The Balanced Scorecard: The Power of Focus and Alignment

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.