When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind….”
-William Thompson (Lord Kelvin), 1824-1907
Performance Measurement Analysis (PMA) and Balanced ScoreCards provide insight into lead and lag indicators within an organization and enable managers to better align initiatives with strategic objectives. By 2005, 50% of Fortune 1000 companies had invested in some form of a performance measurement approach. Yet the advantages of this methodology are not readily accepted by everyone. Instead, many organizations large and small are still struggling with lag-based financial reports as indicators of successful strategic implementation. Of those who have attempted a scorecard solution, a 1998 study by Paul McCunn indicated that 70% of attempted scorecard solutions fail — often as a result of lack of buy-in at the executive management level. So, should an organizational unit implement a scorecard if executive management has not embraced the concept?
The Balanced ScoreCard (BSC), proposed by Kaplan and Norton, enables an organization to leverage lead and lag indicators in a “balanced” view, but it is not an approach that solely benefits the corporate structure. In many organizations, a forward-thinking manager implements a BSC in his/her business unit. Smaller efforts like this will grow over time and result in the integration of other units — both peripherally and hierarchically. In many cases, these “grassroots” efforts can be more successful than top-level initiatives.
Across the board, organizations have tried to implement a Balanced ScoreCard using an enterprise-wide approach. Although useful, research shows that it is probable that this level of mass change played a critical role in the failure of 70% of the initiatives. Organizations implementing anything on a mass scale run the risk of resource limitations, resistors, and obstacles that, when not overcome in the established timeframe, disable the effort from achieving its potential.
A Balanced ScoreCard requires a detailed analysis of each and every business unit, department, and team under the parent organization. As such, the complexity of organizational-wide implementation increases proportionately. Even at the organizational level many have implemented the program — with pilots and phases bringing each unit on as time and resources permit. Yet even with this strategy the task is a time consuming and daunting one. At each level manager’s must buy-in, resistors must be swayed, and obstacles overcome. In one large corporation (>3000 staff members), the entire process took 24 months to complete. By that time, detractors had already started to deride the effort — pointing out that the promised benefits had not been realized. And once the initial implementation was complete, each business unit had to invest in further evolving their metrics and measures to reflect organizational and strategic changes that the firm had gone through. So, although the benefits of an enterprise BSC are agreed upon by most, the time frame, cost, and impact creates major concerns and can contribute to the eventual failure of the effort. An organization that survives this complex implementation can reap benefits, yet the odds are against success; and failure will result in the loss of an extremely useful tool that provides visibility, strategic alignment, and ensures that achievements are clearly identified and recognized.
In the vast majority of performance measurement contracts in which I have been involved, the focus has been on implementing the framework at a divisional or organizational unit level — due to the motivation and needs of forward-thinking managers. These efforts eventually grew to encompass the entire organization, but did so from the ground up, with each division voluntarily recognizing the benefits achieved by their peers rather than responding to a high-level directive.
Managers at all levels are held responsible for the success and failure of their organizational units. In many cases, empirical evidence is viewed as a performance indicator, and accomplishments are difficult to document. Implementing a BSC at these lower levels provides managers with a “rudder” for their ship and the ability to more effectively communicate strategy and objectives, and measure individual contributions. A BSC effort at the divisional unit provides unique opportunity to implement and evolve a set of useful measures, avoiding most of the long-term negative issues found in enterprise-wide efforts. In these scenarios, as the implementation progressed, managers would put up posters on their office doors and walls displaying their BSC and KPI trending. The result was to further communicate internally on the achievements of the department, but also to create a buzz within the entire organization. Over time, other managers would inquire into the process, methodology, costs, and benefits. As they began to understand the BSC, oftentimes they would work to incorporate it within their own domain.
So why then is enterprise and executive management so important?
Enterprise-level BSCs offer executives the opportunity to view — at a glance — their entire operation, validating the implementation of strategic objectives and providing an opportunity to modify or even change goals to drive the organization in the direction that is most effective within their marketplace. Instead of looking at individual departments or financial-based lag indicators, the BSC enables managers to view past, current, and future measures, providing a more “balanced” view of organizational performance and achievement.
Each division/department or organizational unit will still have their own scorecard for managing within their area of responsibility, but KPIs will be consistent across the enterprise and will facilitate roll-up through the organization’s hierarchy. Therefore, implementing a BSC from an organizational unit focus still contributes to the enterprise and lays a foundation upon which others can build their programs in a bottom-up approach. This grass roots effort enables implementation to actually be successful more often than the enterprise-wide approach.
Yet the role of executive management really does not change, regardless of the size and scope of the initiative. Even though a business unit can achieve the benefits of a Balanced ScoreCard without the enterprise level effort, a single comment by an executive can easily torpedo any efforts. Resistors to change can be very public in their vocalization of obstacles and can therefore gain the attention of executive management. If they are rewarded, and the executive also questions the rationale behind the effort, the manager may be “dead in the water” before they even start. When a manager follows some simple steps for implementation, the success probability dramatically increases.
Success Factors
Implementing a business unit Balanced ScoreCard requires a number of key success factors to mitigate the risk of failure. Although the corporate/organizational culture will define the overall value of each step, experience has demonstrated that the factors that are most commonly found in successful implementations include:
- Executive Support
- Constant Communication
- Strategic Alignment
- Planning
- Identification of key stakeholders
- Measures with meaning
- Minimize impact
- Evolve the program
Executive Support
The key to successful implementation will always rely on management support. When presented with a BSC, many employees remember quota systems and “big-brother” monitoring their every move. Management can overcome these concerns through open communication and commitment to the effort; yet at the same time executives can torpedo the effort with a single negative comment. The BSC enables greater visibility into the performance of each organizational unit and can even demonstrate individual performance; however, by maintaining a strategic alignment to metrics, the monitoring of employees can be left out of the picture, and individuals can instead be presented with their contribution to the organizational unit’s success. The concern that employees will have regarding the implementation of metrics cannot be understated. Those that believe themselves to be below the average will be the loudest, concerned that their performance will be revealed to the organization.
The intention of the BSC is to enable managers to monitor productivity, efficiency, and effectiveness in the pursuit of organizational objectives.
Constant Positive Communication
Performance Measurement is not intended to drive out bad behavior; instead it provides a mechanism for pushing performing behavior and process within the organization. Every BSC should start out with red and yellow indicators. These aren’t grades — they are opportunities to improve. By identifying areas for improvement, the BSC can demonstrate value by measuring the mitigation and management strategies employed: as the indicators turn from yellow to green, or red to yellow
Implementing a Balanced ScoreCard is an initiative on the same level as restructuring the organization. Individuals will have concerns, fears, and objections to the process, and there will be political battles to elevate one group over another. As such, the implementation must focus on communication as a key success factor to overcome these obstacles. Communication must also be a continual process, as obstacles will exist throughout the life of the process. Only by engaging in constant communication can these obstacles be identified and overcome. Each member of the organization must be given the opportunity to consider the effects of the process, have their concerns heard, and also be persuaded to support the effort. Communication is the best way to achieve buy-in at levels that will support the effort long-term.
When issues are handled with a positive mitigation strategy, the organization will begin to recognize the benefit of the approach. On the other hand, a negative approach to issues such as blame, lay-offs, and employee reprimands will result in an ineffective environment where accurate metrics are difficult to come by.
Strategic Alignment
Performance measurements are a quantitative set of values that indicate the level of accomplishment for tasks, services, projects, programs, and operational activities. Key Performance Indicators (KPI) are measures that most accurately reflect performance that is critical for the achievement of strategic objectives. As such, the identification of KPIs is a process that must be agreed upon by all, and each KPI must comprise a single version of the truth. For example, identifying the number of service calls resolved over a defined time period could have both the positive meaning of productivity as well as a negative meaning of effectiveness. Each call answered takes time and energy by support staff. At the same time, each call is an indicator of a service issue, which could reflect poor quality. Using metrics that have double meanings creates areas of contention among groups and can devalue the entire process.
In addition, metrics must reflect the strategic departmental accomplishments. They must “tell the story” of the department’s successes and must provide an accurate representation of the efforts, efficiency, and effectiveness demonstrated for past, present, and future. The identification of these numbers requires buy-in throughout the organization and something of an artistic flair for storytelling. Metrics themselves are nothing more than numbers that, when taken out of context, have very little meaning. The development of accurate and honest measures with single-truth definitions is neither a simple formula nor a set of numbers that can be picked from a list. Instead, the team responsible for identifying measures must clearly understand the environment, culture, and challenges faced and be able to identify metrics that speak to these areas.
Most importantly, the program must be allowed to grow and the indicators to evolve. The numbers will not stay the same forever. BSCs are never completed; they are ever-changing and must constantly evolve to align with organizational goals.
Planning
When approaching performance measurement from an organizational unit perspective, the greatest risk will be that many may not agree with the need. The organization as a whole has not demonstrated a commitment and the effort may be interpreted as management meddling. The planning process can help to overcome much of this concern.
At the beginning of the effort, identify key stakeholders and ensure that you have included those who are most against implementing the program. These individuals will not only represent the greatest obstacle, but also the greatest resource. By including them in the planning, design, and evaluation aspects, their concerns can be addressed up-front, and the development of KPIs will benefit from the greater level of discussion and analysis. The involvement of these “naysayers” will force the team to delve further into the analysis phase and be better able to define the rationale for the final set of KPIs. This process enables the team to develop metrics with meaning that can be used to demonstrate the success of the organization. Expect the contentious participants to drive the conversation towards more meaningful numbers.
The involvement of managers who are not initially convinced of the program’s benefits will also enable you to develop strategies that minimize the overall impact to the employees. These individuals will often point out the flaws in collection mechanisms that would otherwise be missed; pointing out that productivity will be impacted if “everyone spends their days counting,” for example. This is a tremendously valuable resource that can be leveraged to determine the strategies that will generally enhance program results.
Evolve the program
Organizational objectives, strategy, and initiatives change over time. Performance Measurement and Balanced ScoreCards are meant to be living, breathing methodologies. When rigid and formalized, the tools become less effective, yet when a dynamic strategy for change has been implemented, the tools can be tremendously valuable. If metrics are not demonstrating issues and concerns or changing values, then change them. Move to metrics that better reflect the environment and do so as part of a dynamic initial plan enabling the program to evolve to a greater maturity level and ensuring that the reported outcomes provide meaningful and actionable information.
Develop a plan for managing change. Organize a board of team members to constantly evaluate the tools, metrics, and collection strategies. Simple contention will promote dialogue on the value of one indicator over another, and each subsequent stage of your BSC will demonstrate a greater representation of the organization’s progress.
Conclusion
Implementing a Balanced ScoreCard initiative is simply beneficial to any organization, regardless of the level at which the effort exists. Enterprise-wide efforts have greater value to executives and can demonstrate performance across organizational units and across hierarchical boundaries. Yet because these efforts are so extensive, the time, cost, and resources can be more than most organizations wish to invest in an unproven framework. Instead, utilizing a bottom-up process will constrain the resource costs and increase the potential for success. This “grass-roots” effort can then be more willingly embraced by other departments and consolidated into an enterprise-wide solution when sufficient components are already in place.
Most importantly, when considering the implementation of a Balanced ScoreCard, evaluate the ability of the individual managers to utilize success factors to potentially increase the probability of success. A failed initiative can cost the organization in terms of visibility, strategic focus, and the ability to remain competitive in the fast-paced global economy.
References
Paul McCunn, “The Balanced Scorecard…the eleventh commandment,” Management Accounting (December 1998): pp. 34-36
Christ, M., Sedatole, K.L., Towry, K. L. Thomas, M. A., When Formal Controls Undermine Trust and Cooperation, Strategic Finance (January 2008): 39-44
Swanson, R.A., Holton, E.F, Research in Organizations Foundations and Methods of Inquiry, (San Francisco, CA: Berrett-Koehler Publishers Inc., 2005)
Kaplan, R.S., Norton, D.P., Translating Strategy into Action, the Balanced ScoreCard, (Boston, MA: Harvard Business School Press, 1996)
Kaplan, R.S., Norton, D.P., The Strategy Focused Organization, How Balanced ScoreCard Companies Thrive in the New Business Environment, Boston, (MA: Harvard Business School Press, 2001)
