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.
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.
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.
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.