Strategy-Based Balanced Scorecards for Technology Companies

 

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A Balancing Act

 By Howard Rohm

A seminal article about how to implement a Balanced Scorecard.

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Sustaining New Directions

 A sequel to a Balancing Act about how to implement and sustain a balanced scorecard.

By Howard Rohm & Larry Halbach

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Make Performance Improvement Strategic

 Have you ever wondered if your performance improvement interventions are aligned with corporate strategy?

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How Artificial Intelligence (AI) Will Strengthen the Balanced Scorecard (BSC) Strategy Framework

 

by Terry Sterling 

Billionaire and majority owner of the Dallas Mavericks, Mark Cuban, said this about Artificial Intelligence (AI): “AI, deep learning, machine learning – whatever you’re doing if you don’t understand it – learn it! Because otherwise, you’re going to be a dinosaur within three years.”

The Balanced Scorecard (BSC) Strategy framework is a powerful management tool that many companies use to create alignment between their organization’s vision and mission and their strategic organizational goals, often referred to as strategic themes . The BSC framework uses four perspectives to develop an organization’s strategy and measure its performance.

In recent years, leading organizations have started exploring the integration of AI into their BSC framework to improve performance measures and decision-making processes. Here’s how AI might be incorporated into each perspective to help improve an organization’s strategy execution.

1. Financial perspective

AI can help organizations improve financial performance by increasing the automation of tasks related to financial analysis, forecasting, and budget analysis, to name a few. AI-powered tools enable the use of real-time data, trend analytics, and the ability to provide insights into future performance by looking at vertical and horizontal analysis. AI tools also help leverage analysis, growth rates, and a multitude of others . Ultimately, AI has the potential to empower organizations to make better financial decisions that improve financial performance.

2. Customer perspective

The impact of AI on this perspective can provide analysis to improve the customer experience by providing personal recommendations and outlining interactions with a specific customer persona. One example would incorporate using AI-powered chatbots to interact with customers and provide personalized recommendations based on past interactions and preferences. As a result, the proper use of AI in this area could enhance the customer experience and increase loyalty, ultimately leading to higher revenues and organizational growth.

3. Internal processes perspective

Every organization wants to improve its internal processes to become more efficient, eliminate duplication and unnecessary steps, and better manage those processes. AI-powered tools have the potential to automate repetitive tasks, supply chain management, and supply chain logistics. Automating these functions can enable organizations to achieve the commonly found goals of this perspective, which are to do things faster, better, safer and cheaper.

4. Learning and growth perspective

AI-powered training tools can significantly Improve your employees’ performance and develop their talents. Employee skills can be better assessed with personalized, individually targeted training programs. This approach ensures that employees are provided training in the specific areas where it’s needed and that they don’t waste time training in areas where they’re already proficient, thus saving time and money. In terms of strategy execution, AI can analyze vast amounts of data in real time, thus providing insights into key performance indicators (KPIs) tied directly to strategy execution. Additionally, AI can help improve forecasts and scenarios to better equip an organization to respond with agility and decisiveness in rapidly changing environments.

When AI is incorporated within a proven strategy framework such as the BSC, it can improve an organization’s ability to successfully execute its strategy by providing:

• Better data analysis
• Predictive analysis capabilities
• Improved resource allocation
• Process automation
• Personalized training and development
• Real-time performance monitoring

As AI technology continues to evolve, it‘s critical for organizations to continuously explore new ways to incorporate it into their strategy and operations or risk finding themselves on the endangered species list.

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How to Create a Balanced Scorecard: Nine Steps to Success™

 

BSI’s award-winning framework for strategic planning and management, Nine Steps to Success™, is a disciplined, practical, and tested approach to developing a strategic planning and management system based on the balanced scorecard. It gives organizations a way to ‘connect the dots’ between the various components of strategic planning, budgeting, operations and management; meaning there will be a visible connection between day-to-day operations, the measurements being used to track success, the strategic objectives the organization is trying to accomplish, and the mission, vision and strategy of the organization.

This approach is more about engaging hearts and minds to transform an organization to higher performance than it is about just measuring performance. Ultimately, managers and executives can use the BSI-developed scorecard system to help define strategy, rally the organization around that strategy and achieve what the organization wants to achieve.

The Nine Steps to Success™ Program Plan

Below details each step of the Nine Steps to Success™ framework.

Program Launch

The program is launched by project champion(s) and key stakeholders (working on their own or with BSI consultants). Existing strategic material and results are examined, a strategic gap analysis is completed, key stakeholders are interviewed, and other assessment activities are completed to customize workshops to incorporate work done to date.

Step 1: Assessment

It is critical that before an organization maps out its future there is some consensus around where things currently stand. During the Assessment step, an analysis of the current internal and external environments is completed. As part of this step, organization develops or re-validates high-level strategic elements (e.g., mission, vision, values, market assessments, enablers & challenges, primary and secondary customer / stakeholder needs analysis and others) needed for context in strategy formulation.

Step 2: Strategy

Building on the assessment, organizations formulate/clarify strategy in the Strategy step. The development of the strategy includes developing or clarifying your customer value proposition, visualizing strategy using a Strategy Profile and decomposing the high-level strategic direction into three to four Strategic Themes (or goals). Strategic Themes are those focus areas in which the organization must excel in order to fulfill its mission and achieve its vision, given the enablers it can leverage, the challenges it must overcome, and the customer value proposition it must deliver upon.

Additionally, organizations are viewed, internally and externally, though lenses, or Perspectives which frame the organization as a system of defined elements and capabilities that work together. One of the signature components of the original Balanced Scorecard, the names of the four perspectives will vary slightly (depending on the type of organization) from the original design: Financial, Customer/Stakeholder, Internal Process and Organizational Capacity (or Learning and Growth). The perspectives work together in a series of cause and effect (or drivers and results), creating value from the internal to the external. When combined, the Strategic Themes and Perspectives frame and define an integrated strategy.

Step 3: Strategic Objectives

In the Strategic Objectives step, the building blocks of strategy are developed. Strategic Objectives are the linchpins of a successful strategic planning and management system and are the key to implementing strategy. Objectives are qualitative, continuous improvement actions (outcomes) critical to strategy success. Objectives are developed on the strategic theme level first and then merged together to form organization-level Objectives.

Step 4: Strategy Mapping

In the Strategy Mapping step, cause-and-effect links are developed between the Strategic Objectives, creating a “value chain” of how customers and stakeholders are satisfied by the organization’s products and services. Strategy Maps are developed for each theme to ensure a complete strategy to achieve each strategic result and then those are merged into a final organizational Strategy Map. A Strategy Map is a graphic that shows the cause-and-effect relationships of objectives across the four perspectives, telling the story of how the organization will achieve the results desired.

Step 5: Performance Measures

Performance Measures (KPIs) are critical to tracking progress of an organization’s strategy. The image below shows the inter-connectivity relationships among different types of performance measures. Operational measures focus on the use of resources, processes and production (output). These measures “drive” the outcomes a business desires, with some outcomes being more intermediate than other, more final, outcomes. Our process gets at these relationships, so you can identify the most meaningful outcome measures to determine if your actions are leading to the strategic results you desire.

Performance measures are developed for each of the objectives on the strategy map. The emphasis in this step is on helping you develop the critical leading and lagging measures needed to manage strategy execution.

Step 6: Strategic Initiatives

In the Strategic Initiatives step, the projects that are critical to success of the strategy, are developed, prioritized, and implemented. Initiatives help close performance gaps in performance to hit targets. It is important to focus the organization on the execution of the most prioritized strategic projects versus creating a long list of potential actions and projects. Without this disciplined focus, organizations struggle to execute their strategy.

Scorecard Rollout: Integrating Steps 1 through 6

Once Step 6 is complete, the organization-level scorecard system is ready to be rolled out to employees. The goal of this part of the process is to create more internal fans and build a coalition of employees to start thinking more strategically and using the system to better inform decision making. The Balanced Scorecard Graphic, shown below, is a key deliverable and brings all the strategic elements of strategy formulation and planning together in one simple to understand graphic that becomes the heart of the process of communicating the organization’s strategy to all employees. It’s a one-page document that tells the value creation story by summarizing the organization’s strategy in a simple, easy-to-use format.

Step 7: Performance Analysis

In the Performance Analysis step, data is transformed into evidence-based knowledge and understanding. Effective analysis helps people make better decisions that will drive improved strategic outcomes. This step focuses on measuring and evaluating performance to identify what works well and what doesn’t, taking corrective action and becoming a high-performance organization.

Step 8: Alignment

In the Alignment step, strategy is transformed from something only executives worry about to something everyone supports by cascading high-level enterprise strategy to first business and support units and then to individual employees. The Alignment step produces scorecards for business and support units, and individual scorecards for each employee or team.

Cascading communicates how organization level strategy (Tier 1) is supported by department/unit strategy (Tier 2), and then ultimately how employees or teams (Tier 3) contributes to the strategy with specific actions, projects and tasks.

Step 9: Evaluation

Evaluation is an opportunity to review and refresh. During this step, leaders and mangers evaluate how well the organization has accomplished desired results and how well the strategic management system improves communications, alignment and performance. It ensures that the strategic planning and management system is dynamic and incorporates continuous improvement into day-to-day operations and management.

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OKR, KPI and BSC: What is the Difference?

 

by David Wilsey

I was talking with a client the other day about adding OKRs to their BSC system and she stopped me in mid-sentence. “Wait a minute,” she said with a skeptical smile. “Are OKRs just KPIs with a new name so that you consultants have something new to sell?”

To her point, there is considerable overlap between these different methodologies. They are all designed for:

• Setting goals
• Creating alignment
• Measuring progress
• Improving performance

It is a bit frustrating to have competing frameworks that are so similar and then have advocates on social media arguing strongly for their favorite as if there are huge differences. But there is value in understanding the differences so that you can take advantages of the strengths of each. First, let me define each and then I’ll talk through the strengths and weaknesses of each.

Balanced Scorecard (BSC)

The BSC is a strategic planning and management system that organizations use to communicate strategy, create alignment, prioritize, and improve strategic performance across different perspectives. Objectives and measures are the heart of the system. It has broader applications on the planning side, but for this blog I will focus on the measurement aspect.

Key Performance Indictors (KPI)

KPIs are indicators of success toward a desired performance result. KPIs could be thought of as synonymous with the measures in a BSC, as good KPIs are normally indicative of achieving strategic objectives.

Objectives and Key Results (OKR)

Objectives and Key Results (OKR) are used by organizations and individuals for collaboratively setting ambitious goals, tracking progress, and aligning action with an organization’s strategy to achieve measurable results. OKRs tend to be written in a SMART (specific, measurable, attainable, relevant, and time-bound) format, meaning the Key Results include a targeted level of performance and a milestone.

Strengths of these frameworks

The short-hand explanation is that BSC is a framework to map out and manage strategy. Normally used for an organization, a good analogy on the personal side is to use BSC to visualize my cause-effect strategy for healthy living. KPIs are continuous long-term measurements, so one of ongoing measures of healthiness would be my weight. And OKRs are for individual short-term goal setting, so this quarter I might try to reduce my weight by 7lbs/3kg by reducing carb intake by 25% and increasing aerobic exercise by 60 minutes per week.

BSC and KPIs tend to be tracked continuously while OKRs tend to be set every quarter. BSC and KPIs emphasize alignment / line of sight while OKRs emphasize agility and autonomy. BSC/KPIs tend to be better for long-term strategy execution and continuous improvement while OKRs are great for individual goal setting, accountability, and action.

Weaknesses of these frameworks

In terms of weaknesses, BSC/KPI are often accused of being too static / sluggish and difficult to work into the day-to-day rhythm of a typical employee’s day. On the other hand, OKRs often have strategy misalignment/line-of-sight issues and can be very difficult to implement in a disciplined manner, which leads to a host of problems, such as OKRs that are really glorified to-do lists, long laundry lists of trivial measures, and a “set it and forget it” mentality.

To overcome these weaknesses, you can use them together or choose one and learn from the other. Some of our clients use BSC / KPIs but try to infuse agile/OKR thinking into their individual level KPI development and day-to-day execution. Then some OKR companies create “shared” OKRs at various organizational and strategic levels that look an awful lot like a BSC.

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Balanced Scorecard Basics

 

What is a Balanced Scorecard?

The balanced scorecard (BSC) is a strategic planning and management system. Organizations use BSCs to:

• Communicate what they are trying to accomplish
• Align the day-to-day work that everyone is doing with strategy
• Prioritize projects, products, and services
• Measure and monitor progress towards strategic targets

The name “balanced scorecard” comes from the idea of looking at strategic measures in addition to traditional financial measures to get a more “balanced” view of performance. The concept of balanced scorecard has evolved beyond the simple use of perspectives and it is now a holistic system for managing strategy. A key benefit of using a disciplined framework is that it gives organizations a way to “connect the dots” between the various components of strategic planning and management, meaning that there will be a visible connection between the projects and programs that people are working on, the measurements being used to track success (KPIs), the strategic objectives the organization is trying to accomplish, and the mission, vision, and strategy of the organization.

Who Uses the Balanced Scorecard (BSC)?

BSCs are used extensively in business and industry, government, and nonprofit organizations worldwide. More than half of major companies in the US, Europe, and Asia are using the BSC, with use growing in those areas as well as in the Middle East and Africa. A recent global study by Bain & Co listed balanced scorecard fifth on its top ten most widely used management tools around the world. BSC has also been selected by the editors of Harvard Business Review as one of the most influential business ideas of the past 75 years.

What Organizations Are Successfully Using Balanced Scorecard?

Increasingly, as balanced scorecard (BSC) concepts become more refined, we have had more inquiries asking for examples of organizations that have implemented the BSC, how the BSC applies to a particular business sector, what metrics are appropriate for different sectors, etc. This page provides a database of working balanced scorecard examples that our research has located.

By 2004 about 57% of global companies were working with the balanced scorecard (according to Bain). Much of the information in the commercial sector is proprietary, because it relates to the strategies of specific companies. Public-sector (government) organizations are usually not concerned with proprietary information, but also they may not have a mandate (or much funding) to post their management information on web sites.

Example One-Page Balanced Scorecard Strategic Plan 

The One-Page Strategic Plan illustrates how strategy and strategic elements fit together and reinforce each other. This one-page summary graphic includes vision, mission, core values, perspectives, strategic themes & results, strategic objectives, strategy map, performance measures, targets, and strategic initiatives. 

What Are Balanced Scorecard Perspectives?

The BSC suggests that we examine an organization from four different perspectives to help develop objectives, measures (KPIs), targets, and initiatives relative to those views.

• Financial (or Stewardship): views an organization’s financial performance and the use of financial resources
• Customer/Stakeholder: views organizational performance from the perspective of the customer or key stakeholders the organization is designed to serve
• Internal Process: views the quality and efficiency of an organization’s performance related to the product, services, or other key business processes
• Organizational Capacity (or Learning & Growth): views human capital, infrastructure, technology, culture, and other capacities that are key to breakthrough performance

The Four Perspectives of the Balanced Scorecard

One of the signature features of the balanced scorecard is that it looks at organizational performance from various Perspectives. Perspectives are the performance dimensions, or lenses, that put strategy in context. It takes several perspectives—usually four—to understand an organization as a system made up of elements that work together, like the gears in a clock or fine watch. Together, these elements create value, leading to customer and stakeholder satisfaction and good financial performance.

Why Does Your Organization Need Perspectives?

Drs. Robert Kaplan and David Norton found in their initial work together that too many organizations were measuring their success only from a financial point of view and that a broader, more strategic set of dimensions was needed. The success of few strategies can be measured from only one point of view. The basic four perspectives enables the organization to use a strategy map to articulate to employees how value is created by the organization.

What Balanced Scorecard Perspectives Should a Private Sector Organization Use?

The four perspectives of a traditional balanced scorecard are Financial, Customer, Internal Process, and Learning and Growth. In the Nine Steps to Success™, the original Balanced Scorecard “learning and growth” perspective has been changed to “organizational capacity”, to reflect the internal capacity building needed to improve internal processes. The four components included in the organizational capacity perspective are human capital, tools and technology, infrastructure, and governance. Learning and growth takes place throughout the whole organization and during the execution of strategy, not just in one perspective. The image below shows the value creation story through the perspectives for business / commercial sector organizations.

How Perspectives Show a Value Creation Story in Business / Commercial Organizations

What Balanced Scorecard Perspectives Should a Public Sector Organization Use?

Civilian government, defense and not-for-profit organizations are mission driven. These organizations use different value-creation logic than business and industry (profit driven) organizations. In The Institute Way, mission-driven scorecard systems reflect the unique nature and value proposition of mission-driven organizations. Perspective nomenclature needs to reflect this difference. For example, governments are not in the business of making a profit, so a “financial” perspective can be a misleading way of identifying this perspective to stakeholders. “Financial stewardship” might be more appropriate, as stewardship connotes a message of wise use of (‘taxpayers’ or ‘funders’) money and fiduciary responsibility, rather than improved profitability and shareholder value. In military organizations, other government organizations and not-for-profits, terms like “resource effectiveness” or “budget effectiveness” are commonly used. For not-for-profits, financial stewardship imparts the concept of using resources cost-effectively, something donors and funders would no doubt like to see. The image below shows the high-level value-creation story through perspectives for mission-driven organizations.

How Perspectives Show a Value Creation Story in Mission-Driven Organizations

Likewise, for the customer/stakeholder perspective in the Nine Steps Methodology (as detailed in The Institute Way), words like client, member, solider and citizen are used because they emotionally tie the management system to the people or groups served by the programs and services of these mission-oriented organizations. For business and industry scorecards, the word “customers” is traditionally used to describe this perspective.

In The Institute Way, the placement of perspectives on government and not-for-profit scorecards is differentiated. Financial should not be the top perspective for a mission-driven organization’s scorecard because financial stewardship is not the end of the value chain for that type of organization—stakeholder satisfaction is the end of the value chain. For these organizations, the value chain ends not with improved business financial results (although that’s a good thing!) but with satisfied members, citizens or other stakeholders. Putting the financial (stewardship) perspective in the second position from the top is more appropriate, as stakeholder satisfaction is derived in large part by the delivery of programs and services that are cost-effective and are judged necessary and sufficient. One client used a hybrid scorecard matrix putting the financial and customer perspectives on the top row to reinforce that both financial success and customer experience were equally important results. The Nine Steps to Success™ framework is very flexible to accommodate modifications like these and still keep scorecarding principles intact.

Can I Change the Names of the Perspectives?

The perspective names can change to fit the culture of the organization, although the underlying focus typically does not. In other words, while a public sector organization might prefer the “Stewardship” label, the focus of the perspective should remain on financial performance. Choose labels that resonate with the organization’s strategy and clearly communicate internally and externally. For example, one organization might use “People and Tools” instead of “Organizational Capacity” (or “Learning and Growth”), and another might aptly describe this perspective as “People, Knowledge and Technology”.

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