Transforming
the Balanced Scorecard into
Your Strategy
Execution System
By
Jack Steele, Chairman and CEO, ActiveStrategy
Many corporate managers have been introduced to a new corporate management system called the Balanced Scorecard. Developed at the Harvard Business School by David Norton and Robert Kaplan in the early 1990's, the Balanced Scorecard (BSC) represents the newest and most prolific performance measurement system since Total Quality Management (TQM) and Management by Objectives (MBO).
However,
a growing number of organizations are achieving great financial success through
the BSC framework thereby solidifying the BSC as 'here to stay' rather than just
another passing fad.
According
to three recent studies, the BSC is being implemented in over 40% of North
American corporations. Indicative of the system's growth, nearly 50% of the
implementations are less than six months old. Thus, as a manager, if the system
has not yet been encountered, it most likely will be in the near future.
What does this mean to managers?
First, recognize the BSC for what it really represents. Essentially, the BSC is a measurement framework through which organizations define strategic goals at every level in an organization with measures attached to each goal - thus enabling managers to review past and predict future performance and to take corrective improvement action. The BSC is significantly different than other passing management systems in that it forces organizations to only measure the top few strategic goals and to align every employee behind their interpretation of these goals. Ultimately, the BSC is a proven methodology to execute an enterprise strategy.
Second,
embrace the power of the BSC. If managers can deftly create their divisional,
departmental or team goals, identify useful measurements, and enable those
working for them to take predictive action against performance shortfalls, the
BSC can truly become a value added manager's tool.
Third, understand the big picture
of enterprise strategy execution. Organizations that have successfully deployed
the BSC and achieved notable results all followed these ten steps:
Development of a solid
strategy
A
solid strategy is the keystone to business success. Without a solid strategy,
success is unobtainable. However, without execution, a solid strategy is
meaningless.
Translation of a strategy into a scorecard of clear objectives
By translating a
strategy into objectives, managers and front-line employees are provided with
goals for
which the means for
attainment are more easily understood. In addition, results are most easily
obtained by focusing on
a few of the most important objectives.
Attachment of measures
to each objective
After
translating a strategy into objectives, managers and employees must know if and
when the objectives are being achieved. Thus, each objective is given at least
one measurement that can be measured either by a pre-existing system or manually
within an organization.
Cascading of scorecards
to the front-line
Operational
management and front-line employees do the actual work that makes strategies
happen. Thus, organizations develop scorecards at every level in an organization
so each person can see how his or her specific job duties align and contribute
to the higher-level goals. By cascading scorecards, strategy then becomes
"everyone's" job.
Alignment of existing
core processes to objectives
After the scorecards
are deployed, managers need to re-examine their existing core processes and
determine if they are
linked to the corporate strategy. If such linkages are not found, the processes
should be reconsidered.
Delivery of measurement-based
performance feedback
Managers should accord
each employee in an organization periodic feedback on how his or her
individual and
corporate measures have progressed.
Accountability of people
for performance measures
When performance
measures go below or above pre-determined thresholds, organizations must hold
specific individuals
responsible for explaining the reason(s) behind a measurement variance.
Empowerment of work
groups to implement improvement initiatives
Managers and employees
must be empowered to take corrective action when performance is suffering
and to replicate best
practices when goals are exceeded.
Linkage of initiatives
to the budgeting process
As an organization
tracks its performance measures and reacts to shortfalls, the improvement
solutions
often require budget
support. Hence, a formal budget submission and approval process must be
integrated into a
strategy execution system to ensure that countermeasures are implemented.
Reassessment of the main
strategy
As the closed-loop
process returns to the overall strategy, it is important to gather the
organizational
knowledge and progress
toward strategic goal, as well as to reassess the market, competitors, and
customers to determine if the high level strategy needs to be adjusted or drastically changed.
Fourth,
managers should be aware that they possess the power to execute enterprise
strategies. As
illustrated in the 10-steps
above, managers and front-line employees translate the objectives and
measures into different
levels within an organization. The accuracy of these metrics determines the
effectiveness of the organization and its ability to achieve the overall goals.
On the other hand, beware of becoming a bottleneck within a strategy execution system. Just as a manager's role determines the ultimate success, their inaction or inattention to a system can also attract a swift and negative spotlight. Strategy systems, like the Balanced Scorecard, only succeed when the measures are recorded on time and accurately for each period. Thus, managers must maintain diligence in the area of system usage or risk turning the spotlight on themselves.
Fifth, do not forget that a strategy execution system impacts all those being managed. Thus, it is the manager's challenge to empower front-line employees with the collaborative tools necessary to encourage the swift implementation of improvement initiatives and the replication of best practices.
Finally,
embrace technology. The marketplace for software solutions to automate the
strategy execution process is rapidly growing. According to the Balanced
Scorecard Collaborative (www.bscol.com), almost 75% of companies implementing a
BSC will also implement a software solution to automate the process. If managers
express interest and become involved in the selection and implementation process
of these software solutions, the systems can be transformed into job enhancing
tools - thus making managers even more effective and efficient in achieving
strategies.
Jack
Steele is currently Chairman of the Board and Chief Executive Officer of
ActiveStrategy, a venture capital start-up software company that is developing
web-based solutions for Enterprise Strategy Executive.
Mr.
Steele holds a B.S. in Industrial Engineering from Penn State University and an
M.S. in Systems Engineering from the University of South Florida, in addition to
being a certified Professional Engineer in the State of Florida.