkages. The SNC (alias Balanced
Scorecard) should be discussed as a
navigational instrument allowing the
organization to chart a course, set sail and
continually tack and maneuver as required to
accomplish the strategy. In other words, it
redefines strategy as action. Without action
there is no implementation, and without
2003 Visum Solutions, Inc. & Organization Thoughtware International
All Rights Reserved.

implementation there is no strategy. In fact, strategy comes out of actions. Strategy tells you
what the business is going to look like, the SNC, as a navigational chart, tells you how you are
going to get it that way. Therefore this Strategic Navigational Chart (SNC) is the key to
implementing strategy by providing three critical criteria for successful implementation.
1. Everyone Clearly Understands the Underlying Hypothesis
The SNC ensures that every (and we mean every) crew member clearly understands the
underlying cause-and-effect hypothesis (if I press the gas pedal, the speedometer will move
up immediately and the gas gauge will drop eventually). This knowledge entitles them to
do the strategy, to act. Enactment is the process of institutionalizing the placement of
skills, authority, and information at the point where the variance occurs, so that action is as
real time as possible. This allows for the leverage required to move the massive strategic
boulder with ease. The crew is aligned and moving to the rhythm of the coxswain (for more
about enactment go to www.thoughtware.ca and visit/download publications: The Future: You
cant get there from here).
2. Alignment of the Organization to the Hypothesis
The SNC allows the organization to align itself to the strategy. This alignment is usually a
huge inhibitor to strategic implementation because the strategy and the organization are
usually misaligned. A strategy is the plan for future survival; an organization is the
current arrangement for day-to-day application. A good strategy with a poor organization is
a thoroughbred without a rider, trainer, stable, or track. Since the organization always lags
behind the strategy, the current organizations, by definition, are created for businesses that
are going out of business. The SNC allows the organization to arrange its day-to-day
resources and structures to support the cause-and-effect hypothesis as articulated in the
SNC. The SNC structures the current organization for the organization as it will be in
the future.

You cant
change the wind,
but you can
trim the sails.

3. Measurement as a Continuous Feedback Mechanism to Continually Test the


Hypothesis and Make Mid-course Corrections on the Path to the Dubious but
Desired Future State

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The Balance Scorecards Value


is as a Strategic Navigational Chart (SNC)

The SNC has the relevant measures in place to provide an on-going feedback mechanism to
allow the cause-and-effect hypothesis to be continually tested and adapted as required.This
is known as Strategic Control. Traditional control mechanisms (current accounting
architecture and traditional performance measurement systems) monitor the past (i.e. they
are more evaluative in nature than navigational). The SNC takes these traditional tracking
and monitoring characteristics of the controllership function, and rather than locating
them in what has already happened, it places them in the future.This is much like the
tracking system in a launched missile that corrects the missiles f light for the evasive
tactics of the targeted plane.

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2003 Visum Solutions, Inc. & Organization Thoughtware International


All Rights Reserved.

Just as you would not set sail without proper navigational charts and location instruments or
take off without a flight plan and instrument check, an organization should not pursue a
strategy without a Strategic Navigational Chart, Thoughtwares version of the Balanced
Scorecard. As the saying goes you cant change the wind, but you can trim the sails. The
Strategic Navigational Chart is a way to plot the companys course and more importantly
communicate that course to the crew. Therefore it is critical to calibrate the organizations
Balanced Scorecard against the standards as a Strategic Navigational Chart. The standards
in general include the ability to enable the organization to describe and illustrate in clear
language its objectives, initiatives and targets, and thus the measures of success in achieving its
strategy. Specifically, the Balanced Scorecard is a Strategic Navigational Chart only in so far as it
provides a story of the business strategy in which:

These are
what make the
thing work.

Every measure is a part of a chain of cause-and-effect linkages.


Every measure ultimately ties to financial results.
A balance exists between outcome measures and performance measures.
It includes performance driver measures which will provide a process to change behavior.

The SNC as an Implementation Methodology


Without methodology, implementation does not happen. Any effective methodology has two critical
elements. Numerous business improvement initiatives fail because they lack one or both of these two
critical components of a methodology to implement the desired change. The two critical elements of
methodology are philosophy and technique. The philosophy of the Strategic Navigational Chart is
described above in terms of the strategy as a cause-and-effect hypothesis. The techniques to
implement the Strategic Navigational Chart can be achieved by deploying a common standard for all
crew members. On entering most organizations, people are overwhelmed by the variety of themes
they are forced to deal with (safe, flexible, quick, reliably, cost effective, innovative, customer focused,
etc.) to be successful. Why not standardize a framework to deploy these themes in context with the
specific organizational strategy? Why not sort them properly in a Strategic Navigational Chart? Why
not build a standard? Why not provide a standardized communication and scorecard structure?

Strategic Navigational Chart Standards

A standard is a disciplined way to describe the strategy. It makes the strategy pedestrian and
accessible and thus significantly increases the likelihood that implementation will occur. It allows
for the point of leverage (the crew) to be available. The common standards allow for a common
language and framework that can be used to describe any strategy much the way financial statements
provide a generally accepted standard framework for describing financial performance. If accounting
has GAAP (Generally Accepted Accounting Principles), then we can have GASNS (Generally Accepted
Strategic Navigational Standards). Balance sheets, income statements, general ledgers, etc. are all
common one to another in look and feel.The only difference is the content or the specific
financials of a particular company. Software standards are similarWord, Excel, PowerPoint
all follow the same standards from my computer to yours, but the specific documents
differ. Standards are universal. Red lights mean stop, green means go. So too it makes
sense that we have a standardized framework for Strategic Navigation Charts.
Therefore, we can now spend our brainpower on the unique and customized
design of the content and keep the structure and communication standard. The
simpler the standards for communicating the cause-and-effect hypothesisthe
higher the likelihood of a successful implementation. This is also where the
QPR ScoreCard software plays an important roleit allows for easy
translation of the SNC into a standardized communication
and scorecard structure.

2003 Visum Solutions, Inc. & Organization Thoughtware International


All Rights Reserved.

Standardized SNC:
Keeping the Strategic Story Simple

Strategy Map

Financial Perspective
Start with the financial objectives (e.g. increase shareholder value). Every measure ultimately ties to
financial results. There are only two ways to improved financial performance. Either grow the top
line, Revenue Growth, or produce with less, Productivity.

Note: There is always a time element to strategy, and a good scorecard/Strategic


Navigational Chart is balancedbalanced between the longer and the shorter term. For
example, productivity usually provides results quicker, but at what expense to revenue growth?

Revenue Growth comes from either the growing wider (new products, markets, and/or
customers), and/or from growing deeper by achieving more price or volume from existing
relationships.
Productivity comes from reducing the cost structure, and/or reducing the fixed and
working capital required to support the business.

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Customer Perspective

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2003 Visum Solutions, Inc. & Organization Thoughtware International


All Rights Reserved.

Operational Excellence is characterized and differentiates itself by a combination of products/


services that a provide quality, selection, and competitive prices, and order fulfillment capability
that is fast and timely.

In so far as we have determined that the strategy of any company is a cause-and-effect hypothesis,
we need now ask What can we do (cause-to-happen) to increase (effect) our revenue from new
and existing customers? In other words, why would people buy from us? How do we differentiate
ourselves from the competitor? What can we do to differentiate ourselves from the competition?
The business gurus refer to this as the companys value proposition. There are three generally
acknowledged generic value propositions (see Treacy, Michael and Fred Wiersema, The Discipline of
Market Leaders, Addison-Wesley, 1995):

Customer Intimacy is characterized and differentiates itself by the quality and personalization
of its relationship with its customers.
Product Leadership is characterized and differentiates itself by the functions, features, and
overall performance of its products and services.
Note: The Value Proposition connects the internal processes to the improved outcomes with the
customers.

Internal Perspective
With the financial and customer perspectives in place, it is time to discuss how we intend to make
it so. If we fail to deploy this step properly, we will also fail to walk the talk. Touchy-feely stuff,
like innovation and value added to customers and total quality become no more than that
touch and feel. They only become real when the business processes required to deliver
innovation,value added to customer and total quality are measured. After all, if you have no way
of knowing whether or not you achieved your goalit is just an idea. Until we belly up and
measure this difficult stuff that matters, and not just the easy stuff that is comfortable, we are a
philosophy without technique. We have no methodology, and therefore, we cannot implement the
strategy. In our standards there are four internal processes. Perhaps one could argue there are more,
but the debate is at the margin.The human body, as complex as it is, only has seven core processes
and only two of those are vital for life support. Surely our organizations are no more complex than
the human body. These processes include:
New Product/Service Introduction Process, which includes building the business through
innovation (including the creation of new markets and few customer segments).
Customer Relationship Management Process is an organizational commitment and strategy
to continuously develop ever-deeper relationships with customers.
Order Entry to Order Fulfillment Value Stream Process is the delivery of customer value
in a continuous flow manner through the sub processes of demand generation, supply chain

What gets

gets done.

measured

Measure View
2003 Visum Solutions, Inc. & Organization Thoughtware International
All Rights Reserved.

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management, information conversion, material conversion, and demand fulfillment while
optimizing the operational imperatives of time (asset utilization), cost (capacity management)
and quality. Essentially delivering the right service or product to the right spec at the right time.
Corporate Citizenship Process includes the building and maintenance of relationships
with outside stakeholders, e.g., regulators, environmental entities, law-enforcers, citizens, etc.

Learning and Growth Perspective

This is the future perspective or how the business will look in the fullness of time. This is the
foundation and critical point of leverage and the point where the implementation becomes
possible. Precious few organizations seem to reach this point. The leverage point appears too far
from the financial objectives and the cause-and-effect linkage is not a direct line of sight.
However without this piece, the Story of the Strategy is incomplete. The learning and growth
perspective can be addressed in three critical areas:
Core Competencies and Skills of the employees are fundamental. With a human capital
investment plan that is in context with the strategy, the return will be significant. Any
development and training that is not aligned will probably be no more than a company
expense. In an era where knowledge workers are the lifeblood of the business, the
generation, development, reward, and maintenance of core competencies is fundamental.
Enabling Technology is required to leverage the core competencies. The technology can
be managing the routine and repeatable events while the human capital can be applied to
the circumstantial, unique and critical. This enabling technology can be likened to the banks
ATM machine, handling the predictable and repetitive, leaving the human capital to manage
relationships, and personalized needs.

Corporate Culture is the every day assumptions we carry to our business. The culture will
respond to the Strategic Navigational Chart if it makes sense and is communicated. After all, what
gets measured gets done. Rather than trying to connect to the distant and seemingly
uncontrollable concepts of shareholder equity and customer delight, the organization knows what
its particular role is in contributing to those lofty ideals, by understanding its place in the causeand-effect hypothesis.

Institutionalizing the SNC:

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Communicating with the Crew

The technology behind the SNC is QPR Softwares QPR ScoreCard. This software is used by
leading corporations, non-profit
organizations, and government
agencies around the world.

One of the major challenges in implementing a SNC is sustaining and institutionalizing the SNCs
standardized framework within your organization. Using a software product will allow for
everyone in the organization to clearly understand the cause-and-effect relationships and do the
strategy; align the organization to strategy; and provide measurement and a continuous feedback
mechanism to make corrections and reach the desired state.

Technology

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2003 Visum Solutions, Inc. & Organization Thoughtware International


All Rights Reserved.

Features: QPR ScoreCard is a robust performance management tool. Users can view real-time
strategy maps, hierarchical and analysis scorecards, as well as individual measures. Users can also
collaborate by writing comments, creating action plans, lessons, and/or attaching documents.
QPR ScoreCard can also push information at users via e-mail alerts and management booklets.
The e-mail alerts can be created on-line to notify users when measures change, enter certain
parameters, or if values are missing. Management booklets can also be created on-line with the
ability to select recipients and schedule immediate or regular delivery.

Easy to use: QPR ScoreCard can have an unrestricted amount of simultaneous users in dispersed
locations. This means that changes in a model are viewed by other users immediately. User rights
can be individually set and defined.
Web-enabled: QPR ScoreCard is completely web-enabled software that supports information
deployment via a browser and can therefore be used as an enterprise-wide system.
Integrated solution: QPR ScoreCard enables automation of the SNC through file input or SQL
queries. It can also leverage data from existing data warehouse and decision support tools.
Certified solution: QPR ScoreCard is certified by the Balanced Scorecard Collaborative (BSCOL).
BSCOL is an organization founded by the creators of the Balanced Scorecard methodology.

Strategy Map

Scorecard View
2003 Visum Solutions, Inc. & Organization Thoughtware International
All Rights Reserved.

10

Conclusion
The Balanced Scorecard has been proven to be a
powerful performance management framework.
However, a successful roll-out should allow people to
think differently, better achieve a cultural transition
and get the larger group to move in the same
direction. Success can be achieved by using the
Balanced Scorecard as a Strategic Navigational Chart
which will balance the Scorecards, link the
Scorecards to the enterprises strategic directions,
and institutionalize the scorecards within
the organizations.
We propose using the Balanced Scorecard as a
Strategic Navigational Chart. We will accomplish this
by using the Thoughtware Scorecard (SNC)
methodology and QPR ScoreCard software. The
Thoughtware Scorecard (SNC) is a navigational tool
designed to manage the business from the future
using lead performance indicators embedded in the
internal processes of
the business. The SNC
also recognizes and
deploys the scorecard
as a strategic business
plan that allows for
action and
implementation. QPR
ScoreCard implements
and communicates the
Strategic Navigational
Chart and allows for it
to be structured, easy to
embrace, and routine
when it comes to
achieving results.

Action Planning

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Measure View

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2003 Visum Solutions, Inc. & Organization Thoughtware International


All Rights Reserved.

Analysis View

E
The Strategic Navigational Chart (alias Balanced Scorecard) should be discussed
as a navigational instrument allowing the organization to chart a course,
set sail and continually tack and maneuver as required to accomplish the strategy.

VISUM SOLUTIONS, INC.


th

Organization Thoughtware International

5001 West 80 Street, Suite 655


Bloomington, MN 55437
tel: 952.835.4131
fax: 952.835.5412
sales@visumsolutions.com

23 Cambridge Street
North Chelmsford
Ontario, N1H 2T8 Canada
tel: 519.821.4924
fax: 519.821.1954

www.visumsolutions.com

www.thoughtware.ca

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