The Balanced Scorecard: The Power of Focus and Alignment

September 29, 2003 by SAP News 0

Bangalore, India

Mobil North America Marketing & Refining Division

  • 1992: Ranked last among industry peers in profitability, low return on investment,
    needed cash infusion of $500 million to maintain and upgrade facilities
  • 1995 (Two years after new strategy implemented with Balanced Scorecard):
    Ranked Number one in industry in profitability with profits 56% higher than
    industry average

CIGNA Property & Casualty Insurance

  • 1993: Lost nearly $275 million, performance worst in industry
  • 1996 (Two years after new strategy implemented with Balanced Scorecard):
    Returned to profitability, sustained and improved performance over next 4
    years.

AT&T Canada

  • 1995: $300 million in operating losses
  • 1998 (Two years after Balanced Scorecard implementation): Positive cash
    flow, doubled customer base, revenue per employee increased from $273,000
    to $370,000

Is the Balanced Scorecard a magic mantra? Looking at the above snapshots, it
would appear so. But it is not the Scorecard per se that weaves the magic. Its
power lies in two simple words – alignment and focus – enabled through
its implementation.

The fathers of the Balanced Scorecard, Robert S. Kaplan and David P. Norton
explained its success in achieving breakthrough results lucidly in a subsequent
book, The Strategy-Focused Organisation: “Think of the diffuse light produced
in a well-lit room by thousands of watts of incandescent and fluorescent lamps.
Compare that warm diffuse light with the brilliant beam of light that comes
from the tiny battery in a handheld laser pointer…”

The Balanced Scorecard is a revolutionary new management tool that helps merge
individual and cross-departmental initiatives into the organisational mission.
It enables executive teams, business units, human resources, information technology
and financial resources to focus and align to the organisation’s strategy.

Even as each organisation approaches the challenge of achieving such strategic
focus and alignment in different manners, there are five common principles at
work in every case.

First, the Balanced Scorecard helps translate the strategy into operational
terms. No longer, does the strategy appear to be a standalone phrase in the
haloed confines of the firm’s vision or mission statements. It is described
and communicated through a comprehensive “strategy map” which is
the cornerstone of the new strategic management system.

Next, the entire organisation needs to be aligned to this strategy through
a synergy of team and individual goals that feed into the overall corporate
strategy. This breaks down functional silos, linking teams through common themes,
and coordinating and harmonising functional roles to a collective direction.

This automatically triggers the following principle of making strategy everyone’s
everyday job. This is core to the success in any company as through it all employees
understand the strategy and conduct their day-to-day business imperatives in
a manner that contributes to the success of the overall strategy.

The Balanced Scorecard takes planning and review out of the limited reigns
of accounting books and makes it a comprehensive continuum of managing tactics
and strategy.

Finally, more than a metrics project, the Balanced Scorecard is a change project.
This final principle that it stands upon it that of mobilising change through
executive leadership by a deceptively simple governance process.

The Balanced Scorecard brings about a sense of urgency by creating the guiding
coalition, helping develop a vision and strategy, translating it into operational
objectives and targets and keeping the organisation rolling ahead together towards
its strategic goals.

It helps break through the traditional confines of budget-led planning and
creates a framework to look at strategy used for value creation and achieving
the organisational vision from four perspectives:

  • Financial
  • Customer
  • Internal
  • Learning and Growth

This provides a holistic view of the true value drivers in a company, far beyond
the financial perspective.

Interestingly, it is not just loss-making enterprises that have sought refuge
in the Balanced Scorecard to bail themselves out of a bad situation.

United Parcel Service plunged into an implementation of the Balanced Scorecard
in 1994, a year of record profits. This followed a realisation that in a fast-changing
market, the company could be in danger of losing out unless it made dramatic
changes to broaden its perspective of success. Until then, 90 per cent of UPS
measures were financial which came at a lag of 45 days and above. With the Balanced
Scorecard implementation, the company went beyond financials and also began
measuring the four key parameters of customer satisfaction, employee satisfaction,
competitive position and time in transit. The results were immensely satisfactory
as the company reaped further gains with a revenue growth of 10 per cent against
an industry average of 3-4 per cent.

Recognition of the role played by the softer elements in adding to fiscal growth
comes from an acceptance that value added may be indirect, contextual or potential.
It also acknowledges the fact that both tangible and intangible assets need
to be bundled together to arrive at the value of success.

There cannot be a better way to describe the power of this new strategic management
process than the introduction to the concept itself in the book The Balanced
Scorecard: “Imagine entering the cockpit of a modern jet airplane and
seeing only a single instrument there…”

The Balanced Scorecard is your corporate dashboard that includes instruments
beyond the traditional financials. It is your instrumentation panel that gives
you the assurance of “all systems go” with one sweeping view.