Read The Balanced Scorecard: Translating Strategy Into Action Online
Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
The Balanced Scorecard: Translating Strategy Into Action (22 page)
Unlike some of the specific measures developed for individual companies that we have described previously for the financial, customer, and internal-business-process perspectives, we can supply many fewer examples of company-specific measures for the learning and growth perspective. We have found that many companies already have excellent starts on specific measures for their financial, customer, innovation, and operating process objectives. But when it comes to specific measures concerning employee skills, strategic information availability, and organizational alignment, companies have devoted virtually no effort for measuring either the outcomes or the drivers of these capabilities. This gap is disappointing since one of the most important goals for adopting the scorecard measurement and management framework is to promote the growth of individual and organizational capabilities.
We return to this missing measurement theme in
Chapter 10
when we discuss the management process implications of the Balanced Scorecard. For now, we note that the absence of specific measures is an unusually reliable indication that the company is not linking its strategic objectives to activities for reskilling employees, supplying information, and aligning individuals, teams, and organizational units to the company’s strategy and long-run objectives. Frequently, the advocates for employee training and reskilling, for employee empowerment, for information systems, and for motivating the work force take these programs as ends in themselves. The programs are justified as being inherently virtuous, but not as means to help the organization accomplish specific long-run economic and customer objectives. Resources and initiatives are committed to these programs, but the programs have not been held specifically and measurably accountable to achieving strategic objectives. This gap leads to frustration; senior executives wonder how long they are expected to continue to make heavy investments in employees and systems without measurable outcomes, while human resource and information system advocates wonder why their efforts are not considered more central and more strategic to the organization.
We believe that the absence, at this time, of more explicit, company-specific measures for learning and growth objectives is not an inherent
limitation or weakness of incorporating this perspective in the Balanced Scorecard. Rather, it reflects the limited progress that most organizations have made in linking employees, information systems, and organizational alignment with their strategic objectives. We expect that as companies implement management processes based on the measurement framework of the Balanced Scorecard that we will soon see many more examples of creative, customized measures for the learning and growth perspective. Also, we demonstrate in the next chapter how the Balanced Scorecard, by providing a mechanism for explicating the causal relationships among measures in the four perspectives, enables measures in the learning and growth perspective to be linked explicitly to achieving outcomes in the other three scorecard perspectives.
Rather than ignore the learning and growth perspective until companies develop these customized measures, we prefer to use the generic measures identified in this chapter—strategic job coverage, strategic information availability, percentage of processes achieving targeted rates of improvement, and percentage of key employees aligned to strategic BSC objectives. These generic measures do identify gaps in organizational capabilities, and also serve as markers until managers and employees can develop more customized and specific measures.
An additional approach, suggested by Michael Beer, based on his strategic human-resource-management research, is to substitute text when measurements are undeveloped or unavailable.
2
Suppose an organization has set an objective to upgrade the skills of employees so that they can better implement and improve the strategy. Currently, exactly what this objective means is too uncertain to be measured with any accuracy or credibility, or at a reasonable cost. But each time, perhaps quarterly, that managers conduct a strategic review of this human-resource-development process, key managers write a one-to two-page memorandum describing, as best they can, the actions taken during the most recent period, the outcomes achieved, and the current state of the organization’s human resource capabilities. This memorandum substitutes text for measurements as the basis for active dialogue and debate about the initiatives being performed and the outcomes being achieved. While not the same as measurement, and not a long-term substitute for measurement, the text is a marker that serves many of the
same objectives as a formal measurement system. It motivates action in intended directions since key managers know that each strategic review period, they must report on programs and outcomes. It provides a tangible basis for periodic accountability, review, feedback, and learning. And the report serves as a signal that a gap in measurement exists. The signal reminds executives of the need to continue to quantify strategic objectives, and to develop a system of measurement that provides a more tangible basis for communicating and evaluating objectives for developing capabilities of employees, information systems, and organizational units.
1
. A. Schneiderman, “Setting Quality Goals,”
Quality Progress
(April 1988), 51–57; see also R. Kaplan, “Analog Devices, Inc.: The Half-Life System,” 9-190-061 (Boston: Harvard Business School, 1990).
2
. M. Beer, R. Eisenstat, and R. Biggadike, “Developing an Organization Capable of Strategy Implementation and Reformulation,” in
Organizational Learning and Competitive Advantage
, ed. B. Moingon and A. Edmonson (London: Sage, 1996).
C h a p t e r S e v e nLinking Balanced Scorecard Measures to Your Strategy
I
N THE PREVIOUS FOUR CHAPTERS
, we established the foundations for building a Balanced Scorecard. We described the construction of financial and nonfinancial measures, grouped into four perspectives: financial, customer, internal business process, and learning and growth. What makes for a successful Balanced Scorecard? Is it just having a mixture of financial and nonfinancial measures, grouped into four distinct perspectives?
The objective of any measurement system should be to motivate all managers and employees to implement successfully the business unit’s strategy. Those companies that can translate their strategy into their measurement system are far better able to execute their strategy because they can communicate their objectives and their targets. This communication focuses managers and employees on the critical drivers, enabling them to align investments, initiatives, and actions with accomplishing strategic goals. Thus, a successful Balanced Scorecard is one that communicates a strategy through an integrated set of financial and nonfinancial measurements.
Why is it important to build a scorecard that communicates a business unit’s strategy?
- The scorecard describes the organization’s vision of the future to the entire organization. It creates shared understanding.
- The scorecard creates a holistic model of the strategy that allows all employees to see how they contribute to organizational success. Without such linkage, individuals and departments can optimize their local performance but not contribute to achieving strategic objectives.
- The scorecard focuses change efforts. If the right objectives and measures are identified, successful implementation will likely occur. If not, investments and initiatives will be wasted.
How can you tell when the scorecard is telling the story of the strategy? One test of whether a Balanced Scorecard truly communicates both the outcomes and the performance drivers of a business unit’s strategy is its sensitivity and transparency. A scorecard should not only be derived from the organization’s strategy; it should also be transparent back to the strategy. Observers should be able to look at the scorecard and see behind it, into the strategy that underlies the scorecard objectives and measures.
As an example, one division president reported to his company’s president when he turned in his first Balanced Scorecard:
In the past, if you had lost my strategic planning document on an airplane and a competitor found it, I would have been angry but I would have gotten over it. In reality, it wouldn’t have been that big a loss. Or if I had left my monthly operating review somewhere and a competitor obtained a copy, I would have been upset, but, again, it wouldn’t have been that big a deal. This Balanced Scorecard, however, communicates my strategy so well that a competitor seeing this would be able to block the strategy and cause it to become ineffective.
When Balanced Scorecards exhibit this degree of transparency, they clearly have succeeded in translating a strategy into a linked set of performance measures.