balanced scorecard final version

Balanced Scorecard EFQM Members Only

Balanced Scorecard

Balanced Scorecard EFQM Members Only - 1 -

Summary This Publication gives a comprehensive understanding of the Balanced Scorecard.

The Balanced Scorecard is a logical strategic framework organised across four key perspectives, which enables an organisation to articulate its strategy in a set of focused, strategic objectives and measures. It tells a story of the strategy in operational, actionable terms. In the history of Balanced Scorecard, it has been developed according to the practical implementation of organizations, for instance, the 11 steps proposed by Olve, Roy & Wetter in their book "Performance Drivers". Therefore, in this publication from another perspective, we mainly discussed 3 significant steps as for concerns.

On the other hand, EFQM’ Excellence Model also provides a thorough measurement for an organisation’s performance. The research information in this publication gives a comprehensive analysis comparing the Balanced Scorecard and the EFQM’s Excellence Model.

Meanwhile, it provides the successful good practices from EFQM role model organizations as well, sharing their experiences in implementing the Balanced Scorecard, which gives a better understanding of how it works.

In the end, we also discuss about the insights from role model organizations and the practical implementation in the public sector.


Content 1. INTRODUCTION ..........................................................................................................................- 4 -

1.1 A CLOSER LOOK OF BSC .............................................................................................................. - 4 - 2. UNDERSTANDING ......................................................................................................................- 8 -

2.1 UNDERSTANDING STRATEGY AND THE ROLE OF THE BALANCED SCORECARD IN STRATEGY

FORMULATION & DEPLOYMENT............................................................................................................ - 8 - 3. IMPROVEMENT...........................................................................................................................- 20 -

3.1 DEVELOPING A BALANCED SCORECARD.................................................................................... - 20 - 4. RESEARCH INFORMATION ..................................................................................................- 27 -

4.1 BALANCED SCORECARD VS.EFQM EXCELLENCE MODEL ....................................................... - 27 - 4.2 A CLOSER LOOK AT EACH OF THE MODELS AND HOW............................................................... - 32 - THEY WORK.......................................................................................................................................... - 32 -

4.2.1 Balanced Scorecard vs EFQM Excellence Model ...............................................- 32 - 5. GOOD PRACTICES ....................................................................................................................- 43 -

5.1 THE RELATIONSHIP BETWEEN THE MODEL AND THE BALANCED SCORECARD ........................ - 43 - 5.1.1 Solution and Recommendations from Oracle ....................................................- 43 - 5.1.2 Analysis of the EFQM Excellence model and the Balanced Scorecard .....- 53 -

5.2 THE GLOBAL FINANCIAL SERVICES, A CASE STUDY ON THE IMPLEMENTATION OF BALANCED

SCORECARD ........................................................................................................................................ - 60 - 5.2.1 The Balanced Scorecard at GFS..............................................................................- 60 - 5.2.2 The implementation of Balanced Scorecard at GFS ........................................- 64 -

6. INSIGHTS......................................................................................................................................- 67 - 6.1 EUROCOM..................................................................................................................................... - 67 - 6.2 DEXIA-SOFAXIS – HOSHIN........................................................................................................ - 71 -

6.2.1 Strategy deployment with Balanced Scorecard coupled with Hoshin ......- 71 - 6.3 ZAHNARZTPRAXIS ....................................................................................................................... - 75 -

6.3.1 Developing our scorecard with all employees ...................................................- 75 - 7. CUSTOMISING THE BALANCED SCORECARD (BSC) FOR THE PUBLIC SECTOR ................................................................................................................................................- 78 -


Introduction

A closer look of BSC

Resource: Excellence One


1. Introduction 1.1 A closer look of BSC A strategy simply describes how a management team thinks it will achieve its vision of success for some point in the future. A Balanced Scorecard bridges the gap between vision and strategy, and implementation.

The four perspectives of the Balanced Scorecard

The Balanced Scorecard is a logical strategic framework organised across four key perspectives, which enables an organisation to articulate its strategy in a set of focused, strategic objectives and measures. The Balanced Scorecard tells the story of the strategy in operational, actionable terms.

Shareholder / Financial Perspective

For most publicly quoted organisations, the shareholder perspective describes the financial objectives that need to be achieved to meet the expectations of the shareholder, be they in the form of market presence, economic returns, or asset utilisation. Crudely speaking, at the highest level, the shareholders" main concerns will fall into two broad categories, one of revenue generation, the other of productivity and cost effectiveness, together yielding a level of returns demanded by the shareholder. [Shareholder proxy is often the parent company rather than the capital markets at large.] This perspective of the Balanced Scorecard expresses the requirements of the shareholder.


Customer / External Perspective

The customer perspective focuses on describing the key attributes of the product/service offering which represent value for the customer from the customer’s point of view. This perspective expresses the needs of the customers and identifies those components of value within our service offering which both satisfy the customer’s expectations and that the customer is willing to pay for at a price which generate the economic returns the company requires. Other external stakeholders who are often treated as customers can also find their place in this perspective such as city investment advisors, industry regulators, or suppliers.

Internal Perspective

The Internal perspective describes the processes and activities that if executed at the highest level of performance will drive success in meeting the Financial and Customer objectives. In developing the Internal perspective, we focus on identifying those elements of a company"s value chain that have the greatest or most significant impact on satisfying the customer and producing the financial returns the company aims for.

Learning and Growth Perspective

Once we’ve understood and clearly expressed the critical drivers of value at the Financial, Customer and Internal Process levels, what is left to do is to identify those areas which require investment today to deliver the strategy as described by the Balanced Scorecard objectives. These "Learning and Growth" or "Innovation" areas are often referred to as enablers. They are traditionally supporting activities within a business or activities typically not directly linked to the bottom line. They include those activities often managed by the H.R, Finance and I.T departments. Typical Learning and Growth objectives may focus on developing specific skills and competencies, or on providing the right I.T tools, or on having targeted customer information. Broadly speaking, Learning and Growth objectives fall into the categories of competencies and skills, knowledge and information, and culture. This perspective represents the foundations of the company, and its future capability. What enablers are invested in today will determine how and where we are successful tomorrow. Within the Balanced Scorecard framework, such investments can be directly linked to the business strategy and the bottom line.

This is how the Balanced Scorecard tells the story of the strategy through a set of strategic objectives linked together through logical cause & effect relationships across four perspectives bringing together all of the stakeholders who have a claim on the company - shareholders, customers and partners, employees.

Strategic Linkage Model

The strategy in Balanced Scorecard form can be represented using a "Strategic Linkage Diagram". This diagram describes the critical objectives of the strategy across the four Balanced Scorecard perspectives, inter-linked in a way that highlights the "causality" of the underlying strategic objectives. It is often used as a communications tools which clearly and succinctly describes all of the key components of the strategy.


The Balanced Scorecard process does not stop here. Once objectives have been defined, the process of identifying appropriate measurement against each of the strategic objectives starts. Balanced Scorecard measurement focuses both on identifying lead and lag indicators. Lead indicators act as early warning signals and assess whether the company is on the right track, whilst lag indicators track the company"s performance in achieving a particular result. It is the balance of lead and lag indicators within the Balanced Scorecard that makes it a proactive strategic performance tool. The measurements like the objectives they reflect are specific to a specific company"s Balanced Scorecard. A complete Balanced Scorecard includes detailed descriptions of the strategic objectives; one or two measures that can be used to track progress toward achieving each objective, associated targets for the measures, and details of projects or actions that are required before an objective can be effectively tracked. A good Balanced Scorecard programme would also outline a step by step implementation plan touching on all key aspects of Balanced Scorecard implementation: communications and roll out to other organisational areas, links to incentives and rewards, alignment with the budgeting and planning processes, setting of systematic review and feedback mechanisms.

Example of a complete Balanced Scorecard template


Understanding

“Understanding Strategy and the role of the Balanced Scorecard in Strategy Formulation & Deployment”

Author: Geoff Carter



2. Understanding 2.1 Understanding Strategy and the role of the Balanced Scorecard in Strategy Formulation & Deployment

Understanding Strategy All organisations have a purpose, a raison d’etre. They exist to do something, be it the delivery of a product or a service. Many organisations summarise this reason for existing within what is often called a Mission statement. Having a raison d’etre, a sense of purpose, is only the beginning; this has to be followed by a sense of where you wish to be in the future, your Vision. Depending upon your “industry sector” this future, in terms of time horizons, could be 6 -12 months out, (typically the high tech sector) or 3 – 5 years, (typically pharmaceuticals sector). Some organisations believe that they do not need to formalise the way they develop their future direction. The pressures of day-to-day realities, trusting in serendipity, or having a degree of fatalism, are all reasons for not stepping back periodically and asking ourselves three basic questions: - Where are we now? Where do we want to be? How best to get there? However, those organisations that do respond to these three questions periodically are effectively undertaking a Strategy formulation, deployment and review process in a systematic and coherent manner. Food for thought!

• “Less than 10% of strategies effectively formulated are effectively executed”

Fortune Magazine • “In the majority of failures - we estimate 70% - the real problem isn’t bad

strategy……..it’s bad execution” “Why CEO’s Fail”

Fortune Magazine

• In 1998, Ernst & Young LLP published a report called “Measures that Matter ” which included the outcomes of their research amongst City Analysts on what they saw as the most important non-financial factors that influenced them in relation to identifying the likelihood of a


company’s ability to deliver Shareholder Value. The following six attributes, in order of priority, were identified as the most important: -

o Strategy Execution o Management Credibility o Quality of Strategy o Innovation (new products) o Attract talented people o Market Share

An introduction to the Balanced Scorecard “Would you tell me, please, which way I ought to go from here?” “That depends a good deal on where you want to get to,” said the Cat. “I don’t much care where,” said Alice. “Then it doesn’t matter which way you go,” said the Cat.

Acknowledgements to Lewis Carroll - Alice’s Adventures in Wonderland

If the fictional character of Alice were around today, she might well be tempted to use the Balanced Scorecard to help her get in touch with where it was she really wanted to get to and how she might do it! Kaplan & Norton first presented the Balanced Scorecard concept in the January/February 1992 edition of the Harvard Business Review. The article emerged from research they had recently completed into performance measurement and management systems across a range of organisations.

The article acknowledged that the traditional financial measures organisations were using, whilst necessary, were not sufficient.

The strength of financial measures is that they give you a summary of performance to date in a number of key areas e.g. ROCE, ROI and Operating Income. Their weakness is that they do not help managers to identify how best to improve performance in the next period. Essentially: -

• Most financial indicators are backward looking; it is often equated to “driving your car by looking through the rear view mirror”, or, “steering the ship by watching the wake.”


• Financial performance tends to be measured over the short term and therefore encourages the use of “quick fixes” to make, for instance, the next quarter’s results.

• Financial measures, on their own, do not convey to the staff in a motivational way the organisation’s strategy and priorities.

The Balanced Scorecard concept addresses these shortfalls by giving organisations four different perspectives from which to choose measures. It complements the use of traditional financial indicators with measures of performance in Customers, Internal Processes and Learning & Growth dimensions. The four dimensions are usually presented visually in the following hierarchy with the arrows reflecting the top down and bottom up nature of the interactions. To satisfy our shareholders, what financial objectives must we accomplish? To achieve our financial objectives, what customer needs must we serve?

To satisfy our customers and shareholders, in which internal business processes must we excel?

To achieve our goals, how must our organisation learn and innovate?

Financial Dimension Objectives Measures Targets Initiatives

Customer Dimension Objectives Measures Targets Initiatives

Internal Dimension Objectives Measures Targets Initiatives

Learning & Growth Dimension Objectives Measures Targets Initiatives


Each Dimension consists of Objectives, Measures, Targets & Initiatives. The following is a list of hints tips and clues regarding the content in each of these boxes. They are also expanded upon in the following sections.

o The number of objectives in each Dimension should be less not more and the linkages between them should be clear and understood.

o The measures used should be a balance of leading and lagging.

o The targets set should be stretching, i.e. they should be achievable and

therefore motivational, but at the same time demand a level of creativity and entrepreneurship on the part of staff to achieve them.

o The initiatives should be those that most positively influence the

achievement of the specific objective(s) In summary, the Balanced Scorecard approach starts by asking the following question: - If we succeed with our Vision and Strategy, how will we look different?

a) To our shareholders and customers? b) In terms of our internal processes? c) In terms of our ability to innovate and grow?

• The Balanced Scorecard is a mechanism for translating an organisation’s

Vision and Strategy into a cohesive set of objectives and related measures. • The four Dimensions, or Perspectives as Kaplan & Norton call them, Financial,

Customers, Internal Processes and Learning & Growth provide a balance between financial and non financial measures]

• The four Dimensions provide a balance of short term and long term objectives • The Balanced Scorecard approach demands clear identification of the key

linkages between the desired outcomes and the Drivers (Enablers) that will deliver them.

• The completed Balanced Scorecard of an organisation provides a powerful, visual communications vehicle for explaining to all stakeholders what the Strategic Direction of the organisation is.

Returning to the “Food for thought” quotes at the start of this section. Remember that two of the three items that are uppermost in the minds of City Analysts when they assess the non-financial capabilities of an organisation are Strategy Execution and Quality of Strategy. The Balanced Scorecard, used correctly has the potential to strongly influence a successful outcome in both these areas.


Developing a Balanced Scorecard There are a number of ways in which an organisation can develop its own Balanced Scorecard, for instance, the 11 steps proposed by Olve, Roy & Wetter in their book “Performance Drivers”. For the purposes of this article, we will focus on the ©six-step process promoted by Kaplan & Norton.

o Step 1: Define the Strategic Direction o Step 2: Identify the key themes that drive the strategy o Step 3: Build the strategic linkages o Step 4: Determine measures and targets o Step 5: Select priority initiatives o Step 6: Plan for implementation

Health warning!! As with any other change initiative, the support of the senior management team is crucial and they will need to be engaged in the process. Typically, this is achieved by involving them at four stages in the process.

1) Launch meeting; where they become familiar with the BSC, its potential benefits, the project plan for implementation and individual roles and responsibilities

2) Workshop #1; where they debate and take ownership of the work done in steps 1 – 3 and confirm next steps

3) Workshop #2; where they agree on the Measures and Targets (Step 4) that will underpin the themes and objectives that drive the strategy.

4) Workshop #3; where they agree the final Balanced Scorecard, the supporting initiatives, the deployment and communications plans (Steps 5 & 6).

Although the involvement of senior management is crucial, a team of people from across the organisation will do much of the work under the guidance of an experienced Team Leader. Tasks they will become involved with include the following: -

o Gather and analyse relevant data o Interview key personnel o Create proposed scenarios for the future, the strategic direction, sample

Strategy Maps, possible objectives and measures o Document the process and the outcomes

The time it takes to develop the Balanced Scorecard will vary from case to case. Factors such as organisational size, availability of meaningful data, commitment and availability of senior management etc. will all influence the end to end time-


scale. However, in general, one should look to complete the end to end process within a 3-4 month period. Step 1: Define the Strategic Direction When developing the Strategy of an organisation it is just as important to be clear on what not to do as what to do and the Balanced Scorecard has proven to be a powerful tool for forcing the decision maker(s) to focus on what they see as the most important aspects of their business as they develop and deploy the organisation’s strategy. The purpose of step 1 is to refine and validate the current Vision of the organisation. This refinement and validation will include items such as past performance of the organisation, industry trends, competitive benchmarking and the use of tools such as SWOT/PESTLE analysis. Step 2: Identify the Key Themes driving the Strategy This step is undertaken to identify the 3 – 5 major themes that the organisation must commit to if it is to be successful in accomplishing the strategic direction that has been confirmed and validated in step 1. For an example of what we mean by Key Themes, consider the work of Treacy & Wiersema in their book, The Discipline of Market Leaders. Their research identified three common strategic themes that emerged from the organisations they had investigated.

• Product Leadership (Innovation) • Customer Intimacy • Operational Excellence

In any organisation’s Balanced Scorecard, the 3 - 5 Strategic Themes should be definable, discrete but mutually achievable and clearly linked and supportive of the overall strategic destination. Do you know what the Strategic Themes are for your organisation? Step 3: Build Linked Strategic Objectives for each Theme For each of the Strategic Themes that have been identified for an organisation a set of linked objectives needs to be developed By linked objectives we mean objectives that are spread across the four Dimensions and related to each other. Each objective should be inspirational in nature and help to tell the overall story of the strategy. It should be formulated to include a verb plus an adjective plus a noun. For instance “Reduce the costs of transactions”


Clearly the Strategic Themes mentioned above are not the only possibilities but imagine for a moment if your organisation had a Strategic Theme of Customer Intimacy. What would you expect to see in each of the Dimensions that linked this all together? One example could be as follows. Starting with the Financial Dimension, the objective is to increase profitability –

which could be achieved through the Customer Dimension objective Retain existing Customers - who are attracted to stay with us (and recommend us to their friends) because they value the personalised nature of the relationship -

which the organisation can deliver on through its Internal Dimension - where we have a strategic objective Provide systems that deliver accurate, timely and relevant information on each Customer –

which can be accessed easily by the staff, who, within the Learning & Growth Dimension, are involved in the objective Provide training in Customer Relationship Management and Telephone Handling Skills for all front line staff. Step 4: Determine Measures & Targets Linking measurement to strategy is the cornerstone of a successful strategy deployment process. Many organisations use more measures than they can handle, the Balanced Scorecard approach requires managers to agree on only those measures that are most critical to the success of the organisation’s strategy. Perhaps using only 20 – 30 measures in total Having presented the outcomes of Steps 1 – 3 to the senior management team and gained their agreement to the Strategic Direction, Strategic Themes and Linked Objectives in Workshop 1, the next step is to develop measures and target for each of the linked objectives. Depending upon the “business maturity” of the organisation it will most certainly already have a number of financial measures in place but it may be weak in the quality and quantity of measures in the other Dimensions. Measures come in many forms; Ratios; Percentages; Indices; Ratings; Absolute Numbers; they all have their strengths and weaknesses. The overall package of measures chosen should meet the following criteria. • A balance of leading (operational) and lagging (perception) measures • Help to communicate the strategy • Help to motivate the organisation


• Drive the desired behaviours • Be repeatable and reliable • Accountability/ownership for the measure is clear As a “guideline” your Balanced Scorecard Measures should comply with the following: - • One Leading (Enabler) & Lagging (Perception) measure for each Strategic

Objective • The Leading (Enabler) measures will be more prevalent in the Internal and

Learning & Growth Dimensions • In total, no more than 20 – 30 measures across the whole Balanced

Scorecard. Health warning!! Measurement is invariably an emotive subject in organisations, instinctively many people do not like them and gaining acceptance is a crucial step in the overall process of a successful implementation. Measurement should be seen as a tool for communication, for identifying problems and addressing them as soon as possible and for learning. If measurement is used to apportion blame then people will very quickly find ways to work around the system. Having determined the measures that will be used to support the Strategic Direction, the next step is to identify the targets to be associated with the measures. The measure tells us how we intend to assess performance; it is the target that tells us how and where we have to improve to achieve the desired level of performance. When setting the target for the future it should be based on current performance levels, organisational aspirations, available resources and external data such as benchmarking the performance of your competitors and “Best in Class” organisations from other sectors. It is useful to bear I mind the following guidelines when selecting target(s)

• There should be just one target for each measure to avoid confusion • Targets should be quantifiable, i.e. a time/cost/quality aspect • There should be a clear, logical linkage between the target, the measure,

the objective, the theme and the overall strategy • Some of the targets should be “Stretch”, i.e. they help keep the

organisation focussed on the mid – long term as well as the short term and encourage innovation to achieve the desired level of performance.

• Targets should be mutually supportive. For instance, it is pointless setting targets for different strategic objectives across the four Dimensions within the same Strategic Theme if overall they force conflicting actions.


Step 5: Select Priority Initiatives Most organisations will have a number of improvement initiatives running at any one time. Introducing the Balanced Scorecard gives organisations the opportunity to perform a “sanity check” on these initiatives, making sure that they support the agreed Strategic Direction and confirming exactly which strategic theme(s) they are related to. An analysis of the various initiatives is the final link in the process for mapping out the road by which the organisation will travel towards its desired future. • The first step is to identify the sum total of all the initiatives that the

organisation is currently involved in. • The second step is to map these initiatives to the Strategic Objectives, where

applicable. Where they do not map then a potential saving in resources is immediately apparent.

• Step 3 is prioritisation. To facilitate this part of the process as smoothly as possible, it is very important to have an agreed “filter” through which each initiative must pass. If all initiatives end up passing through then the filter is not good enough. The objective here is to focus on what is THE most important. You should be looking to do less not more in this area!

• Step 4 requires the organisation to step back and see if there are any areas in which there are no initiatives supporting a strategic objective!

Health warning!! It is imperative at this stage that the organisation employs “fair process” i.e. the criteria for selection is understood and the process is clear and accepted by all. Without this an organisation runs the risk of initiatives that survive the process being categorised as “we are only doing this because Manager “X” made a big fuss and (s)he was the one who introduced it in the first place. Step 6: Plan for Implementation At this stage the Strategic Direction and linked Strategic Objectives are finalised, most, if not all measures have been agreed as have the Strategic Initiatives the organisation will start/continue with. There is no single, all-encompassing and definitive list that is applicable to all organisations for producing the implementation plan. Situational needs will strongly influence both the various steps to be undertaken and the order in which they are processed. However, a generic list could include the following activities • Develop a communications plan for cascade of the outcomes from the BSC

development process and the next steps to all employees.


• Agree to what level the BSC is going to be deployed • Agree the level to which team and personal objectives linked to the BSC will

be cascaded • Agree what the recognition and reward scheme to encourage the

commitment to the BSC process will be. • Ensure budget is available for the Strategic Initiatives • Agree and create the BSC reporting system and periodicity of reporting • Last, but not least, agree in advance when the management team will

review the process. Tools & Techniques As an organisation works through each of the six steps to develop its Scorecard there are a number of tools & techniques that it may find useful. This can include the following, (See Excellence One- Tool Book)

• Long Term Planning Checklist • Fact Finding Mission • SWOT analysis • Organisation Scorecard • Tree Diagram • Catch-Ball • Deployment & Implementation Review Checklist • Measurement System Checklist • Metric Checklist • Surveys • Focus Groups • Attendance at industry specific seminars • Scenario thinking • Benchmarking • PESTLE analysis (Political, Economic, Society, Technological, Legal,

Environmental) • Affinity Diagrams • Cause & Effect • Brainstorming • Prioritisation and Rating Charts • Project Management

Summary If an organisation wishes to progress towards its future in a planned, focussed and coherent fashion it needs to have: - • A Strategic Plan describing how it intends to achieve this.


• The Strategic Direction needs to be communicated to everyone in the organisation so they can understand their role and responsibilities and how they make a contribution.

• To encourage the behaviours that will support the commitment to, and delivery of, the Strategic Direction, the organisation’s Performance Management and Recognition & Reward systems should be aligned

• A periodic Strategy Formulation review process in place The Balanced Scorecard is a tool that can help an organisation achieve a soundly based, systematic approach to Strategy Formulation and Deployment. • It augments the traditional financial measures with objectives and measures

in three additional areas; Customers; Internal Processes and, Learning & Growth.

• Your scorecard will contain Strategic Objectives and measures that will

articulate how your organisation will look different to your Shareholders and Customers when you reach your goals. It will also indicate how your Internal processes and your potential to Learn and Grow will change.

• The Balanced Scorecard development and implementation process is a way

of cascading from the top of your organisation it’s Mission & Strategic Direction in a way that strengthens the alignment throughout the organisation.

Further information

- The Balanced Scorecard – Measures That Drive Performance: Harvard Business Review; January-February 1992

- The Discipline of Market Leaders; Treacy & Wiersema, Addison-Wesley, 1995

- Using the Balanced Scorecard as a Strategic Management System: Harvard Business Review; January-February 1996

- The Balanced Scorecard: Translating Strategy into Action, Dr. David Norton and Professor Robert Kaplan, Harvard Business Press, 1996

- Why CEOs Fail; Ram Charan & Geoff Colvin; Fortune Magazine, June 2, 1999

- The Link between the EFQM Excellence Model & the Balanced Scorecard: Geoff Carter & Gaelle Lamotte; First published in support of an EFQM Conference in December 1999

- Performance Drivers: A practical guide to using the Balanced Scorecard; Olve, Roy & Wetter; John Wiley & Sons Ltd. ISBN 0-471-49542-5

- Fair Process: Managing in the Knowledge Economy; W. Chan Kim & Renee A. Mauborgne; Harvard Business Review; February 2000

- The Strategy Focussed Organisation; Kaplan & Norton; Harvard Business School Publishing Corp. ISBN 1-57851-250-6, 2001

- Kaplan & Norton’s website address is www.bscol.com


Improvement

“Developing a Balanced Scorecard”




3. Improvement 3.1 Developing a Balanced Scorecard There are a number of ways in which an organisation can develop its own Balanced Scorecard, for instance, the 11 steps proposed by Olve, Roy & Wetter in their book "Performance Drivers". For the purposes of this article, we will focus on a 3 steps process based on the

Step 1: Define the Strategic Direction and identify the key themes that drive

the strategy

Step 2: Build the strategic linkages and determine measures and targets

Step 3: Select priority initiatives and plan for implementation

As with any other change initiative, the support of the senior management team is crucial and they will need to be engaged in the process. Typically, this is achieved by involving them at four stages in the process.

1) Launch meeting; where they become familiar with the Balanced Scorecard,

its potential benefits, the project plan for implementation and individual roles

and responsibilities

2) Workshop #1; where they debate and take ownership of the work done to

identify the strategic direction, the key themes and the strategic linkages and

confirm next steps

3) Workshop #2; where they agree on the Measures and that will underpin

the themes and objectives that drive the strategy.

4) Workshop #3; where they agree the final Balanced Scorecard, the

supporting initiatives, the deployment and communications plans

Although the involvement of senior management is crucial, a team of people from across the organisation will do much of the work under the guidance of an experienced Team Leader.

Tasks they will become involved with include the following: -

Gather and analyse relevant data

Interview key personnel

Create proposed scenarios for the future, the strategic direction, sample

Strategy Maps, possible objectives and measures

Document the process and the outcomes


The time it takes to develop the Balanced Scorecard will vary from case to case. Factors such as organisational size, availability of meaningful data, commitment and availability of senior management etc. will all influence the end to end time-scale. However, in general, one should look to complete the end to end process within a 3-4 month period.

Step 1: Define the Strategic Direction and identify the key themes that drive the strategy

When developing the Strategy of an organisation it is just as important to be clear on what not to do as what to do. The Balanced Scorecard has proven to be a powerful tool for forcing the decision maker(s) to focus on what they see as the most important aspects of their business as they develop and deploy the organisation's strategy.

The purpose of step 1 is to refine and validate the current Mission and Vision of the organisation.

This refinement and validation will include items such as past performance of the organisation, industry trends, competitive benchmarking and the use of tools such as SWOT analysis (Strengths, Weaknesses, Opportunity and Threats) / PESTLE (Political, Economic, Society, Technological, Legal, Environmental) analysis.

Then you need to Identify the Key Themes driving the Strategy

This is undertaken to identify the 3 – 5 major themes that the organisation must commit to if it is to be successful in accomplishing the strategic direction that has been confirmed and validated in step 1.

For an example of what we mean by Key Themes, consider the work of Treacy & Wiersema in their book, The Discipline of Market Leaders.

Their research identified three common strategic themes that emerged from the organisations they had investigated.

Product Leadership (Innovation)

Customer Intimacy

Operational Excellence

In any organisation's Balanced Scorecard, the 3 - 5 Strategic Themes should be definable, discrete but mutually achievable and clearly linked and supportive of the overall strategic destination.

Step 2: Build the strategic linkages and determine measures and targets

For each of the Strategic Themes that have been identified for an organisation a set of linked objectives needs to be developed. They can be documented in an Improvement activity Charter


By linked objectives we mean objectives that are spread across the four Dimensions and related to each other.

Each objective should be inspirational in nature and help to tell the overall story of the strategy. It should be formulated to include a verb plus an adjective plus a noun. For instance "Reduce the costs of transactions"

A Tree diagram can help to formulate them

Clearly the Strategic Themes mentioned above are not the only possibilities but imagine for a moment if your organisation had a Strategic Theme of Customer Intimacy.

What would you expect to see in each of the Dimensions that linked this all together?

One example could be as follows.

Starting with the Financial Dimension, the objective is to increase profitability –

Which could be achieved through the Customer Dimension objective Retain existing Customers - who are attracted to stay with us (and recommend us to their friends) because they value the personalised nature of the relationship -

Which the organisation can deliver on through its Internal Dimension - where we have a strategic objective Provide systems that deliver accurate, timely and relevant information on each Customer -

Which can be accessed easily by the staff, who, within the Learning & Growth Dimension, are involved in the objective Provide training in Customer Relationship Management and Telephone Handling Skills for all front line staff.

Then you need to determine measures & targets

Linking measurement to strategy is the cornerstone of a successful strategy deployment process.

Many organisations use more measures than they can handle, the Balanced Scorecard approach requires managers to agree on only those measures that are most critical to the success of the organisations strategy. Perhaps using only 20 – 30 measures in total. See Organisation Scorecard

Having presented the outcomes to the senior management team and gained their agreement to the Strategic Direction, Strategic Themes and Linked Objectives in Workshop 1, the next step is to develop measures and target for each of the linked objectives.

Depending upon the "business maturity" of the organisation it will most certainly already have a number of financial measures in place but it may be weak in the quality and quantity of measures in the other Dimensions.


Measures come in many forms; Ratios; Percentages; Indices; Ratings; Absolute Numbers; they all have their strengths and weaknesses. The overall package of measures chosen should meet the following criteria.

A balance of leading (operational) and lagging (perception) measures

Help to communicate the strategy

Help to motivate the organisation

Drive the desired behaviours

Be repeatable and reliable

Accountability/ownership for the measure is clear

As a “guideline” your Balanced Scorecard Measures should comply with the following: -

One Leading (Enabler) & Lagging (Perception) measure for each Strategic

Objective

The Leading (Enabler) measures will be more prevalent in the Internal and

Learning & Growth Dimensions

In total, no more than 20 – 30 measures across the whole Balanced

Scorecard.

Measurement is invariably an emotive subject in organisations, instinctively many people do not like them and gaining acceptance is a crucial step in the overall process of a successful implementation. Measurement should be seen as a tool for communication, for identifying problems and addressing them as soon as possible and for learning. If measurement is used to apportion blame then people will very quickly find ways to work around the system.

See Measurement System Checklist

Having determined the measures that will be used to support the Strategic Direction, the next step is to identify the targets to be associated with the measures.

The measure tells us how we intend to assess performance; it is the target that tells us how and where we have to improve to achieve the desired level of performance.

When setting the target for the future it should be based on current performance levels, organisational aspirations, available resources and external data such as benchmarking the performance of your competitors and "Best in Class" organisations from other sectors.

It is useful to bear I mind the following guidelines when selecting target(s)

There should be just one target for each measure to avoid confusion

Targets should be quantifiable, i.e. a time/cost/quality aspect


There should be a clear, logical linkage between the target, the measure, the

objective, the theme and the overall strategy

Some of the targets should be "Stretch", i.e. they help keep the organisation

focussed on the mid – long term as well as the short term and encourage

innovation to achieve the desired level of performance.

Targets should be mutually supportive. For instance, it is pointless setting

targets for different strategic objectives across the four Dimensions within the

same Strategic Theme if overall they force conflicting actions.

Step 3: Select priority initiatives and plan for implementation

Most organisations will have a number of improvement initiatives running at any one time. Introducing the Balanced Scorecard gives organisations the opportunity to perform a "sanity check" on these initiatives, making sure that they support the agreed Strategic Direction and confirming exactly which strategic theme(s) they are related to.

An analysis of the various initiatives is the final link in the process for mapping out the road by which the organisation will travel towards its desired future.

The first step is to identify the sum total of all the initiatives that the

organisation is currently involved in. you can use one or more Tree diagram

to summarise them.

The second step is to map these initiatives to the Strategic Objectives, where

applicable. Where they do not map then a potential saving in resources is

immediately apparent.

Step 3 is prioritisation. To facilitate this part of the process as smoothly as

possible, it is very important to have an agreed “filter” through which each

initiative must pass. If all initiatives end up passing through then the filter is

not good enough. The objective here is to focus on what is THE most

important. You should be looking to do less not more in this area! See

Selection matrix

Step 4 requires the organisation to step back and see if there are any areas in

which there are no initiatives supporting a strategic objective!

It is imperative at this stage that the organisation employs "fair process" i.e. the criteria for selection is understood and the process is clear and accepted by all. Without this an organisation runs the risk of initiatives that survive the process being categorised as "we are only doing this because Manager "X" made a big fuss and (s)he was the one who introduced it in the first place.

Then, you need to plan for Implementation


At this stage the Strategic Direction and linked Strategic Objectives are finalised, most, if not all measures have been agreed as have the Strategic Initiatives the organisation will start/continue with.

There is no single, all-encompassing and definitive list that is applicable to all organisations for producing the implementation plan. Situational needs will strongly influence both the various steps to be undertaken and the order in which they are processed.

However, a generic list could include the following activities

Develop a communications plan for cascade of the outcomes from the

Balanced Scorecard development process and the next steps to all employees.

Agree to what level the Balanced Scorecard is going to be deployed

Agree the level to which team and personal objectives linked to the Balanced

Scorecard will be cascaded

Agree what the recognition and reward scheme to encourage the commitment

to the Balanced Scorecard process will be.

Ensure budget is available for the Strategic Initiatives

Agree and create the Balanced Scorecard reporting system and periodicity of

reporting

Last, but not least, agree in advance when the management team will review

the process and its outcome. See Deployment and Implementation review

checklist


Research Information

Balanced Scorecard vs.

EFQM Excellence Model

Author:

Pro. Mohamed Zairi Dr. Yasar Jarrar Phd. MSc. BSc



4. Research Information 4.1 Balanced Scorecard vs.EFQM Excellence Model According to 2GC Active Management (2000), the Balanced Scorecard (BSC) and the EFQM Excellence Model (BEM) measure an organisation's performance to drive organisational improvement - generally by highlighting current shortfalls in performance to management teams. Both have been widely adopted in recent years, address similar issues, and benefit from the support of powerful advocates in the form of current users, consultants and software suppliers. The tools are characterised by the differences in their design and management processes.

The Design Process - The BSC development processes aim to create BSC designs that represent clearly and concisely the specific goals selected by an organisation. 2GC maintains that good BSC designs also describe the management team's assumptions concerning 'causality' i.e. - how and why a set of activities will effect the achievement of strategic results. A similar consideration of 'enablers' and 'results' is a feature of the BEM (see figure 1).

[Figure 1: EFQM Excellence Model]

The BEM development process assumes a standard set of strategic goals apply to all organisations. This simplification makes the BEM design process easier, and enables standardised 'benchmarking' between organisations, even if they are active in different markets, or industries. 2GC also argues that the key difference between the two development processes is the extent to which they can claim to reflect specific strategic goals.

The BEM bypasses this and, using a simpler design process, majors on its

benchmarking attributes.

The BSC approach is necessarily more complex because it has to describe and

reflect an organisation's specific strategic goals.


Moreover, since strategic priorities vary from organisation to organisation, data from the BSC are unlikely to support 'benchmark' comparisons. However, unlike BEM, they are much more likely to provide information directly relevant to an organisation's strategic performance.

The Management Process - 2GC states that good BSC designs explain uniquely for each organisation its management's plans to drive improved performance. The best design processes use this activity to identify the priority areas of performance required to deliver the unique strategic goals selected by the management team. This makes it easy to use the BSC as the basis of a strategic management process. Furthermore, budgets, strategic plans, incentives and rewards, for instance, can all be linked, with a high degree of confidence that the measurement of each activity will be aligned to the achievement of strategic goals.

Since the measurements based on BEM designs that use 'benchmark' data can drive improvements in process execution - improvements are useful, but not necessarily relevant to an organisation's strategic goals and priorities. Central to the BEM is the consistent focus on the structure of model itself (and so the strategic priorities it describes). Adoption of generic strategic priorities build around process improvement, particularly when coupled with Benchmark comparisons can be value adding for many organisations at an operational level. However, emphasis on generic aspects of strategic effectiveness makes BEM less useful influencing the achievement of specific strategic management goals. Conscious of this, experienced users of BEM have found it necessary to augment its data with the BSC to ensure that they have an effective strategic management system.

The key criterion for differentiation between the two processes concerns the extent to which - in the final system design - they attempt to reflect the specific strategic


goals of the organisation for which they are being developed. Table 3 helps to identify the circumstances when each model might be more applicable.

[Figure 3: Choosing the most appropriate tool for the task at hand - 2GC Active Management (2000)]

Purpose Choice Of Model To perform regular "Health checks" of all business processes identifying strengths and weaknesses

The EFQM Excellence Model

To initiate and drive a continuous process improvement programme


To enable external benchmarking of company processes The EFQM Excellence Model

To develop a "checklist" indicating "Good practice" used for business planning and evaluation


To improve understanding of cause and effect aimed at Informed and improved management decisions and actions The Balanced Scorecard

To align operational activities with strategic priorities, based on vision/mission statement The Balanced Scorecard

To prioritise strategic initiatives The Balanced ScorecardTo facilitate two-way communication of strategy and strategic issues across large organisations The Balanced Scorecard

To focus management agenda more on future strategic Issues than on historic financial issues The Balanced Scorecard

Conclusions

In spite of sharing a number of apparent similarities, 2GC argues, the BSC and the BEM are based on fundamentally different concepts about how best to improve the performance of an organisation. The BSC favours a clear focus on the specific strategies adopted by an organisation, providing a robust tool onto which other management processes can be built - at the expense of a more complex design processes: the BSC is based on a dynamic and individual abstraction rooted in explicit cause and effect relationships. The BEM, on the other hand, is based on a static design derived using "plausible logic" and contains a standard set of strategic objectives applied to all organisations using BEM equally - and only implicit representations of the "generic" cause and effect relationships that link the strategic objectives together. But the use of this standard model facilitates the use of a much simpler design process, and the "benchmark" comparison of BEM outputs between the entire universe of organisations using the tool. The strengths and weaknesses of both models will however depend on the purpose for which they are being used.


About the authors:

© 2000 European Centre for Total Quality Management, School of Management, University of Bradford, Emm Lane, Bradford, BD9 4JL. This report cannot be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, faxing, recording or information storage and retrial without the permission of the authors.


Research Information

A closer look at each of the models and how

they work

“Balanced Scorecard vs EFQM Excellence

Model”




4.2 A closer look at each of the models and how they work 4.2.1 Balanced Scorecard vs EFQM Excellence Model

Indeed if we examine how the two Models work in practice more closely, we discover two models with unique characteristics and style, each best suited to deliver the benefits it was designed for. The mechanics and logic behind each Model sets them apart.

All of these characteristics set the Model apart. The characteristics described in further detail below fundamentally explain why users of either Model follow a different thinking processes and adopt a different perspective on performance measurement.

Balanced Scorecard Characteristics Excellence Model & Self-Assessment Characteristics

Context dependent: tailored every time

A company's Balanced

Scorecard is driven off its

strategy and vision and

represents the unique

position and strategy of the

company

Every Balanced Scorecard is

unique in its objectives and

measurement for a company

Less context independent: best practice benchmark

The Self-Assessment process

assesses an organisation's

current processes against a set

of pre-described criteria

The industry/sector influences

the interpretation

Prescriptive and focused

It identifies a unique and

focused set of priorities which

the management team

Descriptive and comprehensive

Comprehensive description and

assessment of how processes

across the organisation are


believes will deliver the

strategy

Focusing on the key few

drivers of success is essential

managed and deployed

There is no prioritisation of one

activity over another inherent

in the model

Hypothesis driven and subjective

The Balanced Scorecard

forces assumptions and value

judgements to be made about

how to reach the level of

performance described in the

vision and strategy

It represents the insights,

educated opinions, expertise

and knowledge of the

management team with

respect to the company's

drivers of success.

Fact based and objective

The Model is populated by facts

and data gathered within the

organisation. It is thoroughly

documented from objective

sources of information.

Criteria and measurement used

are the same for any

organisation to enable

benchmarking

Aspirational - To-be view of the company

The Balanced Scorecard is

built around a vision for what

an organisation wants to

achieve 2-5 years in the

future

It starts from the vision and

works its way back to the

present to identify the gaps

and the strategic roadmap

The Balanced Scorecard

defines the required high

level step change (typically

financial) in to fulfill the

Current - As-is view of the company

The Self-Assessment outcomes

describe the current state of

the organisation's processes

It identifies relative strengths

and areas for improvement

today across the whole set of

activities based on the

objective criteria

Self-Assessment outcomes do

not pass judgment as to which

activities need to be focused on

based on a view of the future


encourages continuous


strategy given where a

company is today

It does not analyse the

quality of processes and

activities today

improvement across the

operations of a company as a

matter of principle in line with

the fundamental concepts of

TQM

Explicit cause & effect model

The model is set up to drive

cause and effect explicitly

between objectives across the

4 perspectives and paints the

organisation as a system of

interlinked objectives

Implicit cause & effect model

The model includes both

enablers and results which are

effectively linked by cause and

effect and supports the cause

and effect logic

The link is not drawn explicitly

together between specific

enablers and results

External variables unsystematically addressed

External variables such as the

environment, and impact on

society are not systematically

addressed in the Balanced

Scorecard.

External factors are included

only if they are a key part of

the strategy which needs to

be tracked on a month to

month basis

They are typically taken into

account in setting targets for

the measurement (e.g.

external benchmark, market

research)

External variables systematically addressed

Society is an explicit part of the

Excellence Model and therefore

any Self-Assessment is going to

provide feedback on this

dimension.

The focus on Competitor & Best

in Class benchmarking is one of

the reasons for using the Model

A core purpose of the Model is

to benchmark a company's

processes against an ideal

external benchmark


Best practice vs. Unique Advantage

As we have mentioned already, the Excellence Model and its associated Self-Assessment processes seeks to assess best practice at the process level. In order to offer fair comparison and a system of benchmarking to companies, it must be applied consistently in its structure, criteria, approach and content. It enables an organisation to situate itself in a sort of European league table. An organisation's sector or specific competitive context is a consideration which bears no significant impact on the usefulness and application of the Model. On the other hand, the Balanced Scorecard's context specific approach to performance management is entirely dependent and based on an organisation's positioning, challenges, competitive context and of course its strategy. As such, the Balanced Scorecard model is a high level guiding framework that needs to be tailored every time to the organisation's circumstances. The framework is there to lead a management team through a path of logical strategic thinking; it can be flexed and adapted to every situation.

As-Is vs. To-Be

A second critical distinction to make is the following one. The Self-Assessment process provides a critical and comprehensive account of the current processes within an organisation. The Excellence Model and Self-Assessment process very deliberately adopts the view of Today. Against a comprehensive and objective set of criteria, how do an organisation's processes stack up to best practice? It gives a thorough assessment of a company's current strengths and areas for improvement and as a result provides a steer as to where the organisation might choose to focus some of its effort in the future. The steer provided however is independent of strategic priority. Conversely, the Balanced Scorecard identifies performance objectives, which an organisation needs to achieve to reach its vision two or five years out. The Balanced Scorecard is future looking. It starts from the visionary end goal and works its way back. E.g. "What do we need to do well to achieve our 3 year financial objectives?" Attached to those objectives is a set of actions and initiatives that the organisation needs to undertake today to attain the objective. In the Scorecard, those priorities for today are deduced from where we need to be tomorrow. It then takes further analysis however to determine how much effort it will take to get to tomorrow given our current strengths and weaknesses.

Are they mutually exclusive or do they work together to bring added value to a company?

Both approaches are often quoted as being two alternative ways of measuring performance, and organisations frequently ask whether use of one of these tools precludes the use of the other. If a choice has to be made between the two models, how can a company choose what is right for them? Are they mutually exclusive, or are they interchangeable or neither?

To be able to answer those questions with some insight and to distinguish the unique and complementary values of each model, we need a more in-depth account of how the models differ in approach, process and benefits. In doing so, we hope to provide organisations with a more comprehensive basis to make an informed decision to adopt either, both or neither of the two models. With this paper we intend not only


to help the novice organisations appreciate better the benefits of each model, but also to allow those organisations currently using one of the tools to see where there may be added value in investing in the other.

[Editor’s Note: In an effort to minimise duplicate materials, this paper has been condensed. Please refer to the sections of Excellence One on the EFQM Excellence Model and the Balanced Scorecard Approach to learn about the structure and characteristics of each of these models. Please do not hesitate to contact us, [email protected], if you wish to receive the full report.]

The birth of innovative performance management systems

On the surface the Balanced Scorecard and EFQM Excellence Models seem to be very similar: similar aspirations, similar concepts, similar labels and boxes. Indeed, one can probably agree that both approaches share a number of characteristics. They are both measurement based, they encourage a dialogue about performance improvement, they both strive to act as catalysts for change and action, and both are based on principles of on-going review, learning and feedback. Above all, long term success in implementing either model depends on management’s on-going commitment to improving an organisation’s performance. From a mechanistic point of view, one could also argue that the Models look rather alike. Both talk about cause and effect, enablers and results. Each follows a structured process often facilitated by third parties (be they assessors or consultants).

Whilst the two Models certainly espouse common beliefs about what constitutes good management and support broadly similar views on how to drive performance within an organisation, the Models come at it from different angles. Each approach has a distinct history, seeks to deliver different key benefits and supports a rather different dialogue about performance improvement with the stakeholders of an organisation.

A comparison of the Balanced Scorecard and EFQM Excellence Models

Summary table: High level comparison of the two approaches

Balanced Scorecard Excellence Model & Self-Assessment

Origins Performance measurement, value creation

Total Quality Management

Aspiration and benefits sought

Performance improvement

To translate a company"s strategy into focused, operational and

Performance improvement

To identify the strengths and areas for improvement across an organisation’s processes


measurable terms

Enabling strategic performance

to encourage best management practice

Enabling best management practice

Deliverables

A set of logically linked strategic objectives with lead and lag indicators /targets across 4 perspectives

Set of initiatives aligned to strategic objectives and measures

A benchmark and relative assessment of the quality of an organisation"s processes and results by assessing/scoring against the 9 Criteria of the Model

Areas of relative process strengths and weaknesses

Development approach

Strategy driven, workshop based, iterative, hypothesis driven, management team involvement, macro view, future looking

Set of objectives and measurement are unique to every organisation

Step change in performance

Process driven, Self-Assessment, fact gathering, data collection, scoring based, detail oriented, present focused

Set of criteria and measurement areas are the same for all organisations

Continuous improvement

Success factors

Management team level sponsorship and commitment

On-going process embedded in governance processes

Management team level sponsorship and commitment

On-going process embedded in day to day management

Thus far then, we are suggesting that whilst the two Models both tackle the broad subject of performance improvement particularly through the use of measurement, and both rely on similar principles of management, the Models are borne out of different origins, take different routes, and deliver different outcomes and benefits.


The fundamental difference is that the Balanced Scorecard is designed to communicate and assess strategic performance, whereas the Excellence Model and its various applications, including the Self-Assessment process, focus on encouraging the adoption of good practice across all management activities of the organisation. For example, as part of assessing good management practice, Self-Assessment, typically an annual process, seeks to establish how well an organisation defines and manages the process of strategic planning. It does this by determining whether the organisation has a formally established and appropriate process, which is reviewed regularly and is systematically deployed at different levels. The Balanced Scorecard on the other hand tests the validity of the strategy and monitors the organisation’s performance against its delivery on a regular and frequent basis, e.g. monthly. The primary purpose of the Balanced Scorecard is not to assess the quality of the strategic planning process itself but to ensure that the strategy gets implemented and to enable an organisation to continuously learn from its performance and adapt its strategy accordingly. Let’s investigate further the specific characteristics of the Balanced Scorecard and the Excellence Models to try to understand how the two choose to address performance management.

Why work with both Models together?

Given everything we have described so far, it may become less obvious as to why an organisation might still want to pursue using the two Models together. In our view, it is precisely within the differences of the two Models and their common performance improvement objectives that the benefit of bringing the two together lies. There is fertile ground for growth and learning in looking at the two models in combination.

In this last section, we attempt to illustrate how the Excellence Model can add a deeper dimension to the Balanced Scorecard, and how the Balanced Scorecard can provide focus and a clear plan of action to improve performance following a Self-Assessment initiative.

From the EFQM Excellence Model to Balanced Scorecard

As we said before, an organisation using the EFQM Excellence Model will have a good and broad understanding of its own strengths and weaknesses at the process level. As a result of the assessment, an organisation will have an indication as to where it may need to improve significantly, where it performs adequately and where it excels against the ideal benchmark. However, it may not have a strong sense of where to invest as a strategic priority, or where improvement will make the biggest impact in business performance and results. The Balanced Scorecard can be used at this point to provide the strategic focus needed to prioritise action and allocate resources.

If the areas of weakness picked up by the Self-Assessment process are not of strategic importance to the organisation then there is less reason for spending much time and money on improving them as a priority. Clearly, there still may be justification in improving performance in non-strategic areas if performance is below acceptable quality standards. Similarly, the assessment may uncover a set of activities where the organisation excels but which are also non-strategic. There may be justification in that case to cut back on the level of investment committed to those activities. Clearly, it is the processes where an organisation may be weak and


which support strategic priorities which should require the most attention, (See Figure below). In this scenario, the Balanced Scorecard complements the Self-Assessment in providing a strategic prioritisation tool. Resources can be committed to the strategically important areas as necessary and not only or necessarily the low scoring areas on the Self-Assessment. By using both models an organisation can do the right things in the knowledge that they will be doing them well.

From Balanced Scorecard to Self-Assessment

Once an organisation has identified its strategic drivers of performance and associated measurement, targets and initiatives using the Balanced Scorecard approach, there is clear value in being able to appreciate the level of quality of the processes that may support the strategic objectives and measurement identified in the Balanced Scorecard. Quality processes are clearly important to have to achieve strategic goals. In leveraging the knowledge amassed from conducting Self-Assessment, we can gain a depth of understanding with respect to the challenges the company may face to deliver against its strategic objectives. For example, the Self-Assessment could highlight particular areas of process weakness today, which if not redressed will make it difficult for an organisation to reach its vision. This can be a valuable tool to inform the organisation on how to fill the performance gap between today and the 3-5 year horizon. It can provide a steer as to the level of process investment required and the time, which it could take for the Balanced Scorecard objectives and measures to be implemented and fully operational. The Self-Assessment could also act as a useful jumpstart to the Balanced Scorecard implementation process.

We believe that the two models can add a useful dimension to the other by leveraging the knowledge and insights that each of the Models brings to the organisation. Indeed, it is about enriching the management dialogue and process by providing additional sources of intelligence. In using the two, a management team can foster a deeper dialogue about performance supported by an end to end analysis of the organisation's performance from strategy to operations and process quality. Both Models clearly have their place within the strategy and business planning spectrum.


Fitting the two Models on the Strategy and Planning Spectrum

Some organisations try to create other models either inspired by a bit of the EFQM Excellence Model and the Balanced Scorecard, or by overlaying the two models together to create a third way. Given the distinct purpose and benefits each Model is designed to engender, we believe that amalgamating the two Models tends to confuse the end goal and dilutes the total benefits which can be gained from using the two as they were designed. It runs the risk of creating an unnecessarily cumbersome process not quite fit for purpose. There may be benefit in drawing parallels and similarities between the two Models (as shown in the example below) to speak a common language and establish a commonly understood context. However, one needs to recognise where pulling the two Models together stops being insightful and where the differences are best addressed separately

Points of commonality: speaking a similar language


Final thoughts

Organisations must decide for themselves, which Models are best for them and how to use them. Our experience and research shows that there is no reason why the Balanced Scorecard cannot be used effectively alongside the EFQM Excellence Model and vice versa. What is important is that organisations know why they are using these models and manage their development and implementation well. Above all, in using any approach successfully, Balanced Scorecard and EFQM Excellence Models being no exception, there needs to be real and sustained management commitment. Without it, any model risks becoming at best the flavour of the day, and at worst an expensive, interesting but short lived and suboptimal exercise.


Good Practices

The relationship between the model and the Balanced

Scorecard

Good Practice from Oracle

Author: Paul Gemoets

Resource: EFQM Good Practice Database


5. Good Practices 5.1 The relationship between the model and the Balanced Scorecard 5.1.1 Solution and Recommendations from Oracle

For each of the issues mentioned above one or more solutions and some recommendations are described below.

This knowledge has shown to improve significantly the chances for success because they represent not just some "jump to conclusion" actions, but considers the root-causes of each issue discussed in chapter 2.

Use cause-effect diagrams

To overcome the root causes described above, a good scorecard system typically will be based upon a network of cause effect relationships, gathering the knowledge of how the key-indicators interact. These require more than the definition and follow up WHAT the organisation should achieve, and by WHEN (the classical elements of business planning). It demands you to but focus much more on the HOW. Depending on the capability, maturity of the management team and the business context culture this can be a dangerous minefield or a fertile ground to plant your seeds of success.

Most cause-effect diagrams or strategic maps as we call them, have the same basic relations as described in the book, aligned with the four perspectives. It often starts with the definition of

How the organisation´s financial success (share price e.g.);

Looks how the customers contribute to this by paying for products and/or

services;

The influence internal processes have on efficiency and effectiveness of what

customers pay for;

Finally, the most important aspects of the employees that execute the

processes like satisfaction and motivation.

An example can be soon on the picture below, some organisation draw these kinds of "strategic maps to a bottom-up way (using all existing measures e.g.), important here is to keep it simple, on 1 page. Later on, each relation can be checked on correlation because the lines on these kinds of schemes represent, especially when starting, the "soft" links or what the team "beliefs" are about how the strategy works. This map should be read from right to left starting with the financial dimension with e.g. the sales growth KPI. This then links into some KPI´s in the customer dimension like the "top of mind" measurement, further related with some internal processes


indicators like production plant efficiency, finally getting into indicators like human capital development for the people dimension. As already clear in this simple example, links can be from anywhere to anywhere, these map show a network of interrelated KPI’s.

Click on image to enlarge

Later on, when the scorecard is in use for some time, 6 months e.g. relations with weak correlation can be removed from the scheme, and new "hard" relations can be found. This is of course one of he fields where software can help a lot, e.g. by showing the KPI´s that on one hand influence a chosen KPI, and at the other hand the rest of the KPI"s influenced by the selected KPI.

A good sanity check of this map is to use it in communicating the strategy within the organisation, or whenever the strategy changes to explain the WHY behind the change. So before defining the KPI´s and links to data, targets etc. I recommend strongly to "validating" the map by telling the story of the map to a carefully selected audience. This of course after a consensus within the management team

Another vehicle to assure regular review and improvement of the map is to include it during an EFQM self-assessment (typically in chapter 2 when assessing strategy and policy). This approach shows the complementary value of both the EFQM and BSC models, the picture illustrates this. The picture show the scorecard being the painting within the borders in the centre, while the EFQM Excellence model is the whole picture, but as is shown by the artist Magritte these two worlds cannot be separated from each other.


BSC and EFQM are complementary communications tools

Use your BSC for

progress follow-up

continous and aligned attention of execution

each month, quarter

... and compliment with EFQM

to get "lessons learned" from longer term reults

for the bigger view

each year

Use the scorecard as the one and only input for reviews

To avoid this second trap, it´s good to start with; an overview of the management processes and considers where the scorecard will be used as input or output. If this scheme doesn´t exist yet, a 1-page diagram like the one below is certainly a good design and communication instrument for your project.

Many variances of this diagram exist, but always the following essential elements are taken into consideration:

Business results (financial, non-financial, customer, people and society);

Corporate directions to follow, if you are part of a multinational, global

organisation, or your own vision, mission, policy;

Outcome of key strengths and areas to improve, e.g. coming form a self-

assessment, or a SWOT analysis;

The business planning process;

Budget, or in a wider context the business plan;

Targets and objectives;

The regular review process of actual versus budget, targets;

Prioritisation and co-ordination of improvement end other change projects

(affecting the processes).


More inspiration can be found in the HBR article, where four management processes are described as a kind of PDCA (plan-do-check-act) circle:

Translating the vision by clarifying the vision and gaining consensus

Communicating and linking by setting goals and linking rewards to

performance measures

Business planning by setting targets, aligning initiatives, allocating resources

and establishing milestones

Feedback and learning

Once you have your process chart, try to integrate the scorecard, find your way to find the best place into the whole. The example below shows it is used as the sole source of data, the only input of the business review process, and that all results are input to the scorecard, this can be a first check of your design.

Results or outcome of the review process are the confirmation or change of the objectives and targets, budget and change program (list of projects). You can use the chart below as a start to make your own, and you own scheme to show the place of the scorecard versus other elements of YOUR management process system.

Click on image to enlarge

An important element here is to make use of the KPI owner concept; a clear definition like the one below can be used

The role of the KPI owner

Is responsible for ...

data quality & retrival process

the right data is available on time


target setting

are defined, have a rationale and are communicated

analysis - link to initiatives

conclusions, questions, proposals are avaiable for meeting

forecast

expectations for future trend are know

One of the key elements in this role is to set targets, which is also a requirement in the result area´s of the EFQM model, and of course without targets you have no colours in a scorecard. The picture below therefore shows the good old principles of setting SMART targets, plus an example we used to communicate what the colours exactly mean. To keep a balance we decided to have four colours, and added the blue one to show excellent performance, and fields where best practices occur that can be shared.

The basis for the colour of the KPI

Excellent= top 3

Good 50 %

Acceptable

Unacceptable 20 %

The SMART Model

Specific Objectives need to be clear, consice,and specific tro provide direction

Measurable Objectives must contain one or more defined standards (criteria) by which you will gauge effective performance (in ecaluating performance)

Achievable Objectives need to be realistic, achievable, and behavioural in nature


Result-oriented

Objectives need to clearly define the desired performance outcome

Time-bound

Objectives must include specific time frames

Use scorecard information for performance reviews

Not shown above, but equally important to avoid the problem areas stated in part 2, is to create a link of the scorecard content with team and/or individual performance targets. In this way, a strong integration can be realised between the company's strategy and the contribution of each team to it. In this perspective, the HR department should be involved at the right time. I emphasise this because a "split message" can be given if on one hand the BSC is used, and at the other side leaders use bonuses and other incentives purely based on financial results (often practised in sales environments).

Integrate with change management

This link is also illustrated in the diagram used on previous page: it shows the process to handle the list of projects (including priorities) defined in the business plan needed to cover the change needed to attain the stated objectives. These are called improvement projects, there should be no other projects or initiatives than those that improve the position or processes of the organisation or assure future success.

For organisation using the EFQM excellence model this list typically comes from the key area´s to improve during a self-assessment, after being prioritised within the context of the strategy, vision and mission, plus of course the "capacity" within the budget.

The first task (step 1) is to analyse and make a project plan for the project on top of the list. Depending on the budget this can be one, two, or maybe seven projects, but not more in parallel. The output, the project plan is then presented to the management team that decides on a go, reject or further investigation of the selected initiative. If approved, and integrated within the budget (especially the number of man-days needed), the project goes ahead (step 2), and progress is fed into the scorecard as an indicator (step 3).

This dimension is typically not used in the first version of many scorecards, but is rather easy to implement and gives a good integration of the change dimension into the management system. An example of an indicator is to define straight and simple attributes that enable a clear status for each change project (green for good progress, amber for weak progress or red for little or no progress), and to define an indicator for the scorecard based on this status. An example for the scorecard indicator is to say it is green when not more than one project is in red, and becomes red if 3 or more projects are in red, otherwise it"s amber (if you define the green and read, no definition for the amber status is needed)


This brings us back to the scorecards basics as mentioned before: always remember the structural concept of 4x4x4x4 of each scorecard shown below and use these elements as a checklist for the completeness of your system:

4 quadrants of measures: financial, customer, internal process, and "learning

and growth" or people;

4 attributes for each metric or KPI: the data source of the measure, the

target or objective, a benchmark and the owner;

4 attributes per initiative that exists to drive the changes needed to

implement the strategy: a project plan, a project sponsor and budget, and

project leader, and project objectives including the link to KPI(s) influenced;

Four attributes of the use of the scorecard.

Suggestion: in the HBR article the advice is given to have 1 initiative for each dimension, this however is not practical, in reality you will see that each initiative will at least influence two or more of your KPI"s, often in different dimensions. Therefore, in practice, it is simple and effective to make a matrix or table that shows the relationships between each initiative and your set of key indicators.

Further work on can then lead to the integration of the change program into periodic or on-going business review cycles as shown below. The projects (1 to 7) all influence one or more enablers of the EFQM excellence model, and are applicable for one or more units (a business unit, or a country for a multinational). The vertical lines on the left show then the review of all projects, called "change program review", this process looks at the progress of each and decides on priorities, new units to be selected or stopped etc. …The result then feeds into the scorecard (arrow to the right). How EFQM and BSC can form a Synergy


Complete with EFQM content

This part will discuss how to overcome the scorecard becoming a modern version of the bookkeeping syndrome to manage and control an organisation.

Already above some suggestions are made for non-financial indicators, but the EFQM excellence model has a high capacity with many more of these. The picture below shows a possible mapping of the EFQM model as source for inspiration when filling in a scorecard system with indicators:

The financial perspective typically relates to the financial key performance

outcomes (9a and 9b), but also with indicators about the strategy and policy

(2) processes;

The internal process dimension should be linked with of course the processes

(5) enabler criteria, but also with the non-financial key performance outcomes

(in 9a and 9b), and partnerships and resources (4);

The customer perspective relates to the customer results (6), and society (8)

as the not-named customer

Learning and growth can be completed with the outcomes and indicators of

people results (7), and process indicators and deployment data within people

(3) and leadership (1).

A nice example of a leadership indicator is to make an indicator that reflects the progress of each leader´s personal improvement plan based on a 360° leadership review. This assures that the outcome of management team building or any other related leadership courses or events is converted into action and is taken seriously.

EFQM can make your BSC complete & aligned with strategy


Here I would like to make the remark that it´s not wrong to put financial figures into other than the financial dimension. This is possible, the important thing here is to put it in the dimension where it really belongs, and e.g. productivity measures can be expressed in dollars, but belongs to the internal processes dimension. This is by the way a trick known by quality managers: to get the right level of attention it is pretty powerful if you can translate the potential improvements or the non-quality into dollars, e.g. it is better to communicate the money lost in revenue as a result of poor telephone handling, than to show complex telephone metrics.

Some other lessons learned

To complement the four fields of concern and their possible solutions above, I would like to add some other lessons learned in this field. These are summarised below,

Some lessons learned

Avoid to But do

treat apart

just let it happen

make the 4 EFQM result

areas = 4 BSC dimensions

automate immediately

present only

use both

define process

make it specific for

your context

start small & simple

link to actions

blue: share

know how

red: extra

assistance

Possible Future Trends

Further evolution I see today is described below. I believe these will become reality because they were already expressed as needs of the first users of electronic scorecard systems.

Besides the obvious strong growth in the deployment of use of scorecard concepts both by more organisations, and on multiple levels (up to the individual), following themes will get attention

Systems that allow you to play the business game not for a case study but

within your own company context, this will probably be used to train and


coach leaders, simulating important changes like merges and splits, or even

influence information used on the stock-exchange to determine share value

Artificial intelligence agents that continuously analyse the network of KPI´s in

a scorecard (or linked scorecards) and test the built in hypotheses and

assumptions, with as output newly found cause-effect relationships, or those

relations in the scorecard that have wrong connections, and in this way

assisting in the review and refinement of the map of cause-effect

relationships

A third future appearance will be portable e-scorecards on palm pilot like

devices, integrated in portable phones like the NOKIA 9210 for both

presenting results, and at the same time for real time data collection (in its

turn influencing the scorecard).

So maybe when we get a new job in the year 2023, we will get on the first working day our job description together with a personal scorecard on a personal portable Internet device, showing what our achievements are, what we can do to influence it.

Conclusion

This is summarised below, showing that you can’t have one without the other.

Scorecards need EFQM

To be assessed, complete, and reviewed

Understand links with Enablers

To integrate with management processes

EFQM needs Scorecards

Align with vision, mission, strategy

Keep good promises "alive and kicking"

For continuous attention & communication

I’m sure that after reading this the chances for success for YOUR scorecard will raise, but like with so many other knowledge as soon as you start to understand, the awareness comes that there is still so much more we do not yet understand.


5.1.2 Analysis of the EFQM Excellence model and the Balanced Scorecard

What a balanced scorecards consist of, why it is so popular these days, and how to design it can be found in the Kaplan Norton books.

The table below makes a summary of the concepts when using a scorecard system, a practical use of this table could be to assess you own system for each of the 16 elements, agree on a score for each, and most important of all derive some actions to improve your system for the future.

Summary 4x4x4x4

BSC 1 --

2 -

3 +

4 ++

Parts Dimensions € $ Customer Process Learning & Growth

Performance Indikators KPI Target Owner Data-source Benchmark

Project initiatives Budget Plan Link to KPI ´s Leader

Process Use the BSC Define

how, why Deploy

who, when Assess what

Adapt improve

One element not mentioned on this overview is the degree of integration with your organisation's evaluation and bonus system; mature organisations are capable to use the same data for both the scorecard and compensation purposes.

Why EFQM and Balanced Scorecard meet

From the description above it is clear that each organisation trying to respect the EFQM model can benefit from an integrated approach to strategy execution and monitoring like the Balanced Scorecard, it fulfils multiple requirement as defined by the EFQM model at once.

From the other side a similar pressure exists from organisations that use or want to implement as real balanced, or maybe better an aligned scorecard system. These organisations often struggle in defining and finding the non financial KPI's (Key Performance Indicator), and especially how to influence them, that's where the EFQM model can give a lot of inspiration for strategic initiatives, and make the necessary links with the way the organisation works, and what needs a change to become the best.

Therefore, those using EFQM almost automatically get into the scorecards, and those using scorecards get attracted by EFQM principles and concepts. This explains why these two come together but this doesn't mean an absence of friction and conflicts between points of view, a smooth integration that really adds value to the benefit and the way managers work doesn't come without effort. That's why we will first look at some minefields on the road to successful implementations of a scorecard system in the next chapters …


The BCS - Excellence Model relationship

The article summarizes the knowledge obtained during implementation of balanced scorecards in a variety of size and scope. This included organisational units within Oracle, but also for its customers, and its business partners.

I use the term LAT (living apart together) relationship as a metaphor because this has become a way to describe how modern couples try to find a balance between being together as a couple and apart as individuals today. As we will find out by the end of this article the two concepts of EFQM and BBS have a similar relationship, sometimes apart, then together, not always easy to handle but worthwhile exploring.

First, some non-trivial issues or better said hidden traps are described. This is done to make it clear that making and maintaining a good scorecard system is a task to be taken seriously. It is not as easy as it first appears after a seminar or course, or after having read an article or book on this subject.

The second part of the article then considers these traps one by one to offer some recommendations and practical solutions to prevent the difficulties described.

The objective as a writer then becomes giving the reader one or two elements that can help to understand, implement or improve the use of a scorecard system. The intention is to avoid some frustration and unnecessary lost energy (some research shows at least 70% of scorecards being not successful). The advantage as a writer was to thoroughly review my own knowledge in this field which leads me to my first recommendation: share your experiences and make your personal contribution to an improved way of leading an organisation.

My final introductory thought is that working with scorecards, IT systems, and on top of all that the EFQM model for Excellence, gives you a very powerful and highly influential tool set. You can compare this situation with the case of Mickey Mouse in the Fantasia movie: he gets magical powers, and as a beginner makes mistakes, but learns from them, and by the end of the film we get the fantastic and colourful symphony as a result. That"s a metaphor we should keep in our minds, it helps when making your first version of a scorecard, one that for sure will not be perfect. So the first scorecard has some areas for improvement, these are best discovered by listening actively, even stimulating feedback, use this feedback and build in elements for all parties involved. This is a way to "grow" a scorecard system you can be proud upon, and isn"t that what you want?

The EFQM model for Excellence

This model was basically developed to stimulate the European Quality Award competition during the late 80ies, following the examples of the Deming Prize in the far east, and the Malcolm Baldrige Award in the USA. The EFQM model, improved based on worldwide research in the best companies in 2000, gives a powerful intellectual framework to evaluate and drive any kind of organisation to become the best within its context.


Structure

Very often only this aspect of the model gets the attention; this is the structure as shown below in nine blocks, five enabler and 4-result areas. This picture is an alternative presentation of the "official" diagram that can be found at http://www.efqm.org.

Besides these 9 blocks, a substructure exists of "area"s to address" in each block: each result area has 2 of them, each enabler has 5, except leadership having 4, this gives 32 "bits" in total. An organisation can then analyse and act upon strengths and areas for improvement (AFI) for each element in this structure. It is up to the user of the model the to prioritise and use the output of such an exercise called self-assessment. I would also like to emphasise the two other dimension of the model that contribute to this very practical definition of excellence.

The fundamental concepts

These 8 concepts or "themes" from the golden threads through the complete model, these are results orientation, customer focus, leadership and constancy of purpose (and consistency), management by processes and facts, people development & involvement, continuous learning + innovation & improvement, partnership development and public responsibility.


The RADAR principle in scoring

This third element is mainly there as the measurement tool within the model, but in practice turns out as a nice communication tool about the requirement for each of the nine chapters in the model. It defines two ways of grading your status of excellence:

By using criteria for enablers;

And a second set of criteria for results;

These are shown on the radar chart below.

Results are evaluated by looking at trends for 3 to 5 years, how these compare to targets, and to benchmarks of competitors and the "best in class", how they can be linked to the approaches in all enabler fields, and how deep and wide their scope is. This is the reverse R of RADAR. Enablers on the other side have three evaluation groups, giving the ADAR letters of RADAR

The approach itself: how sound it is and how well integrated with the rest and

the strategy

The deployment of the approaches selected, again in two dimensions: how

many units like sites, people, and how deeply or profoundly is it implemented,

also relevant here is how systematic and structured this is done

The assessment and review of each approach, expressed as measurements,

learning and improvements realised.


Issues, Controversies, Problems

The issues described below represent not all known problems, or the most frequently observed.

No, the themes that get attention below are the less obvious and nontrivial ones, but in each case, you will see they have a significant impact on your project to design and maintain a scorecard system.

Just another dashboard

The visualisation part, usually using the traffic light colours to show actual status of key indicators, naturally drives many teams to use the (trendy) name scorecard to identify their new management report. Often indeed only adding colours and trend charts to the dull financial reports with tables used for a long time and by some many gives a fresh look, but in fact only changes the presentation. This is a double problem because

There is no balance between indicators, it does not stimulate to find better

and other indicators than those already in use;

There is no alignment with the strategy, mission and vision of the

organisation, or in other words a lack of integration with the complete

management system.

Creating extra systems and processes

It is very normal to introduce a scorecard "on top of" everything else already in use, because it is something new and unknown. The danger of this "natural" reflex however is that yet another system, something extra also generates supplemental attention, time by those using the scorecard: the leaders. These people agenda’s are on the other hand already so fully allocated, and most of them can’t afford yet another thing. When introduced this way often the scorecard dies a silent dead within its first year of existence, a sad story not often told.

Missing link with projects and change initiatives

All organisations these days know a mix of activities

Some belong to the execution of production or service processes, or "business

as usual",

Other are part of one or more projects that change the way of working, these

are aimed at improving the processes, or adopt the organisation to its

economic or social context.


Everywhere this mix is present, for some this is 50/50, for other 80/20, or the reverse, but in all cases, both dimensions are essential for the future and welfare of the company.

Nevertheless, this segmentation of activities between processes and projects is often not reflected in Balanced Scorecard Initiatives. Very often, and this is very natural, the scorecard system is designed to reflect the actual status, sometimes underpinned by trends and comparisons, but not often coupled with the change program. Consequences of this are problems in defining priorities and budgets for projects, unclear links between strategy and projects, and projects cancelled when "too difficult".

Even when the above problems are tackled, the fact of not being integrated has still a strong influence on the efficiency of the change initiatives, in other words too much energy is lost.

Focus on finance only

A last but not less important potential trap is the fact that at least 75% of all scorecard implementations these days show a pure financial instrument (this is based on an assessment of the opportunities we received to automate the scorecard with the Oracle Balanced Scorecard tool, and a survey among 10.000 users by the balanced scorecard collaborative).

This effect is enforced by a strong interest by many CFO or financial directors in Scorecard systems, as it is clearly influencing their "power" position. Indeed many, if not most companies are still strongly financially driven, in particular if the company has a "share price" on one or more stock exchange places.

This is also very normal because financial people have tried to express more and more indicators of value into increasingly sophisticated figure and ratios like EBITDA or EVA (Earnings Before Interest, Tax, Depreciation and Amortization / Economic Value Added) just to name some. The danger here is not only that no new indicators, typically leading indicators are developed and used, but more important that only one of the four quadrants of the scorecard is used, and thereby only 25% or less of its potential power.


Good Practices

The Balanced Scorecard at GFS

Good Practice from Global Financial Services

Resource: EFQM Good Practice Database


5.2 The Global Financial Services, a case study on the implementation of Balanced Scorecard 5.2.1 The Balanced Scorecard at GFS

Overall results of the PIP program had proved to be unsatisfactory because of discrepancies between financial performance achieved by individual branches and bonuses awarded under the PIP program. Therefore there was a need of such a program/system that could bring less complex and balanced approach to the problems that had been generated during the years.

In early 1995, GFS refined its corporate strategy to focus on five "imperatives" for success overtime, namely:

1. Achieving good financial results - financial perspective

2. Delivering for customers - customers perspective

3. Managing costs strategically - Internal business perspective

4. Managing risk - Internal business perspective

5. Having the right people in the right jobs - growth & learning perspective

In order to evaluate progress against these imperatives, each business was required to implement a "Balanced Scorecard" of related measures. A senior executive discussed the goals of the BSC approach in GFS's employee newspaper:

"The Balanced Scorecard is a simple matrix that leads us to examine how each business, as well as the whole, does in all those performance blocks. In the process, we can also assess individual performance against the same criteria. It not only sums up what we

want to do, it does it in a way that assures every one in the company knows what we are trying to accomplish and what is important in getting job done. Perhaps the most important thing how it works is the balance. Our past problems can almost always be traced to too much of a single-minded focus on bottom-line earnings, or building revenues, or something else to the exclusion of other important issues. By forcing us to focus on all of the key performance factors, the Balanced Scorecard keeps us in balance"

The Western region, therefore, replaced the PIP program with the BSC performance evaluation and compensation system in May 1995; other NABD regions followed in 1996. As per figure 18, the performance measures in the Western region's BSC fall


into six categories; Financial, Strategy Implementation, Customer, Control, People, Standards.

The first three categories were each measured using multiple quantitative indicators. Financial performance was evaluated based on revenues, expenses and margins. Through the first quarter of 1996, strategy implementation was measured using the number of Premier, retail, and business/professional households, household attrition, assets under management (AUM), and assets under management per household . The strategy measures were, however, change in the second quarter of 1996, with retail asset balances, market share, and the number of new households and customer net revenue per house hold for each customer category (Premier, retail, and business/professional) replacing household attrition, AUM and AUM per household.

Under the customer perspective, two measures evaluated performance: overall satisfaction with GFS and the branch quality index, both carried over from the 1995 PIP program discussed earlier. Control was measured by the results of periodic internal audits of operations and legal/regulatory compliance. The people and standards evaluations represent qualitative assessments by the branch managers' supervisors. Factors considered in assessing people-related performance include performance management, teamwork, training and development (both for the branch manager and other branch employees), and employee satisfaction. Standards criteria are leadership, business ethics and integrity, customer interaction and focus, community involvement, and contribution to the overall business.

Unlike the formula-based PIP program, the BSC system required the senior managers to weight subjectively the various performance measures when evaluating branch managers' performance and determining their bonuses. Performance was first compared with targets for each of the various financial, strategy and customer measures. Branch managers then received a 'par rating' for each of the measures within the financial, strategy and customer categories, where 'below par' reflected performance below expectations, 'at par' represented expected performance, and 'above par' reflected better than expected performance. Ratings for performance on individual measures were, therefore, subjectively aggregated into par ratings for the financial, strategy and customer perspectives.


The manager's area director recommended the quarterly bonus for a branch manager initially after a review of the branch manager's scorecard. This recommendation was then taken to a meeting where the president of the Western region, his staff (the finance director, human resource director, compensation manager, and service quality director), and the five area directors discussed each recommendation. The discussion generally focused on the justification for the overall rating recommended for the branch manager, particularly when the overall evaluation of a manager was 'above par' and the manager was held eligible for substantial bonus.

Scorecard Implementation Issues At GFS

A number of implementation issues arose when the BSC replaced the PIP program. However, two issues were critical:

1. The time required by the scorecard process

2. The perceived capacity of GFS's information systems to generate the performance data required by the scorecard.

Compared to PIP program, the BSC process proved to be extremely time consuming, at least in its initial stages. It demanded more time then the PIP due in part to the large amount of required paperwork at the branch level. However, under the PIP program branch managers allocated bonus pools to other branch employees at their discretion. Under the BSC process, scorecards for all branch employees, including tellers, had to be prepared and managers had to make bonus recommendations to area directors based on their overall evaluation of employee ('above par', 'at par', 'below par').

Apart from the time demands of the scorecard, most of the branch managers complained about the bank's management information systems. There were concerns about both the accuracy and timeliness of the information required by the scorecard. Several branch managers believed that the strategy implementation measures generated by the MIS - numbers of household, assets, and the like - were especially inaccurate. They also reported that MIS reports were frequently delayed. Finally, a number of managers also complained about the need to input data manually from various information systems into a scorecard spreadsheet, rather than having an integrated scorecard system.

Impact of Balanced Scorecard on GFS

Despite the subjectivity and complexity of the BSC, GFS's senior management believes that the scorecard alleviates to major problems as experienced with the PIP program:

1. First, the absence of any prescribed formula and the ability to award bonuses of any size up to the maximum compensation levels at each labour grade leaves room for discretion in determining bonuses.


2. The BSC, in principle, forces branch managers to consider all six categories of performance since evaluations and compensation may be based on any combination of these measures.

Moreover, under the PIP system, branch managers automatically received bonuses for meeting hurdles and then achieving certain performance objectives. This allowed some managers to earn bonuses by growing the size of the branch even though margins were stagnant or declining and expenses were not controlled, although this became more difficult to do in the first quarter of 1995. The BSC system was designed to alleviate the problems caused by the PIP program by incorporating all corporate imperatives into compensation decisions. The BSC was communicated to GFS's employees as:

"Why balanced? Because it requires a business to do well on five separate measures of performance - not just two of them not even four out of five… The point is, under the scorecard, all factors must be given weight - cost management as well as serving customers, people as well as making money, and attention to risk. When the businesses click on all five disciplines, (GFS) will the premier global growth company it aims to be".

The BSC yielded a few significant improvements over the PIP system during its first year. Although the more subjective scorecard system was designed to reduce the complexity and frequent changes experienced with the formula-based PIP system, the evidence suggests that the subjectivity embedded in the scorecard system actually increased the complexity of the bonus determination process and the frequency with which performance objectives changed. The level of 'balance' in bonus determinations also appeared to have declined somewhat in the first year of the scorecard process, with financial performance becoming the primary determinant of bonuses. The scorecard also had little effect on branch managers' perceptions of strategic goals and objectives of compensation determinants, despite statements by GFS that the BSC provided the firm with its first integrated corporate strategy. As a whole, it did not appear to have changed the Western branch managers' understanding of the firm's strategy or the connection between their jobs and the achievement of the strategic objectives. Finally, the evidence does suggest that the scorecard motivated managers to place more emphasis on non-financial dimensions such as customer satisfaction, branch quality and household growth.

© 2000 European Centre for Total Quality Management, School of Management, University of Bradford, Emm Lane, Bradford, BD9 4JL. This report cannot be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, faxing, recording or information storage and retrial without the permission of the authors.


5.2.2 The implementation of Balanced Scorecard at GFS

Background

The Western retail banking operation is part of GFS's North America Banking Division (NABD). The region's branches are organised into five geographical areas, each consisting of 5 to 20 branches. Branch managers within these areas report to an area director, who in turn reports to the president of the Western banking operation.

Prior to the 1990s, GFS had had, according to a senior executive, 'a thirty-year obsession with decentralisation'. Business units were held accountable for earnings and not a lot of other measures. Within its U.S. retail banking operations, performance was measured and branch managers were compensated inconsistently. Beginning in 1993, GFS implemented a formula-based system for compensating retail branch managers throughout the U.S. The system initially rewarded profitability and growth once customer satisfaction and operational audit hurdles had been achieved, but it changed rapidly during the three years it was in use. It was replaced in the Western region in the second quarter of 1995 and elsewhere in the U.S. in the first quarter of 1996 by the "Balanced Scorecard" system. The BSC contained six categories of financial and non-financial performance measures, some of which were qualitative, and was intended for use at all levels of the organisation, not just branch managers. Unlike the formula-based program, the BSC used subjective weightings to aggregate the various scorecard measures when determining overall performance evaluations and bonus awards. The report examines whether managers' understanding of strategic goals and compensation determinants differed under the two systems and investigates whether the BSC met the objectives of generating closer links between strategic goals and compensation, improvements in non-financial strategic drivers and ultimately improved financial performance.

The PIP Programme

In 1993, the NABD implemented the "Performance Incentive Plan" (PIP) to motivate and measure the achievement of the organisation's strategic mission of being "the best and only place for target customers and businesses to manage all of their money any time, anywhere any way they want". As per appendix 1, the PIP was both 'balanced' i.e. it included both financial and non-financial measures - and 'formulaic' i.e. bonuses were determined by explicit PIP formulae. In order to receive quarterly bonus, branches were first required to receive satisfactory scores on any internal operational audits conducted during the quarter and to pass a customer satisfaction hurdle as measured by a market research firm's survey of customer satisfaction with branch performance.

Moreover, in 1993 & 1994, a single question asked customers to rate their overall satisfaction with their primary branch, on a seven-point scale. For each branch, the percentage of customers answering in the top two categories was calculated. In 1993, customer satisfaction levels in the top 75% of the Western branches received passing scores. In 1994, customer satisfaction levels that were statistically equal to or greater than the region mean received passing scores. In early 1995, however, the single question asking customers to rate their overall satisfaction with their primary branch was replaced by the branch quality index, a composite of 20 items that was believed to have better psychometric properties than the single-item


measure it replaced. The most heavily weighted item in the branch quality index (45%) asked customers to rate 'the overall quality of (the branch's) service against your expectations' on a five-point scale. Branch quality indices that were statistically equal to or greater than the region mean received passing scores in the 1995 version of the PIP programme.

Quarterly bonuses were received by the branches passing the customer satisfaction hurdle in 1993, for achieving improvement targets in any one of eight performance objectives related to growing the business (tier I and tier II household growth, consumer checking balance growth, business and professional checking balance growth, revenue growth, and relationship growth), resource management (expenses as a percent of revenue and footings as a percent of tier I and tier II households), and 'overall performance' (quarterly margin growth). There were minor changes in these objectives in 1994. In addition to passing the satisfaction hurdle and having satisfactory audit scores, branches were required to achieve targets in at least four of the eight performance objectives to be eligible to receive a quarterly bonus.

Moreover, in the 1995 version of the PIP, the objectives shifted further and included customer satisfaction (80% of customers rating overall satisfaction with GFS in the top two categories), growth (tier I and tier II households, checking balances, liabilities and assets and revenues) and resource management (growth in margins and usage of automated tellers and other remote channels). To be eligible for bonuses under the 1995 PIP programme, branches had to pass the satisfaction hurdle (based on the branch quality index), have a satisfactory audit score, and meet their financial (revenue and margin) targets.

Problems with PIP Programme

The computation of bonuses under the PIP system became more complicated over time. The increased complexity under this system caused in:

- Management's frustration with a formula-based compensation system that allowed branches to earn bonuses without delivering financial results.

- Management's belief that retail banking customers were ultimately customers of GFS rather than of a particular branch, and that customers' overall satisfaction with GFS was more significant for long-term business results than customers' satisfaction with their branches.

Moreover, to ensure that branches were achieving financial targets, the 1995 PIP programme added a financial hurdle that made it much more difficult for unprofitable branches to receive bonuses. The growing complexity of PIP bonus formulae was also reflected in the size of the document outlining each year's program: nine pages in 1993, 38 pages in 1994, and 78 pages in 1995. As a senior GFS officer stated in his remarks to 1994 PIP bonus recipients:

"If we take a focus that everything is all right with my area but there's something else wrong out there which is not my concern, we will lose long term. You own the customer. That's the fundamental building block we have".


Insights

Eurocom



6. Insights 6.1 Eurocom What:

At all levels of the organisation, everyone has a small number of balanced objectives to focus on. These help them realise how what they do makes a difference to the larger organisation. By balanced we mean we mean organised around the following questions:

What must we do to delight out shareholders?

What must we do to delight our customers and people?

Which processes must we excel at?

What must we do to learn and grow?

Starting with 16 key objectives for the whole company owned by the Executive Committee, each business created their own 16 objectives that support the previous ones and add what is specific to their business. This process gets replicated for the whole company at each management level (down to individual teams).

Why:

We needed to align where people invested their energy with the company

strategy.

We had so many measures and targets that it was not easy to see what really

mattered.

Outcomes

Individual and teams understand what to focus on.

People began to understand that they needed to satisfy all stakeholders at the

same time.

When:

Need a top team that is ready to work to a set of shared objectives.

Need an organisation that allows individuals and teams to reflect their own

circumstances in their objectives.

Need company-wide Intranet to make it visible and easy.

Need a link between objective achievement and the reward system.


How:

Need for change was expressed by the Managing Director.

A team conducted some research and benchmarked other organisations.

This team proposed a solution that was accepted by the Managing Director.

What was going to happen and the links with the reward scheme were widely

publicised to the organisation.

A first series of workshops was run with the top team (for each quadrant they

brainstormed potential measures, selected the key objectives, assigned

indicator, target and an objective owner to them).

The same process was replicated at each level (workshops included the

training).

The outcome was published at each stage.

It was linked directly to the reward system for managers.

Do’s:

Invest time in the initial workshops to create true ownership of the outcome

by the senior team.

Make the criteria for individuals to be successful dependent on the success of

the wider team.

Publish, after finalisation, each set of balanced objectives with measures and

targets to the lower levels of the organisation.

Create a one year and a 3 or 5 year set of targets to be sure that these

objectives will move towards your strategic vision.

Have at least one objective from each perspective at all levels of the

organisation.

Don’ts:

Have more than 16 objectives and around 30 measures at any level

regardless of how large and complex the organisation.

Choose measures which will require you to develop new, sophisticated

measurement systems before they can be tracked effectively.

Have more than six objectives in any perspective.

Use external consultants to support the workshops as it can make the

participants reluctant to discuss commercially sensitive issues.


Balanced Objectives Company-Wide


Insight

Dexia-Sofaxis – Hoshin



6.2 Dexia-Sofaxis – Hoshin 6.2.1 Strategy deployment with Balanced Scorecard coupled with Hoshin What:

The Balanced Scorecard method made it possible for us to move from an implicit, intuitive strategy formed in the founder’s mind to an explicit strategy whose coherence is controlled and assessed for all executives. The Hoshin method also provided us with the opportunity to deploy that strategy for the processes and departments by linking current activity objectives to the improvement objectives and to adjust the resources required by the two types of objectives.

Why:

1) We wanted to provide all employees with a realistic perspective of the strategic objectives and how they are implemented in all processes and departments and cascaded into their individual objectives. 2) Involve all executives in the definition and assessment of the strategy.

Outcomes:

1) A well formalised coherent strategy (see BSC chart) and a strong cascading to process (see Hoshin card of one process), department (departmental agreement) and employee (annual assessment meeting form). 2) 100% of the staff is involved in departmental goal setting and undersigning the departmental agreement that synthesises all departmental objectives and indicators to measure them.

When:

Every year at the strategy review and on the basis of the input data, senior management reviews the strategic axes of the balanced scorecard and then puts them to work using the Hoshin method in all processes and departments and authorises the required resources. An orderly preparation and organization enables this to be performed in one single day.

How:

1) Synthesis of all internal and external data needed for decision-making (distributed one week before the strategy review), 2) Report of all process reviews with highlighted avenues of endeavour, 3) Updating of the balanced scorecard, 4) Distinction of the avenues of endeavour to meet the objectives for each process, 5) Cascading of the objectives for each process (objectives for each department), 6) Weighted vote to outline the priorities of the improvement areas, 7) Transfer of the prioritized avenues of endeavour to the processes, 8) Defining the required resources.


Do’s:

Rigorous prior preparation of the input data and Hoshin table matrices for

each process.

Rigorous organization and tight piloting of the strategy review day.

Prior reflection by General Management upon the year’s principal strategies.

Don’ts:

Be drowned by unsynthetized input data for decision-making.

Allow the strategy review to get out of control and into academic issues.

Carry out a strategy review in an intellectual way only.

You really do need teamwork - use a large room with brown paper glued to

the wall, have the participants write objectives on post-its and vote on

priorities.

Strategy deployment with Balanced Scorecard coupled with Hoshin Diagram - By:DEXIA- SOFAXIS


Strategy deployment with Balanced Scorecard coupled with Hoshin Diagram - By:DEXIA- SOFAXIS


Insight

Zahnarztpraxis



6.3 Zahnarztpraxis 6.3.1 Developing our scorecard with all employees What:

We introduced our scorecard with a workshop with our whole team. Our mission is based on the expectations of our customers (patients), the vision, our strategy and the values are based on the personal wishes of all our team members. Every year, between 50 and 70% of our team re-evaluate all elements of this strategic leadership model. Three-monthly agreements on objectives include all the scorecard factors within the area of impact of the staff position in question. The main dimensions of our scorecard are (bottom up): Communication, potentials, processes, customers, business results. The scorecard is regularly reviewed by student theses.

Why:

The elements of a strategic leadership model are only accepted by every team member, when all – or at least most of them – have been invited to create them.

Outcomes

A very good understanding of strategy by everyone.

Values are not a poster in the reception area, they are a picture of our culture

and an important part of our life!

When:

Apply the insight after the management team decided to make a strategic

change.

You need a open communication culture in your organization. People need to

be open enough to say what they really want!

The mission was defined by the expectations of our customer (=patients).

Then our approach was that the whole team developed the values, our vision

and the strategy with scorecard together under the leadership of the owner.

How:

Start the implementation by creating an open communication culture.


Key steps:

Train a strategy team or (better) the whole team in an SE (Small Enterprise)

and make workshops.

In ZAHNARZTPRAXIS 10 of a total of 13 people were the scorecarding team.

We needed 6 half days to develop a new scorecard distributed over 4 months.

To develop the scorecard, we took the traditional approach of Kaplan and

Norton.

Implement review cycles with your people.

Do’s:

Train your people beforehand.

Lead the process yourself.

Ask your people about their personal vision.

Just do it!

Don’ts:

Think you (as the leader) are the one who knows best!

Delegate this task to a project team, do it yourself!


Customising the Balanced

Scorecard (BSC) for

Public Sector



7. Customising the Balanced Scorecard (BSC) for the Public Sector More than ten years ago Kaplan and Norton developed a revolutionary performance management tool and called it The Balanced Scorecard (BSC). Since its inception, thousands of organisations have introduced BSC and achieved remarkable results. The global list of users includes large, small, mature, start-up, profit, non-profit, private and public organisations. Although first developed in the early nineties to solve problems with performance measurement BSC has evolved into a framework for managing change by helping organisations focus on their strategy.

Figure One: A Strategic Map System – Designed around a Longer-Term Strategic View

BSC has also been widely implemented in the Public Sector, despite the fact that sometimes the “A-Typical” BSC model simply does not suit specific Public Sector needs. It comes as no surprise then that the successful implementation of the BSC in public, non-government and non-profit organisations is closely linked to the flexibility of the framework to adapt to individual needs.

One of the many challenges facing all government organisations is how to address placement of the financial focus in the strategic map, as the bottom line of making profit is simply not present. As a result, these organisations must place greater importance satisfying a broad range of stakeholders. Having this diverse set of stakeholders makes the process of constant reviewing and balancing metrics and measures essential.

Due to the fact that Public Sector organisations need to focus their attention on a broad range of stakeholders, which typically include client departments, customers, community and their own people. These organisations often choose to break outside the “A-Typical” BSC model and develop completely customised scorecards, designed specifically to achieve their goals. Many of these organisations have been developing custom scorecards for many years, with great success.


One such organisation is the Australian government agency, Centrelink. They have been using their BSC to manage change in their newly amalgamated organisation since its inception in 1997. Their approach was to develop a custom scorecard, in line with existing organisational terminology, which focuses on a “Client Partnerships” perspective rather than a “Financial” one. This unique and successful application of BSC has been constantly evolved to now include five perspectives linked to six strategic goals are described as follows:

Figure Two: An interpretation of Centrelink’s Balanced Scorecard Descriptors.

Centrelink’s sixth goal is “to be the first choice and benchmarked as the best practice in service delivery”, and is said to be based on their performance against the first five goals.

Creating your own BSC model is nothing new. In fact it is seen as necessary, in some cases, to achieve specific organisational requirements. What is unique about Centrelink’s approach is that their model consists primarily of five perspectives. Compare this with the four perspectives of Kaplan and Norton’s BSC Financial, Customer, Internal, Learning and it becomes clear that customisation is often necessary.

Centrelink have identified that their top strategic priority is their “Client Partnerships”, closely followed by Customers and the wider community. Their “People” and “Innovation” perspectives replace the “Internal” perspective. Elements of the


“Financial” perspective come through their “Cost Efficiency” perspective and are primarily focused on efficiency dividends rather than profit.

Centrelink’s strategic objective, “to be the first choice and benchmarked as the best practice in service delivery” is not so much a perspective rather an all encompassing goal. Their high improvements in efficiency dividends are testament of their success. They rightly believe that their approach is on track whilst remaining open to continuous improvement.

Kaplan and Norton themselves, prefer to view applications of their methodology as works in progress and place great emphasis on encouraging organisations to constantly review their strategy. Centrelink recognises this constant process of improvement, and admits it has not been easy to achieve. In their case it has taken three generations of scorecards to reach their current model. It then comes as no surprise that Centrelink places great emphasis on their commitment to continuous improvement.

Other key lessons Centrelink have learned in their journey to implementing a performance culture include:

The importance of Senior management support

Starting simple and reviewing the strategy often

Getting the metric right and having useful and timely measures in place

Ensuring ownership of these metrics and measures by management

Communicate the scorecard to all staff

Use technology where possible

Focus on performance improvement rather than blame management.

In summary perhaps the most important lesson to take from Centrelink’s case is that real change requires not only the right framework but also organisational wide dedication and the ability to be prepared to constantly review the approach. This case also demonstrates “thinking outside of the square” and the benefits of using the BSC framework as a strategic tool rather than a measurement tool. It also proves that the strategy-focused approach helps stamp out “blame management” and in Centrelink’s case keep them on the track to success.

Read more about Centrelink’s success story in this report: Centrelink’s Balanced Scorecard

Bibliography:

Centrelink’s Balanced Scorecard – The Auditor General Audit Report No.9 2002-2003 Performance Audit – Australian National Audit Office

The Strategy Focused Organisation – How Balanced Scorecard companies thrive in the new business environment, Robert S. Kaplan and David P. Norton – © 2001 Harvard Business School Press.

Managing Strategy is Managing Change – David P. Norton Volume 4, Number 1 January- February © 2002 Harvard Business School Press

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