The Balanced Scorecard: Translating Strategy Into Action (26 page)
Read The Balanced Scorecard: Translating Strategy Into Action Online
Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
We have discussed corporate strategies arising from establishing common themes that cut across operating companies, and explicit attempts to develop customer and operating synergies across different operating companies. Another source of corporate, or “parenting advantage” as it’s called by Goold and colleagues, arises when operating companies can share a corporate-supplied resource.
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A corporate resource provides a competitive advantage when it offers unique capabilities for the operating business units that they cannot acquire at comparable quality, price, and reliability from independent suppliers, including supplying it themselves through a self-contained resource unit. All too often, however, such corporate resources as maintenance, purchasing, human resources, information technology, or finance are not subjected to market tests and end up as a source of competitive disadvantage rather than an element of parenting advantage. Larry Brady, president of FMC Corporation, commented on how companies rarely apply discipline to their corporate staff groups:
Applying the scorecard to staff groups has been even more eye-opening than [with] our operating divisions. I doubt that many companies can respond crisply to the question, “How does staff provide competitive advantage?” Yet we ask that question every day about our line operations. We have just started to ask our staff departments to explain to us whether they are offering low-cost or differentiated services. If they are offering neither, we should probably outsource the function. This area is loaded with real potential for organizational development and improved strategic capability
.
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This was the exact situation faced by Info Support (IS), the information and management systems unit of Telco, a major international telecommunications company. During the many decades when Telco operated as a regulated monopoly, business units were required to purchase all their information and technology services from Info Support, an internal corporate group. With outsourcing to external vendors precluded by corporate fiat, Info Support enjoyed rapid growth and high utilization, though with low levels of internal customer satisfaction. Entering the 1990s, Info Support was operating with mostly obsolete technology, a negative internal image, and a distinct lack of customer focus.
Most of Telco’s business had been deregulated in the 1980s and its now highly competitive environment led to decentralization of its product and service delivery process into profit-center business units. The newly established business units needed higher services and technological capabilities from its information systems supplier. Telco, to encourage aggressive profit-seeking behavior from its operating units, empowered them to purchase services from their best supplier. Thus, Info Support either had to provide competitive services or watch its scale and scope of operations severely diminish.
The new CEO of Info Support turned to the Balanced Scorecard to transform an organization that had been a captive supplier of technology products and services into a customer-focused competitor. The CEO used the scorecard to:
- articulate a new customer-focused strategy,
- educate employees about the new approach, and
- change behavior to a strong customer focus.
The Info Support project team developed specific measures for its two types of customers (see Figure 8-3). They developed customer satisfaction measures that reflected the value propositions for Tier I customers. They also included a measure, number of new customers, to emphasize the importance of developing technologies and services that could attract new customers. The BSC team introduced a measure of price versus market for supplying standardized services to Tier II customers, thus signaling the importance of delivering price-competitive services for these customers. The different measures provided clarity and focus for what Info Support had to excel at to retain its diverse internal customer base.
Figure 8-3
Objectives for Tier I and Tier II SBUs
Figure 8-4
Translating Customer Objectives into Internal Priorities
While the initial focus and application of the Balanced Scorecard has been in the for-profit (private) sector, the opportunity for the scorecard to improve the management of governmental and not-for-profit enterprises is, if anything, even greater. At least the financial perspective provides a clear long-run target for profit-seeking corporations. The financial perspective,
however, provides a constraint, not an objective for government and not-for-profit organizations. These organizations must limit their spending to budgeted amounts. But the success of these organizations cannot be measured by how close they maintain spending to budgeted amounts, or even if they restrain spending so that actual expenses are well below budgeted amounts. For example, knowing that actual expenses for an agency came within 0.1% of budgeted amounts says nothing about whether the agency operated either effectively or efficiently during the period. Similarly, reducing expenses by 10% of budget is not a success story if the mission and constituencies of the agency have been severely compromised.
Success for government and not-for-profit organizations should be measured by how effectively and efficiently they meet the needs of their constituencies. Tangible objectives must be defined for customers and constituencies. Financial considerations can play an enabling or constraining role, but will rarely be the primary objective.
Recently, government agencies around the world are being held more accountable to taxpayers and constituents. Many governmental functions are being outsourced to the private sector or eliminated entirely. In the United States, an important early initiative of the Clinton administration that took office in January 1993 was to “reinvent government.”
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An initiative, under the leadership of Vice President Albert Gore, led to the publication of the
National Performance Review
(NPR).
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This document emphasized the importance of a customer focus and performance measurement for governmental agencies. In a major section, “Empowering Employees to Get Results,” this document has several recommendations for establishing performance measures for government agencies, including:
- All agencies will begin developing and using measurable objectives and reporting results.
- Clarify the objectives of federal programs.
- The president should develop written performance agreements with department and agency heads.
The report acknowledges that
Not everyone will welcome outcome measures. People will have trouble developing them. Public employees generally don’t focus on the outcomes of their work. For one thing, they’ve been conditioned to think about process; for another, measures aren’t always easy to develop. Consequently, they tend to measure their work volume, not their results.
If they are working hard, they believe they are doing all they can. Public organizations will need several years … to develop useful outcome measures and outcome reporting
.
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One of the first applications of the NPR guidelines was carried out by a performance measurement action team (PMAT), an interagency task force created under the auspices of the federal Procurement Executive Association (PEA) to evaluate the adequacy of the procurement systems in such agencies as the Departments of Treasury, Transportation, Commerce, and Health and Human Services, as well as the General Services Administration and the U.S. Mint. The mission of the PMAT was to “assess the state of the current [procurement] system, identify innovative approaches to measuring performance, and develop strategies and recommendations for measuring the health of agency acquisition systems.”
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The task force surveyed customers and employees, had senior procurement executives at each agency perform a self-assessment, and collected available statistics about procurement performance. From this research, the task force developed a Balanced Scorecard (see Figure 8-5). The scorecard retained the traditional four perspectives of the corporate Balanced Scorecard, and added a fifth one, employee empowerment, to emphasize the central role that federal employees must play in the new, more customer-focused approach for government agencies.
The PMAT task force recommended the Balanced Scorecard because
It focuses on high impact measures. It is intended to be easy and economical to use. It is balanced, and puts the emphasis on prevention rather than detection. It is customer-oriented and cross-functional in that it is not limited to areas of direct control. It empowers the procurement organization to make improvements, rather than have headquarters dictate the recommended changes to be made. It provides a method to compare quality service with the goal of becoming best-in-class.
Moving from the federal government to municipal governments, the city of Sunnyvale, California, has, for 20 years, produced an annual report that discloses key objectives and actual performance against budgeted standards for municipal services. In each policy area, the city defines sets of goals, community condition indicators, objectives, and performance indicators. If a program exceeds its objectives for quality and productivity, its manager can receive a bonus of up to 10%. A 1990 comparison revealed that Sunnyvale uses 35–45% fewer people to deliver more services than other cities of similar size and type.
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Figure 8-5
The Balanced Scorecard for the Federal Procurement System
Source: Adapted from Robert S. Kaplan and David P. Norton, “The Balanced Scorecard—Measures That Drive Performance,”
Harvard Business Review
(January–February 1992): 76. Reprinted with permission.
- Community safety
- City within a city (targeted, local neighborhood initiatives)
- Restructuring government (to implement competition and asset management in city agencies)
- Economic development
- Transportation
The second part of the report summarized performance measured by major success indicators in four perspectives: financial, customer service, internal work efficiencies, and innovation and learning. Examples of the objectives and measures in these four scorecard perspectives included:
Customer Service: To Provide Excellent Customer Service to the Citizens of Charlotte
Status
- 89% of customer satisfaction on information about new procedures for garbage service
- Fire companies investigating and responding to local community needs
- Planning Department received 95.3% positive rating in its handling of more than 41,000 customer inquiries.
- Airport authority provided customer service training to shuttle bus drivers; survey of customers using the shuttle bus indicated very favorable responses.
- Transit authority had 25–35% more passenger pickups per hour of revenue service than comparable cities.
- Of 36,000 inquiries to the Transportation Department, only 26 (<0.01%) made a subsequent follow-up to the mayor’s or City Council’s office.
Financial Accountability: To Be Good Stewards of the City’s Money
Status
- City’s water/sewage rates were fourth lowest of 13 comparable cities. Annual rate increase was 25% below projected increase.
- Solid waste collection services was next to lowest among four largest national solid waste companies. Lost time from preventable accidents declined by 60% from previous year, saving about $130,000.
- Planning Department’s per capita cost was lowest among six comparable cities.
- Worker’s compensation medical treatment process was streamlined, saving $238,000 in employee time.
Internal Work Efficiencies: To Continue to Improve Cost Effectiveness of Services Within a No-Growth Budget, by Increasing Operating Efficiencies
Status
- Productivity of maintenance and utility meter reading substantially increased.
- Human Resources implemented an automated payroll system, reducing errors and redundant work. Provided better management reports on sick leave and other leaves.
- Improved efficiencies in Engineering and Property Management, Solid Waste, Transit, Transportation, Planning, and Aviation Departments by reduced staffing, reengineering several key processes, and outsourcing many functions (Note: details provided in actual report).
Innovation and Learning: To Explore New Products and Processes to Improve Our Performance in the Future
Status
- New Department of Transportation Information System introduced, containing information on street closings, project status, traffic counts, job openings, and business agendas.
- Initiated implementation of activity-based cost management for city departments.
- Exploring new initiatives for crime prevention.
- Developed a technology plan to increase productivity with a reduced work force.
- Employees undergoing training; post-test indicated a 51% skill improvement in targeted area.
- Employing two electric vehicles for fire and storm water field inspections
- Career development plan implemented for the Information Technology Division.
The city of Charlotte scorecard, while just a beginning and clearly a work-in-process, nevertheless provided a new focus and accountability for the municipal departments that previously were evaluated solely on whether or not their spending stayed within budgeted amounts. The city manager introduced the scorecard objectives and measures by stating: “I am especially pleased with our financial accountability and internal work efficiency achievements…. This report captures the ‘success spirit’ of our organization.”
Not-for-profit organizations, especially those chartered to provide social service to the needy, have a particular requirement for communicating their mission and articulating the objectives and measures against which their performance should be measured. The entire rationale for such not-for-profit enterprises is to provide particular services to targeted constituents. As with government agencies, the financial perspective serves more as a constraint than as an objective for these organizations.
One of the first applications of the Balanced Scorecard to a not-for-profit social enterprise occurred for the Massachusetts Special Olympics.
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The framework of the Special Olympics (SO) Balanced Scorecard was virtually identical to that used for companies and business units.
The financial perspective focused on the expectations of financial donors. Three principal objectives were selected:
- Public Recognition/Publicity: Position the Special Olympics as a favored charity through aggressive public relations and cause-related marketing.
- Community Involvement: Provide positive and fulfilling volunteer opportunities for corporate and individual volunteers.
- Athlete Outreach/Program Expansion: Expand programs and promote them to underserved areas to allow all potential athletes the option to participate.
The measures selected for these objectives were:
- Number of new programs/athletes
- Volunteer retention/recruitment
- New donors
- Donor feedback
- Number of athletes in outreach programs
In addition, more traditional financial measures for a not-for-profit Balanced Scorecard could include fund-raising targets, and administrative and fund-raising expenses as a percentage of total funds raised.
The customer perspective focused on the athletes—the targeted audience for the Special Olympics. Four objectives were selected:
- Training and Competition: Develop strong infrastructure for all sports in order to provide convenient training times and locations.
- Controlled Cost: Minimize participation fees for athletes and families.
- Quality Programs: Focus on maintaining and improving quality of training programs and competitive events.
- Community for Athletes: Foster opportunities for social interaction among athletes.
The five measures for these objectives were:
- Number of athletes not able to find a team
- Cities with no registered athletes
- Fee increase
- Family feedback
- Number of social activities outside of competition
- Organization and Administration: Communicate three-year plans to area management teams and coordinate within sections.
- Public Relations: Support outreach and fund-raising efforts through effective education of the public about the mission and operations of SO.
- Training: Continuously train and retrain athletic coaches.
- Outreach: Identify and target areas currently underserved by SO.
The measures included:
- Percentage of plans distributed
- Number of area management team meetings
- Funds raised
- Public awareness
- Number of training classes offered
- Number of first-time athletes
And the learning and growth perspective focused on the three key enablers typically identified for this perspective: people, systems, and organizational alignment:
- Knowledge of SO: Broaden understanding of the SO “big picture” among staff committee members, volunteers, and coaches.
- Management: Staff and develop strong area-management teams.
- Data Base Management: Maintain and effectively use data bases of donors, coaches, and volunteers.
- Recognition: Appropriately recognize volunteers, coaches, and staff.
The selected measures included:
- Number of volunteers trained in SO and sports
- Registration forms in on time
- Program guide distribution
- Volunteers in data base
- Coaches’ training meetings
