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JOHN ANTOS

Balanced Scorecard

Managing strategy is synonymous with managing change.

—Robert Kaplan and David Norton

Handling Bags

Think about the following Southwest Airlines baggage handler, then ask yourself if you want to change your organization to have performance measures that support your organization’s goals. When asked, this baggage handler responded clearly and quickly about his performance measures to load baggage:

1. Quickly, so planes depart on time, helping to ensure passenger happiness and repeat business.

2. Carefully, so baggage is undamaged, saving money and helping to keep our customers happy.

3. Correctly, so baggage gets to the correct destination, keeping passengers happy and saving the cost of tracking and delivering lost baggage.¹

We asked numerous senior executives to survey their employees to determine if they knew how they contributed to organizational goals and strategy. Most said they did not need to survey because they knew their employees did not have a clear idea on how they contributed to the organization’s goals and strategies. Many said even those who reported directly to them did not understand the strategies for achieving the organizational goals. Some found performance measures that were contradictory to the organizational goals and strategies. Their employees were not all rowing in the same direction. Some of their employees were not even in the same river.

When executives ask their direct reports the following, they are dumfounded to find out how little knowledge their employees have of organizational strategy: What are the organization’s goals and strategies? How does your function contribute to those goals and strategies? Which of your performance measures relate to our goals and strategies?

Frequently Asked Questions

WHAT IS THE BALANCED SCORECARD?

The Balanced Scorecard is a powerful change framework to implement strategy by translating it into understandable objectives that drive behavior and performance. It is an excellent way to engage multiple people in moving the organization forward.

This change management tool helps everyone understand how they contribute to organizational goals and strategies, helps change performance measures to the correct level of detail to be meaningful, and aligns performance measures with organizational goals and strategies.

Scorecards:

• Help employees provide input to strategy

• Communicate strategy so everyone understands how they impact strategy

• Align employees so everyone is working in the same direction

• Help employees decide which processes are strategic to achieving strategies and goals

• Change monthly financial statements from historical and control-oriented to future-oriented that employees can act upon

• Link operating and capital budgets

• Change employees’ analysis from just tactical to include strategic.²

Scorecards change the focus from just financial to four perspectives of measures. They communicate organizational goals and strategies into terms managers and frontline employees can understand and act upon. Frontline workers can actually help shape strategy once they know what it is and understand how different parts of the business interact. Based on strategy, people in all departments set local execution and improvement goals and get a shared sense of organizational direction. All levels have continuing input to strategy through new lenses of aligned goals.

Scorecards show:

• Short- and long-term goals

• Leading and lagging indicators

• Internal and external performance measures

• Financial and nonfinancial measures

• Quantifiable Outcome Measures and subjective Performance Drivers³

WHEN AND WHERE IS IT USED?

Scorecards are used to better communicate strategy and align employees so everyone is focused on its execution. Executives, middle-level managers, and frontline workers use it. Large organizations and small companies use it.

In deciding to implement, ask yourself, is it important:

• Everyone is rowing in the same direction?

• Everyone understands how they support strategies?

• To change so local performance measures support strategies?

WHAT ARE THE OUTCOMES OF USING THE BALANCED SCORECARD?

Scorecards clarify strategy for employees and executives; align strategy, critical success factors, and key performance indicators; coordinate target setting with strategy; make changes so strategy is everyone’s business; and tell executives and employees if the strategy is working.

Scorecards focus on nonfinancial and financial factors. Organizations say their most important asset is their people. Scorecards make visible those measures that relate to people and their growth and learning. It gives frontline workers a better chance to communicate their findings to senior management so that either the strategy can be changed or the way the organization executes the strategy is modified.

HOW DOES IT WORK? WHAT IS THE FLOW OR PROCESS?

The Balanced Scorecard⁴ suggests starting with Vision, Mission, Values, and Strategy. These should be related to four perspectives: Financial, Customer, Business Process, and Growth and Learning.

Scorecard creation often starts with financial goals. Then ask: What customer measures will help us achieve those financial goals? What business processes do we have to excel at to satisfy our customers so they will buy in a profitable way? Where do we need to expand and teach people, processes, and systems so we can effectively execute our processes that will satisfy our customers so we can achieve our financial goals? Scorecard creation goes from Financial to Growth and Learning. Scorecard use goes the other way, from Growth and Learning to Business Processes to Customer Measures to Financial Results. This is an iterative process:

Scorecards are powerful change tools because if an organization focuses on Growth and Learning of its people and systems, its Business Processes will improve. If employees improve the right business processes, they will satisfy their customers, and if employees satisfy their customers, then they should achieve financial goals.

Middle managers and frontline employees like it because they now know that if they achieve their performance measures, the organization will achieve its goals. They understand what their focus should be. Their local performance measures become their connection to strategy. Strategy becomes everyone’s business; it is transparent to everyone.

A high-level example of the scorecard process is shown in figure 1:

Figure 1. The Scorecard Process

Table of Uses

About the Author

John Antos ([email protected]) heads up the Value Creation Group. He is a former CFO and controller. Clients include Amtrak, Baxter Healthcare, Blue Cross Blue Shield, Boeing, Discover Card, Nationwide Insurance, and the U.S. Postal Service. He is the author of numerous articles and books.

Where to Go for More Information

REFERENCES

Kaplan, R., and D. Norton. Alignment: Using the Balanced Scorecard to Create Corporate Synergies. Boston: Harvard Business School Publishing Corporation, 2006.

———. “Balanced Scorecard—Measures that Drive Performance.” Harvard Business Review (January/February 1992): 71.

———. Balanced Scorecard: Translating Strategy into Action. Boston, MA: Harvard Business School Press, 1997.

———. “Putting Balanced Scorecard to Work.” Harvard Business Review (September/October 1993): 134.

———. “Using Balanced Scorecard as a Strategic Management System.” Harvard Business Review (January/February 1996): 75.

ORGANIZATIONS

Balanced Scorecard Collaborative—www.bscol.com

Value Creation Group, Inc.—www.valuecreationgroup.com

1. Example from our seminars.

2. Balanced Scorecard seminar created by John Antos and Steve Peacock.

3. Ibid.

4. Robert Kaplan and David Norton, The Balanced Scorecard (Boston: Harvard Business School Press, 1996), 9.