The Balanced Scorecard: Translating Strategy Into Action (35 page)
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Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
Often, and especially for large organizations, much time must elapse before sufficient data and evidence accumulate to obtain statistically significant
conclusions about correlation and causation among the scorecard measures. To achieve statistical significance, performance may have to be embedded deeply into the core of the organization, perhaps for an extended period of time. While statistical significance and validity are important goals, a strategic learning system should provide early indications as to whether the strategy is working. Such early indicators may be found in small, perhaps isolated, examples.
For example, as Rockwater attempted to shift its marketing strategy toward Tier 1 customer partnerships, rather than Tier 2 price-driven business, managers constantly supplemented their quantitative performance reports with stories about strategic relationships with new customers—how they had been established and what lessons could be learned from the relationships. As Metro Bank shifted its marketing strategy toward cross-selling new financial products to targeted customer segments, the company newsletter cited examples, each month, about how a salesperson had succeeded in building a new customer relationship, emphasizing techniques used and benefits achieved. National Insurance constantly supplemented performance reports with stories of its agents becoming successful specialists. By telling the stories behind the numbers, these companies were getting informal feedback that the strategy was working, as well as helping educate the organization on the intention and specific details of the strategy. In this way, the organizations were able to use past experiences to influence future performance.
In
Chapter 10
, we discussed the importance of identifying and funding the strategic initiatives that will enable an organization to achieve stretch targets for its scorecard measures. These initiatives should be reviewed during the strategic learning process. Such a periodic and comprehensive review will signal all managers that progress on the initiatives is continually being assessed. This knowledge should help keep the organization focused on implementing the initiatives and assessing whether they are still expected to lead to achievement of the ambitious targets.
For example, Figure 11-4 illustrates a group of typical strategic initiatives and the measures that they were intended to improve. In general, a one-to-one correspondence between initiative and measure will not exist. Rather, a set of programs may be required to achieve a set of outcomes. In this example, a combination of media advertising, acquisition of new credit-card customers, and expansion of credit card use were needed to affect the outcome measures, new accounts opened and percentage of active accounts. When the initiatives were chosen, managers selected those expected to have the greatest impact and dropped those with perceived lesser potential. Similar judgmental decisions must be made when assessing the impact of the initiatives. Typically, anecdotes provide the first evidence that the investments are bearing fruit. By continually evaluating the impact of the initiatives on the measures, managers further enhance their understanding of the cause-and-effect relationships of their business strategy.
Figure 11-4
Stretch Targets, Initiatives, and Accountability
Another effective mechanism for learning is to gain perspective from independent outsiders. HI-Tek, a manufacturer of electronic components, was using its scorecard program to improve organizational alignment. After a year, most of the bugs had been worked out of the program and the monthly scorecard review had become part of the normal management process. HI-Tek’s CEO, however, was concerned that the monthly meetings were losing their strategic perspective. To counter the drift toward routine reviews of operational objectives, he adapted a peer review process, originally introduced in the company as part of its Baldrige Award application. Each six months, a team of three to five executives from another division would review HI-Tek’s Balanced Scorecard. The peer review team revisited the
strategy, the objectives and measures, and the strategic initiatives. The team also talked to employees at random locations in the organization to determine the program’s awareness level and penetration. Then, the team delivered an independent and objective evaluation of the scorecard structure and process.
The peer review process enabled HI-Tek’s executives to remove themselves from the daily and monthly routine so that they could reflect on the strategic issues of their business. The stimulus of the peer review added a sense of professionalism and formality to the process. The review also helped transfer best practice ideas from one division to another. While this approach would not work for every organization, HI-Tek’s prior experience with independent peer reviews and feedback provided a foundation for introducing a Balanced Scorecard peer review process with great success.
All these mechanisms—correlation analysis, management gaming and scenario analysis, anecdotal reporting, strategic initiative reviews, and peer reviews—enable an organization to review and think about its strategic directions on a regular basis. Periodic management reviews shift from explaining the past to learning about the future. Deviations from planned performance are not used to point fingers or to establish blame and responsibility. Rather, the deviations are treated as opportunities for learning. The discrepancy between actual and planned performance encourages key executives to debate whether, given the evidence to date, their hypotheses about the strategy are valid. Are the value propositions being delivered to targeted customers leading to improved customer and financial outcomes? Is the organization progressing fast enough in performing activities and developing new products and services that are valued by targeted customers? The Balanced Scorecard, unlike ad hoc performance measurement systems, articulates the “theory of the business.”
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By having an explicit set of linkages among the scorecard measures, managers can test informally, if not statistically, the business theory’s hypothesized causal chain of strategic initiatives, performance drivers, and outcomes.
The third element for strategic learning is an effective team problem-solving process.
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The emphasis here is on “team.” The values of team building were stressed when we described how organizations gain clarity and consensus on their strategy and then use the consensus to design Balanced Scorecards.
The same team orientation should be maintained as the strategy is implemented and evaluated.
