Key principles of effective Balanced Scorecards

Key principles of effective
Balanced Scorecards - part 1

"What are you paying attention to?"

Have you noticed how you notice what you are paying attention to? Are you paying attention to the letter t in this newsletter? I doubt you were, but you are now, and you can stop if you want.
Likewise, when you get a new car that you thought was unique in colour and model, suddenly every other car you see seems to be the same.
The opposite is also true. You tend not to notice what you are not paying attention to, unless it catches your attention. You probably didn't think about the punctuation in the last paragraph. You just read it and it passed you by. It didn't try to attract your attention.
You have probably noticed how the same is true with performance measurement and management. Recently we were working with a City Council, which involved helping them improve their planning processes and pay more attention to the quality of their thinking about strategy. As a part of the work, we took a look at the existing strategic plans and cast them as a strategy map, with interesting results.
Two things quickly became apparent: Firstly there were plenty of measures and activities around what they did. There were also many measures of how the council would tell whether things had changed for their community. There were, of course, plenty of financial measures.
Something was missing, though. We found few statements, let alone measures, of how the council would change. How would they change? What would make the difference? This was a council that was trying to improve the way it worked. Yet evidence of what they were going to do differently was sparse. In fact we had a completely blank "Learning & Growth" perspective.
Now, no doubt, they had been thinking about how the organisation needed to develop and how this would change overall performance and make the strategy happen. Yet that thinking was not clearly nor explicitly captured. They were not paying attention to it. Guess what. It wasn't happening much either. As the Chief Executive put it, "What is happening with our change programme? We seem to have forgotten it"
As you think about your organisation, you'll start to notice what it might not be paying attention to. For this reason our starting point for the Balanced Scorecard underlying principles are:

1. It is about balance

The reason it was called the "Balanced Scorecard" is precisely
because that is what it was trying to address. Its origins back
around 1992 were to get organisations to focus on more than the
financial measures and the processes. To redress the balance with
measures of what the customers think and want. To add to this
measures that reflected how the organisation was to learn, develop,
change and grow.
That council is not alone. Research indicates many organisations
that say they have implemented a "balanced" scorecard have measures
that are predominantly financial and process. As a consequence
they are measuring what they are doing, rather than measuring what
is making them change. Which lead us to the second key principle.

2. It is about cause and effect

It wasn't long in the development of the scorecard, that it was
realised that the old four-box model was a mistake. You have
probably seen it around.

• Financial

• Customer

• Process

• Learning & growth

This model of the scorecard is all over the web from people who think of this as a scorecard. But just ask yourself, "How do you choose what to put in each box?" "How do these boxes relate to one another?"
You are all smart people so you know, like, our client, that that changing what they did should end up affecting both costs and their customers. So a better way of thinking about things would be.

Financial
Customer
Process
Learning & growth

Of course this is what, by 1994 had become the basis of the strategy map. Sometimes, it was called the performance driver model in its early years.
As you will have spotted, this makes a major difference to how you think about the measures. For one, you are asking the question, how do these measures change behaviour and cause the higher pieces to behave differently? For another you start to ask what are the right measures in each of these perspectives?
We'll cover more of this in the next newsletter.
If you want to move your balanced scorecard on, bring it up to date and make it more effective. Whether that is to change behaviours, focus people of strategy, make management meetings more effective or just get a clearer view of performance in your organisation, in just a day, you'll find more details here.
By paying attention to just these two basic pieces, you will start
to improve the value of your balanced scorecard in your business.
Of course, you realise, there are other key principles that will
make a difference. In your next few newsletters we will look at:

• If you don't know where you are going you are unlikely to get there.
• It's about the strategy
• It's about people 1: It's about behaviour, collectively and their understanding
• It's about focus
• Don't manage what you can measure. Measure what you want to manage
• It's not actually about measures (honestly)

In subsequent newsletters we will explore:

"Ten top tips for successful implementation and operation".

Of course if you are impatient, we can do on-site seminars and
workshops to help your organisation make sure your investment in
performance management and its strategy make a real difference.

Key principles of effective
Balanced Scorecards - part 2

"Our Balanced Scorecard is an unfocussed mess."

Many years ago I was chairing a Balanced Scorecard conference. There were over 120 organisations represented and there seemed to be 120 different ways of doing the Balanced Scorecard being promoted. Over dinner I was sitting amongst a group of people when the person on my right said, "This Balanced Scorecard thing is a heap of junk".
Intrigued I asked him why he thought that. He explained that he worked for a large, public sector organisation and their scorecard had over 50 measures on it. It was impossible to work out what was important from it. There was no logic to it.
It just created confusion.
So I asked him, "Why do you have so many measures on it?" He replied, "We were supposed to." Now I must admit I was puzzled at this point. I could not imagine where this "rule" of his had come from. As a guideline we used 4-6 objectives or measures in each perspective. That generally led to around 20-24 measures.
What puzzled me was that, unlike other approaches like, say, EFQM, there are no guidelines as to which objectives and measures you should have on a strategy map and scorecard. Whereas EFQM will ask about your capability in a number of dimensions of good practice, there is no such standard set of objectives and measures for the Balanced Scorecard (though many people have constructed them, of which more another time).
Its good to think of the approach as a blank tableau: It's like a mirror to the organisation. The people who are designing the scorecard will be representing the thinking of the organisation, won't they. In other words, what you get is what you put there. What you put there is a reflection of the organisation's thinking.
In this case, I simply asked, "So if the scorecard is a reflection of the quality of the thinking and clarity of the strategy of your organisation, what does your scorecard tell you?" A common example of this is where the scorecard is used to capture
all the measures in particular perspectives. No selection is applied. In many ways it is simply a diagnosing tool, that says, "This is what we have available". Like me you probably come across management reports with 100, 120, 150 or even 200 measures in them. They are simply collecting and presenting the information that is available to them (If its there we shall have it). I know that many organisations do this. I also know that they benefit from the far simpler and clearer focus that high performing organisations use.
In the design process, people have somehow lost sight of the question "Why do I want this objective or measure on the scorecard?" and have drifted into, this is what we have available. It's a "manage what we can measure", mentality. This leads us to our third principle

3. If you don't know where you want to go, you are unlikely to get there.

By now you will have realised that this applies both to the design of scorecard projects and to the organisation itself. If there is no clear strategy, or as would be suggested from the earlier discussion, it has become so unfocused and muddled that no-one can work out what they should be concentrating on, then guess what you will get: An unfocussed strategy map and scorecard.
If on the other hand you are clear about what you are trying to achieve. If you are clear what you are doing and what you are choosing not to do, and how you will get there, then you are likely to be more focussed. This will be reflected in the strategy map and the scorecard.
So a useful test of any scorecard or strategy map is,

"Can I deduce the strategy from this?"

If not, then you should ask, "What purpose is this serving and what effect it is having on the organisation?" That can be quite scary, can't it?
You will appreciate that this is why we spend time with clients working on two aspects. What are they trying to achieve as an organisation? What are they trying to do with their performance management and decision making processes? You might want to think about how well your organisation does these.
That is why we have developed diagnostic tools and techniques that help us understand where an organisation is trying to get to and how it wants to manage performance. We also have standard workshops we can customise to suit your particular circumstances and needs. When you want more information on these take a look at our solutions.
By paying attention to just these two basic pieces, you will start to improve the value of your balanced scorecard in your business. Of course, you realise, there are other key principles that will make a difference. In your next few newsletters we will look at how strategy, people, focus and ownership affect things. In subsequent newsletters we will also set out

"Ten top tips for successful implementation and operation".

Of course if you are impatient, we can do on-site seminars and
workshops to help your organisation make sure your investment in
performance management and its strategy make a real difference.
More soon
Phil Jones
www.excitant.co.uk
P.S. As you think of others who would benefit from this report, please pass this on, or to get their own copy point them to our case studies page.
You will appreciate our experience comes from many years of strategy, performance management and scorecard implementations. As we have seen the approach evolve, some techniques have fallen by the wayside as inefficient, whilst others have been refined and developed so that you can benefit from the experiences of others:

To stand on the shoulders of successful implementations.

Key principles of effective
Balanced Scorecards - part 3

"Measures motivate: 
So measure what you want to manage"

Like many organisations, this FTSE 100 Company's executive team had a vast amount of data at their fingertips. Their monthly report contained around 120 measures. The Chief Executive could drill down to individual retail outlets, and look at Saturday's product sales for all their categories, first thing Monday morning.
We had been brought in for a relatively common problem. As the Chief Executive put it, "They don't get the strategy". So we read through their strategy documents and interviewed the executive team to understand the strategy. At the first workshop it became clear that what was in the paperwork was not what they considered important.  Like many organisations there were vast reams of documentation and thinking in some parts (retail offering in this case) yet very little about the store positioning (having the right offer in the right place).
Why they didn't get it is a story for another newsletter. By the time we had finished the Executive team were down to 26 measures to manage the strategy for their business. But here is the interesting bit: Only 12 of those measures were amongst the 120 in their monthly management report.  The other 110 in their management report were useful diagnostics and detail, but they were not part of changing behaviour and driving the organisation forward. Performance measures vs managers of performance. Moreover the 14 missing measures were spread between:

• Those concerned with the culture, skills and behaviours that would help to change the organisation and move it forward
• Measures of what the customers actually thought.
• Aspects of the strategy that were not represented in the management report. In particular this covered the vital new product & service development pipeline and store portfolio management.

In other words they were now starting to measure what was important and what they wanted to change, rather than what they could measure. So principle 4 is

4 "Measure what you want to manage, (not manage what you can measure)"

Yet this behaviour is so common, so it is important to understand why. Why do organisations end up having so many measures that they cannot see the wood for the trees? Why do they tend to measure what they can measure, rather than standing back and thinking what should we measure.
Well there is a simple reason for this. They are doing it because it makes sense. Imagine for a moment you have just taken over a new role. It's a department, unit, organisation, product you do not know. So what will you do? You'll dig around, walk about, talk to people and gather as much information as you can. It makes sense when, as a manager, you are in a diagnostic and fact finding mode. You are trying to find out what is going on with a unit, department, product or process. You gather as much information as you can to piece together a picture and diagnose the underlying problems and causes. You put in place ways to measure what is going on.
But this is completely different to motivating someone. If you want to influence a person's, team's or organisation's behaviour how many measures would you use? 120? 100? 50? Of course you wouldn't. You would use maybe 3 or 4 or perhaps 6 at most. Any more and that would confuse the issue, wouldn't it. So this leads us to principle number 5:

5 "Be absolutely clear what you are using your scorecard for"

There are plenty of examples of this in the private sector but an interesting (but not amusing) example comes from the public sector. In the health service some measures are generated by parliamentary questions. An Member of Parliament asks a question and a measure is set up to answer the issue that is raised. All the hospitals in the land are not responding to the Department of Health's requirement to provide more information. So a measure is created. But what stops it being measures. The MP get their question answered and moves on. Yet now all these administrators are collecting this information, which is no longer required. They get added to. They do not get removed. When I was first told this story it included a room in Leeds where the printouts are piled up and locked away and no-one ever looks at them. Whether that is true or not is irrelevant. Most organisations have done similar things in the past.
So useful tests of any scorecard or strategy map are:

"What am I trying to achieve?"

"What purpose is this serving and what effect will it have on the organisation?"

You will appreciate that this is why we spend time with clients working on what the information is used for and helping them move from continual diagnosis to influencing behaviour and checking that it happens. You will of course recognise that as performance management.

As you think about how your organisation does these and what diagnosis would help you can think also about the workshops we can customise to suit your particular circumstances and needs. When you want more information on these take a look at our solutions.
By paying attention to just why you are measuring, you will start to improve the value of your balanced scorecard in your business. Of course, you realise, there are other key principles that will make a difference. In your next few newsletters we will look at how strategy, people, focus and ownership affect things. In subsequent newsletters we will also set out

"Ten top tips for successful implementation and operation".

Of course if you are impatient, we can do on-site seminars and workshops to help your organisation make sure your investment in performance management and its strategy make a real difference.

Key principles of effective
Balanced Scorecards - part 4

"The person who says it cannot be done,
should not interrupt the person doing it."
Chinese proverb

I'm reminded of this every time I work on measures for performance management in an organisation.
As you read this, just imagine you are in a workshop developing measures for your scorecard. Lets take a simple area like project management.  You'll know there are standard measures for managing projects that usually revolve around time, cost, quality, and delivery. When you get a group of project managers in a room, there are lots of ways to measure this. I one case I had about 20 project managers and asked them to suggest measures we could use. They generated over 60 measures in less than 5 minutes. I could have kept them going and probably got to 100, but that was enough to prove the point.
Imagine what happened when I said, "OK we need just 12. Which ones shall we choose?" Well, of course, the arguments started.
The problem is, people will disagree on why the measures should be used.   Which one is better for this or for that? Of course much of the reason for their choice is implicit and unstated.  I simply asked them to give me measures we could use for project management.
You will see this again and again. How often do you hear people ask for "a standard set of measures" for say, logistics, sales, manufacturing, retail, health, child protection, employee motivation, customer satisfaction, or whatever.
You'll recall in the last newsletter we distinguished between diagnosing what is going on in an organisation and finding the few key points of motivation that will change the way people behave. When you are diagnosing what is going on, you measure all the characteristics that are useful or potentially informative.
So, why are you not measuring your heart rate at the moment? It is vital to your survival, it's a great diagnostic if you are ill and it if fails you and anyone else near you will know very quickly.
The answer is that you have left it your deeper systems to manage and warn you if anything is going wrong.  It is called your autonomic system. You have delegated it.
So, why would you choose to put the organisation's equivalent of its heart rate on a scorecard?  Only if you were ill or expecting a heart attack. Alternatively you would if you could not trust your autonomic system to warn you if something does go wrong.
I'm sure you will agree that all those standard measures are really very useful: For diagnosis. However you will have recognised that if you are trying to change performance and motivate the organisation I suggest you do not start with measures. This is our 6th principle

6 "Never, never, never, ever start developing a scorecard with measures"

If you start with "What can we measure?" you will get the corporate equivalent of the output of the brainstorming of those project managers.   Only it will take longer, cost a great deal more and be harder to stop.
If you start with, "What are we trying to achieve?" or even, "What behaviours are we trying to encourage?" you will get a completely different set of answers.
Now at this point I usually get, "So, how can we measure Customer satisfaction, culture, behaviours, values, team morale, motivation, knowledge?".  
The simple answer is, don't worry about that yet.  You see, if you start to think about how to answer the question before you have finished answering it you will never be brave enough to ask the question.
In fact, there are lots of ways to measure all the things listed above.   But most people start by believing it is either difficult or impossible. (As a hint ignore everything you ever learnt about SMART measures).  It is this sort of thinking that stops people developing really useful measures that will alter behaviour.
You see people can measure these sorts of things and we have lots of clients who do.  If you have any doubts, just think of someone who is feeling alienated from an organisation and looking to leave.  How do you know?  You do know, because you do. Yet I suspect you are not using a traditional measure, are you?
So many organisations are finding "innovative" and really informative measures that tell them what is really going on in the organisation.
Unfortunately, most people start off by believing that you can't measure these things.  So they don't try.  Take a look at the research. 80% of organisations have some form of "balanced scorecard".   Yet of 2,400 companies surveyed, 70% of scorecards are failing their organisations because they do not provide concise, predictable, actionable information.  Of these, the Average Senior Exec has 132 measures (83 financial, 49 operational): 62% of measures are financial. 76% are lagging (historic) measures. They are too late, lack customer information, make little use of the "Learning & growth" perspective and have lost focus on strategic goals and underlying drivers of performance. These organisations are trapped in this sort of thinking. Their scorecards are certainly not balanced.
Hence, why we started with, "The person who says it cannot be done, should not interrupt the person doing it." Unfortunately, what Einstein said also rings true, "The type of thinking that created the problem, can't be used to solve it"
You will appreciate the difference our approach makes when we tell you that we have clients that have maintained their strategy maps and scorecards for over 5-6 years. The creation of the scorecard is only part of the problem.  Do it poorly and you will create a bigger maintenance problem.
As you think about the measures in your organisation, the mix and how they are used, you'll probably start to notice where they could be improved, enriched and that they could cover a wider perspective on the organisation.   You are probably also aware of the praise our clients give us when we run such workshops for them, how quickly we have reached suitable measures.   People who have already decided to bring our experience in, realise how much we transfer our skills to them as well as help them deliver results quickly.
Take a look at the "Making the case" paper in our case studies for sources of our research. Using this sort of information in your organisation can help you to convince people of the best way forward and win support for making improvements and delivering results, won't it?
More soon

Modern Balanced Scorecards:
Four generations of Balanced Scorecard

If you are still using this model of the balanced scorecard approach, please Think again. Unfortunately it does not work!!!! This model dates back to 1992 and, by 1994/5 it was discarded by Norton & Kaplan. Its a nice picture, but that is all.

Placed in groups = Balanced

Frankly, if you read beyond page 9 of the first balanced scorecard book you will realise that this model should never be used. Never, ever.

Since 1992 the balanced scorecard has developed through generations. There are actually four generations of balanced scorecards. Each serve their purpose, and each have benefits and consequences. In summary:

The first generation balanced scorecard is not really a proper balanced scorecard. It is simply a collection of measures in perspectives.  Such first generation scorecards are useful for operational measures but poor at describing the strategy and change.  They are rarely balanced. They often contain very static measures, as opposed to ones that are designed to drive performance. They are useful, as an operational tool.  Frankly, as every set of measures gets called "a scorecard", some are not even worth of the accolade "first generation".
Second generation balanced scorecards incorporate the basic cause and effect model across the perspectives.  They also use objectives before measures are developed.  They include the strategy map, but probably as a more basic performance driver model.  They start to reflect change in operations and they describe what drives performance.  They are more selective than first generation in their choice of measures.
Third generation balanced scorecards address what balanced scorecards were intended to address: Strategy, its management and implementation.  There are two views on third generation balanced scorecards:

1. Cobbland and Lawrie's Third Generation Balanced Scorecards that emphasise the Destination Statement, the problem of information asymmetry in setting objectives and targets and various implementation problems.
   
2. Norton & Kaplan's developments of their earlier versions which, though not generally recognised, emphasise the articulation of strategy in a strategy map, the alignment of the organisation and the Office of Strategy Management.

These two approaches have more in common than they have differences. Both contain strategy maps, cascaded through the organisation.  Both set levels of ambition over time, though Cobbland and Lawrie use the Destination Statement, whereas Norton & Kaplan do not.  Both generally use four perspectives (though Cobbland and Lawrie suggest dropping two for public sector organisations) . Both use strategic themes that cross the four perspectives and show the tension in the strategy.  Both use objectives, before measures. Both have scorecards that reflect the measures and targets, but also the the change projects that will bring about the increase in performance.  The projects can be organised into programmes of change that align with the strategic themes. They create conversation, generate understanding and help management learn from their strategy as they implement it.  Both put emphasis the management team agreeing the strategy and communicating it consistently. Both emphasise organisational alignment and communication.
Having been designing and implementing balanced scorecards since 1996, we have developed a number of enhancements, that build upon these approaches. Together, these are encapsulated in the Excitant Fourth Generation Balanced Scorecard approach.
Fourth generation Balanced Scorecards introduce a number of enhancements, beyond third generation balanced scorecards, that solve problems earlier versions have encountered and address recent thinking and experience.

Fourth Generation Balanced Scorecards start with a model of learning about the strategy as it is implemented.

They explicitly address how an organisation learns, rather than just control and management. Learning is fundamental to balanced scorecard thinking. They speed up the process of an organisation learning from its strategy. Avoiding large plans, the organisation is more amendable to change and more able to respond when changes are needed. This enables learning about the strategy and about the effect of performance.
They recognise how the organisation's approach to governance affects strategy maps and balanced scorecard design.The organisational learning approach reinforces the need to keep the name of the fourth perspective "Learning and growth".That is why the fourth perspective is called "Learning and growth". If it is renamed it undermines how the organisation learns. The focus on learning fundamentally changes how these balanced scorecards are designed, introduced and used.

Fourth Generation Balanced Scorecards create the space for both leadership and management.

Leadership creates the space for your people to perform. Management is making sure it happens. The fourth generation approach explicitly describes where leadership and management play a role in performance management.
To support the leadership and management, Fourth Generation Strategy maps and Balanced scorecards have an "Organisational values" perspective. This underpins the existing four perspectives and incorporates the organisation's values as a driver of performance and change. Organisational values are represented by a lower, fifth perspective that underpins the learning and growth perspective. We have used this approach since 1998.
Our approach invites you to both lead and manage. This is built into how our fourth generation balanced scorecards are designed implemented and operated.

Fourth Generation Balanced Scorecards address both the discipline and culture of performance. They encourage judgement and evidence

“Measure mania”, “the tyranny of targets, “silo working” and “feeding the beast” are symptoms of a poor performance management culture. Of course, you need the discipline of performance management to keep a grip on the organization: but how do you unleash the potential of your staff to perform to their best?
The discipline of performance is about doing the basics. Evidence is needed to ensure you have the facts so you can manage. The basic information to make decisions. Having that grip, without burdening the organisation: without causing more problems that benefits.
The culture of performance is about getting the best from your people: unleashing their potential. Creating the space for your people to perform.
Judgement is what we pay our experienced managers for. So how do we build it? How do people learn? How do our staff develop their judgement supported by evidence. Combining judgement and evidence in the scorecard supports learning at the operational level .
Quality of conversation precedes quality of learning.

They have a tangible vision. This describes how the management expect the environment and the organisation will develop through time.

The Tangible Future is a tool of discussion designed to develop conversation amongst the management team of the organisation's future. To ensure they are clear whe5re they agree, where they disagree and where they are uncertain. The Tangible Future looks forward to describe the environment and the organisation at several chosen points in time. In this respect it is like a Destination Statement. But the Tangible Future goes further than a Destination Statement.
The future is uncertain and managers do not conceive a single It does not assume a single destination at any point in time. The Tangible Future includes assumptions, uncertainties and risks: These are not absolute, but include places where the market might change direction, where there are assumptions about the environment, identifies the uncertainties that need to be understood and risks to be mitigated.
Tangible Futures exploit value chain analysis to ensure a clear view of the strategy will influence the stakeholder community and the strategy will add value to the organisation and to its customers.
The Tangible Future sets the level of ambition and rate of change the organisation wishes to achieve. It also identifies items for the external perspective.

They include an external perspective. This has two parts:

Measures and targets have a context. This context is vital to ensure that the measures and targets stay relevant as the environment changes. It also makes it much easier to compare departments, regions or countries that have the same measures but are in different situations.
They use External Predicting Indicators. These External Predicting Indicators (EPIs) are used to monitor the external environment for indications that the assumptions behind the strategy has changed or that the environment has altered substantially. These are derived from the Tangible Future and Strategy map. The EPIs ensure that managers are plugged into the environment in which their strategy is being executed so that when they are reviewing the strategy with their strategy map, they are also conscious of the potential of their environment to change.

Incorporate social impact and environmental impact.

We incorporate social and environmental impact without destroying the cause and effect model across the original balanced scorecards perspectives. We recognise that these are a consequence of the organisation's activities and behaviour.
Environmental impact, is added as an external perspective alongside the financial perspective. Social impact can be added above the customer perspective. This represents the wider impact on society or the community than is represented by the customer perspective.
We retain the environmental and social impact question that the other balanced scorecards perspectives ask. What is the financial impact on the company? What do our customers want? What do we have to do well to achieve this? What do we have to learn and grow as an organisation to do this well? How do Social impact and environmental thinking affect our organisational values. These questions embed corporate social responsibility into the strategy and the social and environmental perspectives capture the consequences.

A clear simple public sector and third sector model for strategy maps using existing balanced scorecard perspectives.

Many seem confused about how to use strategy maps in the public sector. We don't understand why they are confused as it is very simple as our approach explains. We call our approach “The three ball juggle”.  The public sector strategy map model understands the tensions and need to juggle the three balls of:

1. Serving the public, community or partners,
2. Managing the finances, delivering services economically, and
3. Satisfying the demands of regulators, politicians, governance and fund holders.

Many public sector and third sector strategy maps lose the underlying cause and effect model. Ours does not lose this important component. We have a clear simple and logical model that preserves the cause and effect model, so you can describe strategy and show what drives performance. It works for any public sector or third sector organisation. We call it the three ball juggle. You will find it in the various public sector balanced scorecard case studies and examples.

Well developed techniques

These techniques are well developed. We have been using some since 1998 whilst others are more recent. Every client we work with will fit on this ladder somewhere.  Most of our clients use our fourth generation balanced scorecard with some aspects of fourth generation (though occasionally they need help getting past generations one and two first).  If they can only reach some aspects of fourth generation at the moment, we leave them legacy, and aspiration, to reach the other aspects when they are ready.