About Us
 White Papers
 Contact Us
Other Links
 Nancy Nygreen Profile
 Ted Nygreen Profile
 Miscellaneous stuff
 Login (private)
 

Mailing address:
Nygreen Management
23 Meeting House Road
Bedford, NY 10549-4238

Website created 1998
 

USING A BALANCED SCORECARD TO IMPLEMENT STRATEGY

By Dr. Nancy Nygreen, Nygreen Management, Bedford, New York
and Dr. John Lingle, The Metrus Group, Somerville, New Jersey

Management Tool for Strategy Implementation.

The Balanced Scorecard is a strategy implementation tool initially proposed by Robert Kaplan and David Norton of the Harvard Business School (Harvard Business Review, Jan-Feb 1992). It calls for a set of measures that are carefully balanced according to a variety of criteria (unique and generic, leading and lagging, short- and long-term, hard and soft, financial and non-financial), and that are used to help align an organization around its strategy, to test the strategic assumptions, and to monitor progress in strategy implementation.

An analogy to understand the balanced scorecard is an airplane cockpit. The pilot, the senior leader, controls implementation of the airplane’s strategy (to land at the right airport at the right time and safely) by monitoring a set of related gauges: heading, air speed, altitude, and attitude. A pilot who monitors only one measure (air speed, or financials) will not successfully implement the strategy. A pilot who fails to understand the interrelationships (raising the plane’s attitude without adjusting air speed) may cause the plane to stall and crash.

Now think in terms of an airplane simulator used to train pilots. We have added the element of a changing environment. The pilot must constantly scan the key gauges and make adjustments in response to changing weather conditions. A pilot who adjusts one key measure (heading) without taking other indicators into account (wind direction and air speed), may land at the wrong airport and fail to achieve the strategic objective. Organizations need a similar set of large, easily visible gauges to let them know whether they are on track in implementing their strategy.

Five factors in this analogy are important to understanding the power of a strategic measurement system using the Balanced Scorecard approach. First, it forces senior leadership to agree on the details of the strategy because they must be defined in a measurement language. Second, all elements of the measurement plan (What airspeed? What heading?) are driven by this strategy. This linkage of all measures to the strategy creates alignment; all parts of the system are focused upon achieving the same result. Third, it is understood that an adjustment to one indicator may have an impact on the other indicators. Fourth, the measures are used to make decisions that result in specific actions. And finally, if progress toward the goal is lagging, the pilot (senior leader) can check two potential reasons: the flight plan (strategy) was not accurately followed or environmental changes made the flight plan (strategy) obsolete.

How then does one begin to implement a Balanced Scorecard? Following are four steps from the approach outlined in Bullseye!. (Schiemann and Lingle, 1999.)

Step 1. Leadership Team Develops a Strategy Map.

The Balanced Scorecard is not just about developing a more balanced set of measures; it is about using measurement in a more effective way. So the senior leadership must start by understanding and agreeing with the concept of a measurement-managed organization.

Next, senior management articulates the strategy and their assumptions regarding the key success factors of that strategy. Key success factors include those areas in which the organization must excel in order to successfully implement the strategy as well as major risk factors. The output of this discussion is a strategy map, a pictorial representation of the strategy with cause-and-effect relationships shown by arrows. A good strategy map should have no more than 15-20 items to insure that organizations do not become DRIPS: Data Rich but Information Poor. In most organizations we have worked with, developing a strategy map with a senior team who already have a strategic plan requires 2-3 full days, typically in an off-site retreat.

Every organization’s strategy map will look different because each map is driven by the organization’s unique strategy and key success factors. The map identifies the key areas that must be measured a.) to track strategy implementation and b.) to test strategic assumptions.

Step 2. Measurement Team Defines Measures and Sets Performance Targets.

In Step 2. a measurement team is formed to translate the strategy map into concrete measures. In most organizations, this is a cross-functional, multi-level team that is involved in five activities.

First, the measurement team must understand the thought process that went into the strategy map. For example, why is the leadership team interested in gross margin from new products instead of total sales? Why are they more concerned with market share by segment than with the number of new customers? What are the cause and effect relationships seen by the senior team?

Second, the measurement team evaluates the assumptions embodied in the strategy map. Is there knowledge from lower levels in the organization that would either refute any of the assumptions or add new elements? Any disagreements between senior leadership and the measurement team need to be worked out before moving forward. It is essential that both groups be fully committed to the strategic assumptions and talk about them in a similar manner.

Third, the team identifies actual metrics to be used to track each element of the strategy map. Fourth, the measurement team makes recommendations on performance targets for each measure, determining those areas in which stretch goals seem appropriate. Finally, this balanced set of metrics and goals are reviewed and approved by the senior leadership team.

Step 3. Cascade Measures Through the Organization.

Next, each level or department in the organization is asked to validate the strategy map. Continually testing the assumptions of the strategy map at each successive layer builds commitment to (not just knowledge of) the strategy.

Each group then selects those parts of the strategy map on which they have an impact, and develops their own measures for those parts of the strategy map. As measures are developed, it is important to keep an eye toward the 80-20 rule. What are the few most important issues (and measures) to impact? By linking each unit’s measures to the strategy map, it is assured that they will be balanced and linked to the core strategy and its key success factors. Reducing the number of measures to the critical few helps keep the organization focused.

Step 4. Collect, Share, Analyze, and Act On the Data.

Once the measurement approach is designed, data is collected and used to guide the organization and form the basis for decisions. Units use their own data, and this data may also be rolled-up into higher-level indices that are reviewed by senior leadership. All levels of the organization should review their measures from two perspectives. First, what does tracking data indicate about progress toward goals and strategy implementation? And second, what does the relationship between changes in different measures indicate about your strategic assumptions?

Understanding the relationships among different data streams lies at the heart of strategic thinking. But, even beyond validating the strategy, thinking about this begins to drive a culture change. It forces everyone in the organization to think more about process flows and less about functional areas. It spurs more “systems” (and strategic) thinking at every level and results in greater teaming. Research has demonstrated that implementation of a balanced scorecard creates a more committed workforce, and a more team-oriented, process- focused, agile organization. (See Table 1.)

SUMMARY

In summary, the Balanced Scorecard is a set of measures that are derived from corporate strategy, used at all levels of the organization to align employees’ activities with the strategy, and reviewed by senior management to track strategy implementation at the same time that they test their strategic assumptions. However, the real power of the Balanced Scorecard is its impact on “the cultural fabrics of organizations and [their] fundamental attitudes toward such things as what information should be shared, how decisions should be made, what effective leadership involves, and what types of behaviors get recognized and rewarded.” (Bullseye!, p. 13.)


Table 1. Comparison Between Measurement-Managed and non-Measurement Managed Organizations

From John H. Lingle and William A. Schiemann, “Is Measurement Worth It?”, Management Review, March 1996m 56-61

 

Measurement Managed Organizations

Non-Measurement Managed Organizations

Clear agreement on strategy among senior management

93%

37%

Effective communication of strategy to organization

60%

8%

Open sharing of information

71%

30%

High level of  teamwork among management

85%

38%

High levels of self-monitoring of performance by employees

42%

16%

Willingness by employees to take risks

52%

22%


Website comments to tnygreen@alumni.princeton.edu. Page saved 18-Oct-2015.     11/24/2017 6:30:51 AM