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Performance Measurement: Implementing the Balanced Scorecard

  • ID: 42762
  • Report
  • February 2002
  • 89 pages
  • American Productivity & Quality Center, APQC
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The purpose of this multiple-client benchmarking study is to identify and examine best practices in deploying a balanced scorecard. Best practices are highlighted in key areas of implementation. From the summary of approaches and selection of best practices, companies can determine how to either initiate or improve their balanced scorecard. It also affords readers the opportunity to gain a better understanding of issues and challenges involved in deploying the balanced scorecard. Fifteen organizations participated in the consortium learning forum by attending a series of planning sessions, completing data-gathering surveys, and/or attending or hosting on-site interviews. Of those 15 organizations, seven sponsored the study. Eight organizations were identified for their strong balanced scorecard implementation process and were invited to participate in the study as benchmarking partners (“partners”).

Participating companies represented many industries: aerospace, chemical and
petroleum, electronics, health care and pharmaceutical, insurance, government,
manufacturing, telecommunications and utilities, transportation, and financial services. Eleven of the organizations reported data for the whole organization, and four of the organizations reported data for a specific business unit or department. The majority of the organizations reported annual revenues or operating budgets of more than $1 billion. Other publications on quality include:
- Achieving Organizational Excellence Through the Performance Measurement System
(1999)
- Corporate Performance Measures (1996)
- Enabling Success in Corporate Performance Measurement (1997)
- Measure What Matters (2000)
- Measuring Institutional Performance Outcomes (1998)

STUDY FOCUS

Drawing on input from Subject Matter Expert Art Schneiderman and secondary
research literature, the APQC study team identified four key areas for research. These areas guided the design of the data collection instruments and were the basis on which findings have been developed.

1. Scorecard link to strategy
- Linking the scorecard to goals
- Creating a process to identify and define key scorecard measures

2. Technology enablers
- Identifying the role of technology in implementing a balanced scorecard
- Creating criteria to enable the decision to build or buy
- Selecting and evaluating software systems

3. Change management
- Determining how scorecard implementation affects all employees
- Restructuring compensation to motivate employees

4. Monitor and assess the scorecard
- Communicating the results of the scorecard
- Reviewing measures and seeking solutions to potential problems
- Revising the scorecard to reflect emerging strategic changes

KEY FINDINGS

Like similar management initiatives, the balanced scorecard has evolved significantly since the 1990s. But unlike other initiatives where major extensions have been accompanied by name changes, the balanced scorecard moniker has been applied to its many different incarnations. An important first step in learning from others is to distinguish the many different forms of a balanced scorecard. Seven distinct scorecard uses have been identified:

Level 1. Project tracking
Level 2. Familiarization
Level 3. Communications
Level 4. Process control
Level 5. Balancing tradeoffs
Level 6. Goals deployment
Level 7. Strategic improvement

Only by distinguishing the actual from the professed use of an organization’s scorecard can best practices be identified and strengths and opportunities for improvement assessed. Each use shares a common set of requirements for any activity in order to change how the organization manages its value-creation activities. The following cultural requirements have been long-recognized as critical success factors in significant organizational change initiatives:

1. senior-management commitment,
2. a sense of urgency,
3. a systematic approach,
4. a pull (not push) deployment strategy,
5. eventual organizationwide involvement, and
6. an integrated management system.

But each balanced scorecard level has a set of structural requirements that must also be met. Because a level seven scorecard subsumes all of the other levels, it has the most general set of requirements:

1. a manageable set of highly-leveraged metrics;
2. well-documented metrics definitions;
3. strategically significant, long-term goals and intermediate milestones;
4. deployment to appropriate action agents;
5. processes for rapid achievement of goals; and
6. rational expectations for results.

Each lower level use of the scorecard has a different dependence on the satisfaction of these last requirements. Data collected through detailed surveys and site-visit debriefings are shown to support these observations. Although there still remains a high level of enthusiasm for the balanced scorecard and its potential impact, quantitative proof of accelerated process improvement and organizational learning are needed in order to demonstrate the scorecard’s lasting value.

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- Sponsor and Partner Organizations

A listing of the sponsor organizations in this study, as well as the best-practice (“partner”) organizations that were benchmarked for their innovation and advancement using balanced scorecards.

- Executive Summary

A bird’s-eye view of the study, presenting the key findings discovered and the methodology used throughout the course of the study. The findings are explored in detail in the following sections.

- Key Findings

An in-depth look at the findings of this study. The findings are supported by quantitative data and qualitative examples of practices employed by the
partner organizations.

- Partner Organization Case Studies

Background information on the partner organizations as well as their innovative
measurement practices.
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