Strategies often fail in organisations because they are not successfully converted into actions that employees can understand and employ in their everyday work. The measures used to determine whether a strategy is working or not are usually far removed from what employees believe they can influence.
Measurements of strategy implementation are usually restricted to the financial level. Measures remain at a high level and are not at a level disaggregated enough for employees to see for themselves whether they are contributing to the strategy or not.
In the early 1990’s Robert Kaplan and David Norton developed an approach, the ‘balanced scorecard’, to provide a balanced picture of what is happening throughout the organisation, not just one facet of it. Additionally, they sought to provide measures which are meaningful to those responsible for the work and visibly related to the strategy of an organisation.
The balanced scorecard concentrates on measures in four strategic areas; finance, customers, internal business processes and innovation. The method requires organisations to come up with goals and measures for each strategic area. The following goals and measures are regularly applied from each perspective.
From the financial perspective the goals tend to be about either survival or prosperity. The measures tend to be about revenue growth, cash flow, return on capital, cost reduction, project profitability and performance reliability.
From the customer perspective the goals tend to be about the customer experience, customer acquisition and retention and customer profitability. The measures tend to be about market share, transaction cost ratios, customer satisfaction and loyalty, supplier relationships and key account relationships.
From the business process perspective the goals tend to be about business processes, core competencies and critical technologies. The measures tend to be about efficiency measures for operational processes, cycle times, unit costs, defect rates and project effectiveness.
From the learning and innovation perspective the goals tend to be about continuous improvement and new product development. The measures tend to be about new idea generation, competency levels, employee satisfaction, staff attitude and retention.
Creating a balanced scorecard requires the input of all senior managers. A method for developing a balanced scorecard involves a series of interviews and three workshops.
The first step is to define the scope for which the balanced scorecard will be created. In large organisations it is important at this stage to ensure that the scope is wide enough to avoid creation of silos without making the exercise too difficult in sheer breadth of activities. Having determined the scope, the senior management team is interviewed individually for their view of the strategic direction and initial thoughts on the balanced scorecard components.
The first workshop with the senior management team sets out to determine for each of the four perspectives what would be different if the vision of the organisation was achieved, what critical factors would enable the vision to be achieved and what measures for each critical factor would show that the vision was being achieved.
After consolidating the findings of the workshop a second set of interviews is undertaken to refine the emerging scorecard.
The second workshop sets out to debate a proposed scorecard and link ongoing change programmes to the measures and setting targets for improvement for each of the measures. The workshop also should begin to develop a communication strategy and an outline of the implementation processes.
The third workshop develops final consensus on the vision/goals, measures and targets and develops an implementation programme to communicate the scorecard to employees, integrate the scorecard into management philosophy and develop an information system to support it.
The second last phase is implementation. An implementation team is given the objective of communicating the what, why, where and who of the scorecard and developing the how by linking databases and information support systems to the scorecard. The end product should be a management information system linking strategy to shop floor activity.
The last phase is to regularly review the scorecard for relevance as the environment in which organisations operate changes. Achievement of intermediate goals also opens up new possibilities for the vision of the organisation.
A common mistake to be avoided in developing a balanced scorecard is getting lost in the minutiae of too many detailed measures. Be sure that the measures do genuinely relate to the strategic goals of the organisation. Another common mistake is to define the scope of activities too narrowly resulting in a silo approach to executing strategy, defeating the initial purpose of the scorecard.
Strategic planning is important for organisations to succeed but is not enough. They need to ensure the strategy is understood by employees and measured in a manner which is relevant to them. Building a balanced scorecard rather than one built solely on financial metrics will provide employees with a sense of how they contribute to the strategy.