Understanding this is a component of strategic communication, as addressed within Rand Corporation’s researcher Christopher Paul in testimony this month before the House Armed Services subcommittee on Emerging Threats and Capabilities.

While this isn’t a newsletter on achieving better international diplomacy, the testimony transcript on Rand’s website was insightful. It calls out tensions between broadcast communication and engagement, as well as the fact that it is impossible to inform without influencing people at the same time.

In our reality as strategic planners, we see some companies go through time and money in building a strategic plan, yet dedicate no resources to the long-term communication of that plan. Broadcasting the plan is easy, engaging people into executing it is not. The reality is that many organizations do not have an organic foundation for engagement already set up.

Another common challenge arises when the leadership team unveils a strategic plan, but does not embrace it with visible action. When employees see this from the top, they are being influenced to believe that the plan is not important, or even worse, that it is flawed. Paul identifies this as the “say-do” gap. Unfortunately, we have seen these types of gaps swallow the efforts of strategic plans.

Our take away is that actions matter. Working to engage people requires tiers of communication objectives that sync up with your organizational structure: An enterprise-wide strategic objective is usually not tangible enough for front line executers. Our belief is that communication objectives need to cascade down the organization much like strategic objectives and goals do.

We know what you are thinking—That’s a whole lot of alignment and effort. Yes, it is and this is what it will demand:

• It will take the good choices and clear direction of leadership;
• It will demand a clear definition of your overall strategy;
• It will take coordination of information and activity;
• And yes, most importantly, it will need to be resourced.

Where are the gaps in your strategic communication?

Charity of the Month

Every month we give a portion of our profits to a charity of the month. This month, we’re supporting the work of RUN Ministries at www.runministries.org. Last year the RUN Ministries’ Nepali Rescue Project rescued more than 20,000 girls from human trafficking. They also provided counseling, job skills training and practical tools to start micro-businesses to at-risk girls and those that have been wrongfully coerced into human trafficking. “Traffic free zones” have been started at 10 international border crossings, and at residential half-way houses. M3 Planning has donated funds toward starting new safe-houses. More information about other charities we’ve supported is available here.

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Since the future cannot be controlled, many times long-term goals and objectives in strategic planning seem unattainable and even grandiose.  For example, when you worked at NASA in the 1960s, putting a man on the moon probably inspired just a little uncertainty, if not full blown doubt, by some!  Nevertheless, they engineered the problem and incrementally came up with solutions.  The same incremental approach is needed for strategic objectives that position companies at a certain spot three, five or seven years down the road.  Luckily these aims don’t require the same amount of resources as placing a man on the moon.

For many organizations, a pervasive problem in executing strategy is the existence of ambiguous wording, measurements and tracking mechanisms.  Without clarity, a strategic execution becomes directionless work.  Morale and support quickly erode in these circumstances.

Adam Smith says, “On the road from the City of Skepticism, I had to pass through the Valley of Ambiguity.”  We say rebook your trip!  With clarity of purpose, organizations can create tasks and routines that keep incremental actions moving forward with holistic purpose and accountability.  Leave less to question and interpretation when assigning strategic tasks and begin progress toward a more certain future.

Strategy Check:  Do you steer clear of ambiguity when talking about strategic performance?

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When establishing strategic objectives that span 3 to 5 years, a series of supportive goals and actions typically cascade through the structure of the organization.  At its core, the selected metrics for these goals and actions should drive the strategic objective.  The underlying metrics must align to ensure the success of the long-term goal.

No single metric can provide a clear direction. From a process perspective, the use of multiple metrics can serve as drivers that aggregate toward the fulfillment the strategic objective.  These tips should help focus your metric selection:

1. Select metrics that drive performance, not just measure history.

The propensity to measure the past through financial gains, losses and revenue for example, does not help give insight on the processes that so vitally impact organizational success.  Transformation that is typically inherent in strategic objectives is often dependent on improving intangibles like service, customer loyalty and morale.   Gauging these requires an understanding of the conditions that need to exist in order to select effective metrics.

2. Include metrics that consider the “lead and lag” relationships.

Internally, this may mean projecting the value of employee training for reaching a new level of efficiency or priming the organization for innovation.  Externally, this may mean staying responsive to market conditions or other relationships that may impact your value chain.  A true competitive edge requires attention to the “lead and lag” indicators of your organization’s environment, so you might as well include these as metrics that can be reviewed regularly in your strategic execution schedule.

3. Opt for metrics that reinforce the best in your employees.

All organizations have employees that offer skill and talent.  How effectively does your organization tap into the collective strength within?  Recognizing the ways in which employees are finding inspiration or assigning meaning to their jobs is key in understanding what needs to be nurtured.  Create an environment in which employees can be motivated by inspiration and meaning, and you’ll have a solid foundation to take your organization to another level of strategic achievement.  Needing some inspiration around this topic? Check out a new TED talk (available above) about “Measuring What Counts” for some ideas.

These are just a few considerations, but should be a good start when determining metrics for your strategic plan.  Creating conditions for success means measuring performance and processes from a holistic perspective, which is what a great strategic plan should demand.

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Howard Olsen, co-founder of M3 Planning

Howard Olsen, co-founder of M3 Planning, (the company that developed MyStrategicPlan) is a lead market researcher and strategist for our consulting services arm. With a Ph.D. in international business and marketing, as well as an MBA and a CPA, Howard provides our clients insight on effective interpretation and use of data.  He shares his insights regarding measurement below.

Q:  What are some key aspects to consider when assigning measurement to strategic goals and actions?

A:  Traditional approaches to measurement have been financially-based, which recant history instead of reflecting something holistic about an organization. Measurements can be predictive to some degree and determining if any industry comparisons exist is an important step to developing metrics, making companies more competitive,  as well as aiming for internal improvements.

A great resource for this kind of data is www.kpilibrary.com.  When determining any metric, make sure it is one you can stay with for a period of time for benchmarking purposes.

Q:  What are some common pitfalls that seem to prevent companies from translating measurement into action?

A:  Many times, companies do not take stock of what kind of data can be easily collected.  A thorough understanding of measurements currently being collected in any organization is a proper place to start.  This helps to ensure that any additional data system that develops will correspond and correlate metrics that make sense.   Interpretation of the data that develops must be consistent throughout the organization, with a clear understanding of how the data reflects existing (or non-existent) processes.

Q:  What is your recommendation to companies that can’t seem to find the right metric to measure?

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A:  Convene a group of employees that will be clearly impacted by what is to be measured.  Many times they will be able to provide additional insight.  You can also establish a proxy that will measure accomplishments or track the momentum related to accomplishments that collectively signify success of a related goal.   In addition, a proxy represents what may be needed but currently is not available or not readily available.

Just as you cannot fly an airplane with only one instrument, much is the same for organizations.  Multiple metrics/indicators drive holistic performance.  Base your organization’s performance with measurements that meaningfully capture customer relationships, processes and internal organizational growth as well as the financial picture.  This is a great way to structure strategic approaches and set up key performance indicators.

“In God we trust, all others bring data.” – W. Edwards Deming

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Prudent treatment of a SWOT in the planning process has the power to convert weaknesses into strengths and threats into opportunities during execution. In fact, this is exactly what your plan’s measurements should be communicating.

To keep your plan agile, consider weaving in SWOT-oriented updates to keep your plan agile. Sources of this type of data could come from:

• your customer feedback program,
• your HR department,
• or from competitor updates to name a few.

You will need to have methods identified that will help you effectively tap into your environment. When considering sources of this data, make sure that you are receiving a balanced diet of information: mine for strengths as intensely as weaknesses; opportunities as intensely as threats.

When determining your strategic plan implementation, make these updates part of your executive agenda template. Consistent approaches for collecting this feedback over time will aggregate into the type of information that you can rely and strategically act upon. By staying on top of what is occurring in your environment, and determining how that may affect strategy execution, you will be keeping your plan relevant.

Another important by-product of this exercise is that you will be increasing your capacity to react upon external trends or events when warranted. To adapt to any externality effectively requires a base of knowledge primed to absorb the details. In a rapidly changing environment, this equates to the development of a competitive advantage.

Finally, by continually adding outside feedback into your SWOT, it will make the next update of your strategic plan that much more effective. Your organization will have a more fundamental understanding of what strengths, weaknesses, opportunities or threats really looks like from an organizational frame of reference rather than an individual perspective.

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I would not waste my life in friction when it could be turned into momentum. - Frances Willard

To this order, educating your team about the strategic planning process itself can create an understanding of how the process culminates into a final plan (i.e. how a SWOT is used for determining potential areas of priority, which are then developed into strategic themes). A simple flow chart may be all that is needed to make sure everyone knows the general development route your strategic plan will take.

In the development and execution of the plan, there will be dialogue. To optimize these exchanges and keep them constructive, the entire team needs to recognize the balance needed between informing, recommending and deciding in order to have a true collective outcome. In the delivery of this dialogue, we can’t stress enough the importance of language symmetry. For example, are your organization milestones considered “objectives” or “goals”? Do these terms change at different stratums, for say a department or an individual? There is no right or wrong answer; the point is that whatever resonates best with your organization should be identified and incorporated. Language must name the key features of your strategy landscape with rigorous consistency so that any adaptations toward a common direction can be achieved without confusion.

After you are finished ironing out any contentions of what a strategic plan is or is not, just remember it is your job as a driver of strategy to continually develop those common nodes of understanding (process, roles, communication) as they relate to the strategic execution cycle that your organization should have in place. Commit to a shared language standard, and find ways to incorporate repetition into the sharing of ideas and concepts. Make it ritualistic throughout your strategic development and execution cycles. Remember, it takes courage and discipline to practice an art that is never fully mastered.

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Starting at the team member level, key staff should update the weekly actions they are responsible for.  Department leaders should then organize a monthly meeting with all key staff to review department-owned goals and performance metrics. This is also the time to brainstorm, discuss and take action on tactical or operational issues that might be clogging progress.

At the department level, a collective meeting each month is required for the senior management team to report on department-owned goals and performance measurements, with an emphasis on what your organization’s key performance indicators are telling you.  This is where goal status and realized performance have an opportunity to be analyzed and learned from. As a result, recognition for achievements and cooperation can be deemed appropriate or the need for corrective actions can come to light.  

Then gather your entire leadership team for an intensive review of the top, pre-defined strategic issues quarterly. These two questions will help you determine the context of the issue:  1) Is the issue a technical problem in implementing the operational structure?  (i.e. Are the reports not working out? Is the scheduling not conducive to department workflows?)   2) Are there problems with incentive alignment or the culture? (And if so, how can you best address the expectations for change to be managed?)

For any of these meetings, be it at the team member review or the senior management session, you should standardize the preparation needed and the report structure. For many organizations, this represents a significant time drain if not appropriately planned.  Nip this in the bud and come up with a format that clearly communicates goal/action, and performance measurement.  Focus on the tasks at hand, clearly and effectively, and you’ll find yourself moving toward the broad improvement themes contained within your Strategic Plan.

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The facilitations are over, the goals created and the reporting schedule established.  Even with all these elements in place, you would be wise to further specify what it will take for successful cross-functional execution. Creating this alignment is a key necessity for executing a strategic plan between business units that have shared goals or objectives.

By the very nature of being strategic, plan objectives and goals are largely interlaced between business units.  It is important to identify what kind of coordination needs to exist in order to achieve assigned actions and ultimately the common goal.    It is also important to recognize the level of training or education that may be needed in order to best perform throughout the requirement.  Finally, understanding the strategic Standard Operating Procedures (SOP) will help ensure your work progresses across departmental lines.  Let’s expand these thoughts.

What Does the Goal Require?

Determine if the task actions are pooled in one department, sequential across departments, or if department coordination by a series of reciprocal adjustments is necessary.  For example, pooled tasking simply requires the adherence to SOPs set by the organization.  For sequential tasks, it becomes more important to manage transactions and lateral transitions of work.  Finally reciprocal adjustments require a high level of coordination and information sharing… as the name implies all members of this goal network are affected by and can affect the tasks of another.[1]

Do the Actions Require Additional Training or Education?

Identified by either the business unit or the organization at large, this is an overlooked element… and contributes to a fear of failure and feelings of inadequacy that management would oft not like to highlight.   Those big, hairy, audacious goals (BHAGs) [2]  need reality checks, and one proper means of keeping these projects in line is supplying training and education where needed.  Otherwise you run the risk of having staff avoid acceptance of any new responsibilities and accountability becomes a doomed burden.

What SOPs Must Be Followed?

Define the expectations surrounding the decisions and actions that require coordination or affect the actions of another department or unit.   Bring this in step with identified implementation management processes to stay healthy.  Ignoring or marginalizing your organizational structure demands will eventually take your strategic plan into a Code Blue situation.

In closing, remember to focus on what the goal demands of your organization and methodically determine how to rise to the challenge.  There are many different organizational structures out there.  Part of your strategic job is to open doorways between the silos you may encounter…. and then keep them open throughout the execution of the plan.

[1] Types of Interdependence, Table 5.1:  Lawrence Hrebiniak, Making Strategy Work, Warton School Publishing, 2005.

[2] James Collins and Jerry Porras, Building Your Company’s Vision, 1996

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Leadership’s role is to go beyond task delegation and get out of the habit of seeing results as an after-the-fact element of any given objective.   Before any task gets delegated, leaders need to recognize the culture in which the company operates as a factor.  If the task were a boat, what kind of cultural currents would it need to navigate through in order to get from the point of origin to the destination port?

Analogies aside, the point is that leaders need to recognize and correct for the conditions that typically stray tasks off course.  Regular progress reports geared toward the attaining results can give leaders the insight they need to make these corrections as well.  If the corrections are vexing, then you look at the source of the tasks, the larger objective, and assess if the expectations of the objective are not in line with the conditions an organization might find itself facing, like extreme economic fluctuations.

It is within this function of effective strategy execution that a plan stays relevant and responsive to the storms that will undoubtedly arise with the passage of time.   Strategic plan implementation is not complete without this process defined.

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Performance Measurements for Success

Traditional financial measures – ROI, net profit, sales growth, and market share – fail to capture the true picture of a firm’s value propositions because they focus on the past. They tell the story of what has happened to the organization. They explain the results of past transactions and disregard what the future benefits could be. Traditional financial measures are only part of the information that managers need to successfully guide their organizations through highly competitive marketplaces.

During the 1990s, two Harvard professors and consultants – Kaplan and Norton, devised a tool, the Balanced Scorecard, to rectify the deficiencies in relying primarily on traditional financial measures. A Balanced Scorecard allows better measurement of a firm’s capabilities to create long-term value by identifying the key drivers of this value. The drivers are then translated into four categories of measures- customer, internal/operational, innovation/learning, and financial. The financial measures are typically focused on short-term results; while the other three categories are coupled to future oriented activities needed to successfully sustain the enterprise.

Obviously financial health is critical for any business organization- cash in the bank is necessary to pay the bills. However, many managers become nearsighted as a result of this requirement and believe that by making fundamental improvements in their operations, the financial numbers will resolve themselves. This is an utter fallacy. For example, if a firm has a goal of increasing net profit from 10% to 13% for the current fiscal year, there are a number of interrelated factors that must be in place to succeed. Possibly customer satisfaction must be enhanced to increase the number of customers or increase the loyalty of existing customers. May be the product/service’s defect level must be decreased to boost customer satisfaction? So if the manager waits until the end of the fiscal year to determine if he/she was successful, there will be a “history” lesson on the events of the past period. However, if the defect rate is currently monitored or customer returns observed, the manager can make mid-course corrections to the firm’s strategy in order to accomplish the goal of increasing net profit. In other words, the manager should develop and monitor measures of drivers of that net profit goal.

As such, managers should develop strategic measures that are specifically tied to their firms’ unique strategy. There is not a “one size fits all” Balanced Scorecard. The following is the basic categorization for balanced measures of firm performance.

I. Financial perspective-how do we look to investors? Measures that indicate whether the company’s strategy, implementation, and execution are contributing to bottom line improvement.

• Cash flow
• Sales growth
• Market share
• ROE

II. Customer perspective-how do customers see us? Customer concerns in four categories.

1. Time-measures time required for company to meet customers’ needs.
2. Quality-defect level as sent to customers.
3. Performance-how company’s products/services contribute to creating value for its customers.
4. Cost-not just price of goods/services, but what does it “cost” the customer when he finally uses it.

III. Internal/Operational perspective-what must be excelled at?

• Business processes that have the greatest impact on customer satisfaction.
• What competencies are needed to maintain market leadership?

IV. Innovation/Learning perspective-can we continue to improve and create value?

• Ability to innovate, improve, and learn ties directly to company’s value.
• Launch new products.
• More value for customers.
• Penetration of new markets.

Caution- a balanced performance measurement tool is not a collection of disparate financial and non-financial measures. It is more than supplementing traditional financial measures with non-financial measures. It is a process of developing interrelated measures, some leading and some lagging, that uniquely depicts a firm’s strategy in attempting to create competitive advantage.

A scorecard:

• focuses manager’s attention on a handful of measures that are critical for the firm’s success.
• is a way to clarify, simply, and then operationalize the mission and vision of the organization.

(Excerpted from Robert Kaplan and David Norton (1992), Harvard Business Review, January-February, pages 71 to 79 and (1996), California Management Review, Fall v39n1, pages 53 to 79.)

What is the Balanced Scorecard?

The balanced scorecard institute certainly has a lot to say about the use and value of the balanced scorecard. One of the problems, however, is that the information can get rather detailed, and make for a rather poor quick reference. This particular site does a nice job of presenting a concise overview, and also offers links to an interesting perspectives section on each of the four major points.

(Excerpted from Robert S. Kaplan and David P. Norton (1993), Harvard Business Review, September-October, p.34-147, (1992), Harvard Business Review, January-February, p.71 to 79 and (1996), California Management Review, Fall v39n1, p.53-79.)

The balanced scorecard is:

1. a measurement system that provides a comprehensive framework that translates a company’s strategic objectives into a coherent set of performance measures
2. a management systems that can motivate breakthrough improvements.

A balanced scorecard is both a general measurement system to incorporate non-financial measures with traditional financial ones, as well as a central management system to motivate breakthrough competitive performance in implementing a company’s strategic vision. It is a process of developing interrelated measures, some leading and some lagging, that uniquely depicts a firm’s strategy in attempting to create competitive advantage.

It is the translation of a business strategy into a linked set of measures that define both the long-term strategic objectives, as well as the mechanisms for achieving and obtaining feedback on those objectives. A balanced scorecard:

1. Focuses manager’s attention on a handful of measures that are critical for the firm’s success.
2. Is a way to clarify, simply, and then operationalize the mission and vision of the organization.

Performance Measurements for Success

The scorecard functions as the cornerstone of a company’s current and future success. Traditional financial measures – ROI, net profit, sales growth, and market share – fail to capture the true picture of a firm’s value propositions because they focus on the past. They tell the story of what has happened to the organization. They explain the results of past transactions and disregard what the future benefits could be. Traditional financial measures are only part of the information that managers need to successfully guide their organizations through highly competitive marketplaces.

Get Balanced. Four Critical Areas

During the 1990s, two Harvard professors and consultants – Kaplan and Norton, devised a tool, the Balanced Scorecard, to rectify the deficiencies in relying primarily on traditional financial measures. A Balanced Scorecard allows better measurement of a firm’s capabilities to create long-term value by identifying the key drivers of this value. The drivers are then translated into four categories of measures- financial, customer, internal business processes, innovation and learning. The financial measures are typically focused on short-term results; while the other three categories are coupled to future oriented activities needed to successfully sustain the enterprise. The information from the four perspectives provides balance between external measures like operating income and internal measures like new product development. It provides a balanced picture of current operating performance as well as the drivers of future performance.

Measure Areas that Lead

Obviously financial health is critical for any business organization- cash in the bank is necessary to pay the bills. However, many managers become nearsighted as a result of this requirement and believe that by making fundamental improvements in their operations, the financial numbers will resolve themselves. This is an utter fallacy. For example, if a firm has a goal of increasing net profit from 10% to 13% for the current fiscal year, there are a number of interrelated factors that must be in place to succeed.

Possibly customer satisfaction must be enhanced to increase the number of customers or increase the loyalty of existing customers. May be the product/service’s defect level must be decreased to boost customer satisfaction? So if the manager waits until the end of the fiscal year to determine if he/she was successful, there will be a “history” lesson on the events of the past period. However, if the defect rate is currently monitored or customer returns observed, the manager can make mid-course corrections to the firm’s strategy in order to accomplish the goal of increasing net profit. In other words, the manager should develop and monitor measures of drivers of that net profit goal.

The Balanced Scorecard at a Glance

Managers should develop financial and non-financial measures that are specifically tied to their firms’ unique strategy. There is not a “one size fits all” Balanced Scorecard. The Balanced Scorecard provides executives with a comprehensive framework that can translate a company’s vision and strategy into a coherent and linked set of performance measures. The measures should include both outcome measures and the performance drivers of those outcomes.

Rather than using the Balanced Scorecard as a traditional control and performance measurement system, it is being used as a measurement and management system to implement a company’s strategic vision. It is being used to articulate and communicate the strategy of the business; to help align individual, organizational, and cross-departmental initiatives to achieve a common goal; and as a communication, information, and learning system. Thus, the measures must provide a clear representation of the organization’s long-term strategy for competitive success.

Generic Strategic Measures for the Four Perspectives

The Balanced Scorecard should be viewed as the instrumentation for a single strategy. Strategic measures are those that define a strategy designed for competitive excellence. Properly constructed scorecards contain a unity of purpose since all the measures are directed toward achieving an integrated strategy.

Financial Perspective How do we look to investors?

The financial performance measure will vary based upon the long-run objective and strategy of a business in the growth, sustain, or harvest stage. In general companies use the following three categories to achieve their business strategy:

• Revenue growth and mix
• Cost reduction/ Productivity improvement
• Asset utilization/ Investment strategy

Measures that indicate whether the company’s strategy, implementation, and execution are contributing to bottom line improvement are the following:

• Cash flow
• Sales growth
• Market share
• ROE
• ROCE – return on capital employed
• Economic value added

Customer Perspective How do customers see us?

In customer perspective, the company measures the business performance in targeted segments. In general, customer concerns can be grouped into the following four categories.

1. Time-measures time required for company to meet customers’ needs.
2. Quality-defect level as sent to customers.
3. Performance-how company’s products/services contribute to creating value for its customers.
4. Cost-not just price of goods/services, but what does it “cost” the customer when he finally uses it.

Measures are customized to the targeted customer groups from which the business expects growth and profitability. The following are customer measures:

• Market share
• Account share – the account share of those customers’ business
• Customer retention – retaining existing customers, customer loyalty, percentage of growth due to existing customers
• New customer acquisition – number of new customers, total sales to new customers, number of customer responses to solicitations and the conversion rate, solicitation cost per new customer acquired
• Customer satisfaction – provides feedback on how well the company is doing. It customer’s complete buying experience. It includes uniqueness, functionality, quality, price, time
• Customer profitability – measures not only the extent of business they do with the customers, but the profitability of the business in the targeted customer segment. This financial measure can help keep customer-focused organizations from becoming customer-obsessed.

Internal Business Perspective What must be excelled at?

The internal business process perspective identifies the most critical internal processes for the organization’s strategy to succeed. The internal perspective examines the following process categories:

Innovation Cycle

• Identify the market
• Create the service offering

Operations Cycle

• Build the services
• Deliver the services

Post-sale Service Cycle

• Service the customer

Measures should be focused on…

• Business processes that have the greatest impact on customer satisfaction, such as factors that affect process cycle time, process quality, employee skills, and productivity.
• Business processes that achieve the organizations financial objective.
• Core competencies and processes that are needed to maintain market leadership.

Learning and growth perspective Can we continue to improve and create value?

The learning and growth perspective identifies the infra-structure that the organization must build to create long-term growth and improvement. Ability to innovate, improve, and learn ties directly to company’s value. Organizational learning and growth can be categorized into three main areas:

• People
• Systems
• Organizational procedures

In order to achieve business objectives, companies most like will have to invest in re-skilling employees, enhancing information technology and systems, and aligning organizational procedures and routines.

The following are measures for people, systems and organizational procedures:

People

• Employee satisfaction
• Employee retention
• Employee training
• Employee skills

Systems

• Real-time availability of accurate customer and internal process information to front-line employees
• Ability to launch new products
• Ability to create more value for customers
• Ability to penetrate new markets

Organizational procedures

• Alignment of employee incentives with overall organizational success factors
• Rates of improvement in critical customer-based and internal processes

Examples of Measures Building a Health Care Strategic Balanced Scorecard Framework (Kaplan & Norton conference promotion materials)

Financial

• Patient revenue
• Funding and contributions
• Cost management

Customer

• Patients
• Referring physicians
• Payers
• Community
• Academics

Internal Processes

• Planning
• Innovation
• Relationship management
• Care delivery
• Operations efficiency

Learning & Personal Development

• Recruiting, training, retaining
• Cultural values
• Tools, knowledge, information

Relationship between Measures and Performance Drivers

A Balanced Scorecard should have a mix of outcome measures and performance drivers. Outcome measures without performance drivers do not communicate how the outcomes are to be achieved. Conversely, performance drivers without outcome measures may fail to reveal whether the improvement have resulted in expanded business and enhanced financial performance.

The chain of cause and effect should pervade all four perspectives of a Balanced Scorecard. Additionally, all aspects of the measures on a Scorecard should be linked to specific targets for improving customer, and eventually, financial performance. For example, the return on capital employed (ROCE) may be a outcome measure in the financial perspective. The driver of this could be repeat and expanded sales from existing customers due to on-time delivery (OTD). Thus, customer loyalty and OTD are listed under the customer perspective. To achieve OTD, the company may need to achieve short cycle time in operating processes and high-quality internal processes. Thus both factors are listed under internal perspective. In order for processes to improve, employees skills will need to improve, which is thus listed under learning and growth perspective. For another example: refer to Exhibit 8 – National Insurance: Lag and Lead Indicators (Kaplan and Norton, “Linking the Balanced Scorecard to Strategy,” 1996)

You should be able to look at your measures and infer the business strategy the company is intending to use to get to breakthrough performance. What are you doing that’s unique? Your measures should address which customers you’re going after; which market segments are you attacking; what you have to do exceptionally well to get penetration and share into those markets and those segments; and what kind of new product developments do you need to deliver to achieve long-term value for your customers and shareholders. You should feel really upset if a competitor gets hold of your scorecard.

It is important to build a scorecard that accurately reflect the business strategy. The scorecard:

Describes the vision of the future for the entire organization. It creates shared understanding. It focuses change efforts. It permits organized learning at the executive level.

IMPLEMENTING THE STRATEIG PLAN VIA BALANCED SCORECARD

The real benefit comes from making the scorecard the cornerstone of the way you run the business. Imagine an organization in which everyone understands the strategy and his or her role in executing it. A high performance workforce prepared and motivated to achieve the results. An organization so agile that strategy can be tested and adapted in a continual process of feedback, learning, and innovation. Where all resources are aligned toward a unified strategy view. This new management model is called the Strategy-Focused Organization (SFO). (Kaplan & Norton promotional brochure)

Kaplan and Norton present a SFO framework that describes the five principles that organizations use to achieve breakthrough performance. The principles transform the Balance Scorecard from a measurement to a leadership and management system. Each SFO principles actively support the roles of leadership and management.

• Translate the strategy to operational terms
• Align the organization to the strategy
• Make strategy everyone’s job
• Make strategy a continual process
• Mobilize change through executive leadership

Rockwater, an undersea construction company, did a correlation study between employees attitudes and customer satisfaction. What they discovered is that the customers in the top quintile of satisfaction were being served by employees in the top quintile of satisfaction as measured by the attitude survey.

Software: Dialog Strategy 2.0

The Dialog Strategy 2.0 software system, available for free from the Dialog Software website at http://www.dialogsoftware.com, is used to help design and implement a Balanced Scorecard strategy. The version that is available for free on the company’s website has limited features with more advanced versions available for $199 and $399.

The website of the company has limited information on the program, but the free version of the program does come with an extensive instruction manual. The interface of the program is not intuitive, but it does include an example of an organization that may benefit from implementing a Balanced Scorecard strategy. A screenshot of the interface is on the following page.

Even with its faults, the program would be helpful for anyone trying to implement or trying to learn the Balanced Scorecard. For most organizations, however, the commercial versions with the additional features would probably be more beneficial.

balancedscorecard.org

What is a balanced scorecard?

• This portion describes the management system of the balanced scorecard measurement. It provides a diagram indicating the four areas of score card: The learning and growth, businesss process, customer, and financial perspectives
• This portion of the web site also discussed that the balanced scorecard builds to the total quality management ideas
• Double-Loop feed back is also discussed which focuses on both the process outputs and the outcomes of the business strategy
• Discussion of outcome metrics: “You can’t improve what you can’t measure”
• Management by fact discussion, analysis of factual data allows for a clear view of the company from multiple angles.

The learning and growth perspective

• Knowledgeable people are an organizations main resource. Thus mentoring and training are very important

The business process perspective

• Mission oriented process
• Support process

The customer perspective

• Customers must be analyzed for the types of services and products being provided to them and there satisfaction of them.

The financial perspective

• Risk assessment
• Cost-benefit
• To much emphasis on financial data can lead to an unbalanced scorecard

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