The Glue

The Engine That Powers Balanced Scorecards

Ever wonder why some organizations are so excited about the results of their Balanced Scorecards and others decry the tool as ineffective?

Clearly, there are a number of reasons why scorecards fail, such as not having senior management buy-in, not having the top-level scorecard aligned to the strategic plan, not deploying the scorecards to all key departments, and not performing scorecard reviews on a monthly basis to drive accountability for the proper actions.

However, even when an organization avoids all of the above pitfalls,they must have the right "engine" in place, or Balanced Scorecards still won't work.

The engine behind the scorecard framework is a well-designed system of correlated, cascaded measures. These begin with top-level lagging (or outcome) measures that track performance of the strategic plan. They cascade through to mid-level measures, on to lower-level measures, and even all the way to identified root causes of under-performing measures.

How a Balanced Scorecard Changes as You Move Down in the Organization

A Balanced Scorecard is a great tool to communicate the strategic objectives, measures, and initiatives throughout an organization. It assists in providing focus and alignment at all levels and even facilitates daily decision making.

However, the definition of an effective scorecard changes slightly as it is deployed downward, to meet the needs of the individual scorecard owners and the organization.

The reasons and ways that the scorecards change are as follows:

Integrating the Balanced Scorecard with Operating and Capital Budgets

Organizations using a Balanced Scorecard framework to deploy their annual strategic business plans find that with each new fiscal year, the scorecards get better and better, accountability grows in the organization with recurring monthly scorecard reviews, and the scorecards are deployed deeper and deeper into the organization.

But most organizations continue to struggle with how to fully integrate Scorecards with budgets, as well as how to handle having too many non-priority initiatives.

The two issues are closely related.The integration of the budgets is largely a sequence and timing issue, as many organizations are “upside down.”

If an organization’s fiscal year and calendar year are the same, then the budgets will be completed usually by November or early December. In many organizations that haven’t integrated scorecards with the budgets, the scorecards may not even be completed for the next fiscal  year by that time.

So, a re-sequencing must occur over time, as follows:

Where's the Strategy?

I just turned 40 last week and since I spent much of my birthday thinking about today's blog, it dawned on me that I need a social life.  Nevertheless, here we go...

The most common problem I find with strategy execution after the first few months of implementation is: the organization’s balanced scorecard loses its strategic focus and turns into mere reporting.

The ripple effects are these:

1. Extra work for front line staff without the payoff of executive review
2. Executive staff dissatisfaction with the results their scorecard is achieving
3. Diminished alignment of projects to strategic objectives

By making sure you do the following on your balanced scorecard framework, you can prevent these from happening to your organization:

Setting Effective Targets - the Two Best Ways

Setting good targets for strategic measures is a critical part of designing an effective strategy execution or performance excellence framework. These targets (along with your actual performance data, of course), trigger the red, yellow, and green stoplight indicators on Balanced Scorecards. These stoplights determine where you focus your improvement efforts, so bad targets can mean you're allocating critical resources to the wrong areas.

Too often, I find that organizations simply don't know how to set good targets. There are five ways that I have used and some are better than others.

If you consult the Malcolm Baldrige National Quality Award or any state quality award criteria, you will find the two best ways to set targets: benchmarking (or industry comparisons) and customer valid requirements.

We'll start with these two. I'll cover the other three in my next post.

Benchmarking is effective because you are attempting to find the best industry performer in whatever outcome you are measuring and meet or beat their performance. Dr. W. Edwards Deming, the noted quality and productivity guru, was not a big fan of benchmarking because he thought one might be limiting their improvement potential in some way by focusing on what others have achieved.

Three More Ways to Set Targets

Earlier this week I wrote about the two best ways to set targets for performance measures (Benchmarking and using Customer Valid Requirements). As promised, here are three more ways to do it.

The third way to set targets is to look back historically at your performance. If you used to perform better than you do now, strive for that historical target and try to determine what has changed to cause your deteriorated performance and turn it around.

A fourth way to set a target is to determine “what the data shows is possible.” Let me cite an example to help illustrate this method:

Why Top-Down Scorecard Cascading Doesn't Work

Does this sound familiar?
Management thinks of top-down scorecard cascading as a carrot and a stick.
They know best what’s really driving performance and they want accountability for results.

The front line thinks of top-down cascading as just the stick.
It’s another chance for the big brother to watch over their shoulder and they don’t even know what’s really driving performance.

A Balanced Scorecard framework can only deliver results when there’s two-way communication.

During Scorecard cascading (see more on this here), you utilize the top-down process matrix approach as well as the bottom-up SWOT analysis from the individual departments.  I’m not just talking about picking scorecard-level objectives and measures for the front line; I’m also talking about building the leading measures beneath the lagging measures.  This means the leading measures are not prescribed up-front by top management, but created from the bottom up.

Here’s what this gives your organization:

1. The front line can lobby for resources to fix root cause problems using data to prove their story.  This removes the emotional and political influences on resource allocation.
2. The front line is engaged in the routine performance review process.  This is very different than most front line scorecard teams I see that view the Scorecard as a project owned by someone else (the quality department, top management).
3. Top management allows its strategy to become more complete by listening to the voice of the front line, who usually have a good idea of the true drivers of performance.
4. Everyone from the front line to top management can tell you readily what piece of the strategy they own and how that impacts achievement of the top level vision.

Getting Results Fast – An Action-Oriented Balanced Scorecard

Building a Balanced Scorecard framework is tough work. Identifying and gaining agreement on key strategic objectives, measures, and initiatives, and then linking them all together in a meaningful way across an enterprise requires a major effort.

Despite all this expended energy, we sometimes come to the end of a scorecard-building project with a client and feel like the effort has been mostly academic. Yes, it might have provided some new strategic clarity and generated some enthusiasm. But every so often, these efforts stop short of addressing the key things that we know are broken in an organization.  We haven’t managed to address the “elephant in the room,” i.e., the one big, high-priority issue in the organization that everyone knows needs to be fixed, but can't figure how to tackle.

So we ask "why not?"  Why not create a set of initiatives that address that big, overwhelming problem?  Why not link these initiatives to the top-level scorecard?  Why not tackle the root of the most important issue troubling the organization?

Most often, it seems that the "elephant" doesn't get addressed because client teams see the scorecard as a tool for long-term strategic alignment and synchronization (which it is, of course), but do not see how to use it to fix more immediate pressing issues (the elephant).

How do you use the scorecard to both ensure strategic alignment and long-term results and also to attack the primary problem(s) confronting the organization right now?

Dashboards and Supply Chain Metrics – Scorecards & SCOR

Supply-chain and manufacturing professionals have always used a large number of metrics to measure the health of their functional areas, because these areas tend to create most of the value for their companies, while also generating most of the company’s total expenses. 

These metrics were standardized and codified by the SCOR (The Supply-Chain Operations Reference-model) effort in the 1990s and early 2000s.  So, the idea of measurement is not new to these professions. But how do traditional supply chain and manufacturing metrics fit into today’s emerging strategic dashboards?  That is, how does SCOR fit with scorecards? First, a quick look back at the history of SCOR.

Metrics such as manufacturing through-put, error rate, on-time delivery, back-order percentage, days of supply, number of invoice errors, rework percentage, and dozens more have long driven the operations of supply chain management and manufacturing.  In fact, SCOR was organized precisely because there were so many metrics and so many different ways to calculate them that a need was revealed to standardize them and promote the standardized definitions.

Do You Have an Innovation Scorecard?

Last week, I had the opportunity to attend the International Society for Performance Improvement conference in Phoenix, Arizona and met one of the distinguished luminaries of the society, Donald Totsi of Vanguard Consulting.  Given the recent article in BusinessWeek (June 11, 2007) entitled, 3M’s Innovation Crisis: How Six Sigma Almost Smothered Its Idea Culture, I was captured by his findings about the core indicators of what it takes to implement innovative product and services.

Based on Don’s performance analysis of 10 companies that successfully launched RADICALLY new products and services to meet the demands of their marketplace, here are the top ten cultural practices, in order of their perceived importance of executing innovation:

Thanks for nothing, Boss.

Of the many things described by the term "Performance Management," one flavor is all about the "human" or "human resources" aspects of getting better results. There are lots of "Human Capital Management" (HCM) vendors, lots of hype, some good blogs, and just maybe some real results. 

Many of these vendors describe their personal goal management modules as "performance management." They may even let you link a goal or two to a list of corporate strategy statements, but be wary of people who have this approach in mind when they discuss performance management.

The HCM approach differs greatly from the "strategy execution" approach to performance that we espouse, which entails a much more rigorous approach to aligning people to corporate strategy.

Yes, I know things like talent management and compensation management (especially) can be really tricky, but from what I'm seeing, most of the action in this Human Capital space is around automating reviews and managing employees' personal goals. And they tend to be fairly simple applications in this regard.

In addition to this skepticism I have about the degree of linkage and strategic alignment most HCM vendors can provide, what I find myself scratching my head about the most is the functionality many of them tout to expedite and automate the employee review process.

Don't Blame the Hammer: Why Balanced Scorecards Fail

Some studies say as many as two thirds of US companies have a Balanced Scorecard, yet other studies show that fewer than 20% have been able to drive true results.

Why such a gap? Like any tool, success versus failure depends on how well the Balanced Scorecard is used. You can't blame the hammer for shoddy construction practices. Yes, you need good tools. That's a given. But the best hammer in the world can't make up for unskilled workers, poor building design, or an insufficient supply of nails.

What are the biggest usage problems that keep this tool (the Balanced Scorecard) from succeeding?

Get the Check. Cash the Check.

When boiled down to its simplest form, there are really two top-level processes which comprise most any business:  Get the check. Cash the check. 

There are certain things a business needs to accomplish in order to “Get the check”, and there are certain things the organization has to deliver in order to “Cash the check.”  To execute these key processes, the business requires two ingredients – resources (people, facilities, technology), and organizational structure.

How effectively the business organizes itself, applies its resources, and executes its processes will determine its customer satisfaction and ultimately drive financial success or failure.

How Balanced Scorecards Help Hospitals Put IHI Recommendations Into Action

What’s the one weak area for all hospitals implementing IHI’s “Boards on Board” guide?  Execution.

The IHI white paper, Execution of Strategic Improvement Initiatives to Produce System-Level Results (by Thomas W. Nolan,  Institute for Healthcare Improvement; 2007; available on www.IHI.org) makes this case and offers a plan for overcoming the execution hurdle.

The fact is the very heart of the solution this white paper proposes already exists within your organization if you have a Balanced Scorecard (BSC) framework. A healthy BSC framework and IHI’s proposal are both based upon two key factors: FOCUS and REVIEWS. 

FOCUS
The struggle within large health care organizations is that everybody wants to see everything and it’s hard to keep executives focused on the “critical few.”  Lack of focus leads to under-resourced projects that don’t achieve improvement. The BSC is all about focus (narrowing a strategic plan down to a max of 10-12 objectives).

Balanced Scorecard Basics: Initiatives vs. Objectives

A common area of confusion is the distinction between Initiatives and Objectives and how they each relate to a Balanced Scorecard. Here's a basic primer:

Initiatives (a.k.a. improvement projects ) have defined start and end dates (typically less than one year) and dedicated resources (people, budget, time). Examples of initiatives are "Implement customer retention program" and "Analyze cause of defect rates."

Objectives are brief verb-noun statements that describe a specific goal of your strategic plan. Objectives are more likely to span multiple years, as long as they still reflect your most recent strategic plan and SWOT Analysis (a review of your current Strengths, Weaknesses, Opportunities, and Threats). Examples are "Improve customer satisfaction" or "Reduce costs in manufacturing."

 

Balanced Scorecard-Based Business Reviews - What To Look For

As discussed in Building Accountability into a Balanced Scorecard Framework, scorecard-based business reviews are an absolutely essential part of Enterprise Strategy Execution or any meaningful performance framework, for that matter. These monthly “events” keep the attention and focus on performance like nothing else can.

Business reviews definitely evolve and mature as an organization runs them for several months or years. Their content, the depth of analysis, and the amount of improvement they deliver all grow with time and experience. Here are some guidelines for what you should aim to achieve at each level of “business review maturity.”

A good initial business review should focus on the following fundamental areas:

1. Are the right objectives, measures, and targets on the scorecard?
2. Do you have data and, if not, when will you have it?
3. If you do have data and it is trending poorly or missing targets, what are you doing about it?
4. What action items can we capture from this review to make the next one better?

 

Scorecards vs. Dashboards: Why Terminology Matters

It’s amazing how much has been written about the differences between scorecards and dashboards. It’s also amazing how much confusion still remains. I googled “scorecard vs. dashboard” and looked at the top three results:

• The Data Management Group talks about dashboards being used for real-time operational data and scorecards being used for aligned goals as part of a corporate management system.
• Manage by Walking Around has an entry on the difference between the two and points to the excellent definitions by Tom Gonzalez. Basically scorecard=strategic goals and results, dashboard=operational data and reports=raw data.
• The ActiveStrategy website has a page talking about what a Balanced Scorecard is, what a dashboard might be, and how you can link them. It also defines elements of a Balanced Scorecard.

There is general agreement among those who ponder these things on what the terms should mean and I doubt that anyone would argue with the Gonzalez definitions. But within any given company starting their own  "Strategy Execution journey" (or scorecard/dashboard implementation), there is usually little common terminology and lots of confusion.

Building Accountability into a Balanced Scorecard Framework

The keys to driving improved business results in any organization are:

1. Having a strategy that has laser-like focus
2. Aligning all employees’ to that focus
3. Improving the business processes that specifically target high-impact areas of the strategy
4. Having a way to make employees do what they said they would do

Another word for "making employees do what they said they would do” is accountability, which can be elusive. What I have found is that holding people accountable requires clear expectations, strong leadership, and an event where they must discuss their performance with their boss. This event is a monthly scorecard-based business review and it should be held at all levels. Since this event (a scorecard-based business review) can lead to either positive recognition for a job well done or embarrassment for lack of performance, people usually opt for the first option. In order to be prepared for and look good in this monthly meeting, people focus on improving their performance (as shown on their scorecards). 

Can Large Organizations Successfully Implement Balanced Scorecards?

Can large organizations be successful with a BSC? Yes. Absolutely. I've seen success at complex organizations that employ tens of thousands of people. But large organizations, even more so than others, must remember to continually go back to five basic building blocks that make a Balanced Scorecard (BSC) framework successful.

1. Executive Engagement
2. Focus
3. Support
4. Alignment
5. Sustained Results

Regardless if your organization is just starting or has traveled far down its strategy execution journey, if you don’t have all five of these building blocks, your BSC framework will come to a grinding halt. The true measure of success, of course, is contained within that fifth building block, SUSTAINED RESULTS. This is both a building block (you need to show results to maintain momentum) and a measure of the entire framework's effectiveness.  Here is what you should look for in each building block:

Tips on Cascading Scorecards (Remember to Stay Hydrated)

Building your company's top-level Balanced Scorecard (BSC) can be exhausting. Seriously. After standing in front of various opinionated, often distracted groups of executives and managers for hours or days, your feet will hurt, your back will be sore, the smell of whiteboard markers will make you ill, and the effort of forcing a smile and staying ultra-energized will have taken a toll.

And this top-level BSC is just the start. You still have to cascade scorecards down through multiple levels of your complex organizational hierarchy. Facilitating this process is not for wimps. Especially if your organization has a low tolerance for exhaustion. Most do, which is why so many companies fail to execute strategy successfully. It's hard work. It's basically never-ending. And the execution parts are not as engaging for most executives as strategy development is.

So what are some ways that you – the internal evangelist for Strategy Execution – can thwart organizational exhaustion? Create and sustain scorecard momentum? Here are some tips that should help.