BSC Designer – Balanced Scorecard Software

Since implementation of Balanced Scorecard does not look like introduction of any other management control tools, some companies use different interesting and unusual methods of BSC implementation. Unlike other managerial systems, Balanced Scorecard is more than just a pile of graphs, databases, presentations etc.  Balanced Scorecard is the philosophy that has to be either accepted by the company or entirely rejected.  Experience shows that Balanced Scorecard either works in the company and changes it forever, or becomes a huge failure for an organization.

This article will cover an interesting example of Balanced Scorecard implementation in one of MOBIL company branches – New England Sales and Distribution (NES&D).  Top managers chose a very creative way to promote Balanced Scorecard and the company.  Do you remember how we were taught at junior school?  Most tasks took the form of a game.  The same approach was adopted in NES&D.  Branch director realized that it would be necessary to explain the concept of Balanced Scorecard to 300 employees at each level.  In 1995 the company moved very slowly towards implementation of Balanced Scorecard.  Before you learn how to run, you have to learn to walk.  Company top management understood that they had to make Balanced Scorecard simple and understood for all employees.  At the same time they want it to make this process enjoyable and even funny.

In late January, a week after final Super Bowl game, NES&D top management organized a huge meeting in New Hampshire.  Meeting hall was designed as a football field, and each meeting participant was given sports uniform.  Managers and employees were shown game between Green Bay Packers and Pittsburg Steelers.  They were told that the winner teams used all elements of a football game (offense and defense actions, coaches, cheerleaders) with one goal – to win.  After that top managers declared that they would organize their own Super Bowl which will consist of five key performance indicators from financial, customer and internal business processes of perspectives of Balanced Scorecard:

• Gasoline volume
• ROCE
• Customer complaints
• Mystery consumer rating
• Partnership with dealers

It was agreed that NES&D would get Super Bowl Cup if it implemented long-term goals in all five KPIs.  The reward for each project participant was $250.  Also employees would get paid vacation weekend at a popular resort.  If at least one of the tasks is not reached there will be no rewards.

Then Super Bowl project was introduced to all employees.  It was very difficult to motivate, for example, truck drivers who thought that guys from marketing department would get all the rewards.  They thought that ordinary workers wouldn’t get anything.  Moreover, ordinary personnel was asked to analyze key performance indicators and eliminate unnecessary ones.  For example, truck drivers initiated discussion regarding conditions of gas stations (dirt, poor lights, lack of customer friendly personnel).

An excellent report and feedback system was established, and top managers discussed obtained results on the five key performance indicators at each meeting.  Moreover, they communicated with ordinary personnel and discussed KPIs with them.

Results

In the end of the year, four from five tasks were completed, and some indicators even exceeded expected values.  People understood that they became driving force for success.  It was their skills, knowledge and initiatives that made such success possible. The directors’ board faced a tough choice since according to the previously set rules employees would get nothing unless all goals in all 5 indicators were reached. Others claimed that the company branch had fulfilled 4 tasks and almost completed the fifth.

It was not reasonable to refuse to motivate personnel as the company faced another fiscal year and new ambitious tasks. As a result, top management adopted decision of rewarding personnel. But paid vacation week end at a popular resort was cancelled.

It was obvious that company personnel has changed. Before implementation of Balanced Scorecard sales managers were only interested in sales. Production managers worried only about expenses. Balanced Scorecard made both managers “mini CEOs” who have to think in a creative way and be ready to assume responsibility for adopted decisions.

Super Bowl approach made it possible to set clear indicators, goals and requirements to employees. It has intensified company strategy and required minimal promotional efforts to be implemented in the company.

This example vividly demonstrates the fact that implementation of Balanced Scorecard is not just adoption of plans, development of strategy maps and presentation of company strategy to personnel. BSC must become part of everyday work for every employee. Everyone in the company should feel how BSC works. Moreover, every employee must understand how he or she can contribute to implementation of strategic goals. Without such understanding Balanced Scorecard will become an extremely expensive project that will never live up to expectations of business owners and top managers.

Summary

Super Bowl approach has changed Mobil department forever. There is no way back to traditional management systems. This example proved that Balanced Scorecard works only if the entire personnel accepts this system and uses it in eve3ryday work. Even employees on the lowest levels of the company may come up with valuable initiatives that can help in implementation of strategic goals. What conclusions can be made?

• Balanced Scorecard works only if it is properly used by ALL company employees and top managers.
• Personnel of the company must be properly motivated. Financial motivation has proven to be the most effective one, but there are also non material rewards.
• Even low level employees must be able to express their opinion
• Communication system in the company should be fast and efficient
• Even if certain results are not achieved, company personnel should be nevertheless motivated.
• Balanced Scorecard is not one time project
• Implementation of Balanced Scorecard may take unusual and creative forms.

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation, Case Studies

Since 1996 Balanced Scorecard has been successfully implemented by dozens and hundreds of companies all over the world.  Of course, their experience is very valuable and educative, but still there is no universal approach to successful BSC implementation. Metrus Group Inc. has led a survey which aims to research experience of world major companies who decided to implement Balanced Scorecard.  The results were quite interesting.  It turned out that companies that have a positive experience in BSC implementation have better communication and feedback tool, processes of local governance.  In general such companies were prepared to meet difficulties and challenges and adjust their strategies if necessary.  In terms of figures, of the results look like this:

• Based on financial indicators, 83% of companies appeared in the top third of best performing companies in the industry;
• 74% of companies were considered by colleagues as industry leaders:
• 97% of companies were characterized as pioneers and leaders for changes in their industries.

The last figure is very astonishing.  It turns out that if a company uses Balanced Scorecard in the right way it will inevitably undergo through changes.  No matter what company management might think about radical changes, Balanced Scorecard will force top managers to change.  At the same time, the inability or reluctance to change is one of the major reasons why Balanced Scorecard fails in the organization.

Not all organizations have or had a positive experience with Balanced Scorecard.  Some companies failed to implement a new performance evaluation system, in spite of considerable efforts and expenses.  Many top managers said that BSC is more complex than it seems that a first glance.  Every organization faces problems and difficulties in BSC implementation.  These difficulties can be divided into three groups: transition period problems, development problems and implementation problems.  This article focuses on age group of problems.

Transition period problems

After drastic changes company top management sometimes feels discouragement.  For example, after implementation of Balanced Scorecard one company was purchased by another.  Top management of a new organization shows no interest to Balanced Scorecard and the project is closed.  This is not a hypothetical example.  World business historian knows such cases.

As a rule purchasing of one company by another is quite expensive, and in order to justify such purchase company top management adopts a strategy aimed at cutting expenses.  In such a case, Balanced Scorecard is not viewed as a relevant savings tool.  Company top management which got used to decrease of expenses and improvement of efficiency may underestimate Balanced Scorecard role as a driving force for future company growth.  A top manager who has become an excellent “surgeon” by cutting expenses can not turn into a creator or an architect in a moment.

The described situation is in fact the history of BSC victory in a local fight and its defeat in the war.  The first reports of the system have clearly showed that the chosen strategy does not work.  Organization has changed direction.  This was BSC victory – the system has notified top management on the wrong strategy.  But the company management make blame CEO or managing director for that, start implementation of a new strategy and liquidate Balanced Scorecard as the system is associated with failures in the company.  Such transition period problems always occur both in commercial and nonprofit organizations.

Development problems

Failures are waiting for companies when develops Balanced Scorecard systems leaves much to be desired.  For example, there may be not enough indicators or there is no balance between desired results and factors for goal implementation.  To the contrary, other Balanced Scorecards have too many indicators and the system has no priorities.  Balanced Scorecard may lack adequate factors for implementation of desired results or lack of feedback in the system.  In companies that experience development problems Balanced Scorecard usually does not reflect strategy.

For example, organizations that use systems for key production indicators of very often discouraged as such indicators reflect operational activity but do not identify directions for strategic development.

The same problems are waiting for developers of evaluation systems for stakeholders.  Such systems are focused on satisfaction of customer, employees, suppliers and community needs, but they very seldom have strategy for gaining competitive advantage.

One of the reasons for BSC failure is the fact that business units and auxiliary departments do not have a strategy that complies with company strategic goals.  Sometimes, companies implement Balanced Scorecard in IT department, but BSC fails as departments strategy has nothing to do with the company strategic goals.  If during development of Balanced Scorecard every business units has its own development course, the company cannot use a common strategic language.  Instead, company top management gets a new “BSC Babylon”.  There are so many companies that lost interest in Balanced Scorecard because every department acted in isolation and pursued own goals.  There was no synergy effect.

Implementation problems

One of the most common reasons for BSC failure is not poor development but in a proper it implementation.  There are at least seven mistakes that can create problems:

• Lack of interest from top management
• Insufficient number of project participants
• Participation of top managers only
• Too lengthy development process
• Vision of Balanced Scorecard as systemic project
• Unqualified advisors
• Implementation of Balanced Scorecard for material compensation purposes

Lack of interest from top management

Perhaps, the greatest risk appears when the project is run by midlevel managers.  Very often such managers participate in long-term programs aimed at improvements of business processes, like total quality management.  In such a situation Balanced Scorecard is viewed as continuation of previous projects.  But in fact, Balanced Scorecard is not just another performance evaluation tool.  The system does not just measure what company is doing and has done.  This is a strategic management tool.  Midlevel managers may help company improve existing operational processes.  But changes and bringing organization to strategic conformity is the task for top managers only.

Interest and face of top managers is necessary due to several reasons.  Firstly, the must formulate strategies of their organization.  Statistics show that very few midlevel managers fully understand company strategy.  That’s why they cannot transfer the strategy into action with BSC.  Only top managers have the power to make decisions and compromise for the sake of an effective strategy.  Top managers are unlikely to charge midlevel managers with choice of customers and target market segments.

At the same time top managers should have a true interest in this “game.” They should invest their own time in the project.  Part of the time is spent with colleagues at lower company levels, while the rest of the time is devoted to meetings with fellow top managers.

Insufficient number of project participants

In some companies a top manager, for example head of financial or planning department, develops Balanced Scorecard by himself.  Instead of becoming project leader he does the job for the entire team based and two assumptions.  The first one is that top managers team is busy with analysis of initiatives coming from company personnel.  The second one is that as a top manager possessing strong analytical skills and deep knowledge of the strategy he will surely cope with development of Balanced Scorecard.  And indeed, it does a great job.  He’s Balanced Scorecard has the strategy, effective KPIs etc.  But it later turns out that nothing is changing the company.  Of course top managers begin to receive less financial information and more nonfinancial statistics.  But those, who have developed Balanced Scorecard by themselves, have a later confessed that approach to decision-making never changed, and top managers pay a great attention to short-term goals, as it was before.

Development and implementation of Balanced Scorecard requires active participation of all team members and top managers otherwise their attitudes and conduct will never change.  Of course, everything should be in moderation, and it is not required to get all personnel involved in development of Balanced Scorecard.  Cascading system would be the best solution here.

Participation of top managers only

Another common mistake is participation of top managers only.  In order to make Balanced Scorecard effective it should be known and understood by everyone in the company.  The ultimate goal is making company personnel familiar with the strategy and involvement of every employee in implementation and development of Balanced Scorecard.

When Balanced Scorecard is promoted among employees they are more likely to offer initiatives and creative ideas.  This encourages sharing of experience and acquisition of new skills.  If communication and feedback system doesn’t work in the company the strategy will never become a part of personnel everyday routine.

Too lengthy development process

Often failures happen when working groups follow the principle “the best is the enemy of the good.” In this case they want to build a PERFECT system. They need months to collect and verify information in order to create effective indicators.  18 months after start of the project Balanced Scorecard is still the object of discussion and top managers meetings.  Such preparation may last for a long time, and during this time Balanced Scorecard is simply not working.

In cases of most successful BSC implementation companies sometimes lacked 1/3 indicators, and BSC can still successfully function during the first months.  Missing indicators are developed and added later.  Experience is a powerful thing.  Balanced Scorecard is not a one-time project but this is a continuous process.  Goals, tasks, indicators and databases are constantly changing.

Vision of Balanced Scorecard as systemic project

The most expensive failure is the situation when company implements Balanced Scorecard as a systemic but not a managerial project.  It happens when a con sultan company which usually specializes in implementation of huge IT systems, persuades its customer in the necessity of hiring its advisors and consultants to develop and implement BSC management system.  During the next year millions of dollars are spent to automate the process of data collection, development of interface which makes it possible for managers to excess huge database just from their desktop.  The system allows managing and sorting giant information flows in a variety of different ways.  Of course, managers do not use this system.  Automated information access is not the essence of Balanced Scorecard.  Excess to hundreds and thousands of figures and ocean of information will never substitute strategic maps with identified cause and effect ties between 20-30 most important variables.

Besides, if company hires external advisors top managers are unlikely to participate in the process of BSC development and implementation.  So, there is no wonder they do not use this system, and they do not change their managerial style just because they have got this and brand new Balanced Scorecard.

Development of Balanced Scorecard begins with discussion of and strategy on the top company level.  This is not a task for IT department or external advisors.  This is not a systemic but managerial process.  Sure, information technologies of very important as they simplify communication process and make Balanced Scorecard accessible for all employees.  But IT solutions can work only up to strategy, tasks, indicators and initiatives are developed in all business units of the company.

Unqualified advisors

This mistake is closely related to the previous one. There is no reason to hire external advisors who have no experience in implementation and development of Balanced Scorecard.  Unfortunately, some advisors simply use old performance evaluation systems clinging that this is actually implementation of Balanced Scorecard.  There is a universal recipe for failure – hires such consultants.  Experience shows that even having the right balance scorecard the wrong approaches offered by external advisors may spoil everything.

Implementation of Balanced Scorecard for material compensation purposes

The idea to communicate reward system and Balanced Scorecard is quite attractive.  This is an effective leverage and motivation tool.  But some companies just go too far and introduce nonfinancial indicators only in order to identify amount of bonus payments.  Of course managers start to pay much attention to such nonfinancial indicators which have nothing to do with the company strategy.  This is a very common mistake to be avoided.

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation

Commercial organizations have been trying to go through changes for ages.  Why do so many business experts believe that new initiatives should be accompanied by changes in evaluation system offered by Balanced Scorecard?  It is because indicators system adaptation to changeable organization structure is especially important for success.  Experts in balance scorecard recommend the following: if financial managers and company chairmen object to changes they do not have to make loud declarations or express their viewpoints in a written form.  It’ll be enough just to keep evaluate and results and report the according to the all system.  In the end the initiative will fail.  It often happens that managers are rewarded for excellent short term results while claiming their adherence to long-term goals.  That’s why there is nothing strange in the fact that managers do everything possible to obtain excellent short term results, and the same time doing nothing in the long term perspective.

Business owners and top managers which have implemented Balanced Scorecard to use new strategies understood necessity for and you evaluation system.  They viewed it as a powerful tool to implement you initiatives.

Managerial mentality in the past is the way of thinking typical for controllers who are analyzing past, but not pioneers who look in the future.  Financial indicators do not fully reflect company plans.  Most business owners and top managers want to have such criteria which will make it possible to plan ahead.  Moreover, such criteria should be related to everyday actions of company employees.  At that, personnel of the company must be personally interested in implementation of Balanced Scorecard.

The team of top managers in charge of BSC implementation becomes a driving force of changes in the company.  During the process of Balanced Scorecard implementation a special team is being formed which aims at strategy implementation.  Balanced Scorecard offers tools to transfer strategy and its components to the operational level.  Words are not enough to persuade company personnel in necessity of changes.  The same words may be interpreted in understood in a variety of different ways.  Consensus and common understanding is gained only when words are transformed into indicators which offer a comprehensive picture of what the company concept and strategies are.

Many company owners and CEOs have included one the same component to their strategies – business growth.  They never attempt it to increase of revenue you through expenses cut, decrease or liquidation of unprofitable business units.  Of course, expenses decrease and efficiency growth were the most important part of their strategic plan, but still only a PART.  They were a tool to implement short-term goals.  But their key task was to increase revenue you through long-term growth strategy.  There is no wonder that these companies have chosen Balanced Scorecard as a strategy implementation tool.  Those organizations which defined expenses decreased and efficiency growth as a key strategy component will not find anything useful in balance scorecard.  Financial indicators have proven to be the best tool to decrease expenses and improve efficiency.  Financial indicators are an excellent feedback tool.  But financial indicators by themselves cannot show the way for revenue growth.

Even an inexperienced manager may make business plan in Excel.  If existing preconditions for growth do not meet demands of corporate goals managers may easily increase growth coefficients.  In the end the company will get figures that satisfy everybody.  Analytical part of the plan is rather easy.  But what is really difficult is the part of the planned that should identify ways to implement strategic goals.  What new and old customers should be attracted and retained?  What is the sales volume for every new customer?  What new regions, technologies and products/services should be developed to implement company strategy?  Balanced Scorecard System gives a detailed description of key elements for growth strategies:

Target customers that will initiate revenue growth

Investments in human resources and systems to improve processes efficiency and create differentiated value offers.

Without such a comprehensive plan it is impossible to concentrate company efforts on implementation of the new strategy for growth and efficiency.  It is impossible to formulate and control the strategy for operational excellence with financial indicators.  Strategy implementation depends not only on low expenses and prices, but also on high quality, timely delivery, satisfaction of customers needs etc.  Differentiation strategies aimed at gaining of competitive advantage require a great variety of indicators in addition to financial KPIs.

CEOs and teams of top managers realize that they are not able to implement strategy is by themselves, without personnel participation.  Every employee must take an active part in strategy implementation.  In order to make the strategy successful it is necessary to take it out of top managers’ offices to work places of ordinary employees.  Balanced Scorecard System clearly formulated strategy, and it should become a part of everyday routine for every employee.

Creation of managerial teams

Much depends on flexibility and responsiveness of managerial team.  Most of such teams and working groups consist of specialists belonging to different business areas.  Strange as it may seem but such narrowly focused specialist do not know much about what other team members are doing.  Strategy oriented organization faces the task of transforming the group of narrowly focused specialists into a functional team which can solve general problems.

Some functions of may seem less detached as compared to others.  We refer marketing and human resource service here.  However, these departments often have a decisive significance for business and its strategy.  As Balanced Scorecard is being implemented key members find out that they have poor knowledge of market segments, customers or personnel.  In order to breach this gap in knowledge team leaders invite competent professionals to the team who can tell much about themselves and their contribution to implementation of a new strategy.

Many companies focus on financial and operational services.  When they start implementation of Balanced Scorecard they discover that their companies a very closed and possess a great number of analysts.  Such companies have never looked outside in order to see and understand their customers.

There was no agreement among managers on the image of a typical customer.  In order to re-orient company marketing service was given due attention.  Transformation of a corporate culture has become possible due to the fact that customer has become an object of regard for top managers.  Common views on customer image and customer demands has made it possible to turn uncoordinated group of top managers into a team of like-minded company officials.  Balanced Scorecard System offered methodology to develop new vision and strategy.  Issues related to marketing, production finance and delivery services have become common issues for the team.

Formation of an effective team of leaders has broken longstanding traditions in some companies. CEOs sometimes abolished monthly board meetings and substituted them with roundtable discussions focused on strategy related issues.  The entire team discusses a common strategy in the company, but not only how much they have earned all lost.  Instead of talking about unnecessary details they are talking about what is going on in their company.

For example, AT&T Canada CEO appointed 4 women to the higher positions in the company while such positions had been always occupied by men.  He said that the prejudice of appointing certain people for certain jobs was another bay area to be broken.  In other words, company is interested in results but not in sex or social backgrounds of employees.

Managerial style

Perhaps, managerial style is one of the most important key success factors in Balanced Scorecard implementation.  Communication is the most important task, according to most of top managers.  It is obvious that strategy cannot be fully implemented unless of the entire personnel is directly involved in this process.  Team leaders do not know about all the steps which need to be taken to successfully implement strategy.  Indeed, the understand company strategy perfectly well, but they fully depends on their personnel and ordinary employees who know or should know how to achieve positive results.

World business history knows some very interesting examples.  Some of the most well known top managers were marine officer in past.  There is a myth that former officers who have later become managers follow authoritative managerial style.  Everyone I think such managers want to control everything, every minor detail, every employee, every process.  But the best officers, especially marine officers, know that during a sea fight generals a far away from combat ships.  Plans never coincide with reality during a sea fight.  Soldiers at firing line many killed, ships can be wracked and enemy may come from the most unexpected direction.  The outcome of such fight depends on soldiers’ the ability to reorganize and adapt to changeable conditions. “Nonmaterial assets” (clear understanding of goals and tasks) are extremely important in a fight.

Senior officers educate and instruct soldiers and sergeants, so that everybody can take command at any moment.  Balance scorecard was successfully implemented in those companies that manage to use effort and energy of ordinary employees in full.  So, there is no wonder in the fact that companies run by former marine officers became very successful.

Balanced Scorecard and strategic management system based on BSC works better if it is used not as controlling but communication system.  This may sound weird to those who view Balanced Scorecard system as a control tool.  Most top managers agree that strategic conformity in the organization is extremely important.

For instance, how can you bring way of thinking of 5000 employees to strategic conformity?  How will we coordinate work of different departments?  Balanced Scorecard System has become the key communication tool for the processes of reporting, planning and budgeting.  It has changed so many companies.  From bureaucratic, autocratic and authoritative organizations they turned into solid companies in which ordinary employees and top managers have the opportunity to talk and work without any restrictions.

So, if talking about initial stage of Balanced Scorecard implementation we need to talk about choosing an organization level which already has strategy and needs to be integrated to the general strategy of the company.  Secondly, keep in mind that head of this department should have in particular managerial style described above.  Communication, cooperation, encouragement of initiatives and innovation are to be part of the manager’s Bible.  Avoid managers who use strict control systems and who expect employees to obey their orders only.  If the first and the second recommendations conflict somehow, make a choice in favor on the second one.  Of the right managerial style is more important than the right strategy.  If according to this rule, Balanced Scorecard should be developed on the level of auxiliary business unit but not on a level of a huge department, than this is a right decision.  All in all, Balanced Scorecard can be modified and amended according to the new conditions, while it is almost impossible to make as stubborn manager change of his style.

Summary

Balanced Scorecard is the most effective in cases when it is a part of large scale changes and the company.  Very often the necessity to change is obvious.  It may happen that competitive environment has changed or company results leave much to be desired.  Ambitious plans will help motivate requirements to change.  Balanced Scorecard will help managers take strategy and company mission to the lowest company levels, to ordinary employees and front line managers.

Development of Balanced Scorecard can be started a different organization levels.  Ideally, a common strategy must be formulated.  BSC offers mechanism that transfers strategies into goals and indicators created based on cause and effect ties in business processes.  At the same time, Balanced Scorecard can be developed in auxiliary departments such as IT or HR.  The right managerial style is a very important factor.  It is imperative to encourage personnel to express their opinions and viewpoints on company strategy, problems, innovative projects etc. Finally, Balanced Scorecard should be viewed as an interactive system which encourage is dialog, discussions and sharing of viewpoints.

bsc_ideas Articles

Balanced Scorecard concept can be used for strategic planning. Learn how to create a Balanced Scorecard with annual objectives and intermediate checkpoint for every month.

Initial conditions:

• The annual objectives of the company is to generate $12 million in sales
• The objective for each month is $1 million in sales

Our goal:

• Check each month if we have reached monthly objective and how far we are from reaching the goal

Example file:

• Below is the detailed instruction on how to assign monthly goals. Right now you can download the BSC project file (download as zip) that was used as an example. To open this file you will need to download BSC Designer.

Balanced Scorecard with BSC Designer

First, we need create appropriate indicator that shows us sales value:

First, add "Sales" indicator into the Balanced Scorecard

We start from $0 and our target is to have “$12 million” in sales in a year. We need assign appropriate min and max values. There is a chance that we will generate more that $12 in sales, so the min=0 and the max=15:

We start from $0 and our target is to have "$12 million" in sales in a year.

Now, we need assign the baseline and target value. The baseline is 0$, the target value is $12 million:

• First we click on the starting date to create a start point. Here we need to enter the baseline value.
• Then we click on the end date (which is in a year) to assign end point. Here we need to enter the target value.

Then we click on the end date (which is in a year) to assign end point. Here we need to enter the target value.

Now, we have to define objective for each month. Click on the intermediate checkpoint date in the calendar and enter the target value for this specific date.

For instance, the objective for March 2011 will be $8 million

We can check the results on “Time” chart. Where the baseline, target value and current value are displayed:

"Time" chart shows the baseline, target value and current value.

How good the progress is for certain date? Click on this date and you will see the progress in the “Progress” column.

"Progress" column shows the current progress of indicator.

Or you can switch to “Gauge” chart:

The "Gauge" chart shows baseline, target value and current value.

Summary by period in chart and reports

Starting version 4.0 it is possible to group values of indicators by time periods. Learn more about grouping data.

admin Articles

Strategy maps are often used as an instrument for strategy visualization, as a linking element to the strategy and a part of management system, as well as a tool to develop and formulate strategies.  Strategy maps help develop a structure for discussion of strategies and development of certain goals and tasks for all parts of organization.  It is imperative to provide links to the strategy and goals of a higher level, which helps the entire organization understand company strategic logic.  Most business experts and scholars are sure that the majority of company employees should know about strategy maps, and moreover, they should participate in the relevant discussions, otherwise evaluation and monitoring of key performance indicators will be considered a senseless ritual or even threat.  It is only through involvement of personnel in discussion of strategy maps that the company can achieve success and make the most effective use of Balanced Scorecard.

The need to tie strategy with managerial control was one of the reasons for emergence of Balanced Scorecard.  The other reason concerns necessitated to include non-financial indicators to the set of KPIs to be evaluated.  Non-material assets are playing an increasingly important role in company success.  Almost every organization needs to have own strategy and understand it.  Most of the personnel has the right to offer their interpretation of the near future.  For the company to act fast and in an efficient way, employees should understand their needs and capabilities, as well as future challenges offered by a new strategy.  Consensus will be reached only in case people involved in discussion of strategy maps will participate in strategy maps development for departments they work in.  Moreover, employees should have all necessary tools in order to analyze strategic goals and understand the ways they will be implemented.

Strategic maps are one of such tools.  They look like a simplified review of a strategy which displays the way how the strategies will be implemented.  There is a simple example – if you have the right personnel which performs the right actions, customers will be satisfied and business will grow.  The strategy is based on a number of “ifs”.  It means that certain actions must be performed in order to achieve certain results.  Each strategic assumption is a hypothesis in which top management should believe.  This is a sort of an axiom.  These axioms are visualized in strategy maps which makes it possible to discuss any alternative actions, decisions and their consequences.

Strategy maps may play several roles:

• They make it possible to discuss cause and effect ties when making strategic decisions
• They are useful in a search for key performance indicators
• A complete strategy maps may be used to communicate strategy and internal logic.  It answers the question “Why are we so sure to achieve success?”

Norton and Kaplan have developed a great variety of strategy maps for various organization types.  They have also made an assumption that there are “general” (common) parts of strategic maps.  For example, customer perspective is closely connected to “assumed value” chosen by the company.

Recommendations

Strategy maps may have different formats.  Some companies are using ready made patterns, while others develop strategy maps from the ground up.  Irrespectively of the chosen methods and formats, business owners and top managers need to remember the following:

• Group of people which will be participating in discussion of strategy maps should be quite numerous.  It doesn’t matter, which methods the company chooses for implementation of Balanced Scorecard: from top to the bottom or vice versa.  It is recommended to get as many employees involved in discussion of and development of strategy maps as possible.  Moreover, these people should represent different managerial levels, departments and business units of the company.
• One of the functions for strategy maps is that a complete strategy maps may be used to share information on strategy and company strategic logic.  This is the answer to the question “Why we think will succeed?” Strategy maps will work only if they have a simple format.  Ordinary company employees will ignore complex terminology and general statements.  They need to understand WHY they should use strategy maps and HOW strategy maps will benefit the company.  At the same time they should understand how they can contribute to implementation of strategic goals.  Of course, there is no ideal strategy map, but perfectionism will be very helpful here.  It is important to set strategic goals and do everything possible to implement them.
• A strategy map is a set of cause and effect ties.  “If-then” statements are hypotheses in relation to the way strategy will be put into action.  Some of them may be based on facts and experience, while others will be in strategic assumptions in regard to customer needs, internal business processes etc.
• Strategy modeling can be considered a primitive form of system dynamics, and such models can be viewed as auxiliary tools.  In most cases discussions themselves play a greater role as compared to their accuracy.
• Strategic themes may be helpful for designing of various routes on the strategy maps, and informing of personnel on major strategic decisions.
• Strategic goals displayed on the strategy maps should be translated into indicators and action plans.  It is vital important that indicators should be well balanced and cover the most important issues in the strategy maps.  Both leading and lagging indicators must be used.

It is interesting that simplification of cause and effect ties in strategy maps is one of the key success factors for an effective use of Balanced Scorecard.  This is like translation of a poem written in a foreign language into the language that everybody understands.  Even if you know this foreign language you are unlikely to make a good English translation.  You’ll certainly need help of a poet with excellent English.  This poet may have poor knowledge of the foreign language but he will provide you with an excellent English text.

This example explains why companies willing to implement Balanced Scorecard are recommended to use services of external advisors and consultants.  Such advisors know the language of Balanced Scorecard while company employees know everything about the company, markets they operate in, their customers etc.  Only in such a way it is possible to create a well balanced strategy map that will surely become company philosophy.

One of the most common mistakes in development of strategy maps is complexity.  A sales manager may not understand how his job influences company success if he will be presented 40-page report.  But having a look at the strategy map he will clearly see that for example “number of business contacts with customers” will help reach financial results.  This is like a road map which tells users what to do.

At the same time it is important use strategy maps and Balanced Scorecard in a proper way.  Very often companies stop working on strategy maps once they have developed them.  It all ends with a presentation of a strategy map to the company personnel, and that’s it!  Company management hopes that it will work out somehow.  Well, it will not!

This is only beginning of work.  Of course, development of strategy maps and the first presentation/discussion is one of the most important stages.  But it is only initial stage.  The bulk of the work needs to be done in future.

As already said above, it is very important to find the right people who will form a working group that will develop and discuss strategy maps.  Experience of external advisors is really priceless.  But there is danger that they will simply use standard strategy maps models and refer to their prior experience.  Of something that is good for one company may be harmful for another.  Every business is individual and requires individual BSC approaches.

At the same time, there some common and general principles as well as studies and researches that can be used by working group in charge of Balanced Scorecard implementation.  However, such theoretical knowledge must be properly used in practice.

One of the most common problems is that companies are not ready for changes of while Balanced Scorecard implies a great amount of changes.  Managerial approaches, organization structure, communication and feedback systems will surely be amended if necessary.  Moreover, company management and employees will have to learn to live with Balanced Scorecard.  If use of strategy maps is restricted to meetings and presentations held once a year, Balanced Scorecard will give no benefits for such an organization.  It will only irritate personnel, as employees will consider Balanced Scorecard just another tool to control them and prevent them from fulfilling their duties.

Never expect immediate results.  Of course, it is possible to find balance between short term goals and long-term strategies.  But Balanced Scorecard will show its great power only in several years.  Making an effective use of Balanced Scorecard is like driving a car with GPS navigator, and analyzing routes and own mistakes on the way.  So, be an excellent driver.

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation

Balanced Scorecard is a valuable instrument that makes it possible for employees to understand current state of things in the company.  BSC also provides company management with system information during the process of developing and documentation of key performance indicators which will lead the company to implementation of strategic goals.

As a result, company everyday activity begins to be based on understanding of strategic goals.  Company strategic vision and values are clear for the entire personnel who have common opinion on this issue.  With the strategy map divided according to activity types, management will be perceived in a more adequate way as compared to previous models.  Due to a great attention and proper motivation company personnel will be more open for changes and will be enthusiastic in implementation of company decisions and goals.

So, what is the best way to organize the process in order to avoid most common mistakes and obstacles?  The following structure may be quite helpful:

• For what business types should Balanced Scorecard and strategy maps be used?  One of the most important decisions is of course the decision on the first steps.  Also this article will discuss the use of Balanced Scorecard and noncommercial organizations, government bodies etc.
• Development of initial strategy maps.  This issue will concern the most important stage of the project – its start.
• Control of implementation and maintenance of Balanced Scorecard.  It is very important to see desired ties of strategy with the management and education.  Use of Balanced Scorecard on a regular basis can have great benefits.  It is on this stage that some top managers begin to devote less time to Balanced Scorecard as they believe that strategy maps have been implemented once and forever.  Very little attention is paid to “everyday work with Balanced Scorecard” both in real life and in specialized literature.

What business types require Balanced Scorecard?

Some organizations begin implementation of Balanced Scorecard projects from the top of organization structure, while others use pilot projects at low level departments.  Many companies always stay at the top management level while some businesses develop strategy maps for individual employees.  It is important to know for sure which activity type will be covered by Balanced Scorecard.

Then it is imperative to identify discussion procedures for strategy maps.  Balanced Scorecard can be used entirely for internal goals (motivation of employees etc.) Strategy maps may become the procedure of agreement between different managerial levels.  Also, sometimes Balanced Scorecard is used as reporting system.  Besides, strategy maps can be shared in the corporate LAN to describe department goals and performance.

The department chosen for implementation of the initial strategic map should be self-sufficient and autonomous, or at least follow vision and tasks assigned by top management, otherwise the attempt to develop strategy maps will cause an avalanche of questions regarding departments strategic vision and logic.  This can even have its advantages.  Sometimes, discussion of strategy maps result in suggestions from local managers on changing department’s role in the company structure.

Development of strategy maps on an individual employee level when an employee is assigned an individual task, otherwise it would be better to stay on the team level.  Advantages of the project depend on numerous factors: from project goals and improvement of procedures, to their interrelation and effective motivation systems in the company.

<h2.Strategy maps for non-commercial organizations and company departments

Strategy maps may be quite helpful for discussion of internal auxiliary departments that serve infrastructure in companies.  The problem is that these departments do not produce anything and their key goal is efficient use of money to improve internal business processes in the company, enhance IT solutions, educate personnel etc.  So, strategy maps in auxiliary departments help in cases of:

• Decision-making reasonability for maintenance of such huge departments that require sufficient financial resources through reflection of their impact on company financial results.
• Identification of priority orders for certain services;
• Rewarding of employees in auxiliary departments for their contribution to company positive results.

Strategy maps are very often used in such department as IT and HR.  At that, as in any strategy maps, Balanced Scorecard has four perspectives in this case.  Even research and development department has own financial resources, customers, processes and needs for internal development.  The fact that the goal of department is development does not mean that it should only focus on development directions.  Thus, company management should get full description of IT technologies “business”, human resource department and policies, research and development department etc.  This is very helpful in comparison of alternative departments or when company hires external contractors.  Outsource IT projects sometimes become successful in the long term.

Use of Balanced Scorecard by government and other non-commercial organizations

Commercial organizations use Balanced Scorecard to reflect ties between operational activity and getting profits in the long term.  Non-commercial organizations rarely have such goals and long-term perspectives.  Just to the contrary, strategy maps play an important role in possible search for compromise between diversified interests in a certain social area.

Different countries are using Balanced Scorecard in central and local governments.  The most successful cases of using Balanced Scorecard have been noticed on lower government levels where strategy maps help ordinary clerks and officials clarify their roles and expectations and express their view point on logics of their “business”.  For example, some police departments in Sweden are using strategy maps on the level of city and patrol services, at the same time setting priorities between different activity types and policemen’ duties and responsibilities.  On the other hand, Sweden authorities failed to implement Balanced Scorecard and strategy maps on the highest government levels.  Explanation of ties between use of financial resources, criminal rate and public safety is not an easy task which deserves extensive research.  However, strategies for the police will always reflect certain strategic assumptions regarding these ties, and strategy maps may be helpful in some cases:

• Decision-making on necessity to finance such huge and costly departments based on proofs that these departments make a great contribution to social welfare
• Setting of priority demands and requirements for different social groups
• Improvement of employee morale through description of their contribution to social welfare

In order to adequately use key perspectives of strategy maps in government or non-commercial organizations they should be slightly amended.

• Financial. Personal position of owner or manager in description of organization’s final contribution addressed to satisfaction of social needs (for example, fighting against criminality or poverty etc.)
• Customer.  External perspective describing company success in cooperation between interested social groups.  Besides working with a target groups, some organizations contact undesirable social groups, like criminals who are part of target group for the police.  Their experience becomes part of a strategy map, but it is not an end in itself.
• Internal business processes.  Now major amendment, begin with internal processes in any organization, can be effective and well managed.  As in development of any strategy map, managers of non-commercial organizations should be interested in quality use and service of their “capital.”
• Learning and growth.  As in any business, government and non-commercial organizations have to use new technologies and acquire new skills.

Charity and volunteer organizations refer to non-commercial ones.  Some of them use business logic for their employees, volunteers and sponsors to motivate them for extensive support of their organization.

Development of initial strategy maps

The process of initial development consists of several stages which will be described further in this article.  The end product is description of organization business logic.  The description may have various forms, such as documents, presentation slides, LAN resources etc.  There is danger that these documents will be perceived as a proof of that the project has been already implemented.  This is one of the most serious mistakes.  In fact, this is only the start of the real work in which strategy maps will be used as a strategic management tool for the entire organization.

Preparation of a project

Proper preparation should always precede a successful project, that’s why company management should identify scope and goals of Balanced Scorecard project.  Here are the questions to be answered:

• What is the scope and scale of Balanced Scorecard implementation?  Initially the project may focus only on the corporate map or a separate department.  Sometimes strategy maps are developed for top management or be used in the entire organization.
• What is the time limit?  It is not there a reasonable to develop a plan for the several years.  Company management should know what must be achieved in 12 months.
• Who will assume responsibilities?  In order to achieve success the company should involve competent personnel and initiative groups.  Will they have desire in time to participate in such a project?
• Should the company use services of the external advisors?  Such people can use their experience, alternative views and advanced skills.  On the other hand, it is important that the team consisting of company employees will assume the responsibility and make most of decisions.

The first step would be collecting of information about key characteristics and demands of the industry, current state of things and market position of the company etc.  Here it is very important to take into account opinions of customers, partners and government bodies.  In such a way the company builds the foundation for a detailed development of strategy maps.

The first seminar

In order to get ready for the first seminar it is recommended to document initial interviews, especially those concerning most important issues.  It is very important to learn expectation of various business participants.  Thus, a series of interviews with company stakeholders, employees at all levels and customers should be held.  Their opinions are summarized in the slide presentation.

The first seminar usually confirms and sometimes formalizes company strategic vision.  It often turns out that the company has already discussed similar issues before.

As Balanced Scorecard model is based on common vision, it is very important to make sure that this vision is really shared by all employees in the company.  A simple format of the strategy maps encourage is lively discussion.  Very often strategy is a formulated with very vague and at the same time dutiful words which are not understood to ordinary employees.

The next step is the choice and identification of perspectives which will lay down the foundation of Balanced Scorecard.  Every perspectives should be given due attention.  Working group shouldn’t develop strategy for each perspective and a set of key performance indicators to be evaluated.  This step is related to formulation and confirmation of strategic goals, as well as identification of key success factors.  This is the most exciting stages of Balanced Scorecard implementation, especially if working group consists of enthusiastic professionals.

Higher Level Strategy Maps

When strategic vision, goals and key success factors are identified, the time comes to develop key performance indicators.  It is important to evaluate measurability of each indicator and at the same time track logical concordance of the entire structure.

The greatest challenge is identification of cause and effect ties and finding balance between indicators of different perspectives.  Short-term improvements long term goals.  Indicators referring to different categories should focus not on optimization but on compliance with strategic vision and support of the company strategy.  High level strategy map is formulated to be further presented and approved.  This can be performed through consultations, second seminar or at a regular meeting of the BSC working group.  Implementation of Balanced Scorecard goes smoother if every employee of the company is instructed on how to express his opinion during the process of BSC development.  Employees should be given instruction on further work with strategy maps, including explanatory text, guides on different approaches and techniques used in the team work.

Detailed elaboration

Next step is creation of strategy maps of the lower level based on the high level Balanced Scorecard.  All employees in the company should clearly understand how strategic vision and goals influence their everyday operational activity.

Summary

Each stage of implementation of Balanced Scorecard and introduction of strategy maps and the company requires due attention of top management and working group in charge of BSC issues.  Every mistake made at any level may cause serious problems, and the company will end up in failure to make an effective use of Balanced Scorecard.  This is the reason why BSC has received such a huge portion of criticism.  If business owners and top management did not want to join the group of critics the need to learn to live with BSC but not only take into accounts formalities and norms.

bsc_ideas Articles

In order to make Balanced Scorecard project work it is necessary to assign tasks and responsibilities.  At that there are many factors and aspects to be taking into account here.  Every manager in the department is responsible for strategy maps use.  There also should be a person who will be responsible for terms, format, graphs and assessments.  Usually this is employee from control department.  Promotion of strategy maps and Balanced Scorecard and education of personnel during the first two years should be controlled.  This task may require creation of a special team which must be close to top management.  If the company chooses to use IT solutions then someone should be responsible for this (as a rule this is employee from IT Dept).  Since information is gathered on different indicators there should be a person who would perform analysis of cause and effect ties.  Such analysis will make it possible to understand whether or not proposed cause and effect ties have worked.  It will also help decide on changes in BSC.

Efficiency and implementation costs of Balanced Scorecard project will be influenced by the way roles and responsibilities will be shared.  Key success factors imply the fact that top management has understood these roles in the correct way.  People who will assume such responsibilities should possess sufficient knowledge and occupy relevant position in the company.  Most of them will not spend their entire working time for strategy maps and Balanced Scorecard.  That’s why top management should make sure that people involved in implementation of Balanced Scorecard will have enough time to assume these responsibilities.

Moreover, these people should be properly motivated and understand their tasks.  It may take a long time before everybody in the company understands strategic concepts and the way their everyday job contributes to implementation of strategic goals.  During this time it is imperative that everyone in the organization feels the top management truly believes in values, ideas and philosophy characteristic of Balanced Scorecard and strategy maps.  People responsible for implementation and promotion of Balanced Scorecard should act like preachers, in a good sense of this word.

One of the major preliminarily tasks is involvement of personnel in implementation of Balanced Scorecard and information support of the vision and strategic goals in the company.  Most companies that implement Balanced Scorecard focus on agreement between strategic goals and goals of individual departments and business units.  That’s why it is important that most of the personnel participates in development of strategy maps which begins from description of the company strategic vision.  The organization should discuss how every employee may contribute to implementation of strategic goals.  If that early stages company manages to find human resources and time to discuss strategy and get personnel involved it will be possible to save time in future.  If Balanced Scorecard and strategy maps have a declarative character and are used in an inappropriate way, company personnel will consider it just another tool to control them.

It is extremely important that top management is able to explain the goals of the project and its ties with other control tools and previously implemented projects that initiated changes inside the company.  For instance, if the company has already worked with performance metrics within the framework of total quality management company top managers may use this experience to show advantages of Balanced Scorecard.

Implementation of Balanced Scorecard in huge corporations requires well coordinated internal marketing.  In order to achieve success, employees who assume responsibility for strategy maps development should form a common project team, learn from one another and develop and an agreed concept of using Balanced Scorecard.  It is impossible to suggest the perfect size of such group.  However, it is important to keep a reasonable size and prevent the groove from growing as this will limit its efficiency and freedom of decision-making.  At the same time the working group shouldn’t be too small as some departments will fail to have their representatives there, which is definitely not a good thing.  One of the most important tasks of such a team is information support and education.  It is important that information on Balanced Scorecard concept is always available and understood for everybody.  Education and information may be provided by guides, booklets, local network resources, seminars etc.  Experience shows that groups consisting of less than 20 members better “absorb” information.  In larger groups people are often reluctant to ask questions and doubt basic ideas of BSC.  Critical thinking is very important!

Many companies choose to hire external advisors at the early stages of BSC implementation.  Advisers may use their experience of BSC implementation in other companies, share received knowledge on business strategy and do the bulk of job.  It is important to understand that BSC projects must reflect “local” conditions and “belong” to all employees in the company.  External advisors should take into account individuality of every business but not just follow patterns and models.

It is possible to distinguish five categories of employees responsible for implementation of Balanced Scorecard.  Smaller companies may combine these responsibilities in a variety of different ways.

• Business stakeholders in departments are using strategy maps.  In fact, strategy maps should serve as a format that is used in discussion of plans or department financial results.  Responsible employee is the head of department or a group of managers.
• Developers of strategy maps responsible for their structure, contents, terminology, graphic format and other fundamental elements of strategy maps.  In terms of practice they are not very important, but still can have a great impact on perception and use of Balanced Scorecard in implementation of IT solutions.  It is very important to define a unified organization terminology, especially if strategy maps are used in all departments and business units of the company.  At the initial stage the company often appoints project leader with a broad authority.  This is strategy maps boss or an analytical team.
• Information providers are responsible for accuracy of results and efficiency evaluation.  Sooner or later the company will require IT solutions for performance evaluation and information support.  So, part two responsibilities will be assumed by IT managers.  Ordinary employees will require to collect and sometimes edit information to make it readable and usable.  Proper motivation and complete involvement of personnel is a key success factor.  It can be even considered as broadening of controlling process and inclusion of nonfinancial information in it.
• Analysts are responsible for adequacy of strategy maps as a major managerial control tool.  Having a set of indicators is not enough.  Interest in strategy maps will determine their efficiency.  Success is not guaranteed just buy compliance with budget, and managers should remind personnel and themselves the strategy maps are their common position on the tasks and results of different departments.  It is sometimes necessary to amend reward systems to get personnel motivated.
• Education pilots are tutors who are responsible for metrics use in order to educate personnel.  In course of time strategic maps are reviewed amended and rejected if necessary.  That’s why experience should be assigned to different areas of responsibilities.

Analysts and business stakeholders should discuss the process of running business, and they should decide whether or not strategy maps are doing their job well.  Designers of strategy maps can also join this discussion.  The following contacts can be identified during this discussion:

• Business stakeholders and tutors should discuss what can be learned about assumptions implanted in the strategy maps.  Information providers may join this discussion since the company may need excess to other databases to perform comparative analysis.
• Developers of strategy maps and information providers should find effective ways to collect and share information.  They should influence the process of measuring indicators, and that’s why this process may concern interested business participants.

It is important to realize importance of such contacts when sharing roles and responsibilities.  Small organizations often assign these responsibilities to controlling specialist.  Then this employee is engaged in system design, collection and sharing all information, discussion of indicators values, education etc.  If such specialist is enthusiastic enough the system will work for some time.  But there is a great risk that this project will become his personal issue that has nothing to do with something that is discussed by top managers and employees since one person cannot be everywhere, and thus he can not participate in all discussions of Balanced Scorecard.

Summary

It is obvious that the size and organization structure of the company will influence the process of sharing tasks and responsibilities.  There are several factors that require a special attention:

• Competence.  It rarely happens that specialized knowledge on Balanced Scorecard is needed.  But at the same time it is important to have a general concept of the company and its internal processes, as well as be aware of previously used control and management systems, IT Systems etc.
• Availability.  As already said above some companies believe that work with Balanced Scorecard require full time jobs, at least during several first years.  It is important to understand whether or not candidates for this position can take this job.
• Stages in organization.  It sometimes happens that person responsible for implementation of Balanced Scorecard is not necessarily and the company top management.
• Ardent supporter and preacher.  Enthusiasm is very important, and both top management and ordinary employees should have a true faith in Balanced Scorecard.

bsc_ideas Articles

Much has been said about involvement of ordinary personnel in implementation of Balanced Scorecard and development of strategy maps.  If company top management has a very vague idea about urgent problems of their business, the image of their customer, customer demands, products produced by rival companies, then a strategy map developed by top managers will have nothing to do with reality.

Think about this: who can provide top management with the most complete information on regular or one-time customers of the company?  Head of departments?  Well, in some cases yes.  But that will be a general description, and such information will be quite useless.  But ask a sales manager or a front line employee who contacts with customers every day.  He will give you the full story of relations with customers, current and ongoing problems, suggestions as to improvement of customer relations etc.

Thus, it becomes clear that personnel at all company levels must be involved in implementation and maintenance of Balanced Scorecard.  But how will you explain the benefits of this system?  How will you motivate personnel?  Financial motivation proved to be the best.  But development of fair and effective system of financial rewarding and compensation together with implementation of Balanced Scorecard proved to be quite problematic.

Top managers of companies, participants of conferences and seminars dedicated to Balanced Scorecard and business owners have different problems in regard to development of an effective reward system in balance scorecard.  Some people claim that their attempts to implement BSC failed because their reward and compensation system failed to stimulate relevant conduct.  Others say that it is impossible to change human contact without proper reward.  It needs mentioning, that an increasing number of companies are willing to communicate compass agent systems with Balanced Scorecard and strategy maps.  Some companies even offer to include strategy maps to motivation models only after Balanced Scorecard and strategy maps take roots in the company.

Even if we suppose that rewards and bonus system plays an important role in implementation of Balanced Scorecard (or any other system that changes company conduct), it wouldn’t be fair to think that reward and bonus mechanisms are key success factors. Just to the contrary, there are numerous cases and examples when motivation systems were built in accordance to the company strategy and values, but employees nevertheless showed conduct that differed from the kind of conduct to be rewarded.

When employees were asked questions why they neglect actions that would result in rewards, employees answered that bonus and reward programs were based on very simplistic approach to workforce as an instrument.  Employees were following certain conduct patterns not because they wanted to earn more or less, but because they wanted to make their own contribution to implementation of what they think to be company goals.  Some employees just wanted to do something that is characteristic of their profession.

In the last several decades the U.S. companies chose the approach of so-called “bribery” (in a good sense of this word).  So, company management pays different bonuses to employees in key positions or include them to shareholder council just to retain them.  But this does not always work.  When dealing with highly qualified employees the company should know that it needs them more than these employees need the company.  First of all, these people must know the company goals, mission and values.  Secondly, they should be interested in personal achievements and personal responsibility.  Thirdly, they want to be respected not as personalities only, but also as professional in a particular business area. That is why company management and owners have to be very cautious when introducing reward and bonuses systems.

Reward system and Balanced Scorecard

Effectiveness of reward system depends on many factors, and that’s why it is impossible to say if such system will effectively work with Balanced Scorecard project.  It’s not a secret that personnel behavior very much depends on financial rewards.  There are many reward system types, but will analyze the following two: behavioral control and profit sharing.

Before implementation of any reward system one should answer the following question: what is the key goal – behavioral control or profit sharing?  If we’re talking about profit sharing then reward systems will be the method of sharing profits among company employees.  At that, Balanced Scorecard and strategy maps may be used to evaluate performance and contribution of individual employees, departments, business units etc.  After that, such evaluation will predetermine the way profits will be shared among employees.  In simple words, the better employee works and the greater contribution he made to implementation of strategic goals, the more money he gets.  It is also very important to decide what profits are meant (department, company or corporation level).  It is recommended to introduce such reward system on the department level in order to ensure better cooperation between departments and business units.

But if reward system will be used for direct behavioral control the premium package must be analyzed from a different angle.  Money used as “fuel” for behavioral control system should be viewed as operational expenses which do not depend on company profits.  These expenses occur as company doing business and they do not depend on financial results.  It sometimes happens that the company still has to pay bonuses even if it suffers losses.

There is another reason which explains why reward systems should be communicated with Balanced Scorecard.  It does not refer to logic “stimulus-reaction” characteristic of most reward systems, but rather to ability of top management to demonstrate their true faith in Balanced Scorecard.  If company is ready to reward employees’ efforts in implementation of goals in such perspectives as customers, internal business processes and learning and growth, it means that company owners and top management really believes in the great power of Balanced Scorecard.  Such belief or faith will be enough to introduce some system to reward personnel.

Any organization that is thinking about communicating of its Balanced Scorecard with reward system should consider all positive and negative effects of such collaboration.

Balanced reward system should be based on static and dynamic indicators.  Balanced Scorecard system should not be limited to a set of goals, but it should establish balance between dynamic indicators and final/intermediary results.  If the reward system contains only individual goals or focuses on behavior or results, it cannot be considered balanced.

When developing and implementing reward and bonus system the company should not focus only on financial and pseudo-financial payments, and instead consider a serious of other reward types that can meet demands and expectation of an employee.  Rewards can vary from material things that have certain market value to nonmaterial ones to which an employee may give a high praise.  Nonmaterial rewards can be hardly evaluated in monetary terms (for example, meeting with an experienced leader manager, attendance of closed seminar or having free time for a personal project).

Implanting Balanced Scorecard to reward system

No matter what rewards the company wants to introduce, financial or nonfinancial, they can be communicated with the Balanced Scorecard and strategy maps.  Company top management may show faith into the Balanced Scorecard and their readiness to pay bonuses according to the statement “you get what you ask for”.  But rewards may draw personnel attention to certain conduct.  In order to influence employee conduct indicators in the reward system should be:

• Verisimilar.  Indicators should arouse trust.  The first opposition line is the thought “Perhaps, this is wrong.”
• Considered reasonable.  The second opposition line is critical opinion “Well yes, this has nothing to do with our business.”
• Related to any known action.  The third opposition line is exclamation “Well, it’s a pity it is not so, but we can do nothing about it.”
• Related to any action for which an employee receives reward.  The last opposition line is the statement “I can do something about that, but what for?”

Only if indicators are trusted, and they are reasonable and related to any action performed by an employee, they will truly influence organization conduct.

It is also very important to decide according to which indicators employees will be rewarded.  As known, there are leading and lagging indicators.  So, imagine that employees are rewarded for such leading indicators as “number of visits to customers” or numbers of calls to customers.  In any Balanced Scorecard these indicators play an important role, as usually the more customers know about the products and services the more they buy.  But it wouldn’t be fair to reward employees just for visiting customers or calling them.  Of course, such indicator should be evaluated.  But reward is something that is given for certain results.

Summary

To sum it up it needs mentioning that Balanced Scorecard would barely work without proper motivation of personnel.  Financial motivation proved to be the most effective.  So, reward and bonus system in the company should be well integrated to Balanced Scorecard and strategy maps.  If employees receive rewards for fall success they will have a distorted concept of company strategy.  In such a way successful implementation of Balanced Scorecard becomes impossible.

bsc_ideas Articles, Balanced Scorecard Theory, BSC implementation

Balanced Scorecard in any organization is a linking instrument that is used in discussion of virtually any activity or business aspect. For example, all companies want to keep their customers, clients and buyers satisfied. All companies have their own internal business processes and well established practices. All commercial organizations want to make profits and prepare their companies for future.

At some moment, every successful company comes to the stage when it has to think about cause and effect ties. That’s why Balanced Scorecard implementation implies development of a more effective management system. BSC is used to channel company business efforts into the strategy and strategic vision, perform evaluation and monitoring through measurement of key performance indicators. It is also important to make decisions and offer response actions based on evaluation of key performance indicators.

As compared to other tools and methods of describing organization strategies, Balanced Scorecard has two prominent features. The first one is a simple format of a strategy map which is described by unlimited number of key performance indicators for each of the four perspectives/categories: financial, customer, internal business processes, learning and growth. The second distinctive feature is particular focus on interrelation of perspectives and indicators. Perfectly formulated strategy map will reflect strategic logic of cause and effect ties between current activity and long-term success.

Strategy maps aim at changing organization conduct based on a dialog. Everything that company does (for example, education, improvements in customer service etc.) is based on the belief that such steps will contribute much to implementation of strategic goals. Cause and effect ties implanted to any efficient strategy map vividly demonstrate “business logic” which derives benefit from correct today’s decisions and actions in order to achieve success in future. As a result, strategy maps translate strategy into action (everyday decisions and duties of personnel).

It is rather difficult to evaluate efficiency of using Balanced Scorecard. This is explained by HOW Balanced Scorecard is USED. Recent surveys have shown that many companies claim to use Balanced Scorecard or are going to use this system in the near future. However, the actual number of companies whose management systems are based on Balanced Scorecard is much lower. Most respondents are sure that they really use Balanced Scorecard, but in fact it is not so. Thus, it would be interesting to have a precise look at the ways in which BSC might be used:

• Many companies are using Balanced Scorecard as the scheme for discussing strategies but not as regularly used management tool;

• Some companies are planning and organizing reports in the form of four or five perspectives included to Balanced Scorecard. In order to get a general model they share existing key performance indicators without prior discussion of a strategy. This is supported by the fact that the format of strategy maps looks quite attractive, but such use of Balanced Scorecard is unlikely to bring companies potential benefits.

• In some cases Balanced Scorecard is introduced as a substitution for budgeting system, in other cases budgets and strategy maps are coexisting. The most widely used option is combination of strategy maps and cash flow plans. This is explained by the fact that budgets always played a dual role: they structured goals by activity types and made forecasts as to money demands. The first role is acquired by strategy maps, while operational plans play the second role.

• Balanced Scorecard may be used for the entire company, for a certain part of the business, on certain hierarchical levels, departments and even individual employees. Cause and effect ties between different strategy maps differ depending on what hierarchical they are implemented. Some corporations have unified interrelated indicators, while in others strategy maps and key performance indicators are custom made for every “user.”

• The key problem is supposed ties between indicators. For example, one supplier of software and IT solutions requires integration of information collected from all departments of organization while others our run the interested in logics than in figures. Obviously, identified indicators are easier to summarize (for instance, revenue). Then would be reasonable to calculate average market share or average employee contribution? Does department always implement its goals if its structural subdivisions have justified general expectations, but certain internal deviations have been found?

• Some companies use strategy maps when making preparations for project implementation. At that, learning and growth perspective may be referred both to the project itself and to the company in general if its life cycle is long enough.

• Certain companies also attempt to implement strategy maps for such corporate management functions as IT and HR. In these cases there should be differences between strategy maps for IT and HR departments and IT/HR policy of the entire company.

• Government, public and nonprofit organizations begin to use Balanced Scorecard and the system is gaining popularity among such organizations.

These numerous options of Balanced Scorecard use demonstrate that BSC is a suitable method to discuss any activity. It would be fair to say that there is no one correct way to use Balanced Scorecard. That’s why, before implementation of Balanced Scorecard it is vital to know what part of organization or what activity aspect requires thorough discussion, and who will be involved in implementation of Balanced Scorecard. Organization process of BSC implementation is very important. What company departments and employees will participate in development of strategy and key performance indicators?

Balanced Scorecard as a tool that makes information public

Companies rarely use strategy maps as annual reports. But general and financial reports are very often using such notions as intellectual potential. This means that Balanced Scorecard system has greatly influenced the concept of compiling annual reports.

On the one hand, how can one trust nonfinancial reports of the company in regard to customers, processes and development efforts, of if traditional accounting reports are not always trust? Can such reports be subjected to audit? Is it true that nonfinancial assets depend on internal and external variables that cannot be checked and verified?

On the other hand, use of nonfinancial indicators which may be somewhat discouraging is explained by the fact that modern business cannot be described with simple notions and terms, as it was several decades ago. Modern business has new requirements and demands for information contained in strategy maps.

Strategy maps do not only reflect important financial and operational information, but it also tells about company strategy in a simple form. Moreover, strategy maps will be understood both for business gurus, experienced investment managers, shareholders, advertisers and ordinary employees.

A new trend or developing standard?

It is obvious that goals and capabilities of Balanced Scorecard projects have changed. Early projects were focused on operational management. Soon, Balanced Scorecard was declared a strategic management tool to be used all companies.

Corporations that run different business types face difficulties in formulation of a corporate strategy, and financial indicators are usually more suitable and even sufficient for this level. That’s why the bulk of the job on implementation of Balanced Scorecard is performed on the level of departments and business units, or even lower levels, of where nonfinancial indicators and cause and effect ties are more attractive than indicators of traditional control systems. Some companies even claim that strategy maps should be built from bottom to the top instead of being imposed from the top.

There are also differences in implementation of declared goals. Some Balanced Scorecard projects still remain useless pile of information, although company top management was very enthusiastic about Balanced Scorecard concept and to be an active part in development of strategy, although this strategy was never implemented. This means that Balanced Scorecard and strategy maps failed to become effective strategic management tools.

At the same time some companies focused on regular evaluation and reporting as an important element of Balanced Scorecard project. Sometimes, even top management did not participate in discussion of strategy.
As a result, often strategic maps turn into presentation slides that will have nothing to do with reality, or Balanced Scorecard becomes a tool to evaluate and control car and performance of the company which has nothing to do with the company strategy. Sometimes Balanced Scorecard is even used as a database to share and report information.

Well, it is really difficult to build an effective strategy maps without making BSC project a senseless ritual. A BSC project can become a real challenge for the company. This is partially explained by the avalanche of literature and studies dedicated to Balanced Scorecard theory. It all looks great on paper. But the company should learn to live with Balanced Scorecard and strategy maps. No one claims that it will be easy. That’s why preparations for implementation of Balanced Scorecard should be given due attention. Company owners and top management must decide why they want to use Balanced Scorecard and whether they really need it. Otherwise, Balanced Scorecard will become the most expensive management control system or database the company have ever used.

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These days attention of top managers is pretty much devoted to human resource management. It has become obvious that without competent and loyal personnel the company has no chances for survival no matter how ambitious plans it might have.  Very often top managers of big companies do not know much about their customers, while front line managers directly contact them, and thus possess valuable information which may and must be used to increase company competitive advantage in the market.

Experience shows that a great number of companies and private businesses are making the same to mistakes.  Such mistakes they HR campaign rather expensive and in most cases ineffective.  These two mistakes are:

• Implementation and development of human resource key performance indicators in a vacuum
• Creation of a great number of KPIs which the company cannot handle and use in an effective way

So, one of the most common mistakes is that HR managers attempt to develop and implement key performance indicators in a vacuum.  HR managers are recommended to use a collaborative approach.  This means that the chosen indicators must represent key success factors in HR policy.  In other words, key performance indicators must mean something both for company top management and ordinary employees.  They should be well understood and clear the company personnel.  At the same time such indicators should be well integrated into the system of company strategic goals, its mission and values.  Thus, development of KPI is in HR management should be performed with the involvement of HR specialists, company top management, and ordinary employees.

The second mistake is that some managers want to create perfect HR scorecard and as a result create a great number of key performance indicators which are then so difficult to measure and analyze.  Great number of key performance indicators is absolutely unnecessary.  Moreover, such system will be difficult to maintain.  There is a general suggestion that 8-12 of indicators is enough to show impact of human resource management on company performance and progress on the way to implement strategic goals.  Besides, let’s not forget that creation and evaluation of key performance indicators requires time and money, so it is really important to focus on something that really matters for the business.  Below are suggestions as to creation of key performance indicators in HR.

Overall workforce productivity

• Improvement in workforce productivity (%).  The company pays certain amount of money to employ personnel and naturally expects some revenue/profits.
• The value of improved workforce productivity as compared to last year

Employee engagement

It is important that company personnel love their job and understand human resource approaches.  Relations between ordinary employees and their managers are very important for high performance of both.

• Percentage of employees who are eager to come to work every day
• Number of employees who are satisfied with current relations with managers

Recruitment

This is another very important aspect of human resource management.  The sooner the company finds the best professionals, the better for the company.

• Time periods during which major positions in the company are vacant
• Performance score of new hires
• Manager satisfaction degree you with new hires (comparison to last year’s results)
• Turnover rate of new hires during first 12 months
• Financial impact of that hires in major positions

Retention

It is not enough to hire educated and competent personnel.  It is very important to create such conditions that people are reluctant to leave the company.  The following key performance indicators may evaluate this important aspect of human resource management:

• Employee turnover rate
• Turnover rate in major positions
• Preventable turnover in key positions
• Turnover rate in managerial, technical, sales and other positions
• Financial impact of employee turnover in major jobs
• Managers’ satisfaction rate with human resource management retention efforts

Human resource costs

• Costs spend for human resource against generated revenue

Manager satisfaction

This is a very tricky category of HR evaluation.  It wouldn’t be too often that managers give poor grade to performance of human resource department, if they are asked a direct question “do you like your HR managers?” So, it is important to be very cautious and delicate here. Ask questions about human resource impact on productivity and efficiency of a business unit, department or an individual employee.  In such a way there will be no offenses between managers and human resource specialists.  The following key performance indicators might be helpful:

• Raking of all HR functions obtain from managers surveys.  In such surveys managers would be asked to evaluate functions of HR managers.

Compensation and benefits

• Number of employees satisfied with their current compensation
• Number of employees showing above average performance and getting above average compensation
• Number of employees who have shown top performance but resigned for salary related reasons

Employee relations

As known, positive organization climate encourages employees to show high performance.  Use of such indicators is recommended to measure employee relations:

• Number of employees who claim to have a bad manager
• Manager satisfaction with influence of HR Dept own relations in the company
• Organization climate (information obtained from surveys)

Training and development

Once the company recruited and retained professional employees it is necessary to educate them and develop their skills and knowledge.

• Number of employees who are satisfied with learning and growth opportunities offered by the company
• Number of employees who say their satisfied with project assignments for development and growth as well as job rotations
• Number of employees who say they possess suspension knowledge in their business area
• Percentage of employees who regularly undergo training sessions and participate in coaching programs

Conclusion

Sure thing, the least of key performance indicators in human resource management evaluation will vary from business to business.  Much depends on company structure, excepted internal processes and communications, and of course, company strategy, mission, system of values etc.  Finally, it should be noted that implementation of HR goals in general should be regularly measured (once a year).

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