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.

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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.

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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.

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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.

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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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Strategy maps model does not only include a system of key performance indicators in a certain format, but also characterizes conditions for its effective use.  Strategy map concept becomes in such a way a part of strategic management control system and at the same time a very clear answer to avalanche of criticism towards traditional managerial control systems.  It would be interesting to compare Norton and Kaplan model with analogous systems.  With the emergence of strategy maps concept the system of managerial control has broaden.  It would be wrong to say that financial indicators have lost their significance, but now they meet demands of the system that contain both financial and nonfinancial key performance indicators.

From financial to strategic control

The early 1990s faced severe criticism of the traditional managerial control system because of excessive focus on financial indicators.  Control over financial indicators was not effective anymore because of changes in the global economy, appearance of new business ideas, intensification of competition and globalization of markets.

In the 20^th century the traditional system of managerial control was functioning under conditions of mature markets and technologies that were changing very slowly.  There is a joke that traditional system of managerial control has stopped developing in around 1925.  By that time its key instruments which are also used nowadays had formed: budgeting, cost calculating using “standard cost” method, transfer pricing, DuPont model etc.  Managerial control was mainly about maintaining of company efficient functioning.  As a result managers were focused on expenses and ways to decrease them, while sales growth was not given due attention.

But times have changed, new technologies have appeared, and thus business acquired different demands.  Financial indicators represented consequences of previously adopted decisions and they could not adequately reflect processes of long-term strategic development of business.  Many managers came to understand that in order to maintain competitive advantage in the market it is imperative to have more complete information on different aspects of running business.  That’s why in early 1980s a serious of new concepts and instruments of managerial control appeared – total quality management, business process redesign, lean production, Six Sigma and a number of others.

New methods rarely gave initiative to accounting or financial control departments.  The goals of new managerial tools often conflicted with goals of traditional managerial systems.  The strategy based on independence of personnel in decision-making does not harmonize with short-term planning which is predetermined by high priority of financial indicators.  As a result, functions of managerial control systems have broadened with control of external factors and storage of strategic information which makes correct forecast quite possible.

Criticism of traditional managerial control systems

Modern business environment has new demands to managerial control systems used by any company.  In the early 1990s the criticism of traditional managerial control systems has intensified.  Of course, this criticism was supported by a number of reasons, namely:

• Unreliability of information for decision making.  Information on expenses, sales volumes and profitability is the key information managers use in decision making.  Traditional financial indicators reflect results for the past periods.  Such information may lead to decision-making which will not meet of requirements of strategic goals.
• Inability to take into account modern requirements for business organization and strategy development. Goals and tasks of financial control conflict with tasks of strategic planning.  For instance, based on information of financial control company management may make the decision to cut expenses on development and innovation, personnel education, cancellation of share emission, and delay investment decisions.  As a result the key problem is to match short-and long-term goals.
• Decisions are based on information obtained in the accounting system. Managerial control is performed based on accounting information which complies with legal requirements.  Shareholders always want to have information on company performance in order to consider alternative investment options.  Financial indicators only do not give full and adequate picture of business development.
• Distorted information on expenses and control over investments. Traditional control over expenses did not include analysis of reasons for emergence of such expenses.  It only registered the amount and where such expenses appeared.  Nowadays, traditional methods of sharing expenses when in direct expenses are allocated in proportion to direct expenses is out of date.  Ties between direct and indirect expenses have changed as a result of increase in expenses for development and innovation, synergy effect, simplification of production processes schemes.  Production of different product types in the same or similar production lines makes it difficult to calculate profitability of every product.  Moreover, sometimes it is impossible to calculate full cost for development of a product in the long term.  It is imperative to develop a new method to share expenses other than traditional method of expenses deduction, like well-known ABC method.
• Provision of personnel with incomplete information.  Financial indicators will not tell much to most employees in the company as it is very difficult for them to understand relation between their job and figures in annual or quarter reports.  Financial indicators are too difficult to understand and this fact slows down decision-making and performing of urgent countermeasures, if necessary.
• Lack of attention to business environment in which company operates.  Traditional system of financial indicators does not reflect possible conduct of competitors and customers and future, and consequently it cannot warn the company on possible changes in the industry or business environment.  Key financial indicators used in most of such systems are mostly focused on internal programs of the company.  They are designed to compare current indicators with the results obtained during previous periods.  That’s why using these indicators, it is very difficult to compare co performance, strengths and weaknesses to key competitors in the market.
• Orientation on current performance.  Leaders in the market prefer monthly and quarterly reports, which leads to making of short-term investment decisions.  Besides, focus on long-term perspective forces managers to manipulate financial indicators to make current conditions of the company look better than they really are.  As a result, false managerial decisions are made.

Strategic maps: is it about registration of facts or strategic analysis?

Balanced Scorecard. Both words in the name of this extremely popular strategic management and performance evaluation tool are equally important. The word “balance” stresses the importance of using both financial and non financial indicators. In other words financial indicators are balanced with nonfinancial ones. As a result, the company gets the most complete information. But what about the word scorecard? Is it like score in a game? Well, this is partially so. Balanced Scorecard stores information on company performance. But still, it would be wrong to consider Balanced Scorecard and strategy maps as a form to save performance results. Strategy maps make it possible to forecast certain conditions and future results. Strategy map is an illustration to the company business plans. Strategy maps characterize goals and tasks to be implemented by company departments. That is why strategy maps are often used as a kind of alternative to budget formation (moreover, strategy maps influence the entire process of budget formation). Strategy maps help set the right balance between short- and long-term goals, agree strategic development plans of different department, branches and business units of the company.  Very often the contents of strategy maps caused lively discussions.  As known, usually discussions result in adoption of very creative decisions and ideas.  That’s why the strategy map only looks like a scorecard the stores information this is an effective strategic management tool.

Understanding of business nature

The key task of strategy maps is to give the most complete characteristic of all key success factors for the company. Although financial indicators are extremely important for the company operating in market environment, non-financial indicators are equally important as they can warn the company at the early stages on non-favorable or dangerous factors which are unreachable for financial indicators. The company management must take these factors into account and develop prompt response actions.

Until recently most companies applied the concept of strategy maps mostly in the internal environment. However, experience in evaluation of customer relations and improvement of internal business processes would be quite helpful in relations with shareholders.

Not everybody would agree that the company strategy and its successful implementation could be pictured with the help of a few indicators. It is so much easier to set a task and organize control system over its implementation. In such a way, managers get much freedom. It is also possible to improve the system of financial indicators in such a way so that they correctly reflect company success in attraction of new customers, improvement of internal business processes, development of new products etc.

At the same time, implementation of strategy maps may have some negative effects. A strict control system will be built which will change managerial style. Top management will be constantly issuing orders and instructions to subordinate managerial levels. But when all employees in the company understand benefits of using strategy maps and their own contribution to implementation of strategic goals, such a drawback will not matter at all!

Summary

When properly implemented, Balanced Scorecard and strategy maps with have a dual effect. On the one hand this is a very reliable system of managerial control and accounting. The scorecard system will store information on company performance at a given moment as well as track changes over certain periods of time. But on the other hand, strategy maps will encourage company personnel to generate productive and creative ideas. For instance, an ordinary manager who understands his contribution to implementation of strategic goals for the company is more likely to offer some things that will change company performance for the better. It is not a secret that discussions as a rule end in adoption of interesting and compromising decisions.

It is imperative to get personnel involved in discussion of strategic maps and the process of KPI development. Sometimes, front line employees know much more about company regular customers than top-managers who have never seen these customers. Strategy maps concept makes it possible to broaden managerial control system and acquire new functions. Company personnel needs to understand strategic goals and ways of their implementation, otherwise Balanced Scorecard and strategy maps will remain just another control system which will cause personnel anxiety and irritation.

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Successful implementation of Balanced Scorecard and introduction of strategy maps concept of the company very much depends on the right choice of key performance indicators (KPIs).  Unfortunately, it is impossible to develop a universal set of key performance indicators which will be effective for any company.  Every business is individual and that means that it requires individual approaches to performance evaluation and strategy development.  Much depends on the strategy itself and company strategic goals.  Every business has different key success factors and key performance indicators should reflect relations to the success factors.

At the same time, it is possible to compile a general list of key performance indicators which are divided into categories.  This list should not be viewed as a must have set of indicators.  In each case the number of key performance indicators and KPIs themselves will vary.  But the list of key performance indicators which will be compiled below is based on experienced of many companies and researches related to strategic maps.

One look at the list is enough to understand that this list of key performance indicators includes both final indicators and those KPIs that characterize key success factors.  You’ll find both leading and lagging indicators.  As known lagging indicators mostly concerned financial issues, while KPIs related to customer relations, internal business processes and learning and growth will tell much about what will happen to the company.  Some indicators, like number of received patents, may be viewed as a result for learning and growth perspective.  Most indicators, however, combine final indicators and indicators characterizing certain activity aspects.  For instance, such indicator as time for placing an order characterizes one of key activity aspects, while customer loyalty is a final result.  At the same time, customer loyalty stimulates sales volumes, which is a vivid example of how cause and effect ties work within the framework of strategy maps.

Financial perspective

•          Total assets holdings

•          Asset value per one employee

•          Capital productivity ratio

•          Sales volumes for new products/services

•          Working efficiency of personnel

•          Profitability of assets

•          Revenue from new products/services

•          Revenue per employee

•          Market price per share

•          Profitability of net assets

•          Added value per one employee

•          Efficiency of assets

•          Profitability of investment

•          Efficiency of sales volumes

•          Ratio of marginal revenue

•          Marginal revenue per employee

•          Cash flow

•          Ratio of equity capital to total assess holdings

•          Profitability of investment

•          Total expenses

Of course, this is only a short list of indicators, and other key performance indicators may and must be evaluated.  You can find the full list of all possible indicators in specialized literature.  But from the above list it is evident that some business experts and authors (like Kaplan and Norton) tend to use markets and customer oriented indicators to the financial category.  Although such indicators characterize past periods of company activity and can be obtained from financial and accounting reports, they have strong relations to customer perspective of the Balanced Scorecard.

Key performance indicators of the financial category make it possible to perform comparative analysis of different departments of the company.  It is recommended to contrast obtained results with the average indicators for the industry and results obtained for the past periods.  For example, Volvo company is effectively using graphs and time series to present its policy and strategy.  Financial perspective may include both static and dynamic indicators.  This makes it possible to evaluate current condition of the company and changes in performance and profitability.

Customer perspective

•          Number of customers

•          Market share (%)

•          Average annual sales volume per customer

•          Number of lost customers

•          Average time of taking an order

•          Number of customers per employee

•          Specific weight of concluded agreements in the total number of contacts with customers

•          Customer satisfaction

•          Customer loyalty

•          Expenses per customer

•          Number of visits/contacts with customers

•          Number of advertising campaigns

•          Trademark index

•          Marketing expenses

•          Average contact duration with a customer

•          Average amount of products shipped to one customer

•          Number of customer visits to the company

•          Average time between first contact with the customer and signing of agreement

•          Average annual expenses to serve one customer

Some of the above mentioned indicators characterize customer perception of the company, including customer satisfaction and different indicators on relations between customers and the company.  They may be decomposed to customer segments, sales channels etc.  Such indicators are simultaneously reflecting current situation in relations of customers with the company (certain segment of customers or customer group) and changes in customer relations over a certain period of time.  In other words, these indicators look like a balance of customer relations and report on revenue and losses.  Experience shows that in order to forecast sales volumes organization should monitor indirect indicators like recognition rate of the brand and the like.  Besides, there are even deeper indirect key performance indicators like company marketing efforts or number of contacts/visits to potential customers.  Such indicators are sometimes included to learning and growth perspective especially if they reflect expenses related to entering certain market segments or repositioning of the company.

Depending on the situation (strategy and key success factors) the company may require indicators reflecting product share in total purchase volumes of customers, number of contacts with customers, number of employees who regular ea contact customers etc.  You will find more information in specialized marketing literature and studies.

Internal business processes

•          Specific weight of administered if expenses in total revenue

•          Ratio of timely completed orders

•          Average product labor-output ratio

•          Average development time of a new product

•          Average time from placing the order to its completion

•          Supplier frequency

•          Average decision-making time

•          Turnover of material assets

•          Labor productivity growth

•          Efficiency of information systems

•          Increasing number of IT Systems &Computer Equipment

•          Specific weight of expenses on IT Systems in the total amount of administrative expenses

•          Emission of hazardous substances to the environment

•          Influence of company products to the external environment

•          Expenses related to correction of mistakes in managerial decisions

•          Number of properly executive orders

•          Administrative expenses per employee

It is often reasonable to evaluate not only efficiency of some production processes and operations at a given moment but also assess potential of these indicators, opportunities to improve them in order to increase production output and broaden production line.  Similar to customer perspective, indicators must evaluate current condition of the company and changes in internal processes over a certain period of time.  If the company decided not to single out a separate perspective of human resource capital, it is possible to include indicators reflecting efficiency of human resources and technologies to the internal processes perspective.  It is very important to include indicators on efficiency of IT Technologies use.  In the age of information any company is interested to evaluate indicators showing customer skills and efficiency of using IT systems, computer equipment Internet and web based services, corporate customer database etc.

Learning and growth perspective

•          Expenses for research and innovation

•          Specific weight of expenses on research and innovation in the total amount of expenses

•          Specific weight of expenses on improvements in total amount of expenses related to IT technologies

•          Length of research and innovation projects

•          Resources allocated on research and innovation

•          Investment in training of personnel dedicated to customer relations

•          Investments in innovation and research

•          Expenses related to preparations and study of new products

•          Investments in exploration of new markets

•          Frequency of direct contacts with customers

•          Number of registered patents

•          Average time company patents are in force

•          Number of rational and creative ideas per employee

•          Average training cost per employee

•          Employee satisfaction index

•          Marketing expenses per customer

•          Employee trust rate to the company

•          Specific weight of employees who have not reached a certain age in the total number of employees

•          Non production expenses per customer

•          Specific weight of new products in the total amount of products

Similar to previous category, the above mentioned indicators often reflect interaction of human resources and technologies.  Company management is often forced to use indicators that characterize uncompleted processes contrary to final KPIs.  As known, high professional and education level of strategic development department employees does not guarantee that the company will complete a great number of successful innovation projects, as well as huge investments in business do not guarantee success.  Selected indicators should enable users to make own conclusions as to efficiency of using certain resources or combination of resources.

Human resources perspective

•          Leadership index

•          Personnel motivation index

•          Number of employees

•          Personnel turnover rate

•          Average employment time in the company

•          Average employee age

•          Time spent for education and training of personnel

•          Ratio between temporary and permanent employees

•          Percentage of employees with college degree

•          Average employee absence time

•          Number of female managers

•          Number of job applications to the company

•          Personnel trust rate to the company

•          Ratio of employees under 40 y.o.

•          Annual expense for re-education of personnel

•          Number of fulltime employees who spend less than half of working time in office

•          Ratio of fulltime employees

•          Number of temporary fulltime employees

•          Number of part time employees

•          Number of employees with a per hour compensation system

Please note that in the company decides to create a separate human resources perspective then indicators should fully reflect strategically important characteristics of personnel.  One of such characteristics is personnel competence.  Of besides, many human resource managers group employees by age, sex, education, experience, nationality etc.  Employee turnover rate and career chances have an exceptional importance.  As a result, selected indicators should have strong cause and effect ties with indicators in other categories.

It should be repeated that the choice of key performance indicators solely depends on company strategy, its organization structure, strategic goals, mission and values.  A certain set of indicators which proves to be effective for one company may turn out to be a failure for another.  That’s why, most top managers and scholars claim that successful choice of key performance indicators predetermine successful implementation of Balanced Scorecard and strategy maps in the company.

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The concept of strategy maps is based on the assumption that financial indicators do not always give a full picture of the company activity.  That’s why this model better suits companies and commercial organizations that have the primary goal of making profits.  It also concerns government sector.  This article focuses on approaches to implementation of strategy maps in government and nonprofit organizations, and changes which need to be introduced to the strategy maps concept as compared to their commercial counterparts.

Use of strategy maps in public organizations

Strategy maps complement financial information on the performed actions.  Consequently, companies that have the primary goal of making short-term profits have no urgent need in implementation of strategy maps.  But it would be interesting to know what information the company needs and what systems of gathering information are used in such companies.  Strategic maps are mostly helpful for description of those operations the result which will be visible in future, and advantages (such as profits increase) will not be immediate.  Such operations are performed by support and development departments, although their final goal is to increase profits for the company.

This is especially true for central and local government bodies.  As a service supplier, the government sector has almost the same requirements to administrative management as commercial organizations.  Since the early 1950s the U.S. and other countries have been arguing on success criteria which determine efficiency of government bodies and methods of analysis performed when choosing economic policy.

Currently, strategic maps are being tested in some departments and bodies of central and local governments.  Unfortunately, there are no real cases of a full implementation of strategy maps and Balanced Scorecard.

Strategy maps and local government

Regional and municipal government of Sweden has been using different performance evaluation tools with a set of key performance indicators.  Recently a “customer – supplier” model has been gaining popularity. Local government purchases or orders necessary services and pays for them with the taxpayers’ money.  In order to review the volume of supplied services and even change the supplier, local government is freed from any responsibility as a service supplier.  This responsibility goes to municipal departments that render services.  For example, healthcare department may be divided into several sub-departments, one of which renders services.  The customer goal is to get the best services for taxpayers’ money.  It is very important to introduce indicators related to customer satisfaction.  Thus, introduction of non-financial indicators is very helpful.  If customers are not satisfied, the results cannot be viewed as positive.  Strategic maps can be used both by different service administrators (local government, school councils, hospital management) and service suppliers that are directly responsible to taxpayers and local governments for rendering high quality services.

In fact, a number of municipal bodies in Sweden are using different modifications of strategy maps.  Some local governments have been using key performance indicators which can be easily represented in the form of strategy maps.  It is believed that the key advantage of using strategy maps is related to comparative analysis or benchmarking which is easy to be introduced in municipal bodies, as compared to private companies.  Indicators used by Swedish authorities are related to resources, activity types and perception of government policy and actions by taxpayers.  Moreover, some indicators characterize public attitude towards actions/decisions of the local government.  Some municipal departments even go further by introduction of strategy maps in schools and hospitals.  The local authorities want to know answers to such questions: are students satisfied with curriculum, do patients like their stay in the hospital etc?

Of course, the bulk of indicators are related to financial issues.  Thus, indicators describe the number of real estate objects, equipment units, expenses for maintenance of real estate and production facilities, total length of roads and highways, traffic lights units, of street lights etc.  Through measurement of maintenance expenses it is possible to optimize them (average maintenance costs per one light post, meter of track etc.) The choice of such indicators depends on the way they will be used in decision making.