help them achieve their organizational strategy. Many organi- zations report that they have achieved benefits through effective implementation of a scorecarding ...
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Achieving Strategy with Scorecarding Raef Lawson,William Stratton, and Toby Hatch
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carding system were rganizations are There are four key factors to achieving strategy strategic. These includusing business ed both the need to scorecards more through implementation of a scorecarding system. communicate strategy frequently as a tool to The first of these is clear communication of strategy to everyone and the help them achieve to employees. Second is tracking results and proneed to align employee their organizational viding visual feedback, such as through scorecards behavior with strategic strategy. Many organiwith traffic lights, trend indicators, benchmarks, and objectives. Both of zations report that they scores. Third is having people with the right skills these reasons for have achieved benefits doing the things necessary to push the strategy forimplementation were through effective ward. Fourth is having a strategy champion to keep cited by over twoimplementation of a the scorecard system initiative visible and to thirds of survey scorecarding system. encourage communication. © 2005 Wiley Periodicals, Inc. respondents. Others, meanwhile, Advocates of fail to achieve benefits scorecarding systems from this business state that these systems are nectool. This article examines some company to company. However, most of these systems have a essary in order for strategy to of the factors that are key to common feature: a focus on key become realized and for employachieving strategy through performance indicators (KPIs), ees to work in a manner consisimplementation of a scorecardthe Balanced Scorecard perspec- tent with it. One author states, ing system and quantifies some “The problem is not one of of the relationships through data tives, or some other methodology (often homegrown). developing a strategy—numercollected in the On-Line North This definition is consistent ous options are available for that American Scorecard study with the idea that scorecarding task. . . . The fundamental issue (SHAPS) conducted by the systems are implemented by is one of implementation, transauthors.1 organizations to help them reach lating the strategy into terms that their strategic goals, whether the everyone understands and thereBACKGROUND goals are implicitly or explicitly by bringing focus to their daystated. The results of the SHAPS to-day actions. . . . 70 percent of A scorecarding system is “a scorecard survey on the use, CEO failures are not the result strategic management tool that of poor strategy, but rather poor helps you measure, monitor, and design, and implementation of execution.”3 communicate your strategic plan scorecarding systems by North American organizations support and goals throughout the organiA discussion in a 1999 artithis idea. In the survey, many of zation, in a way that is undercle around the execution of stratthe most commonly given reastood by everyone.”2 Scorecardegy in organizations begins with sons for implementing a scorea quick quiz: “Question #1. ing systems vary widely from © 2005 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI 10.1002/jcaf.20104
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Three frogs are sitting on a log. One decides to jump off. How many are left? You might think two, but the answer is three. One has [only] decided to jump off. Question #2. Three companies have poor earnings. One decides to revitalize key product lines, strengthen distribution channels, and become customer intimate. How many companies have poor earnings? You get the idea: deciding and doing are two different things.”4 There are several factors common among companies that have had success in achieving their strategy with the use of scorecards. These include: 1. The clear communication of strategy, 2. Tracking results and providing feedback, 3. Aligning human capital with strategy, and 4. Having a strategy champion.
COMMUNICATE STRATEGY For an organization to be able to implement its strategy, that strategy must be clearly communicated throughout the organization. Each person in the company needs to help execute the strategy (some in more remote ways than others) and therefore must understand what the strategy is and how he or she can personally help move it forward. Tracey G. Schmidt notes that “the bottom line on great execution lies with people. You can have the best strategy and tactics, the best go-to-market and implementation plans, the most perfect cascade of measurements, but ultimately it comes down to this: Do people understand what we are trying to do? Do they understand why we are doing it? How we are going to do it? What’s in it for them if we
succeed? At FedEx Express, we believed that if our front-line managers couldn’t answer those four questions, then the tactical execution would probably fail.”5 There are several ways to formally communicate strategy. One way is through the use of a strategy map. This tool graphically depicts a company’s strategy in a way that everyone in the company can understand. Exhibit 1 depicts a partial strategy map consisting of strategic objectives (ovals) linked together in a cause-and-effect manner, categorized by four perspectives (Financial, Customer, Internal Processes, and Learning & Growth). These four perspectives are part of the Balanced Scorecard Methodology; other perspectives can be used as well. A well-made strategy map can be read from top to bottom or bottom to top. Exhibit 1 indicates that (bottom up) if we have well-trained and motivated drivers, it should lead to on-time deliveries, which would exceed the customer’s expectations,
leading to retention of that customer. Ultimately, retaining existing customers while also finding new ones will lead to profitable growth. Communication is also essential for employee acceptance of the scorecarding system. They need to know the reason for the scorecarding system and how it benefits both them and the organization as a whole. Communication in the organization needs to be in alignment from the top of an organization to its bottom. One way to align individuals’ actions to strategy and to motivate employees to act in a manner that supports the strategy is by assigning responsibility for strategic initiatives to people, teams, or departments and to place the supporting measures for these initiatives on their respective scorecards. For example, suppose management has decided to support the customer-focused objective component of the business strategy “Exceed customer delivery
Exhibit 1 Partial Strategy Map
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expectations” with an initiative to “vastly improve on-time deliveries,” including a target of 98 percent on-time deliveries. The responsible managers for this improvement initiative might include the sales and production managers. Leading indicators for the measure “Number of on-time deliveries” (from the Process perspective in Exhibit 1) could include “Percent of SKUs in stock” and “Percent of orders picked and packed correctly.” Sales might have lead indicators of “Number of orders submitted correctly” and “Percent of orders changed.” These measures would be placed on the scorecards of sales and production managers, along with targets, and scored based on actual results. An additional method of communicating strategy and encouraging alignment is to weight measures or perspectives on scorecards to emphasize the priority of the most critical components of the company strategy. Findings from our study support the idea that a key factor for a successful implementation is alignment of all employees’ actions with the organizational strategy. One hundred percent of the study participants that reported significant benefits from their scorecarding system also reported some formal tie to strategy. In sharp contrast, 43 percent of the participants that reported no significant benefits reported no tie at all to strategy. In addition, all of the organizations that reported significant benefits from implementing a scorecarding system communicated their strategy to their employees in some way, while almost half of those organizations that reported no benefits failed to do so. © 2005 Wiley Periodicals, Inc.
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Ray Thornton of Gulf States Paper Corporation (one of America’s premier forest products companies) states that to be successful, “Communicate until it hurts.” Gulf States received significant benefits from its scorecarding system by developing a leadership council and a measurements and rewards (M&R) team. The mission of the M&R team was to “facilitate the definition of process metrics that will result in improved Economic Value Added (EVA) through the measurement and improvement of all core and enabling
Scorecarding systems can be implemented for strategic or tactical reasons (or both).
processes.” Some of the guidelines of the team were: • • • •
Create the right balance of operational performance vs. customer results. Start with desired enterprise/customer outcomes (strategic framework). Define metrics for measuring outcomes (clear causeeffect). Facilitate daylong sessions for core and enabling processes.6
It is also important to design the scorecarding system with the organizational strategy in mind. The common saying “you can only manage what you measure” holds true for scorecarding systems as well. Scorecarding systems can be implemented for strategic or tactical reasons (or both). These reasons for implementation can affect the design of the score-
carding system in many ways, including choice of the perspectives used for organizing the performance measures used, the levels of the organization at which scorecards are deployed, the means by which linkage of scorecards with strategy is achieved, and much more.
TRACK RESULTS AND PROVIDE FEEDBACK—DIRECTING ATTENTION An attribute of a good scorecarding system is the ability to identify and effectively communicate the extremes of performance—where an organization’s strategy and its implementation need attention and where it is doing well. Managers cannot know where to best expend their efforts if they do not know the areas of their organization that are performing well and those that need help. Targets and, in some cases, scores, can be used to help managers and employees understand clearly what is required to reach a strategic objective and how close their performance is to their targets at any given time. Providing means to indicate progress toward achieving organizational goals and the ability to collaborate on initiatives is another powerful way to keep employees aligned with an organization’s strategy and to promote day-to-day activity that will support the strategy. This can be accomplished through the use of dashboards or scorecards as a tracking tool. (Exhibit 2 presents an example of a scorecard with traffic lights, trend indicators, benchmarks, and scores.) The results of our survey show that this idea resonates with executives: over 80 percent of the respondents indicated that the
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Exhibit 2 Scorecard System with Traffic Lights, Trend Indicators, Benchmarks, and Scores
ability to graph performance measures over time was an important feature of a scorecarding system. Tracking both successes and failures requires a basis for evaluation. Benchmarks can be used in many instances as a basis for performance evaluation and as a stretch goal for employees. Stretch goals can also be linked to the reward systems to encourage employees to reach beyond basic expectations to achieve exceptional performance. The prevalent use of benchmarking—and its effectiveness—was clearly indicated by the results of our survey, in
which 84 percent of respondents utilized benchmarking. Of those organizations utilizing this tool, 93 percent believed that it was important in helping drive the organization toward achieving its vision. Mark Graham Brown notes, “Benchmarking is one of the best methods of establishing realistic stretch goals and providing ideas for strategies to achieve your goals. Going to visit world-class companies that excel in areas where you are weak can be an enlightening experience that may save you years-worth of trial-and-error learning.”7 Brown also warns
that a strategy that worked well in one organization may not work well in another, and an organization should make sure that the strategy it plans to adopt will fit in the culture of its business plan. A scorecarding system, regardless of the framework utilized, allows an organization to learn from history via the system’s feedback system. More importantly, it should allow the organization to discover difficulties and act quickly to fix them to ensure future success. A good balance of leading and lagging measures on a scorecard helps ensure that difficulties can be © 2005 Wiley Periodicals, Inc.
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quickly dealt with before they turn into problems.
ALIGN HUMAN CAPITAL WITH STRATEGY An organization’s strategy can only be achieved if the company has the right people with the right skills doing the right things to push the strategy forward. From a scorecarding perspective, in order to achieve this alignment of individual performance and corporate strategy, two things are necessary: 1. An organization needs to put measures that support the organizational strategy on employees’ scorecards. Each of these measures should have a clear linkage back to the strategic objectives of the organization. Further, these measures must motivate employees to work in congruence with the organization’s objectives. 2. The organization needs to link those measures to its compensation and reward system. Seventy to ninety percent of organizations fail to successfully execute their strategies. This failure has been linked to two major causes: “The first is that since there is no generally accepted way to describe a strategy, organizations are attempting to execute something that isn’t even articulated. The second is that management systems aren’t linked to organizational strategy.”8 In pursuing its strategy, an organization should offer its employees incentives based on its strategic objectives. This will encourage behavior that will help it reach its goals (provided they © 2005 Wiley Periodicals, Inc.
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are implemented appropriately). Compensation and rewards can include (but are not limited to) salary, bonuses, recognition awards (monetary and nonmonetary), and other incentives. When a target is achieved, or a significant stride toward a target or objective is reached, celebration and recognition are important elements for success. Consistent with this idea, our study found that the stronger the linkage to compensation, the more likely an organization was to achieve significant benefits from its scorecarding system. A key factor to a successful deployment of a scorecard sys-
In pursuing its strategy, an organization should offer its employees incentives based on its strategic objectives.
tem is the depth to which scorecards are used. The results of our survey indicate that organizations achieve greater benefits the further down the organization scorecards are used. Furthermore, more than half (53 percent) of the respondents indicated that they are planning to implement their scorecard system deeper within the organization. One emerging approach for driving strategy deeper into an organization is to blend the topdown focus of business performance management (BPM) technology with the individual-level detail of employee performance management (EPM). BPM and EPM functionality are beginning to meet in the middle to help organizations drive both corporate objectives and accountability to every level of an organization. Dr. Robert McPeek, director of research for Mind-
Solve Technologies, points to the fast-developing ability of a BPM/EPM hybrid solution facilitating execution “from the top desk to every desktop.”
HAVE A STRATEGY CHAMPION Success in achieving strategy is often facilitated by a strategy champion, who keeps the scorecard system initiative visible, encourages communication, and celebrates successes. This individual, sometimes referred to as the strategic management officer, must be respected by top management and visible at any meeting or gathering of importance. This officer reports to the CEO, or another topranking officer, and ensures that strategy remains high on everyone’s day-to-day agenda. The following eight functions have been identified as functions of the Strategic Management Office:9 1. Strategy formulation and strategic planning, 2. Alignment (among individuals, organizations, and strategy), 3. Strategic communications, 4. Balanced Scorecard coordination, 5. Initiative management (cross-functional oversight), 6. Governance coordination (integration between functional groups and link to strategy), 7. Performance review administration (facilitating monthly management meetings), and 8. Change management.
CONCLUSION Organizations that are successful in achieving their strategy share many similarities. Their
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effective use of scorecarding systems helps them realize the greatest benefit from the systems by involving, aligning, motivating, and rewarding the entire company based on the organizational strategy. Note: If you would like to participate in the International On-Line Scorecard Study, visit http://graziadio.pepperdine.edu/ shaps.
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NOTES 1.
Conducted by the University at Albany,
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State University of New York, and Pepperdine University from 2002–2003. Nonfinancial sponsors of the study included the Hyperion Solutions Corporation, the Consortium for Advanced Manufacturing-International, the American Institute of Certified Public Accountants, and the International Quality & Productivity Center. Balanced scorecard approach to public, non-profit management. (2003, July 3). Financial Gazette. Retrieved December 27, 2004, from http://www.fingaz.co.zw/ fingaz/2003/July/July3/4263.shtml Niven, P. R. (2002). Balanced scorecard step by step: Maximizing performance and maintaining results. New York: John Wiley & Sons; p. 92. Serven, L. B. (1999, May). Can your
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company actually execute its strategy? Harvard Management Update, p. 3. Schmidt, T. G. (2004). On the up and up: Achieving breakthrough performance through insight. Santa Clara, CA: Hyperion Solutions Corporation; pp. 34–35. Thornton, R. (2004). Gulf States Paper Corporation. Best practices and Gulf States Paper Corporation scorecard implementation, Session #3062A, Hyperion Solutions Conference. Brown, M. G. (1996). Keeping score. Using the right metrics to drive worldclass performance. Portland, OR: Productivity Inc; pp. 188–189. Kaplan, R. S., & Norton, D. P. (May–June 2004). Balanced Scorecard Report, 6(3), 2. Ibid., pp. 4–5.
Raef Lawson is an associate professor and the chair of the Department of Accounting and Law at the University at Albany, State University of New York. William Stratton is a professor of accounting at the Graziadio School of Business and Management at Pepperdine University. Toby Hatch is the domain leader for business modeling and performance scorecard with Hyperion Solutions.
© 2005 Wiley Periodicals, Inc.
