Gaining Traction with Your Strategy

Written by on June 2, 2015

Case Study: The Balanced Scorecard

In the early 1990s, Robert S. Kaplan and David Norton developed the “Balanced Scorecard.” While its roots extend deeper than 20 years, Drs. Kaplan and Norton gave shape to the notion that businesses needed to see beyond financials and measure other key dimensions to achieve a more complete picture of performance. The Harvard Business Review recognized the Balanced Scorecard as one of the most influential business management ideas of the past 75 years.  Now, how can leaders elevate it from an idea to a tool?

A Look at the Balanced Scorecard

The traditional financial performance measures worked well for the industrial era, “but they are out of step with the skills and competencies companies are trying to master today.” – Kaplan and Norton

Traditional performance targets might be, “Generate $20 million in sales of a particular product line,” or “Cut administrative costs by 10 per cent.” Focusing attention exclusively on financials, though, misses the point: what about the areas we need to strengthen and the initiatives we need to undertake to produce sustainable results? We could, for instance, achieve that revenue goal by slashing prices dramatically; we could hit the 10 percentage point cut by terminating staff and forcing everyone else to pick up the slack. These are short-term answers – and not great ones – that will come back to bite us as an organization.

To counteract the focus on financials, the Scorecard looks at four dimensions:

  1. Customer or Consumer Strategy. What’s our profile? How do we want to come across to our customer base?
  2. Internal Processes. What do we need to do strategically to improve the way we do business?
  3. Talent. What are we doing to recruit, retain, and develop employees?
  4. Financial Measures. What financial indicators are most relevant?

The initial reaction was: “That’s fine. It’s good to focus on the first three dimensions, but if you don’t meet the financials, you’re out of luck – and you don’t get a bonus.” Over time, though, people came to realize that if you concentrate on customer strategy, internal processes, and talent, reaching financial targets was that much easier.

The challenge is, still, that people view the Balanced Scorecard through a financial lens, looking at it as a mathematical or mechanical exercise. It can be, as I discovered, something much more powerful.

Using the Balanced Scorecard to Drive Strategy

Recently, I had the opportunity to work with a client, a CEO who wanted to implement Balanced Scorecards on a corporate level and an individual level for his direct reports. Interested, I asked how he planned to do that. His reply: “Not a clue! That’s why you’re here!”

His management team had never spent more than an hour or two together and never in a collaborative setting. That was the first step: simply getting the right people into the same room at the same time. We started with a visioning exercise, engaging in a strategic dialogue around where they thought the organization needed to be in a five-year time frame.

The next question was, “How do we translate that into individual accountabilities? What does each person contribute to achieve the overall vision, and what will the scorecards look like? Collaboratively, we created a scorecard with four dimensions:

  1. What’s the strategic contribution of each unit?
  2. What internal processes need to be in place to support that contribution?
  3. What talent capabilities do we need in place?
  4. What are the financial measures that reflect success?
Then, each business unit had to consider:
  • Objectives. What are we trying to accomplish in each dimension?
  • Metrics. How are we going to measure success?
  • Targets. What are our targets for the next year?
  • Initiatives. What initiatives will we launch to move towards the ultimate objective?

We developed a 4×4 matrix, a visual scorecard of the answers to the above eight questions. In the process, the group identified areas of overlap – where two or more individuals were doing the same tasks, had the same objective or target, or had competing initiatives – as well as gaps. The opportunity to come together and have a substantive dialogue allowed them to discover and address these concerns.

Within a short period of time, the team developed a mutual understanding of what each member was accountable for, where they needed help, and where they could offer help. They moved from a group of individuals to a team that is collaborating and growing both individually and collectively to achieve the overall strategy of the organization.

The Balanced Scorecard was merely a vehicle to facilitate dialogue and improve the collective and collaborative operation of this management team. In themselves, the scorecards are nothing. When they are used in the process of building a collaborative team, they are powerful.