The Balanced Scorecard: Translating Strategy Into Action (21 page)
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Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
One can measure the outcome of having motivated, empowered employees in several ways. One simple, and widely used, measure is the number of suggestions per employee. This measure captures the ongoing participation of employees in improving the organization’s performance. Such a measure can be reinforced by a complementary measure, number of suggestions implemented, which tracks the quality of the suggestions being made, as well as communicating to the work force that its suggestions are valued and taken seriously.
- published successful suggestions to increase the visibility and credibility of the process,
- illustrated the benefits and improvements that had been achieved through employee suggestions, and
- communicated a new reward structure for implemented suggestions.
This initiative led to dramatic increases in both the number of suggestions submitted and the number implemented.
Rockwater used numbers of suggestions as one of its early scorecard measures but was disappointed in the measured results. An investigation revealed that employees felt that their suggestions were not being acted upon. Senior executives then directed project managers to follow up and provide feedback to employees on every submitted suggestion. This feedback and implementation of many of the submitted suggestions led to an increased number of suggestions. The sum total of implementing these suggestions led to savings that Rockwater executives estimated at several hundred thousand dollars per year.
The tangible outcome from successfully implemented employee suggestions does not have to be restricted to expense savings. Organizations can also look for improvements, say in quality, time, or performance, for specific internal and customer processes. The half-life metric (see Figure 6-5), developed by Art Schneiderman when he was vice president of quality improvement and productivity at Analog Devices, measures the length of time required for process performance to improve by 50%.
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The half-life metric can be applied to any process metric (such as cost, quality, or time) that the organization wants to reduce to zero. Examples of such metrics are late deliveries, number of defects, scrap, and absenteeism. The metric can even be applied to the “waste” time in process cycle times and new product-development times.
The half-life metric assumes that when TQM teams are successfully applying formal quality improvement processes, they should be able to
reduce defects at a constant rate (see table below). For example, suppose the organization has identified on-time delivery as a critical customer objective. Currently, the business unit may be missing promised delivery dates on 30% of orders. If its goal is to reduce the missed delivery percentage to 1% over a four-year (48-month) period, a 30-fold improvement, it can reach (actually exceed) this target by a continuous improvement process that reduces missed deliveries by 50% every nine months, as shown below:
| Month | Missed Delivery % |
| 0 | 30 |
| 9 | 15 |
| 18 | 7.5 |
| 27 | 3.8 |
| 36 | 1.9 |
| 45 | 1.0 |
Figure 6-5
The Half-Life Metric
The performance drivers for individual and organizational alignment focus on whether departments and individuals have their goals aligned with the company objectives articulated in the Balanced Scorecard. One organization described an evolving process by which senior management implemented a process for introducing the scorecard to lower levels of the organization (see Figure 6–6). The rollout process had two principal objectives:
- Individual and organizational subunit goals, and reward, and recognition systems aligned with achieving business objectives
- Team-based measures of performance
The measurements for the rollout procedure evolved over the course of the implementation process. In the first phase, senior management established the context and framework for the Balanced Scorecard. It engaged managers to develop measures for their areas of responsibility and develop
an implementation plan for cascading the scorecard approach downward within their organizations. The initial measure for accomplishing this implementation phase was percentage of top managers exposed to BSC. After the introductory phase had been completed, the Balanced Scorecard was communicated throughout the organization, along with specific implementation plans. The organizational alignment measure shifted to percentage of staff employees exposed to BSC. In the third phase, senior management and executives were to define specific targets for the financial and nonfinancial measures on the scorecard, and to link their incentive pay to achieving these targets. They introduced a new measure, percentage of top managers with personal goals aligned to BSC, to reflect the outcome from this process. And, in the final implementation phase, all individuals were to have their activities and goals linked to scorecard objectives and measures. The alignment outcome measures for this phase became percentage of employees with personal goals aligned to BSC and percentage of employees who achieved personal goals.
Figure 6-6
Personal Goals Alignment—Measurement Concept
- How the major activities of the business unit align to the scorecard
- Development of measures for these activities to indicate success
- Communication of the BSC alignment of business unit managers to their staffs
- Alignment of individual performance goals to the scorecard
The organizational alignment measure was the percentage of business units that had successfully completed this alignment process.
Organizations can measure not only outcomes but also short-term, intermediate indicators about their attempts to communicate and align individuals with organizational objectives. One company conducted a periodic climate survey to assess employees’ motivation and drive to achieve the BSC objectives. A step before assessing motivation is determining awareness. Some organizations, especially in the early stages of the scorecard implementation process, measured percentage of employees who recognized and understood the new company vision.
One organization, a consumer goods company that used extensive market research to gain feedback on its advertising, promotion, and merchandising programs, used its expertise to gauge the reactions and buy-in of employees to its new strategy. The company treated the introduction of the Balanced Scorecard as a new product launch and surveyed employees every six months to estimate the market penetration of the program in different parts of the organization. The survey classified employee responses into one of four levels of awareness:
| Awareness Level | Typical Response |
| I. Brand Awareness | “I have heard about the new strategy and the Balanced Scorecard, but it hasn’t affected me yet.” |
| II. Customer | “I have started to do things differently based on what I learned from the Balanced Scorecard.” |
| III. Brand Preference | “The new things I am trying are working. I can see them helping me, our customers, and the company.” |
| IV. Brand Loyalty | “I’m a believer. I’m convinced that the new strategy is the right way to go. I’m an active missionary, trying to get others on the bandwagon.” |
This survey (see Figure 6-7) helped managers measure progress in gaining awareness and commitment to the objectives and measures for the Balanced Scorecard, and identify areas that needed additional effort and attention.
Figure 6-7
“Mindshare Campaign” Measurements for Understanding the New Vision/Strategy
Many organizations today recognize that meeting ambitious targets for customers and shareholders requires superb internal business processes. Managers in these organizations often believe that their stretch targets for
internal-business-process performance cannot be achieved just by individuals working harder, smarter, and more informed, by themselves. Increasingly, organizations are turning to teams to accomplish important business processes—product development, customer service, and internal operations. These organizations want objectives and measures to motivate and monitor the success of team building and team performance. National Insurance, as part of its turnaround strategy to become a specialist property and casualty insurer, organized all its work processes around teams. In its learning and growth perspective, National developed six measures of team building and team performance:
- Internal Survey on Teaming: Survey of employees to determine if business units are supporting and creating opportunities for one another.
- Gain-Sharing Level: Tracks the degree to which the organization is entering team-based relationships with other business units, organizations, or customers.
- Number of Integrated Engagements: The number of projects on which more than one business unit participated.
- Loss Control Utilization: The percentage of new policies written in which the loss control unit was consulted.
- Percentage of Business Plans Developed by Teams: The proportion of business units that develop their plan with the assistance of headquarters-support resources.
- Percentage of Teams with Shared Incentives: The number of teams where team members share common objectives and incentives.
These measures communicated clearly the corporate objective for individuals to work effectively in teams, and for teams in different parts of the organization to provide mutual assistance and support.
The teaming concept can be extended even further by coupling it to gain-sharing plans. Gain sharing distributes rewards to all team members when the team achieves a common goal. One organization proposed three measures of gain-sharing activity:
