July 26, 2002

Beyond the Numbers

After years of evolution, balanced scorecard applications now integrate strategy and management for competitive advantage

by Dylan Miyake

Continued from Page 1

This concept reflects the third-generation application of the BSC. It describes how the BSC can best be used to drive transformational change and breakthrough results in an organization. (See Figure 2.) It's based on five key principles:

1. Executive leadership to lead change.
2. Translate the strategy into operational terms.
3. Align the organization to the strategy.
4. Make strategy everyone's job.
5. Make strategy a continual process.

These principles serve as the basis of an integrated strategic management system premised on the BSC. Studies have shown that fewer than 15 percent of strategies are implemented successfully, and this lack of execution is one of the key reasons organizations fail (Walter Keichel, "Corporate Strategists Under Fire," Fortune, Dec. 27, 1982). Each principle is designed to address that critical issue:

• Executive leadership to lead change. While most executive teams share common goals, people often disagree about how to achieve those goals. Usually, the underlying reason behind executive misalignment is lack of clarity and accountability around the responsibilities for strategy execution. The process of building a BSC, and discussing the strategy, provides the foundation for executive alignment.
• Translate the strategy into operational terms. Strategy is often formulated at the executive level but executed on the front lines. Strategy is simply about the choices an organization makes, both large and small. Studies, however, have shown that as much as 85 percent of the workforce doesn't understand their company's strategy (Renaissance Solutions Study, Translating Strategy into Action, 1996). How, then, can they be expected to execute it? The BSC and strategy map translate the strategy into terms they can understand.
• Align the organization to the strategy. In large organizations with multiple business units and shared service units, aligning the enterprise can be challenging. Different markets, processes, and customers make it difficult for disparate parts of the organization to work together. But they should share one common thread: the strategy. Using BSC as a guide, the organization can become linked and aligned.
• Make strategy everyone's job. The next logical step after aligning the organization is aligning the people: specifically, through performance management and incentive systems. When something is measured, people pay attention; when a measurement can affect their compensation, people really pay attention.
  In a knowledge-driven economy, keeping key people is critical. And there's no better way to do that than by ensuring they understand how they contribute to the company's success based on that motivation.
• Make strategy a continual process. Strategy is anything that should happen every day, not only at a management offsite once a year. As the world is continually changing, organizations need to be continually vigilant about their strategy and their performance against it. And, if some of the leading indicators on their BSC determine that the strategy may be flawed, they need to correct it. This real-time view of the strategy means that information systems are critical. The speed at which executives can get information becomes a competitive advantage.

Many of the leading BSC applications are designed to support this integrated strategy-focused view of the enterprise. ERP and business intelligence vendors alike have developed solutions that position the BSC as the integrating framework that ties their disparate solutions together. Although this approach doesn't address the less tangible issues of executive leadership and organizational alignment — which are critical to the overall success of an organizational change project — it does facilitate the communication, integration, and analysis that are central to success in a BSC initiative.

The leading third-generation BSC applications let executives start with a high-level view of their strategy (at their strategy map), then quickly drill down into supporting BSCs for forensic analysis. Within the supporting BSCs, executives can analyze the actual vs. target on the various supporting metrics, and perform "what-if" and scenario analysis on their metrics.

Third-generation BSCs go much deeper than simple reporting and drill-down analysis. They also integrate historically separate activities — for example, they may support the integration of the planning and budgeting process with the BSC, and may integrate the performance development and incentive processes with the scorecard.

Essentially, the BSC becomes the common thread that ties the essential activities of the organization together. This integration is what supports users in leveraging the BSC to manage ever-decreasing cycle times and stay competitive.

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Third Time's a Charm

The BSC has been implemented in thousands of organizations worldwide, from small, nonprofit foundations to large, multinational enterprises. Developing from a simple need for a more holistic and inclusive measurement system, the BSC is now an integrated, third-generation solution that allows organizations to rapidly and measurably implement strategy and drive breakthrough results.

Starting as a simple idea in 1992, today the BSC is deployed in more than half the Fortune 500 companies, and the BSC concept was named one of the most important management ideas of the past 75 years by Harvard Business Review. The recent introduction of integrated third-generation BSC technology solutions only means that this idea — the integration of strategy and management — will continue to grow.

Dylan Miyake [dmiyake@bscol.com] is director of Balanced Scorecard Collaborative. Founded by the developers of the balanced scorecard concept, Drs. Robert S. Kaplan and David P. Norton, BSCol is dedicated to the worldwide awareness, use, enhancement, and integrity of the balanced scorecard as a value-added management concept. Visit www.bscol.com for more information.

TOP OF THE CLASS

Balanced Scorecard Collaborative Certified is a voluntary certification program developed by BSCol to help manage the growth of the BSC application market. In response to requests by clients, BSCol developed a series of functional standards in 1998 that outlined the minimum requirements for a BSC application that meet the Kaplan-Norton standards.

The BSC Functional Standards identify user requirements and needs, taking into account the experience gained through BSCol's work with more than 300 clients. These observations have been codified in the Functional Standards to provide guidance for organizations preparing to purchase a BSC application and provide a functional baseline for technology vendors developing such an application.

The standards should be viewed as a minimum threshold upon which vendors can add to address new requirements.

To date, 16 companies have been awarded BSCol Certified status:

• ABC Technologies (recently acquired by SAS): Oros Scorecard
• CorVu Inc.: CorManage
• Crystal Decisions Inc.: Crystal Decisions Balanced Scorecard
• FlexBI Technology: FlexBI
• Open Ratings (formerly Gentia): Open Ratings Balanced Scorecard
• Hyperion Solutions Corp.: Hyperion Performance Scorecard
• InPhase Software Ltd.: Performance Plus
• Oracle: Oracle Balanced Scorecard
• Panorama Business Views Inc.: PBviews
• PeopleSoft Inc.: PeopleSoft Balanced Scorecard
• Procos: Strat&Go
• ProDacapo: Balanced Scorecard Manager
• QPR: QPR Scorecard
• SAP AG: SAP SEM
• SAS Institute Inc.: SAS Solution for Balanced Scorecard
• Vision Grupo Consultores: Strategos

For more information about BSCol Certified applications, visit www.bscol.com/certified.

Resources

BSCol Functional Standards: www.bscol.com/standards

Foundation for Performance Measurement: www.fpm.com

BetterManagement.com's Scorecard Authority: www.bettermanagement.com/authorities/default.aspx?a=11

The Balanced Scorecard Institute: www.balancedscorecard.org

Balanced Scorecard Collaborative home page: www.bscol.com

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