How the Balanced Scorecard Approach Helped a Utility Corporation Survive Deregulation and Increase Productivity by 33%
Summary:
Nova Scotia Power Incorporated (NSPI), an investor-owned utility that manages $3.5 billion in assets, was facing industry deregulation and increased pressure to improve client service and customer loyalty. At the same time, they were going through an internal re-organization, breaking the company into a series of strategic business units. They needed a tool to help them align these discrete units with corporate goals and ensure that they worked together in a co-ordinated and supportive way. The Balanced Scorecard approach provided NSPI with a way to disseminate corporate goals throughout the organization, bring all business areas into alignment and empower employees to take responsibility for their specific contribution. The net result was an astonishing 33% increase in productivity, despite a challenging business climate.
Introduction:
Incorporated in 1919, NSPI is an investor-owned utility located in the province of Nova Scotia, Canada. It is responsible for providing 97 per cent of the generation, transmission and distribution of electricity province-wide, and serves close to half a million residential, commercial and industrial customers. With a staff of 1,700 dedicated professionals, 39 hydro plants (including five thermal and one tidal), four combustion turbine and two wind turbine sites, they generate more than 13,000 gigawatt hours of electricity each year and manage $3.5 billion in generation, transmission and distribution assets.
The Challenge
In July 1996, the CEO of NSPI was facing the deregulation of the electric utility industry. NSPI had been separated from competing, non-regulated energy companies and positioned as a newly established holding company. This holding company was tasked with competing in a new and challenging marketplace, and was further hampered by a restriction on raising the price of electricity. Essentially, the company was facing a new competitive landscape and a deep reorganization, but was expected to meet these challenges without access to additional resources.
After reorganizing the company into strategic business units as a way to improve accountability and profitability, the CEO needed a system capable of aligning each discrete business entity with top-level corporate directives by translating those directives into specific, measurable goals for which each unit would be accountable. That system had to allow NSPI to gauge its success in meeting strategic goals with pinpoint accuracy.
The four strategies identified were to 1) cut costs, 2) build customer loyalty, 3) build the business and 4) develop employee commitment. These strategies, formulated at the executive level, needed to be fully owned by management and translated into specific, measurable actions and initiatives among the strategic business units and sub business unit levels.
The Solution
The Balanced Scorecard approach is ideal for organizations such as NSPI, which need to 1) disseminate corporate goals throughout a multi-level system, 2) co-ordinate goal-related activities and foster accountability at all levels and 3) test the ongoing implementation and execution of a new strategy to measure success.
NSPI began the process by using a regularly scheduled brainstorm session for their 150 management staff to unveil the Corporate Scorecard. For two days, management discussed the new tool, reviewed each measure and its strategic significance, asked questions and began outlining their plans for “cascading” the identified corporate goals throughout their strategic business units. The cascading process involved communicating corporate goals downward into all areas of business, and developing appropriate supporting measures and initiatives that could be implemented in support of those goals.
After the two-day intensive session, managers rolled out the implementation of goals appropriate to their specific business units, ensuring that a clear understanding of and accountability for those goals was ensured all the way down the line.
For instance, the overarching corporate goal of increasing customer loyalty was benchmarked at the achievement of a 46% composite index of earned customer loyalty. At the level of the strategic business unit responsible for customer service and marketing, the corporate goal was supported with the unit goal of redesigning a minimum of five customer processes over the year. For the strategic business unit responsible for information technology, the supporting goal was to increase the number of completed customer service requests to 450 per month. In this way, corporate goals were supported within business units, and individual business unit goals were designed to support one another laterally across the organization.
The Results
Using the Balanced Scorecard method, NSPI were able to calibrate efforts and initiatives at every organizational level with overarching corporate goals. Just as importantly, the goals for individual business units supported one another laterally across the organization, ensuring total co-ordination and synergy. And at every level, the goals were appropriate to and achievable by the particular business area, allowing employees at all levels to own their part in the company’s success.
Additionally, the Balanced Scorecard served as a powerful communication tool, disseminating corporate goals across the organization and providing clear measures of success that all employees could understand and work towards.
Ultimately, the strategy helped the company achieve customer satisfaction and uninterrupted power supply with a 33% productivity improvement.
The Balanced Scorecard approach has proved so successful for NSPI that the company has gone one step further and developed a template that links corporate goals to personal Balanced Scorecards for individual employees. These personal Scorecards incorporate key elements of compensation and personal development and give employees a summary of how their individual actions feed into corporate objectives, and show them clearly how their successful efforts in these areas will further their own careers as well as organizational goals.
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