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Balanced Scorecard: A Road Map for Executing Strategy
by Patrick Ow

  • How can we align our people, processes, systems and relationships to strategy?
  • How do we transform and cascade strategic objectives right down to every individual within the organisation?
  • How can we effectively execute our corporate strategy?
  • How can we transform our people to deliver more?

Two prerequisites must first exist: the chief executive officer's (CEO's) total commitment and involvement, and an understanding of the organisation's mission, vision, strategy, values and life cycle.

Because strategy is the pursuit of a unique way of competing, CEOs must be able to clearly articulate their strategy through a corporate scorecard. We cannot manage something that we cannot clearly describe.

To achieve long-term shareholder value, organisations must first attract and retain customers. To achieve customer-related objectives, organisations must prioritise their core business processes. To achieve financial, customer and business process objectives, organisations must support transformation, innovation, and growth in their employees.

Unfortunately, countless methodologies exist for improving and managing performance. In practice, implementations using particular methodologies have not generated the expected results. Thus, it is not the balanced scorecard or Six Sigma methodology that makes the organisation successful. It is having the right people who truly understand the chosen methodology — and make full use of it, adapting and amending it where required.

We start by identifying, analysing and prioritising core business processes and key customers. This helps us analyse and define key customer requirements, and critical business drivers and measures. In doing so, employees can measure their personal contribution against these drivers and measures since "what gets measured gets done." Measures are used to identify gaps between plans and execution.

Business processes are improved and aligned with strategy and definable customer requirements.

Translating the corporate strategy into operating business units requires us to develop a set of balanced measures for comparing actual performance against planned strategic objectives. Using competitive intelligence, aggressive targets (baseline and stretch) are set for each weighted measure.

Corporate strategic objectives, measures and targets are cross-checked against elements of the corporate mission and vision statements for consistency and coverage. These are subsequently cascaded and strategically aligned to all business units. Support services' scorecards are then developed and aligned to support business unit scorecards, based on service level agreements and value chain analysis.

Business unit and support service scorecard measures and targets are cross-checked against corporate strategic objectives, measures, and targets for alignment and consistency.

Through this cascading and cross-checking process, communication takes place, misunderstandings are clarified and roles and responsibilities become clearly defined.

Business unit initiatives are rationalised, prioritised and managed. Budgets are developed and consolidated. Resources are prioritised and allocated according to strategic needs.

Human resource practices are also aligned and integrated to business strategy. This ensures congruence and synergy within the organisation. There must be a systematic and holistic approach in ensuring that business strategy, policies and strategies for managing human capital are all aligned, rather than operating independently in silos.

For example, a first-rate selection system may be of no use if it is not working in conjunction with effective training and development activities, since these two components can counteract each other.

Finally, cascade and align each business unit's objectives, weighted measures and baseline targets to all work groups, teams and individuals. A strategy-linked incentive system for rewarding performance is used. Team-based rewards are instituted to avoid individual "free-rider" problems. In doing so, people transformation can truly take place.

Personal scorecard measures and targets must be meaningful and directly related and attributable to each individual employee. Job competencies are integrated into personal scorecards since competencies translate nonfinancial goals into the appropriate standards of behaviour. Personal scorecards can also function as job descriptions and performance contracts.

Baseline scorecard targets are the minimum performance standards required for discretionary bonuses. Maximum possible bonuses will be earned when meeting or exceeding the agreed stretch targets. Achieving the midpoint target earns the employee a moderate bonus, usually an average.

Individuals must be held accountable for their performance outcomes.

Employees' composite score are computed through measuring, scoring and evaluating their performance and job competencies against their personal scorecards.

Typically, the composite score is a combination of achieving measurable objectives (80%) and a display of behaviours or competencies (20%). It may also be a 70/30 split, depending on the individuals, job requirements and strategy.

Managers and employees must actively engage in this measurement process on a quarterly basis in order to create a sense of ownership and personal investment. Personal improvement plans and corporate training and development are subsequently developed and linked to strategy.

Employees are rewarded based on relative composite scores and job size grading (through job evaluation). Thus, a lower salaried employee relative to others within the organisation will be rewarded higher if they achieve their targets compared to a higher salaried employee doing the same job and achieving the same results. Therefore, the only way to reward high performance is to promote the individual to a bigger, more demanding job.

By providing individuals with a clear "line of sight" of what has to be achieved and with a precise language defining how the results are to be achieved, measured and rewarded, a competency-based performance system can drive performance improvement and profitability.

Strategy alignment and implementation, rather than strategy content, differentiates successful from unsuccessful organisations. Measurement is the key in transforming and maximising employee performance and productivity.


Copyright 2005 Patrick Ow e-mail :
patrickow@gmail.com


The author strongly encourages you to contact him to discuss the content of this article.
This article may be freely linked to, but not copied.

    
 
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