balanced scorecard in the nordic countries - public sector experiences dr. nils-göran olve ;
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Balanced scorecard in the Nordic countries- public sector experiences
Dr. Nils-Göran Olve www.cepro.se; www.ida.liu.se/labs/eis/people/ngolve.html
2002 © ConcoursCepro. All Rights Reserved. 2
”The Nordic countries”?
2002 © ConcoursCepro. All Rights Reserved. 3
Founded in 1997 • Independent • Growing SuccessfullyDistributed Offices across North America and Europe and in Sydney, Australia
The Concours Group
Concours (kôn’körs’,-körs’) n. the act of moving or flowing together … from the Middle English and Old French … to assemble.
Stockholm office, CEPRO, founded in 1968 as a separate company.
2002 © ConcoursCepro. All Rights Reserved. 4
Offering three integrated services
Research
Education
Consulting
2002 © ConcoursCepro. All Rights Reserved.
First published in
1997, revised in 1999
(Also in Finnish 1998)
Wiley 1999;now translated
also into Spanish, Japanese, Korean,
Portuguese and Dutch
Capstone 2002
2002 © ConcoursCepro. All Rights Reserved. 6
Agenda
• Why scorecards became popular in the Nordic countries
• Scorecard use in the public sector
• Some ideas for scorecard implementation and use
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Why scorecards became popular in the Nordic countries
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Du
rin
g t
he
pa
st
fou
r y
ear
s
”Market Cap”,shareholdervalue
EquityLiabi-lities
Assets250
Pre
miu
m
(=”I
nte
llec
tual
Cap
ital
”?)
”Unseen wealth”?- Ericsson’s value
SEK(bill.)
350
2002 © ConcoursCepro. All Rights Reserved.
The Balanced Scorecard
Tomorrow
Yesterday
Today
Goals Measures
Goals Measures Goals Measures
Goals Measures
FinancialPerspective
Customer Perspective
Learning and Growth Perspective
Internal Process Perspective
Vision
Kaplan & Norton (1992, 1996, 2000)
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Cus
tom
ers
Pro
cess
es /
Inte
rnal
eff
icie
ncy
Fin
anci
al /
Ow
ners
/ M
anag
emen
tD
evel
opm
ent
& r
enew
al
Strategic aims Critical Success Factors
From vision to action -- responsible: __________________
Action plansMetrics and targets
Vision:…...
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The Balanced Scorecard Strategy Map(Robert Kaplan, 2000)
Improve Shareholder Value
Revenue Growth Strategy Productivity Strategy
Build the Franchise Increase Customer Value Improve Cost Structure Improve Asset Utilization
A Motivated and Prepared Workforce
Shareholder ValueROCE
New Revenue Services Customer Profitability Cost per Unit Asset Utilization
Price
Financial Perspective
Customer Perspective
Internal Perspective
Learning & Growth Perspective
Product/Service Attributes
Strategic Competencies
Strategic Technologies
Climate for Action
“Build the Franchise” “Increase Customer Value”
“Operational Excellence”
“Good Neighbor”
(Innovation Processes)(Customer
Management Processes)
(Operations & Logistics Processes)
(Regulatory & Environmental
Processes)
Customer Value Proposition
Quality
Operational Excellence
Customer Intimacy
Product Leadership
Customer Satisfaction
Customer Acquisition Customer Retention
Time Function Service Relations Brand
Relationship Image
2002 © ConcoursCepro. All Rights Reserved.
• Great interest:– 27% of BUs in large Nordic firms in 1999, 61% ”within 2 years”– One Swede in 600 bought the book, plus other books – ”Gartner estimates that 40% of the Fortune 1000 companies will have
a Balanced Scorecard in place by the end of 2000”
• But: Disappointments not uncommon:– just an empty shell and CEO rhetoric– just one more software package– just additional key ratios
• How it was meant: a communication tool to…– agree on tasks– communicate experiences– celebrate success and learn from it
Where we are now: reflections on the current state of BSC projects
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Down to individual employees
• A format for discussing expectations and achievements, and creating trust and motivation
• Empowered employees cannot be programmed. They need to share the vision
• Companies increasingly ask employees to share in building future capabilities ”on speculation”:– building customer relations– developing new skills and ways of operating– documenting for the future– …...
People need guidance and motivation for this!
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To tell the story of our vision
• …to our employees
• …to customers, partners and others whom we engage in our ”imaginary organization”
• …to the market for new talents
• …to our owners and banks
• …to society at large
Not a static value, but a convincing and dynamic logical case why our way of preparing for the future will be rewarded!
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Scorecard use in the public sector
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The public sector in Sweden
• 289 primary local authorities (municipalities; ”communes”)– roads, schools, welfare…
• 21 counties (”secondary communes”)– health services, public transit etc
• >300 government authorities, boards, committees etc– Post, railroad etc are state-owned companies which are
gradually being deregulated and opened to competition– Tradition of greater independence from government than in
most countries
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Books and booklets have been produced, and sometimes distributed free of charge, byorganizations like the Association of local authorities and the National Financial Management Authority
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State level: the Swedish government
• Several attempts, but no major examples
• The ”Legal, Financial and Administrative Services Agency” a pioneer
• Mostly on local level – and some cases where existing metrics have been restructured according to four (or five) scorecard perspectives
• Encouragement from the Swedish National Financial Management Authority: book, conferences, community
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The Swedish Police
• National Police Board + 21 county Police authorities
• Scorecard projects in several counties:– Voluntary; encouraged from the national level– Participation a central theme– Often very down-to-earth and concrete, starting on
operative level– No coherence and still after several years no unifying
project. But local scorecard activities persist
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A Finnish state example
• Third stage of development program for the management of the Road, railroad and maritime administration
• Proposes BSC-like model
• Indicators: 1) describe current situation, 2) monitor development
• Used in connection with budgetary planning. Measures to be reported in March and November each year.
• Ministry of communication to develop method for tracking the situation continuously for all transportation in Finland, beginning in 2001
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County level: Jönköping one of the leadersDepartment of internal medicine, Högland hospital
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Hospitals in the Stockholm region
”4 P”:
• Patients
• ”Personal” = employees
• ”Pengar” = money
• Processes
Patients
Money
ProcessesEmployees
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Aiming for virtuous circles
Patients
Money
ProcessesEmployees
Will attract contracts from purchasing authorities
Willattract
competent staff
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Finnish public servants to be measured with BSC
• Decision in 2000 to develop a model based on ”useful and valid multidimensional (BSC) systems for evaluating and informing about the results of local government activities, to support strategic activities and personnel leadership”.
Factors to take into account:– Service effectiveness
(available, adapted to needs)– Service quality– Customer satisfaction– Productivity– Profitability– Agility of service processes– Employee ability
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Local government level: BSC in Swedish local authorities
• At least 30 (of 289) have more extensive projects
• About half of these only for city government use
• Three or four are implementing complete ’balanced steering’
• Schools and welfare are the most popular areas for scorecards
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Helsingborg - 1
• Two years of education and tests
• Project organization with:– Steering group with political representatives
(members of city government)– Project team consisting of 14 project leaders. These
answer for their areas, but grouped in new constellations (eg, environment+construction+ technology)
• Scorecards on (at least) three levels, but only some metrics are aggregable
• ”Without digitization scorecards will die”
• Participation, dialogues – cf. Helsingør (”DW but no process), but yet they collaborate…
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Helsingborg - 2
• ”By describing activities from several perspectives knowledge about the whole increases and deepens. It becomes easier to carry on a dialogue about activities, to prioritize, follow up and evaluate. Balanced steering creates a learning process, where the emphasis is on the future and on development.”
• ”All activity areas shall develop balanced scorecards, the contents of which shall be of a general nature and form the basis for comparisons within and between different units and activities over time, where possible.
The scorecards shall be accessible for citizens, employees and other interested parties within accepted ethical norms.
They shall be easy to understand and clear for different constituencies so that each and every one without specific pre-knowledge shall understand their contents. The information in the scorecards shall in a simple explanatory way be possible to trace to their source, in order to achieve optimal credibility.”
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• Began with seminars in the committees for welfare, education etc.
• Don’t go too fast – important to have many involved
• Not much was entirely new. Some were concerned that BSC would duplicate existing quality management projects
• Important to include contractors who carry out the actual activities
• Balance handbooks: Who measures? How often? How are measures organized and presented?
• Politicians first informed, than involved
Helsingborg - 3
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Balanced SteeringBalanced Steering
Scorecard proposals - 2002-03-15Scorecard proposals - 2002-03-15Content:Content:
* Vision and activity idea / area of activity.
* Four perspectives: Economy/Customer/Process/Future
* Three indicators per perspective
* Explanation: [ CSF-goal-how-indicator ]
* Balance handbook: [ CSF-Indicators-aim-method- responsibility-execution-frequency-perspective]
Subgoal 1.Subgoal 1.
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Ex. Project organization Balanced Steering
Political steering group•County council representatives* Project leadership (empl)
PROJECT TEAM* Project leader* Subroject leaders
EDUCATION
TECHNOLOGY
WELFARE
CULTURE
DEVELOPMENTRESOURCE GROUP* Finance.* Personnel.* IT
SUBPROJECTS
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Ekonomi / Finans Kommuninvånare / Brukare
Process / Arbetssätt Framtid / Utveckling
Balanserat styrkort - Insatser för äldre
Framgångsfaktorer:Använda ändliga resurser effektivt
Indikatorer: Värde: Mål:1. Utfall / budget 102 % 100 %1.1 Prisutveckling utöver budget 0,0 % 0 %1.2 Volymutveckling utöver budget 0,6 % 0 %
Framgångsfaktorer:1. Rättssäkerhet2. Respektfullt bemötande3. Delta i den offentliga debatten
Indikatorer: Värde:1. Andel nöjda kunder -1.1 Antal inlämnade besvär till Länsrätten -1.2 Antal bifall i Länsrätten 0 2. Antal klagomål avseende bemötande 47
Framgångsfaktorer:1. Aktiva medborgare2. Möjliggöra kvarboende i närområdet
Indikatorer: Värde:1. Antal medborgarprojekt 22. Andel av befolkningen över 65 år i särskilda boendeformer 5,6 %2.1 Andel av bef över 65 år med insatser i ord boende 13,9% 2.2 Indikator kopplad till kvarboendeprojektet -
Framgångsfaktorer:1. Uppföljning av att beslut genomförs2. Rätt kvalitet3. God tillgänglighet4. Attitydförändring
Indikatorer: Värde: 1. Andel inkomna handlingsplaner 9,4 % 2 Andel inkomna kvalitetsplaner 0 %3. Telefoniuppföljning -
Helsingborg kännetecknas av hög tillgänglighet.
Bostadsområden, närservice, kollektivtrafik, vägar och gator är anpassade för att alla enkelt ska kunna
ta sig fram i staden. Även de som har begränsad rörlighet kan delta i samhällslivet.
I Helsingborg tar varje invånare ansvar för sig själv. Var och en planerar för sin egen livssituation - och sin egen ålderdom. Målet är god hälsa och
eget boende på egna villkor, så länge som möjligt.
Vården och omsorgen i Helsingborg kan erbjuda flera alternativ. Man arbetar inte minst förebyggande, för att underlätta ett självständigt liv i eget boende. Alla kan
förlita sig på att få omvårdnad när behovet finns och på att få inflytande över
vårdens utformning.
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Many Danish local authorities use BSC
• One example: Århus, with 7000 employes (400 managers)
• ”It’s also a matter of image – to show that old-age care practices modern management.”
• The cornerstone is a set of values like dialogue, responsibility, trust and commitment.
• Four perspectives: Political, Economic, Environmental, and Employee
• 2001 goals focus on user satisfaction, complaints, employee absenteeism and contact time with users. Quarterly measures, to be publicized and benchmarked against peers and other towns like Copenhagen, Odense and Ålborg.
• Precise and operational measures are essential, and that they are presented in a ”manager-friendly” way. All employees need knowledge about ideological values and targets.
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A Norwegian example: 2001 BSC prize to Stavanger
• Four perspectives: Users, Processes, Employees, Financial
• Surveys of citizens and employees, eg:– Childcare twice a year– Old age homes– Culture surveys among employees
• Budget 2002 and business plan 2002-5 use the same structure. IT integrated with other systems. Well received
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Summary of experiences - 1
• Everyone stresses dialogues and participation
• Lots of support from the employees – sometimes more difficult to convince the politicians. (Are clarity and logic antithetic to politics?)
• Many reformulate the four perspectives, but most stick rather close to the original ones. Some change their order, eg:
Citizens
Finances
Processes Renewal
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Summary of experiences - 2
• The four perspectives can also be made to parallel those of a normal business, but adapted to the non-profit character of the public sector:
• In this way, the scorecard will help in deciding:– How extensive and expensive activities are justified– To prioritize between users– Boost morale by showing how employees contribute to society.
For all of these, dialogues are essential.
Owner
Renewal
Citizens Process
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Current concerns in managing the Swedish public sector
• Those managing activities must be able to describe what they want
• Tasks should be more stable
• Need to find good ways to achieve involvement from employees, which is necessary
• Responsibility and authority should match
• Although money may be short, that should not lead to short-sightedness
All of these make many believe that BSC is a timely idea!
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Ideas for scorecard implementation and use
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How it is done
A format for discussing expectations and achievements, and creating trust and motivation
• Start with interviews and documents - to know where we are
• Seminar with management team:– Strategic aims and critical success factors– The logic, ”the story of our success”
• Breaking down the scorecards to lower levels
• Concurrently, start developing metrics
• Consolidate with business plan
• Gradually: create IT support structure
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ManagementControl Systems
ManagementControl Systems
IT Support andProcedures
IT Support andProcedures
LearningOrganization
LearningOrganization
StrategyDevelopment
StrategyDevelopment
A scorecard process as a virtuous circle
2002 © ConcoursCepro. All Rights Reserved.
ManagementControl Systems
ManagementControl Systems
IT Support andProcedures
IT Support andProcedures
LearningOrganization
LearningOrganization
StrategyDevelopment
StrategyDevelopment
Breaking the circle
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KappAhl as the industry’sleading service company
KappAhl as the industry’sleading service company
FinanceFinance CustomerCustomer EmployeesEmployees Processefficiency
Processefficiency
Develop-ment
Develop-ment
Increasedperformance
per square metre
Increasedperformance
per square metre
Loyal andsatisfied
customers
Loyal andsatisfied
customers
Selling andsatisfied
employees
Selling andsatisfied
employeesGoal-orientedorganization
Goal-orientedorganization GrowthGrowth
Area of focus
Strategic goals
Critical successfactors
Measures
Smart-looking and goodvalue for up-to-date people
Smart-looking and goodvalue for up-to-date peopleBusiness idea
Vision
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Focus area:CustomerFocus area:Customer
Action plan for one focus area
(excerpts)Strategic aim:More loyal and satisfied customersCritical Success factors:1. Expression in shop2. Active salespeople in every shop3. Visitors in shopMeasures:1. Customer per visit2. Winning the company contest (customer contacts)3. Number of visitors per year
Strategic aim:More loyal and satisfied customersCritical Success factors:1. Expression in shop2. Active salespeople in every shop3. Visitors in shopMeasures:1. Customer per visit2. Winning the company contest (customer contacts)3. Number of visitors per year
Action plan:
Action Responsible Deadline Done
1. Simulate shopping round by second visit in shop• Design checklist together with shop personnel• Introduce way of working• Use digital camera to convey examples
2. Establish expectations• Ring all shop managers• Push for the competition in weekly newsletter
3. Joint VIP activity twice a year• Perform evaluation• Test”campaign z” in 5 shops
Coach
NN
Coach
MarchMarch-JuneMarch
April
AprilOctober
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The logic of a scorecard: a real estate company
Financial/Owners
Customers
Processes
Development
Value growth
Corporateimage
Propertyportfolio
Outsourcedday-to-dayoperations
Admin. &IT support
BuyMerge
Sell
Customersatisfaction
The rightcustomers
ITutilizationMarket
positioning
Propertymanagement
Partnerdevelopment
Current profits+
Perspective(focus)
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Developmentfocus
Processfocus
Trustees’focus
Academic quality
Academic quality
Satisfied studentsSatisfied students
Customerfocus
Economic performance
Economic performanceExaminationExamination
University’s standing in
society
University’s standing in
society
New ways of working
New ways of working
New systems, new
technology
New systems, new
technology
New competence, new partners
New competence, new partners
Assisting students find work; alumni activities
Assisting students find work; alumni activitiesCompetence
and contacts
Environment scanning,positioning, planning… Carrying out
educationIdentity andimage
Attract studentsand partners
Create and maintain content
Repertoire and routines
Linking education, research, and community
Strategy map for a graduate school within a university – initial draft
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Leadership(10%)
Leadership(10%)
People Mana- gement (9%)
People Mana- gement (9%)
Policy andStrategy (8%)
Policy andStrategy (8%)
Resources(9%)
Resources(9%)
Processes(14%)
Processes(14%)
PeopleSatisfaction (9%)
PeopleSatisfaction (9%)
Customer Satisfaction (20%)
Customer Satisfaction (20%)
Impact onSociety (6%)
Impact onSociety (6%)
BusinessResults (15%)
BusinessResults (15%)
Source: Adapted and reprinted with permission from EFQM ”Self-assement Guidelines,” European Foundation for Quality Management (1998)
The measurement model of EFQM
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Implementing scorecards
Measures in scorecards need to be…1 relevant, and logically coherent2 accepted and practical3 available and accessible 4 perceived as important and actionable5 useful for learning
To achieve this, you need: to build initial scorecards right cost-efficient systems and software for measuring and reporting controls and responsibilities that signal that scorecards are important
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“Measures”
• Compact descriptions of observations on something, summarized in numbers or in words:– its attributes, or change during some time period– its performance (potential or actual)– using general measurement units, or a shared language– absolute, or relative to standards– scales may be nominal, ordinal, ratio– should not be confused with evaluation, although it’s built into some
measures– often part of a model of causation.
• So: it’s important to consider how measures will be used - who’s telling whom?
• Aggregation of measurements: not always needed, but it is obviously useful if we can avoid too many different, and know how they relate!
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Scorecard projects in practice
• Take time and effort, and sometimes stop at management team level.
• Because of this, commitment and perseverance are necessary.
• If done right, create strong commitment among employees – who understand and get involved with the drivers of long-term performance!
• Start by identifying dialogues where scorecards will be useful
• If there are many users, well-designed IT support will be needed. But it’s the way scorecards are used that will determine their success.
• Difference between US and (North-)European approach?– US companies require specific metrics, and stress aggregation– Swedish companies encourage but do not require specific formatsEconometric models vs. language for strategic conversations?
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Conclusions
• A simple and elegant idea: a format to discuss any human activity?
• Supports most kinds of strategic and operative discussions
• Useful in practice, but success depends on how it is done
• Reflects the growing role of immaterial assets, and the increasing dependence on employees who share a vision
• Scorecards are essentially communication tools. They can be adapted to the different dialogues which are needed in modern organizations. This means that scorecard projects should be carefully tailored to the perceived needs.
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A more detailed look…
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Financial (Owners’) perspective
• Financial consequences of actions already taken
• (Other “final deliverables” requested by owners)
• Growth (turnover and mix)
• Revenues and return on capital
• Costs and efficiency
• Risk and yield
2002 © ConcoursCepro. All Rights Reserved.
Customer perspective
• How do we look to our customers?
• Which customers do we want?
• Market share, awareness, and image
• Customer satisfaction and complaints
• Customer attitudes and retention
• Prospecting
• Customer profitability
• Structure (age, geography, gender, income)
2002 © ConcoursCepro. All Rights Reserved.
Internal process perspective
• Value chain– Primary and secondary processes
Lead-time, availability, efficiency, quality Scope, competencies, skills
• Information processes– Documentation, data bases, intranet,
e-business systems… Utilisation, quality
Separate employee perspective, or not?
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Renewal and development perspective
• Development of:– markets, customers, and partner relations– products and new solutions– competencies and processes– technology and infrastructure
• Scanning:– environment trends and competition, demand and supply markets
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A separate ‘employee’ perspective?
• Not in the original US model
• Many Swedish firms have one
• Fits with Skandia’s intellectual capital model
• Aren’t people a part of all perspectives?
+ HR and scorecards: impact on how HR are described in all scorecards? a scorecard for the HR ‘dimension’? a scorecard for the HR function/department?
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Required for successful implementation: 1. Measures that are relevant and logically coherent
Increasinglynormative
Increasingaudience
Bonuscalculations
Targets
Benchmarking
Neutraldescription
Internal use only Publicized
Reports to boards etc
External reports
Rep
orts
fro
m
subs
idia
ries
and
busi
ness
in
itiat
ives
Executive remuneration
- What that means will differ depending on how you want to use your scorecards!
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Required for successful implementation:2. Measures that are accepted and practical
• Can existing measures be used?
• Need for new measures:– automatic machine collection– record auditing (reusing data)– surveys– (estimates)
• Definitions and measurement procedures - how, when, by whom?
• Comparisons and benchmarking
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Required for successful implementation:3. Measures that are available and accessible
• How should data be made available– Integrated into existing reports and “intranet news”?– Who’s sender and receiver– Authorization and integrity– Reporting cycle and action
• IS support
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Systems and software
• Software for scorecards; measurement practices; presentation routines; any manual systems used temporarily etc
• Links to existing administrative systems
• Customized systems exist, also linked to ERP systems. A normal development path is:
1 User interface - presentation system and graphics2 Integrate with other systems - automatic data collection, data
warehouse 3 Database functionality, simulation capabilities
• Software vendors have different ”roots”:– ERP; ’Business intelligence’ (DW); ”components”
• Start simple!
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Software used at Ericsson (”Cockpit communicator”)
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Required for successful implementation:4. Measures that are perceived as important and actionable
• Measures as goals and commitments– link to planning– relation to other reports– possible to influence– relevance for bonuses and other reward systems
Will the scorecard change behavior?
Will scorecard control be perceived as fair (matching responsibility to action, and success to rewards)?
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Linking rewards and incentives to measures
• ”Our description of the important things we do, to make it possible to discuss further improvements”, not ”their measures on us”
• Which performance should be rewarded?– own unit or higher level– reward current achievements (performance drivers?) or wait for effects (outcomes?) NB: whose is the risk?
• Weighted mix of metrics, or other method of combination?
• Bonuses should be seen as one part of rewards. Success can be celebrated in many ways...
• Remember: scorecards are tools for learning!
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Required for successful implementation:5. Measures that are useful for learning
• Learning from experiments - did it work out as expected?– Learning opportunity about
causation, time lags… and surprises!
• Modify initiative, increase it, abandon…?
• Revise scorecard and measures2000 © The Concours Group. All Rights Reserved.eSC R e.sul ts W ork s hop
4
Linking the measures to portrayour business logic
Financial/Owners
Customers
Processes
Development
Value of increasedcustomer base
Marketingof service
Concept andcontent
Performanceof partners
Functioningof web-site
Customersatisfaction
Attracting newcustomers
Technologyperformance
Competences
Low-costoperation
Profits fromcurrent eBusiness
+
Perspective(focus)
Existing cust’sstart using
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Controls and responsibilities
• Scorecard control needs to agree with other controls and rewards
• Control is contingent on strategy
• Responsibilities for scorecards:– Managing the activities described in a scorecard (unit management)– Designing scorecards and the processes for using them (controllers)– Measuring and making measurements accessible (IS function)– Using scorecards in planning and control (CEO)– Learning through scorecards (all)
2002 © ConcoursCepro. All Rights Reserved. 68
Portfolio Management(Low synergy potential)
Corporate
Strateg
ic Managem
ent
Perfo
rman
ce
Man
agem
ent
Value-B
ased
Man
agem
ent
(Mostly other
forms of control)
Corporate strategy
Org
aniz
atio
nal l
evel
Operationallevel
BU-level
Activity Sharing(High Synergy Potential)
Dominant modes of control?(Nilsson & Olve in European Management Journal, August 2001)