A balanced scorecard is a powerful tool for aligning an organization. It displays the metrics that represent the key drivers of long-term performance. In many ways, it's a visual representation of an organization's strategy, tailored to every department and individual.
Unfortunately, most organizations are operational in nature, not strategic. They focus on day-to-day tasks required to ship products on time and keep customers happy. While most organizations want to take a long-term view of the business, most are too busy fighting fires to focus on the big picture. And their corporate culture and funding processes undermine scorecard initiatives before the first metrics are even published.
To ensure the success of a balanced scorecard, organizations need to excel at managing change, or rather, getting an organization (and the individuals that comprise it) to change habits for addressing and solving problems. Rather than address the symptoms of issues, a scorecard requires organizations to identify the core drivers of change that lead to new levels of performance.
Whether you are creating a new scorecard or reviving an existing one, it's imperative that you build change management into your scorecard project. Otherwise, the scorecard won't gain traction and overcome operational inertia. There are three keys to ensure your balanced scorecard gets adopted and delivers lasting business value: 1) a committed CEO 2) a robust governance program and 3) a key performance indicator or KPI.
1. A Committed CEO
Since scorecards embody the strategy of an organization (or business unit or department), the primary sponsor is the top executive, or CEO for an entire organization. The CEO must desire organizational alignment and view the scorecard as a critical tool for achieving that goal. The CEO must be fully committed to the project and the scorecard methodology. And that commitment can't waver over time since it often takes months or years for the scorecard initiative to bear fruit and deliver performance improvements.
One indicator of an executive's commitment is his or her willingness to devote time to the project. Although most CEOs won't participate on a scorecard design team, they need to provide ample input upfront and feedback every step of the way. The CEO needs to ensure that the design team creates objectives and measures that align with his or her vision of the company. The CEO must also sell other senior executives about the need for the project and the validity of the methodology. The CEO must also convince these executives to spend time to participate in the project, and, most importantly, assign trusted lieutenants to serve on a scorecard design team.
Finally, the CEO must be willing to spend money on initiatives and resources to effect organizational change. Many CEOs proudly display newly minted strategy maps but never fully fund the activities required to change organizational behavior. Once the scorecard fails to register performance gains, they often lose faith in the measurement system, believing it doesn't accurately represent the uniqueness of their business and processes. In contrast, successful CEOs never waver in their commitment to fact-based measurement and decision-making. They continually modify scorecard initiatives and metrics to maintain relevancy as the business changes or until the scorecard reflects the organizational performance they desire.
2. Scorecard Governance
Secondly, a scorecard needs to gain organizational altitude before it can fly on its own. In operationally focused organizations (and which aren't?), this requires several new governance structures and processes:
- Stakeholders. A scorecard project has to be a group effort since it will ultimately affect many people. The project must have a charter that explains its purpose, benefits, and whom it will impact and how. It needs an executive steering committee that evangelizes and funds the project and leads political interference. It needs a working committee of people who define the objectives and metrics at the heart and soul of the scorecard. And most importantly, it needs to identify stakeholders, including the executive committee, whose support and input is required. It's important to get honest feedback from stakeholders about proposed objectives, metrics, and initiatives. Stakeholders, especially those on the front-lines whose performance will be measured by the new metrics, are the only people who really understand the feasibility of proposed metrics.
- Strategy Management Office. Once the scorecard is designed, a strategy management office (SMO) drives the process of embedding it into the fabric of the company. A SMO consists of one or more full- or part-time people who make sure the scorecard is populated with data, used to make executive decisions, and updated to reflect changes in the business. The SMO also helps shepherd the creation of additional, cascaded scorecards, so strategy management propagates through an entire organization. Most importantly, the SMO evangelizes the scorecard methodology and facilitates the other governance tasks below.
- Theme Teams. In balanced scorecard parlance, "themes" are the primary strategic objectives of the organization. Typically, there are three to five themes that represent an organization's three to five year strategy. A theme team is a cross-functional group of five and eight people who are experts in the theme or vested in the topic. The theme team evaluates relevant scorecard data, interprets the results for the executive team, and makes recommendations for adding, changing, or deleting metrics and objectives from the scorecard. Theme teams ensure that subject matter experts, not just executives, are vested in the scorecard and committed to making sure it delivers relevant results.
- Cascaded Scorecards. An executive scorecard is just the beginning of a scorecard initiative. If leaders know and monitor business strategy, but no one else does, then the scorecard can't help overcome organizational inertia. The SMO, with backing from the CEO, works with each member of the executive team to propagate scorecards in their functional areas. Each department designs a scorecard that represents its own strategic objectives as well as drives performance of its parent organization. By cascading scorecards, organizations propagate strategy to every nook and cranny of the organization so every person knows how they contribute to the performance of the whole.
- Strategic Expenditures. Scorecards need their own funding, not only to support the SMO and strategic planning exercises, but also to support initiatives that drive key areas of performance measured by the scorecard. Most companies have a bevy of initiatives already and most can be mapped to scorecard objectives and metrics. But inevitably, the organization must undertake new initiatives to drive required change. While these initiatives must pass formal review to receive funding, there are often smaller initiatives or strategic exercises that are best funded from a discretionary scorecard budget.
3. Key Performance Indicator
Even with a committed CEO and strong governance structures, a scorecard won't take root unless it achieves a quick win. A quick win bridges the disparate worlds of operational and strategy management and testifies to the power of a scorecard to effect needed change.
The best way to achieve a quick win is to identify one scorecard metric above all others to serve as the focal point for the organization. The metric should be operational in nature and touch multiple functional areas and processes. Improving the performance of this metric forces employees to share information, collaborate across departmental lines, and brainstorm new processes and ways of doing business. In short, a well-designed KPI creates a ripple effect across an organization, generating widespread performance gains.
The CEO is the fuel for a KPI. The CEO must publicly evangelize the importance of the KPI, monitor its performance religiously, and call accountable executives and managers immediately when performance dips below specified levels. Since no one wants to receive potentially career-limiting calls from the CEO, a KPI forces a whirlwind of change.
John King closely monitored on-time arrivals and departures when he turned around British Airways in the early1980s. Paul O'Neill turned Alcoa from an industry laggard to a high-flier by focusing on worker safety measures. Cisco CEO John Chambers has created a unified corporate culture from 125+ acquisitions by focusing on customer satisfaction metrics.
It should be noted that a KPI doesn't give a CEO or organization license to ignore the other metrics in a scorecard. Rather, a KPI gives credibility to the remaining metrics on the scorecard and teaches the organization how think and act strategically. Indeed, once an organization optimizes the performance of one KPI, it should elevate the next most important metric on the scorecard to KPI status. Meanwhile, the former KPI takes its rightful place in the scorecard or is revised to highlight new areas for improvement.
Summary. A balanced scorecard is a powerful agent of organizational change. But since organizations (and the individuals that comprise them) resist change at all costs, it's imperative that a scorecard project supports a vigorous change management strategy of its own. The key elements of a scorecard change management strategy are a committed executive, a robust governance program, and a key performance indicator wielded by a change-hungry CEO.
Wayne Eckerson is principal consultant of Eckerson Group, a business-technology consultancy that helps organizations turn data into insight and action. He regularly helps organizations design or revitalize dashboard and scorecard projects.