Sherlock Holmes uses key indicators. In one of the Sherlock Holmes stories he says “I watch these five people and when they do something different I know the game is afoot”. It would be great to have such an arrangement in our organisation. “We watch these eight measures and when one starts moving we know it is time to act.” And it turns out we can. We can set up a Balanced Scorecard.
Everything can be measured. The great detective also said “You see, but you do not observe” and “There is nothing more deceptive than an obvious fact” and “You know my method, it is founded upon the observation of trifles.”
So what trifles can we observe to identify the obvious facts that indicate that the game is afoot?
In the past, organisations gauged their progress on financial measures. But now with most of the value in organisations held in intangible assets, we are able to measure other factors which show how the financial measures are achieved. This idea is developed more fully in the note on “intangible assets”.
If you have documented your strategy and plan in a Strategy Map format, you will have defined key areas of performance. In the detail for each key area of performance you will have defined lead measures, lag measures and strategic initiatives. These measures and the strategic initiatives can be shown in a Balanced Scorecard.
The question then becomes, ‘how do we align all the teams and individual staff to the strategy?’ The Balanced Scorecard provides a powerful way to cascade the strategy down to everyone who will do the work to make the strategy happen.
Here are three methods to achieve strategic alignment from top to bottom in your organisation:
- Communication and education: providing platforms for all staff, managers, executives and the board of directors to understand the strategy and the activities and behaviours required to achieve strategic objectives.
- Goal setting: Translating the high level strategic objectives into personal and team objectives. Linking management by objectives to the measures in the Balanced scorecard.
- Reward systems design: Aligning the rewards of teams and individuals to the achievement of measures on the Balanced Scorecard.
Communicating the Balanced Scorecard
The strategy team compile a communication and education plan. They typically identify target audiences and different communication vehicles. They then create a matrix in which they define the key components of the communication required for each target audience including:
- The key message for each target audience.
- The appropriate media to be used.
- Time-frames for each stage of communication.
- Measures of feedback to gauge the success of the communication.
Setting goals with the Balanced Scorecard
Most organisations are familiar with the concept of decomposing financial measures from the company level to team and individual level. ROI or Economic Value added may easily be de-aggregated down to individual and team levels. Non-financial measures however have provided some difficulty in the past.
The unique contribution of a Balanced Scorecard perspective is in linking financial measures to measures in customer perceptions, internal processes and the skills, culture and information resources required. Balanced Scorecard is a performance model. Therefore there are systemic links between different perspectives. For instance:
- Revenue planned from new clients can be related to changes in the offer the clients perceive from the company.
- Particular changes in the offer are backed up by operating processes.
- The way they changes are made known are managed by the customer management processes.
- The company will work to obtain the necessary skills in operations and customer management to achieve the processes required.
- The personnel operating will be provided with the necessary information tools.
- And everyone in the organisation will be working in a coordinated way according to agreed values or norms.
As the objectives cascade down from the top-level strategy, each team and individual are able to commit themselves to the measures required for each process to guarantee success.
It is useful for each person to have a personal Balanced Scorecard in which they commit to individual activities and outcomes in support of the objectives agreed by their team. And their team-objectives in turn will show how each team will create the outcomes to achieve the goals of the Strategic Business Unit or the Organisation as a whole.
Design rewards around Balanced scorecard
Financial compensation is a powerful lever for delivery. Rewards for deliverables and financial outcomes have obvious advantages in aligning financial interests of staff with achieving strategic objectives.
But there are risks. The risks in this approach lie in the ability of the teams to identify the right measures and to be able to collect the right data against each measure.
The Balanced Scorecard provides a way to illustrate and manage the measures to be used for each link in the systemic chain of events. They can then show their core strategy in a chart similar to this illustration from Southwest Airlines:
Balanced Scorecard is a tool for action. With this approach, not only will the leadership team have a clear view of the necessary measures to watch, they will also have the confidence that teams and individuals in the organisation are watching and managing measure which contribute to the achievement of the organisation strategy.
When this is all in place anyone in the organisation can cry “Come, Watson, come! The game is afoot”