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Don't do a balanced scorecard for an organisation

I sometimes get asked “How do you draw a strategy map on a page for a whole organisation?”  The answer is the same as for the question, “How do you limit a balanced scorecard to 24 measures?”

The answer is you don’t.  You don’t do it for a whole organisation.  You do it for a particular management team and scope of control. You develop a set of strategy maps and balanced scorecards for a whole organisation. 

A strategy map draws the strategy as seen from the perspective of a particular management team.  If you are dealing with the Chief Executive and the Executive team, they you are doing it for them.  If you are dealing with a management team for customer services, or the UK operations, or the IT management team, then it is for them, from their perspective.  It describes that team’s perspective: what they have to focus on to create change within their scope of control.  The few things they need to pay most attention to, to implement the strategy and to bring about change? 

It is the same for the balanced scorecard that sits behind the strategy map.  The team’s balanced scorecard should not contain all the measures in an organisation.  They should contain the specific ones that the management team need to pay most attention to. Should they want more detail the management team should be able to look at more detailed strategy maps and balanced scorecards for the teams that work beneath them.  

Refining and revising measures

Why do we use objectives before measures?  Because it makes it easier to refine and revise measures

In the absence of objectives, people designing performance management systems often compensate for problems with measures by adding more measures in the hope that they are communicating and covering all the aspects.  This unfortunately leads to overload, confusion and unnecessary detail.  This creates measure mania.

In contrast, objectives set direction: this is what we want to achieve.  By defining the objectives and its characteristics first, you have a basis for choosing measures of that objective.  You can then ask, “What should we measure for this objective” and then, “What is the best way to measure this?” 

This approach makes measure design far easier and more systematic.  It means that when looking at the measures of an objective you can always check to see how complete a picture they provide of the objective and its characteristics.  We can tell how well they inform progress against the objective.   We can tell how well they cover all the characteristics of the objective.  We can tell if they are true fair measures of an objective, or a surrogate used to get a feel for the situation in the absence of better information.

A significant benefit of this comes when you find that a measure of the objective is not fit for purpose or not functioning well.  When you have an objective, and its characteristics, you have a point of reference against which to choose a better measure.    You can eliminate the less effective measures and bring in new ones.  It also means that when a new measure is introduced, people can see why the new measure is better than the old one because they have the objective as a point of reference.

Avoiding premature measure design - use objectives first

Why should a balanced scorecard have objective as well as measures? 

Developing objectives before measures prevents premature measure design.  This is the tendency for people to leap straight to measures instead of defining more clearly what they want to measure.  If you decide how to measure, before you are clear what you want to manage, you will limit your thinking to what you think you can measure.  As a result you will end up managing that which you think you can measure, rather that choosing measures for that which you want to manage.  The problem is that people limit what they think they can measure to very tangible things (money, activity, outputs, and physical deliverables).  These quantifiable measures are useful, but they are also a narrow view of the organisation.  This thinking encourages greater numbers of financial and process measures and leads to the imbalance that the balanced scorecard set out to address.

Ultimately you do want to measure progress towards your objective. However, this gets interpreted as all objectives should be measures.  Defining the characteristics of an objective clearly and then, separately, deciding which characteristics you wish to measure and how to measure those characteristics allows you to be clear about the difference between the objective and its measurement. 

Avoiding dysfunctional behaviours due to measures

More holistic – less divisive

One of the underlying causes of the dysfunctional behaviour sometimes experienced in performance management is where individual measures and targets look at only specific parts of a problem.As a result are asked to achieve targets that are locally optimal, but dysfunctional in the big picture and wider system.

By their nature measures are analytical: that is they take a part the organisation and take apart the organisation.  Measures look at individual aspects (perspectives) of the organisation in the same way that a knife would carve the organisation into pieces.  They focus on one aspect or dimension of the organisation or system, for instance money, activity, outputs.  In contrast, an objective with well written characteristics is good at defining the whole system, not just part.   This “analysis” is useful when you want to understand the parts and the detail.  It is less helpful when you want to look at the whole, when you want to look at a more holistic, complete or systemic picture. Attaching targets and incentives to these narrow measures can cause people to try and achieve these narrow measures when in fact they are dealing with only a small part of the system and in effect sub-optimising.

Developing an objective before you start to develop measures means the measures no longer sit in isolation but are part of a whole story.  The measures and the description of the objective provide a more complete picture that is less likely to be misinterpreted.

The value of multiple metrics in the balanced scoercard

John Kay the economist posted an article about the value Balanced Scorecard in business.

In life, and business, we should judge ourselves by a balanced scorecard. Among the management fads and fashions of the last twenty years, the balanced score card is one that survives, and deserves to survive. The principle is that the performance of a business is judged, not by any single metric – the bottom line – but by a wide range of indicators related to a company’s distinctive capabilities, the source of its competitive advantage, its relationships with its stakeholders.

Sums it up for me really.  I came across this whilst looking for articles on John's new book, Obliquity, and how important it is to focus on the business rather than just chasing profits and sharejolder value.

He continued (and bear in mind this was 2003 when M&S were going through some problems,

For Marks & Spencer, whose competitive advantage rested on what I have called its architecture – the structure of its relationships with suppliers and employees – and on its brand and reputation, the components of its balanced scorecard would have placed appropriately more emphasis on people, and on the way people outside the company perceived it. We can see how these kinds of assessment could have restrained, perhaps even prevented, the calamities that befell these businesses. They relate the metrics of performance to the competitive strengths of the corporation.

How a well designed balanced scorecard would restrain and perhaps even prevented the calamities that befell this business.  In other words, by having a wider focus you end up with a better performance.  The single focus and objective can actually be destructive.  A broader view, across perspectives, can help an organisation concentrate on its competitive strengths rather than (merely) its financial results.

I was particularly struck by his conclusion 4

We make a mistake when we look for purpose in a business organisation which is distinct from the functions that business organisation discharges. Companies do not exist solely to generate shareholder value, but it cannot be their objective to promote the public good: they have neither legitimacy or competence to pursue that goal. The purpose and function of companies is to produce, in their own distinctive fields of competence, the goods and services we want, as individuals and as a society.

Let me just repeat that last sentance, because it goes to the heart of strategy map design.  The purpose and function of companies is to produce, in their distinctive field of competence, the goods and services that we want as individuals and as a society.   What are the central competencies that you have to learn and grow and devlop as an organistion, to deliver the your goods and services for the good of the individuals you serve in our society?

That is teh learning and growth question, and one of strategy positioning that must be reflected in your strategy map

You can read John Kay's full article which is from a lecture to the Department of trade and industry in 2003.

Obliquity: Why customers & competencies are most important on balanced scorecards

Reading reviews of John Kay's latest book Obliquity, they bring out how the theme of the book is that route to success is often through the search for something else: Taking the oblique route.  It is a paradox, he says, that to achieve objectives you are better not have to focus on something completely different.  Is the objective of profit maximisation the best way to maximise profits?  Is a focus on wealth the best way to create wealth?

The basic tenet of Obliquity is that the direct approach is not always the best way.  Attempting to maximise shareholder value can be the best way to destroy it.  The best way to create value is to concetrate on creating a great business and serving customers.  

I have had this conversation with clients about the structure of the balanced scorecard's perspectives.  "Doesn't having the financial perspective at the top, mean that we are focusing on money?  Perhaps profits or shareholder value"  "Isn't it flawed", they argue "to have money at the top when the key thing we need to concetrate on is customers...if we do that well our financials will look after themselves." 

And I say, "You are right".  Just because money is at the top, does not mean that that is your major objective.  Its simple, lets just make the customer perspective larger and more proominent and focus people's attention on it.  Then, satisfying our customers will ensure that we get the financial outcomes that we are also looking for.  For the financial aoutcomes are the consequence or serving your customers.  Do that well and the money will come.

So do not worry that the financial perspective is at the top of the balanced scoreacrd and startegy map.  Of course you have to keep an eye on the money, but it is getting close to your customers that matters and that is the perspective you should focus on.  

You can read more about John's book and decision making here

Phil Jones

Strategy in uncertainty: what tools are useful?

At an Institute of Director's economic briefing in November, the Chief Economist of the IOD said that we are still facing uncertainty, its just that the uncertainties are changing. I think the uncertainty continues to change, especially with impending elections and economic fog. Therefore I find two tools most useful in this time of uncertainty (and changing uncertainty):

1) Value chain analysis (cf Michael Porter) to understand the landscape around the organisation. Once I understand the landscape, then the strategy (in its various forms should make sense - or at least you can see better the implications of the strategies). (To use a metaphor, it addresses the question - where on our map has this hurricane blown us?)

2) A simple question and listening to the response. The question is, "What uncertainties are your customers facing?". (Again to use your metaphor, It addresses the question - how big is this hurricane, where is affected, where is a safe port and are we near some rocks?")

The reason for this is that if you understand what is making people uncertain, then you have a chance of working out when those uncertainties will change and disappear (or soing something about them yourself). That means you can monitor the changing environment and its implications for the landscape and therefore make sensible strategic decisions. (You will know when the hurricane changes direction)

I have been doing talks and presentations on this subject (Managing Strategy in uncertain times) to various clients and groups - it seems to make sense to them, goes down well, and give them practical tools to address the (changing) uncertainties they face.

I call this approach "intelligence led strategic questioning" - you might call it "Talking to your customers about what worries them and matters to them".

Phil
Managing strategy in uncertain times

Why benefit management fails in the NHS

The NHS IT delivery programme has a dreadful track record. It is not surprising when you look at their methodology and the techniques the NHS and the ISIP programme recommend for benefit mapping, benefit management and benefit realisation. They are fundamentally flawed.

Here are some of the many reasons why they fail:

1. They ignore the landscape and context, confusing benefits at different levels


2. They ignore impact and consequence


3. Being uncluear where change needs to happen


4. They treat enablers as the same as impact


5. Projects and enablers are confused


6. It makes following the timing and tracking deliverables difficult

First lets look at the NHS benefit management material. You can either look at the approach in the NHS ISIP benefits mapping or look at the alternative approach in the ISIP Benefit dependency network masterclass material.

1) Understanding the landscape and context

The first thing you will notice is that although the talk about benefits to particular parties, they are not specific about those parties and how they relate.

Imagine you are in a PCT. You are delivering technology to GPs so they can access a more complete view of patient records for a particular care pathway. It is important to realise that there are dependencies across that pathway that will involve other healthcare professionals such as tests in pathology labs, x-rays, hospital discharge records, and perhaps even records in Social services and district nurses. It is only when you have all of these in place that you will start to give benefits to patients. Until then you need to be clear who is involved and how they interact. Without this complete view of the landscape, the next step is impossible.

What you have is a sequence: PCT, GP, patient. What you need is to be clear about the benefits at each level.

2) Distinguishing between impact and benefit.

The second mistake that the NHS benefit approach makes is not to distinguish the difference between impact and benefit at each level. So for a GP, you can implement the system but other pieces of work will be necessary to ensure that the benefits for the GP and at the GP level, are implemented. So you actually need two levels of "benefit" for each body: "How am I affected/What is changed for me" and (separately) "What is the benefit for me".

Notice there is ALWAYS a timing difference here. You implement a system and the benefits of that implementation at the point of implementation come later (if at all).

It is the same at the patient level. There are always two "benefits". The first is the impact, "I can now make my own booking" and the consequence "Which means I can choose when I want and appointment". These are often assumed to be the same but they are not. The patient may be able to make their own booking but something in the system may stop them getting the appointments they want (or even getting through). If this is the case the "benefit" of being able to make your own booking becomes more of a nuisance than not being able to.

It is "impact" and "consequence" at each level, for each party, that needs to be considered. The models within the ISIP and NHS benefit maps do not make this clear. Again you have to have the NHS landscape clear here as well, to do this.

3) Enablers vs impact.

This is a really important distinction. Again confused by the way the material is presented and the lack of context in any examples.

If I am in a PCT and am introducing a Long Term Conditions system across multiple healthcare providers then I am putting in place some enablers of this technology, perhaps software, training, new hardware or infrastructure, interfaces between systems, protocols, new working practices, that are used across multiple healthcare professional groups (Acute, GPs, Social services, community nurses, polyclinic, etc.) .

These are enablers that work across the various parties involved, BUT ARE NOT directly impacting those involved. For instance the link between the GPs systems and the central Long Term Care system is an enabler. The impact is that GPs can then see the more complete pathway and other Health care professionals can also see what the GP has put on their referral forms more easily (provided you have also rolled it out to all the GPs, given them access and trained them).

It is an enabler. Think underlying capability or common infrastructure.

4) Being clear where change work needs to occur

Now everywhere there is an arrow between these enablers, impacts and benefits and then onto further impacts and benefits, you need action and change.

So why does the ISIP benefit dependency network go:

Enabler -> Projects (and Actions to change) -> Outcome -> Benefit -> Priority objective?

It does not make sense. Projects deliver enablers. Actions turn outcomes into benefits. All operate at different levels.

What we have been drawing is clearly a set of dependencies where actions for change are needed at many levels across the NHS landscape and environment. In fact everywhere an arrow exists, some change intervention is required. If you don't think about this you are at best leaving things to chance and at worst destroying any chance of the project actually delivering the benefits at any level.

5) Projects and enablers are confused

Lets be clear here. Projects do need enablers (give me some funding, resources, technology and an enthusiastic clinician to make things happen). But the enablers are different at different levels. This whole model seems confused about this.

However it is useful to talk about enablers. It is the Infrastructure or common enablers that are delivered by projects. The project will also deliver impact on the health care professionals or care pathways and help then enable their own benefits.

Another example of strange labels is Priority objectives. The way they draw the sequence of boxes there is "priority objective" at the end. In other words the sequence should ultimately lead to this priority objective. I agree, but that is not how to represent things.

What you will have when you develop these benefit maps across the landscape is perhaps several for the Long Term Care priority objective. One set of projects for Diabetes, another for heart conditions, another for COPD etc etc. What we are doing here is explaining how a priority is delivered by the chains of enablers, impact, immediate benefit across the various levels . By the time you reach the benefits for the patients you may have 4-6 ultimate significant benefits (that result from the impact of the project on their care). Now you don't want to have to draw a link from each of these to a box called "priority objective".

The whole benefit map is a description of how the priority objective will be delivered. So it should be a label on the benefit map, rather than a linked ultimate outcome. Think of the wrapper around the benefit map, or simply its title.

6) The implication for phased delivery and timing

So this is a more structured approach that is sensitive to how the impact and benefits work at any level of the health landscape. This is where the real advantage comes in. With this richer picture you can track the stated benefits at any level across the landscape you have drawn.

First have you got the enablers in place? Then have you put in place that which will immediately impact the care professionals? What are you doing about the benefits you promised for them? Have they occurred or are they not using the system because it is a pain, slow or "just another system to log out of and into". And when will it be delivered?

Having this clear cause and effect model in your benefit map enables you to clearly show what has been delivered and what is holding up progress. Having a muddle that mixed outcomes and benefits at each level makes it impossible to draw, impossible to use and impossible to manage.

I have been using such benefit maps in the NHS for over 5 years now. Whenever i present them I first get them to check the landscape before showing them the benefit model laid over the top. This way they agree the landscape before they start to think about the benefits, consequences and impact of the project. It works.

Shame they did not do this before they wasted $6bn on the programme for change and subsequent NHS IT programmes.

By the way, you will have realised that this approach is basically strategy mapping. Therefore it is really easy to make the step to "How would we measure this" and developing a modern NHS balanced scorecard for the operation of the care pathway or service. Really easy, but to find out how to do this you'll have to talk to me.

Phil Jones

End or Means?

At this time of goal setting and new year resolutions we often face a problem. We set a goal or objective, (stop smoking, make more money, lose weight, change job, etc etc) and within a few days or weeks, the goal has been dropped. Good intentions melting away like snow when the sun rises.

Good intentions have been sacrificed on the altar of expediency and reversion to existing practices and patterns of behaviour (I'll just nip to the fridge, have another cigarette, etc).

The problem is often that we have put our attention on the end rather than the means. It is far more important to concentrate on the change that is required in behaviour rather than the goal. Its about how we behave on a day to day basis (walking instead of using the car, drinking some water instead of heading for the fridge, eating consciously rather than whilst reading a paper).

This is true for organisational goals as much as individual ones. Think of the organisation's strategy as a persistent pattern of behaviour. It is this persistency of behaviour that is creating results. Therefore to change strategy you don't simply change goals - you have to address the behaviour and ensure the new behaviours persistently replace those of the old strategy.

This is one reason why the learning and growth perspective is so important in the balanced scorecard. It is about identifying and then signalling to the organisations that behaviours need to change. Then actively ensuring that the new behaviour is encouraged and the old ones are dropped. I use the expression "permission" at this point. People, individually and in their social groups, have to be given permission to drop existing behaviours - ones that might have served them well for a long time, and be allowed to use, and learn how it feels to use, new ones.

Take flexible working and working from home, for example. The idea has been around for ages. the technology is readily available and has been available for ages. It is not a constraint. No, the constraint is often the reluctance to let go the command and control associated with "trusting" people to work. It is no longer about time served, but tasks achieved. The staff of the Director magazine tried home/flexible working and were surprised how hard it was to let go of the existing practices. In the same edition they interviewed Steve Shirley (Dame Stephanie) who set up FI in the early sixties so that women with children could still have a career in computer programming and yet work from home. As she put it, the issue is as about trust and control. People have to learn new behaviours and norms. The objective is not to have people working from home, but to learn new ways to help people be productive by trustiung them and giving them the chance to use their time to in the most appropriate way.

Sure, think about the end, but concentrate on the means. And signal that new behaviours are acceptable, appropriate and now the expected norm.

Phil Jones

Judgement and Evidence: Audience Q&A

Using Judgement and Evidence in Modern Balanced Scorecards: the use of subjective and qualitative measures.
Audience questions and responses

I presented a BetterManagement webinar on this subject, on 14th October, and it received a lot of interest. You can listen again to the webcast on the better management site (See link at the end)

Here are all the questions that those listening asked at the time, but not all were answered in the time available. I have published them here so you too can get the insight these questions raise.


Atena asked:

Q: If staff are not trusted on qualitative measures, wouldn't this be the same for quantitative measures?

A: The premise in your question is not that the data is wrong, but that people are giving you false information. There are documented examples in UK hospitals where staff simply reported better information to central government than was actually the case to hide problems and avoid punishments. Of course you will need to sort out this trust questions, before you address judgement. But I would ask you some questions:
a) Is it the data you don’t trust, or the people? And why?
b) Why don’t you trust them? Do you trust them for other things? How do you know you can’t trust them on this? And why this?
c) Is it possible that they are using their judgement? The information you are asking for may not reflect the real situation: perhaps they are using their judgement. I am trying to expand your thinking here – give it some thought.
d) What is it about the way these people have been managed or are being managed that is encouraging them not to tell you the truth or the whole picture?

Fadi asked:

Q: I do a lot of business intelligent software, and the success of these application implementation depends a lot on making the collection of data as automatic and with minimal effort as possible, and that is very hard when collecting judgemental data, how can I deal with that?

A: Absolutely right. Business intelligence is about collecting large volumes of data and analysing it. It provides the evidence. Judgement is about how you are interpreting the data and what you are doing about it. I am sure you know that the balanced scorecard is about decisions and performance management – not just measurement. Let me explain with an example.

First do not be afraid of volume: in the case study each service may have been evaluated on up to 100 items once a year. So on that basis there were 3,000 (100x30) potential items of data, for each of the 14 regions. So first, remember you do not need a judgement for every single piece of evidence. We have an overall assessment and judgement score for all the statutory reports for a region across their 30 services. The assessment and judgement came from the regional director looking across all these and asking, “How well have we done and what do I need to pay attention to across all my services?” A manager of an individual service could do the same for the 100 items within their control. Judgement operates at a higher level and so there is less to capture.

Secondly we are looking at change, over time. That statutory analysis was done once a year, but the Regional director was working through the year to address any issues. So you are looking also at how well the actions that RD has put into place are working and their judgement of whether these are fixing things, before the next assessment. So the judgement could be about, “Is our response to the evidence, effective”

Just on example, but all this is easy to record manually, is relatively low volumes of written assessments and should be being assessed and discussed each month anyway.

Valerie asked:

Q: Is data available to mine (Data Mining)?

A: Typically the data is not available to mine because it is not in computer systems, it is in people minds. However their minds are available to mine. How do you do this? You can use the sort of techniques I explained (eg score out of 10 followed by questions) to understand what people are basing their judgement on.

If you collected a large number of people’s assessments, over a period of time, you would have some information on which you might be able to mine using textual analysis. But I would not recommend this above simply talking to people.

Se also my answer to the BI question from Fadi above.

Barbara asked:

Q: How do you address subjective measures in a culture that primarily values what you can measure quantitatively (financial, output, etc.)?

A: There is nothing wrong with valuing what you can measure quantitively. Remember it is judgement AND evidence. Two thoughts though:

First, sometimes, a strength overdone, can become a weakness. I did work for an organisation with a background from pharmaceuticals that was extremely rigorous in its analysis of information and markets. However they sometimes over-analysed things and missed opportunities because it was over-lengthy and over-rigorous. They didn’t trust their judgement to go with what they had, test it and learn. They wanted it “Right”.

Secondly I would say, go with what you have and exploit it. You say ”they primarily value…” but I suspect they “they also value…” judgement, and are unlikely to dismiss it altogether. Your staff will be making judgements based on the evidence all the time, and they will naturally be thinking the about capabilities, culture, skills, knowledge and behaviours of people that drive performance and outcomes. It may be that management are focusing attention of outcomes, quite rightly and for good reason. The reporting systems are not looking (explicitly) at the culture, skills and behaviours (Leading indicoto4rs or drivers of change). Evidence dominates judgement in discussions and decisions. So, go with what you have and, build on it. Perhaps start by capturing commentaries and assessments of the information they have looked at. This way you start to expose judgement, based on evidence. Remember someone is making a judgement about what is good evidence. It is always there.

Valerie asked:

Q: How long has the process of Judgement analysis been available?

A: Well people have always been using judgement and evidence. So it is not new at all.

It is not new to explicitly look for judgement statements and elicit them to create a conversation, but it is less common in many organisations. Remember in this case study we were pushing against an open door – they trusted their staff to use their judgement, and like any organisation recruited, developed and rewarded good judgement.

It is certainly far less common to find any use of it in the performance management, management information or software solution. In fact let us go back a step. Since 1994 balanced scorecards have been designed with objectives, before measures. Yet so many systems are incapable of expressing an objective and its measures. Yet the approach for measure design has always been, objective first, then characteristics, then, what to measure and how to measure it. But the systems concentrate on the answer – and record just the measures.
So I believe the thinking and approach has always been there. The software providers and designers of performance measurement and management approaches, in general, tend to ignore or dismiss it. Good managers naturally encourage it and develop it.


Paul asked:
Q: Doesn't the use of subjective measures require the alignment of judgments?

Do you mean before or afterwards? It is absolutely not a pre-requisite. In fact the advantage of the approach is that it exposes differences and helps people share and align their judgement. Think of it as encouraging a conversation where people can express their judgement, learn from other’s views, discover why they think like they do or believe what they do, in a safe environment.

The Regional Directors here (and managers in every workshop on strategy and balanced scorecard development I have ever run, all say that the exposure of the deeper thinking of people, the sharing of ideas and the discussion was the most important part, because we came out aligned and understanding where and why differences occurred.

I have done this in an organisation where the people we brought together were from quite different departments and had never met, yet all tried to support the same outcomes. Obviously we were staring further back there but the conversation still helped understanding and eventual collaboration and progress.

If there was alignment of judgement everywhere you would have an organisation of clones. Just think about the credit crisis – Hardly anyone one questioned the situation with excessive exposure to hedge funds and potentially defaulting mortgages. You had a form of social acceptance of the norm, without question.

You want to encourage debate, and this approach does that.

Emre Asked

Q: Even if there is conversation between people, they may not be in the same opinion about the subjective judgements. In this case the disagreement may result in reactive behaviour of the people who was evaluated negatively. What is the correct approach to ensure smoothness of operations after the evaluation?

This question follows on nicely because it raises the topic of the culture that surrounds the conversation, the context, and what people might believe about the motives of people and consequences.

Isn’t it a shame that people feel they cannot speak openly because they will be criticised! In the presentation I talked about the difference between a context where failure was punished, (which will cause people to not say anything) vs a context where a failure to cooperate and learn, was punished (which is designed to encourage conversation and learning).

I go back to the two thoughts of “Explicitly gibing people permission” and “persistently signalling a difference in the culture”. Remember what you see is a learnt behaviour, and therefore it can be un-learnt and re-learnt. But that requires work, explicit change, repetition, practice and time.


Jean-Pierre asked:

Q: What relationship do you see with installing "culture of performance"?

I see what we are discussing as one of the ways to encourage the development of a culture of performance. But we should be clear what we mean by that phrase. I have a longer definition of what I mean by a culture of performance.

A visible and explicit pattern of behaviour, actions and values…
Working to achieve the organisation’s overall objectives…
That encourages honest evaluation, feedback and appraisal…
And informs decision making…
Built upon collective and individual responsibility…
Responsive to changing circumstances…
That encourages self regulation, trust and learning…

Given this, you can see where I am coming from. This is entirely about creating a culture of performance.

If you missed the webcast you can listen again here via the Bettermanagement website http://www.bettermanagement.com/seminars/seminar.aspx?l=15139

Comments welcome

Phil

The jargon of CSF, KPI, and Measures

Clean up your jargon.

Are you, like me, confused by the way people use KPI, PI, Measure, CSF etc apparently interchangeably. I am.

People often ask, what is the difference between KPI, CSF , measures, performance indicators? Frankly people use them interchangeably and loosely. I recently saw a definition of a KPI on a forum that made me angry and so posted this reply: A posting for all those literalists out there!!!!!

"KEY PERFORMANCE INDICATORS: Key Performance Indicators (KPIs) represent a set of measures focusing on aspects of organizational performance that are the most critical for the success of an organization." It was actually quoted from David Parmenter's book on KPIs' which is actually quite good. But this definition is terrible.

You see, here is a classic problem with the definition cited: “Key Performance Indicators (KPIs) represent a set of measures…” ie it defines "an indicator" as "a measure". In cact a set of measures. Ummm?

For goodness sake – what is the difference? Why not call them “key performance measures” then? And frankly what is the difference between KPIs and good old “Critical Success Factors” which is what he later goes on to define them as, as well!!!! This seems like muddled thinking to me and the source of all these problems.

Try this. Go back to basic plain English, Please!!!!!

1) If I “measure” something I have a tool for measuring and units. Think of a ruler and a table. Its 3 foot by 6 foot using a ruler. I have measured it.

2) In contrast in common parlance, we use “Indicator” in two ways:

a. If I have an “Indicator” then that is “indicating” something. Its indicative – (ie it points towards something, but is not necessarily accurate). So an “indicator” of the size of the table would be that I could fit a small pool table on it or it is large enough to seat six people. It is indicative of its size, but not a measure.
b. Likewise we have “Indicators” on cars to show where we are about to go, rather than where we are. So an indicator can be used to mean “it indicates direction”, or intention.
c. In other words, indicator, is not the direct measure but an approximation, surrogate or precursor to the real measure. And in all these cases is clearly distinct from a direct measure. I can tell whether I have a measure – or an indicator. I can test the difference.

3) Factor: An influence. One of a number of influences on something that makes up the whole. A variable, from a set of variables, under examination in a study. As in “which factors will improve sales and which of those factors are most critical to success? – Ah ah, they must be the most critical success factors”. Neither an indicator nor a measure. Clearly something different. Which oddly enough is why, in English, we have three different words for these three ideas. Surprise, surprise.

Unless we can get back to this simple form and stop cluttering up the conversation with jargon that is self referral, (measure = indicator) then we will all be in a mess.

As I always say in these situations, “Jargon should be between consenting adults in private”. Clearly we are neither all consenting, nor in private in this forum.

I was once asked to talk on “Strategic KPIs” Yes “Strategic key performance indicators” Those KPIs that are strategic (as opposed to tactical), from amongst those Performance indicators that were key (to something unspecified), as opposed to those that were not key (to something again unspecified). See what I mean. And we haven’t even got to performance, indicator and measure yet. I spent the first 10 minutes pointing out the stupidity of the title of the talk, which went down well.

Plain English please – it saves a lot of problems with jargon.

Finally a useful linguistic trick. Given anything “jargonised phrase” such as “Key performance indicator”, it always makes more sense if you turn it into a proper sentence with verbs and subjects and objects. eg A Key performance indicator is an indicator of performance that is more key (in some way) that others. Or CSF – A factor that is critical to success. See what I mean – it makes the meaning much clearer, already.

Hail Plain English, sorry, I mean “English that is plain (and uncomplicated)”

Phil

What is the correct balance of measures across perspectives

A recent forum posting asked "What is the correct balanced of measures across the four perspectives of a balanced scorecard?" They wanted to see if any academics had researched whether it should be 25% each or some other ratio.

This is a massively mistaken question which goes straight to the heart of why many balanced scorecards fail and it is easy to end up with many measures that are not relevant to driving performance.

The purpose of balanced scorecards is not balance.

I'll say that again. The purpose of a balanced scorecard is not "balance". Rather, "balance" is a consequence of getting the thinking right.

The purpose of the thinking underpinning a balanced scorecard is to define causality and drive performance (and resulting balance of measures across the perspectives is a consequence).

So for example you would say that improving this skills and knowledge improves the process which gets better results for our customers and therefore better money for us. If you only measures the consequences, and not the drivers, you won’t be balanced.

Therefore an academic would look at an organisation that was measuring those drivers of change (in the learning and growth perspective) and be asking
a) Are they drivers of performance
b) Are they the right ones
c) Did they help bring about change.

The fact that you end up with a balanced set of measures is a side effect. So a sensible academic would not investigate this issue. Yes having 25% in the L&G perspective is more balanced but are they the right 25%? That is the real question. And so they drive performance so that there are changes to the higher perspectives?

Don’t confuse “the balance of a scorecard” with the causality it contains and the purpose of the measures . You are trying to get better at identifying (and measuring) what drives good performance and then influencing it. It is not about having a balance. Its about cause and effect which shows up as balance.

It is this sort of mistaken thinking that causes people to rush around trying to “Balance” the lower perspective by finding a few more learning and growth (usually people) measures to fill it up. Of course when the criteria is, “Are they in the perspective” rather than, “Are they useful in influencing performance” you end up in a mess and don’t actually improve performance.

So please don't fall into this trap.

If you need it, have a look at this article for an explanation of how cause and effect works.

http://www.excitant.co.uk/pages/bsc_balanced_history.html

Phil

How you frame performance management discussions

Do be aware how you frame a performance management discussion

I often encounter clients whose experience of performance management discussions is that they are a game of scoring the maximum amount and justifying a high score or protecting against the potential consequences of a low score.

The conversation is dominated by the consequences.

In contrast, when working with a recent client implementing fourth generation balanced scorecards, at this stage, we encouraged the teams to score their performance and discuss why they had scored them as they did. Not so much justify - as explain. In doing so they learnt about what each other were thinking and also how they were doing relative to others, given the contexts they were each in. As a result some moved scores up – others down and others were pleased to find their judgement confirmed by others.

It was about quality of conversation and learning. The teams were doing this in “learning sets” rather than “performance reviews” which created a different frame around the discussion. Of course they later used it to explain their performance to themselves, the people they supported, their staff and the management and the board. However by then they were confident that they knew how they were performing relative to peers and why, so these explanations were much more that-an explanation – rather than a justification which is what many can become.

So as much as anything it is how you “Frame” the discussions that influences what goes on within them.

So do think about how you frame performance management discussions. What hidden agenda or even explicit consequence is sitting behind the meeting?

Even if you do not have it, others may perceive you have it from past experience. So be aware of these and explicitly mark out ways in which you are breaking this thinking and encouraging conversation and learning, rather than evaluation and game playing.

Phil Jones
Excitant Ltd
Where balanced scorecards work properly and make a difference

Rapidly evolving and changing strategy

How do you handle rapidly evolving and changing strategy with a balanced scorecard?

Today I opened my email and found out that my "BT yahoo search is now powered by the nations favourite search engine - Google!". Yes Yahoo uses Google. It is hard to believe that these rivals from only a few years ago are now in such close cooperation. But that is the nature of Internet technology.

The environment and the strategy are changing rapidly and you need an approach to strategy planning, communication and implementation that can accommodate this rate of change.

Likewise with the credit shortage (I refuse to call it a crisis). Again it came upon us quickly and probably more severely that we expected. We also still have the uncertainty of when it will recover and how it will recover. Again thick business plans will be hard to change.

This is why I like strategy maps. They describe the strategy in short (1 page) documents. You can easily put a business plan behind them that sets out the details of the financials, markets, competitions, competitors and what you are going to do.

When I was on the management team of a dot.com the strategy completely flipped inside six months. We moved from a net market providing auctions for commodities in an industry, to a collaborative supply chain solution in the same industry. The strategy map could see that coming: On the main strategy map for the net market auction model, we introduced the supply chain capability, initially as a small theme to the right. Over six months the auctions business slid into a thin sliver of a theme on the left as the collaborative supply chain solution took hold with the customers and became the focus of attention (and the source of money).

The business plans, finances, resources, staff all followed behind as the organisation rotated through 90 degrees to provide a completely different solution to the same customers.

Strategy mapping helps you explain startegy as it evolves. It provides a quick and effective way to describe the strategy, that is rich and powerful in its description yet at the same time can also change and evolve far more easily than a written document.

That is why strategy maps are often used to describe alternative strategies when they are being tested and thought through. It is also useful to develop a strategy map when acquisitions are on teh horizon. It means thatyou concentrate on the main business whilst developing your startegy for the acquisitions and can then feed the integration often two businesses into the strategy map.

Having the staretgy map allows you to then develop the measures, targets, projects, actions and responsibilities (The balanced scorecard) beneath the startegy map. That way as the strategy map evolved you can more easily refine the balanced scorecard with reference to the strategy map.

For more on strategy maps and balanced scorecards, read our introduction to strategy maps on the main website http://www.excitant.co.uk/pages/strategy_mapping.htm

Phil Jones

The importance of accountability

The importance of accountability.

I am a great fan of the "Undercover Economist" series of articles by Tim Harford, that appears in the Saturday Financial Times. This week Tim asks why would people so poor that their weekly wage would not even cover the cost of the newspaper put their children into private school, when there is a free public school. Also why would poor people in poor and developing countries with free healthcare choose to pay to go to private doctors that are in these countries less qualified than their public sector free ones.

Seems bizarre. The answer according to studies by Das and Hammer that Tim Harford quotes is that these doctors give their patients much more time and attention. In other work by James Tooley, the teachers pay more attention to their pupils. In contrast some public sector teachers were asleep in the classroom when a film crew arrived, even though they knew the film crew were coming.

The answer they say, is accountability. If you are paid directly by your patients or pupils' parents, even though the amount is really small, you have to demonstrate care and attention, otherwise they will not come back or use your service.

In contrast, the disconnection between the source of the income and the people they serve in these free public sector leads to a lack of accountability. The conclusion from the article is that a little accountability goes a long way. It also concludes that low-cost private sector services should be nurtured.

If we consider how this maps across to the UK public sector we get an interesting contrast. The accountability to the UK government departments is often about penalties for failing to reach targets, rather than accountability to the people being served. This is being redressed through surveys from the populations of users, but this is not accountability, but feedback. The accountability is still through a third party (or third parties) rather than to the "customers".

If we look at private sector responsibilities, there is or course an accountability to management and the owners (shareholders) but that is only served if the public themselves are served as well and continue to come back and use the services.

So think about the links you can make between people's actions and their accountability to the
people they serve: The public, the customers and even other parts of the organisation, for back office functions.

Contrast the thinking of "Service level agreements" vs "service" and "accountability". SLAs may encapsulate part of the issue but certainly not all of it.

And think through the thoughts of the private sector doctor in these poor nations who are taking the time to listen to their patients, understanding their needs and helping them as much as they can. In contrast a UK NHS Hospital Consultant I spoke with was extremely frustrated to be told that he had only 5 or 7.5 minutes in which to conduct an appointment.

Where is the accountability in that?

Where is the accountability in your services?

Phil Jones

The failure of single point targets: A tragic NHS story

A tragic story of targets and "Incentives"

When explaining how poor targets and measures destroy common sense, I often cite the case of Accident and Emergency (A&E) times in UK NHS hospitals.

The government (through the Department of Health & Social Services DHSS) were concerned that patients were having long waits within A&E. So, to reduce the time, they imposed a target of 4 hours waiting on all hospital A&E waiting times. Hospitals that failed to meet this target were to be penalised.

Now you can see the logic: We want to reduce waiting times for patients, so lets create a target and incentivise the hospitals to achieve it (or threaten them with punishment for not achieving it.

However, what happened? Well arrivals at A&E are very volatile. Sunday lunchtime is a lot quieter than Saturday night. Its in the nature of A&E that emergencies happen. Demand and supply don't fit well together. So, to avoid punishments and to achieve the targets with the limited resources they had available, the highly rational doctors, managers, nurses in A&E resorted to ways to achieve the targets (and avoid the punishments).

I am sure there were many rational moves to achieve the targets which were not reported. (The BMJ reports on some short term actions in this article). To avoid the punishments some seemingly irrational behaviours occurred. One solution was to cancel operations to ensure beds were available for A&E patients. Another was to have a patient to stay on the ambulance instead of being admitted. That meant that the clock did not start counting. Of course, it tied up a valuable ambulance, but someone judged that penalty was less that the penalty from the DHSS.

Another solution was to address the discharge end of the problem . You see you need to discharge a patient from A&E (either sending them home or being admitted into a bed) to stop the clock. If beds are not available the patient waits in A&E and the (arbitrary) clock keeps ticking. The solution: Put the patient on a trolley but take the wheels off it and designate it a bed. They are still in A&E but effectively not according to the target. Creative yes. Bizarre no.

I have told these stories many times,. They are rational people trying to do their best in a ridiculous situation that does not consider the whole problem - that of patient care.

However last week I was chatting to an ex-nurse. I asked why she left the NHS and she told me a story that make this even worse.

She said that whilst on a ward she had two critical patients who needed a Doctor's (Consultant's) attention. They were critical. Life threatening. However, the doctor choose to serve a non-critical patient in A&E, instead of seeing to the critical ones on the ward, because he was driven by the Governments A&E targets (and punishments) to save a target rather than save a life. She was so appalled by this that she left the NHS.

There are some important things to realise about this story:

a) All the actors in this story are rational and have good intentions.

Yes. I know it sounds daft, but they are. The problem is that the context and situation they have been put in has forced them to act irrationally when the bigger context is considered.

b) Each is trying to improve the piece of the picture that is in their control.

Each player has limited resources, influence and control. The DHSS believe that all they can do is impose targets and penalties. It is all they have in their control and influence. They also believe targets work and change behaviour - and they are right!

The Doctors can only work within the context of A&E and can't magic beds up. The hospital has only so much time and resource available.

c) They all care desperatly about the patients.

Yes, they all care about the patients. It might not seem it, but they do. Think of the dilemma that that Doctor was in: The hospital loses a large amount of its funding if a target is not met which will affect many patients, for a long period, (and that Doctor gets the blame as it was on his shift) or two patients wait for 45 mins whilst a person is A&E gets attention. Think about it.

Again he is acting rationally in the context in which he has been put.

It is not the hospital that has created this situation, it is the DHSS and to some extent the Hospital management. Perhaps the hospital management could have addressed the problem more effectively earlier - we don't know.

The others players in this story are doing the same

So what is going wrong and what are the solutions?

Have athink while you wait for a later posting, where I will reveal my analysis.

Phil Jones, Excitant
Balanced Scorecards that work

How Incentives and punishments affect measures

A recent forum discussion I was involved in centred around how you should engage people with measures and the effect of incentives, on the culture of performance.

In my experience there are several aspects that alter the culture of performance, of which incentives (at the normal levels in organisations) is one of the least influential. One of the more dominant is:

Punishments, penalties and the culture of failure:

People will distort measures, or resort to dysfunctional behaviour, to avoid poor ones if there perceive (rightly or not) that they will be punished for them (and whether the punishments are implicit or explicit). It also applies when the messenger gets punished. When the need/urge/peer pressure/management pressure to avoid these penalties supersedes their common sense, you get the sort of silly situations that the NHS had with patients waiting in ambulances to stop the watch starting on 4 hour waiting times.

They will hide information, distort it, be economical with it, or report it differently to avoid this.

A (not THE only) way around this is to retrain the behaviour and address the underlying belief about failure and punishment. If the staff realise that they can learn from the information and it is a failure to learn that will be seen as poor performance you are starting to change the game. Again this relies in explicit messages and actions from management.

Again it comes back to local utility and understanding its value at that level, so people can make informed, sensible judgement and decisions with the information (not necessarily measures) they have at their disposal. They can also refine their judgement as they learn from the situation.

In other words, all of this is about the culture, messages and context that surrounds the discussions about measures. Understanding what is the current norm. HOW you invite people into the discussions, the baggage they bring, the context they have learnt their existing cultural norms from and the extent to which you can signal changes.

For this reason I have no "favourite way" to engage teams in measure discussions. Only questions I ask, and signs I look for, that tell me what the situation might be like. In many cases it can be excellent - in others, more problematic, and I apply different tools in different situations.

Phil Jones
Excitant Ltd
http://www.excitant.co.uk/

Trusting staff to develop and provide measures for you

Do you trust your staff?

A post on the PMA forum reminded me of a conversation I once had with a client's middle management team. It was during the balanced scorecard measures design workshop.

I suggested they talk to their staff about the measures and targets and even use some subjective measures.

They back peddled rapidly and said "No way!".

I asked why?

They said, "We don't trust them to do that honestly!"

I asked - "So how did you as managers create a culture where you employ people but don't trust them, and have trained them to lie to you?"


Long pause.....


".....And what are you going to do about it?"


Even longer pause....


Oh, such fun.

Phil Jones

Cascading balanced scorecards

I saw a question on cascading balanced scorecards recently and here was my reply

Here are some simple rules that I employed when I worked with Norton & Kaplan and have applied since

1) Cascade objectives rather than measures.

While some measures cascade many do not naturally translate across organisational boundaries or down through the organisation. However by cascading objectives you cascade the characteristics you want to measure and can allow each to use measures that are relevant and meaningful at that level. (Having objectives before measures was a basic improvement that moved balanced scorecards from measurement systems to a more strategic tool and should be your standard approach. - we adopted then in 1994)

2) Cascade themes of the strategy map.

In other words make sure you cascade the cause and effect model from your strategy map. Think of this as a vertical slice. So for the marketing department you want to cascade the financial impact (revenue and costs) the customer impact, the marketing processes and the learning and growth objectives that will improve the marketing process, influence the customer and deliver revenue whilst managing the costs.

If you cascade objectives in perspectives in isolation then you lose the performance driver model that the strategy map and the cause and effect model describe. The objectives and measures lose context and the whole philosophy breaks down.

3) Choose your pivot point of cascade

This is more subtle. If your strategy map is primarily designed around processes then they become the point of cascade. So divide up the strategy map into themes for each process. The cascade is sliced into the processes identified in the strategy map.

If your strategy map is more subtle than that and you have linked the organisation around customer objectives or customer groups, then cascade around them. This means that each department will have to ask, how do we support this customer objective and it will force (encourage/facilitate) joined up thinking and working.

If you follow these basic rules you won't go too far wrong

Some examples that will help.

You can see examples of cascades on the strategy mapping pages of my website http://www.excitant.co.uk/pages/strategy_mapping.htm

The Local government case study shows a cascade by customer objectives that achieved joined up working. http://www.excitant.co.uk/pages/case_studies_access.htm

The Dimensions fourth generation balanced scorecard case study is a cascade that is straight forward for regions in a company.

The Princess of Wales Diana Memorial Fund case study is where the overall Fund strategy is cascaded into each of the fund's "Initiatives" and where each initiative adopts the overall strategy. However as the initiatives are at different stages of implementation and maturity, each initiative has a different emphasis.

The cascade through a technology group on the first page of the strategy mapping pages shows how the group's overall strategy was adopted and refined slightly for each of 5 companies in different countries that made up the group. This one is a case where synergies were identified from the strengths and weaknesses of each company against the overall group strategy.

Some warnings

a) Beware cascading measures especially where the are not consistent

b) Do not aggregate measures into meaningless ratios and combined composite measures (eg we are at 76%) as these hid any meaning and cause and effect that drives performance

c) Ensure you communicate what you are trying to achieve as well as how you plan to measure it so people do not have to mind read what you thought of when you create a measure.


d) Don't dictate but look for ownership. If people understand what they are being asked they will find ways to achieve it

Hope this helps

Phil

Eight ways your balanced scorecard should be helping you in the economic climate (Part 2)

Eight ways your balanced scorecard should be helping you in the economic climate (Part 2)

This article provides four more ways that a good balanced scorecard should be helping you. It also includes a checklist you can action immediately.

In the last article I explained four ways in which your balanced scorecard should be helping you in the current economic climate. This is by:

1) Supporting governance and decision making
2) Knowing what drives costs and revenues for better decision making
3) Helping you to focus on the right investments
4) Helping you find more suitable measures as the situation changes

This article covers four more ways:

5) Providing advanced warning of internal problems and change
6) Provide advance warning of external change
7) Communicating priorities so they are clear
8) Evolving as your strategy changes and you adjust to the economic climate

Let us cover these four in sequence:

5) Providing advanced warning of internal problems and change

Your balanced scorecard should act as an early warning system for you. Within your scorecard lead and lag measures should be telling you whether your strategy is still on course or whether things are going wrong with your strategy.

One client used this to identify projects that were off track. Another looked for regions that were missing opportunities compared with other similar regions. A third ensured the capabilities were being developed and the organisation’s values continued to be adhered to.

It is too late if your measures simply tell you that things have gone wrong. To operate properly these lead and lag measures should exist within objectives and between perspectives. To design these you need an explicit cause and effect model in your strategy map and scorecard. Omit that cause and effect model, and you may be missing out on signals that things are going wrong.

6) Provide advance warning of external change

As you built your strategy map you would have made a note o the assumptions about the market. Also about those trigger signals that would suggest when your strategy might need to be revised. For instance did you assume a particular oil price level, cost of money or level of sales. When you have trigger signals built into your strategy map and scorecard you are monitoring the external environment for warnings that things might change.

7) Communicating priorities so they are clear

The advantage of communicating both objectives AND measures is that you make it clear what matters and people can clearly understand it, even when the measures become redundant.

When people know what is important (as well as how you are trying to measure it) they can help you achieve it. Also the combination of objectives helps explains tensions and conflicts. When you are trying to reduce costs and also protect revenues, you have to balance the tensions of costs reduction whilst maintaining the focus on revenues. It is not either/or. It is both.

8) Evolving as your strategy changes and you adjust to the economic climate

Your strategy may have evolved over the last few months. I have one client who has recently chosen to focus on the next 9-12 months, to position them for the future. In another client they are taking the chance the economy provides to build longer term capability. Another is ensuring it has a sound base of information on the business, and focusing on professionalism to provide assurance of delivery and to reduce costs.

One of the biggest problems you may find with your measurement system is that many measures become less informative over time: Especially when the environment is changing. In contrast, the strategy map and its objectives, describes the strategy. When the strategy needs revising you can revise the capabilities in the learning and growth areas, you can adjust the process objectives, you can refine customer needs and revisit the financial objectives. You could even add a new theme.

Then the balanced scorecard underneath the strategy map can be re-visited and re-designed or updated to reflect the new strategic imperatives. It’s a lot easier than revising the whole strategic plan. It is far better than leaving outdated measures in place. You might even save some money by removing the redundant ones. You will be able to communicate the revised imperatives, direction and how your staff can help.

So what now?

Go through the eight ways in which your balanced scorecard should be helping you. Do a simple appraisal:

1) In the current climate, is our balanced scorecard helping us in each of these aspects

2) What are the gaps?

3) What do we need to change?

4) How quickly do we need to make these improvements?

5) What help do we need?

You’ll find advice and resources on the excitant website, and when you need to make progress quickly, simply give me a call.

Phil Jones
For balanced scorecards that implement strategy
http://www.excitant.co.uk/

Balanced Scorecard for Charities

Balanced Scorecards for Charities

Over the last few years we have done quite a lot of work in the area of charities, foundations, not for profit and social enterprise balanced scorecards.

This week, Trust and Foundation News, June 09, The journal of the Association of Charitable Foundations, published a case study of the balanced scorecard work we have done for the Diana, Princess of Wales Memorial Fund.

You can find out more about the ACF on their website. You can read the article "Demonstrating and managing performance in a charity"on the Excitant website. Follow this link for both the article and to find an even more detailed version "A modern balanced scorecard approach to demonstrating performance in a charity"


Phil Jones
For modern balanced scorecards that improve performance in charities, foundations, and third sector organisations.

Balanced Scorecards in uncertainty and recession (Part 1)

How your balanced scorecard should be helping you in this economic climate (part 1)

The current environment is an excellent test of your balanced scorecard. Does it still serve you well as the economy changes, with credit tightening, interest rate and exchange rate changes, with concerns over governance (just ask a banker), as you need to find ways to change costs, or as you seek ways to maintain existing revenues or find new ones?

There are ways of doing well in this environment? Given all the doom and gloom in the car industry I have a friend in the trade who has never been busier. Why? He is exporting UK cars to people who are finding the pound so cheap that it is worth buying cars here. In every cloud, as they say. Of course it’s a change of strategy but you do have to spot opportunities and grasp them and youir balanced scorecard should be helping you. Here’s how:

1) Supporting governance and decision making

The first thing that your balanced scorecard should do is provide your board and your management with good quality governance and assurance. To do this it needs to provide a clear overview of performance across the balanced scorecard’s perspectives (Financial, customer, process & learning & growth). The relationships between perspectives provide lead and lag indicators of success so you know you are staying on track or something is going wrong that will lead you off track. You have the ability to drill into detail as you need it. The well presented information should promote and encourage informed discussion, backed up with evidence. Overall this should provide your board with information they can trust so they understand the risks, can act with confidence, or be assured that things are in control.

2) Knowing what drives costs and revenues for better decision making

If you are going to make decisions about costs and revenues you have to be clear what drives them. Your balanced scorecard’s cause and effect model that crosses the perspectives should be telling you what drives costs and what drives customer behaviour and revenue. If it isn’t, particularly if you have measures in perspectives that don’t have any relations between perspectives, you won’t be able to make informed decisions about which levers to pull to change costs of revenues. You might cut costs that undermine quality or sales.

As an example, some colleagues of mine have recently been using lean management practices to eliminate waste from processes and activities. The lean principles map well onto the cause and effect model of the balanced scorecard. In one case (from financial services) they identified savings of £300,000 per annum, in just one department. This was in an organisation with a total operating costs of only £11m. That is nearly 3% improvement in profits. In another example (from the public sector) a customer’s application took 3 months and travelled 1.5 miles to get processed. This was reduced to 45 minutes and 1 yard. You can imagine how this improved both services and costs. In each case it is the underlying capabilities that drive processes, to serve customers and deliver revenues, economically: that is the cause and effect model of the balanced scorecard.

3) Focusing on the right investments, Eliminating the wrong ones

One danger at the moment is across the board cuts. Perhaps cuts to discretionary spend or perhaps 10% across the board in every department. Of course some costs, such as rent or IT system costs, are fixed and indirect. They are hard to cut. Others, like training, marketing and even wages, are easier to cut. However these might not be the right things to cut, they get cut disproportionately because they are softer targets and the internal dictate dominates the logic of business performance.

In one organisation we worked through their projects aligning them to their strategy map. From a total project spend of £100m we found £40 that were not directly contributing to their strategy. That is potentially a £40m saving. In another organisation the simple process of exposing their project portfolio (over 130 projects in an organisation with a cost base of only £150m) and allowing that portfolio to be seen as a whole, provided the management team with the incentive to get a better grip on project approval, project costs overrun and, most importantly, the delivery of promised benefits.

4) Refining measures, whilst maintaining objectives

Modern balanced scorecards don’t start with measures. They start with objectives. This means you know what you want to achieve and the characteristics of the objective help you to tell what you should be measuring.

When things change, and some measures have become inappropriate you don’t just want to add more measures, do you. That will add cost as well. When your approach is anchored in objectives, it is far easier to refine your measures, and targets, whilst still communicating your overall objective. Your balanced scorecard should be able to adapt like this.

Only four tips today: There will be some more in a week or so time. While you are asking these questions you might just wonder how out of date or “modern” your balanced scorecard is. To read about how the approach introduced some vital and fundamental developments between 1992 and 1994, have a read of my new article, “What really makes a balanced scorecard balanced?”.

I hope your balanced scorecard is as least as good as those from 1995?

Phil Jones

Strategic Balanced Scorecard Specialists
Excitant Ltd

A culture of performance

A culture of performance

Good performance should develop a culture of performance, rather than one of “Measure mania” and “The tyranny of targets”.

This uinderpins how we implement balanced scorecards that make a difference to an organisation

I define a culture of performance as:

A visible and explicit pattern of behaviour, actions and values,

working to achieve the organisation's overall objectives,

that encourages honest evaluation, feedback and appraisal,

and informs decision making,

which is built upon collective and individual responsibility.

It is responsive to changing circumstances and

encourages self regulation, trust and learning.

The approach is designed to embed performance based on trust, evidence and judgement. Each of the principles of the approach and the techniques used are designed to develop and build judgement, trust and evidence; to engage staff, promote conversation about what performance means and how to achieve it. Building that a culture of performance will not happen overnight.

Phil Jones
Strategy & Performance Specialist
www.excitant.co.uk

Strategy maps and the tangible future

Balanced scorecards need a strategy map to orientate them towards the strategy. Strategy maps need a tangible future to describe the future that the strategy will deliver in a way that is tangible and clear.

Strategy is fundamentally how you move towards your future: What choices do we make to achieve our ambitions? What timescale do we have to implement? What else will happen that we have to take account of? The previous chapters have lay down the basis of strategy thinking into strategy maps. In this chapter future thinking and level ambition is explored more explicitly using a “Tangible future”.

Strategy involves mission and vision statements. Whilst useful and symbolic, these are of limited value for knowing what specifically will be different in the future. To assist the development of strategy maps, a more explicit, tangible future is developed. This describes what the organisation expects the future to be like, at set points in time, specifically. What will the markets be like, the competition, what size will it be? How will our channels to market have changed? What technology will have developed? How will regulation have changed? What impact will the environment have had? What will we be like as an organisation, by this time? Also there are uncertainties and risks. What assumptions have we made? What might change? What are we uncertain about? This detailed thinking is captured in a tangible vision that sits alongside the strategy map.

The tangible future serves three purposes. First, it describes the level of ambition in a way that is more tangible and measurable that mission and vision statements. This provides a vital base from which to detail the balanced scorecard. Secondly it generates conversation and discussion about what individual members of the team believe. This helps to identify and capture any assumptions, risks and uncertainties. It also it helps management teams understand how each other are thinking, individually and collectively, about the future. Finally it makes specific the speed of change and level of ambition required. This is then incorporated into the strategy map and subsequent balanced scorecard.

Phil Jones Fourth generation balanced scorecard specialist

Excitant Ltd

www.excitant.co.uk

Strategy maps are about cause and effect

Strategy is about change and improvement, so Strategy maps have to reflect that change and balanced scorecards have to be able to track that change to manage performance. Modern, third and fourth generation, balanced scorecards have strategy maps. These contain the objectives from which balanced scorecards can develop their measures, targets, actions, responsibilities.

Strategy is fundamentally about change. So it is vital to describe what will bring about that change. The strategy map’s cause and effect model teases out and describes how these changes will occur. How will the market and competition change in the future? How will we influence and affect that market and customers? How will we change in the future? How can we profit from these changes to improve our finances and overall value? These are all questions that are explored and answered during the strategic thinking and planning process and are embodied in the cause and effect model.

The great advantage of strategy maps is that they explain how the strategy will come about; what will be different by the end of the strategy and where the focus of attention should be to achieve it. They explain how the organisation will be different from various perspectives and how the change will come about. Failure to explain how change will come about is called “Strategy by hope and magic” The strategy map helps to avoid this.

The cause and effect model provides a predictive model of business performance. Rather than tracking whether you have achieved the result, eventual results, the cause and effect model tells you whether you are making progress towards the end result. It moves the emphasis of tracking strategy from, how will we know we have succeeded, to how will we know we are succeeding? This cause and effect model is fundamental to strategy and strategy mapping, so we build it into the design from the start.

Phil Jones, Fourth Generation Balanced Scorecard specialist
Excitant Ltd
www.excitant.co.uk

The difference between strategic and operational balanced scorecards?

Are BSC implementation for building Strategy Execution and BSC for Performance Management issues actually two different projects?

Do they actually have different agenda, work flow, stakeholders involved, pitfalls, and require different expertise and skills from consultants?


This was a recent question on a forum: Here is my answer:

The ambiguity is in the question because you are comparing "Strategic performance management with "Performance management". So I will assume you mean operational performance management and strategic performance management.

In that case there are differences, but bear in mind that strategy happens at each level in an organisation (so IT have a strategy just as the organisation has.
The simple answer is that "Strategic balanced scorecards" ask the question, "What are the few things that make the biggest difference, what are we focusing attention on and parts are our strategy rather than the operational detail". So the process is more selective - and the process is about ensuring that you have consensus over the strategy , articulate it and describe the drivers: “What matters most and will bring about the biggest change" from amongst the mgt team. You are also carefully teasing out the cause and effect relationship across and between the objectives in each perspective.

"Operational" balanced scorecards that are used to manage performance tend to be less discriminating. That is they may look at a process and try to identify ALL the characteristics of that process. This is where you end up with 200 measures rather than 25. Of course if you are seeking to improve performance in that operational area and have a strategy then all of the above applies.
Have a look at my article on the differences between operational and strategic management at http://www.excitant.co.uk/pages/bsc_types_of_performance.htm

The distinction I am making is between operational and strategic.

What this means is that, in essence the same approach gets applied where you are looking to change performance: that is the approach is one of selection of the elements that drive performance and that you wish to manage and track.

But if you want operational detail (for instance you want to be sure you know what is going on and have all the facts BEFORE you choose your strategy) then you are likely to apply a wider net and gather operational FACTS non-judgementally without even targets.

Many so called "Balanced scorecards" are really the latter - large collections of operational measures put together in perspectives (if you are lucky) and presented as operational data.

More selective strategic balanced scorecards or at least ones that are interested in improving performance will have an EXPLICIT cause and effect model. It is this model across the perspectives that make the biggest difference. See also my article on developments of balanced scorecards by Norton & Kaplan between 1992 and 1994 where the ideas of the cause and effect model first emerged that later turned into strategy maps.
http://www.excitant.co.uk/pages/bsc_balanced_history.html

The answers to all your other questions flow from this difference.

I hope this helps.

Phil

How do you measure sustainability using the Balanced scorecard and an Environmental Strategy Map

This question actually raises two separate questions

• How best to measure sustainable and environmental activities and strategy?
• How do I represent them on my strategy map and in my balanced scorecard?

An Environmental Balanced Scorecard

I often get into discussions about how the Balanced Scorecard needs another perspective in addition to financial, customer, process and learning and growth to represent the environment. If you are trying to do an environmental scorecard read this, because it explains why doing so will cause you to make many mistakes and miss a real opportunity. We started developing these over ten years ago, so know what works and what misses the point.

Adding an extra environmental perspective to your balanced scorecard seems an obvious thing to do, but can cause two problems. It means you will lose the drivers of sustainable activity. It will also cause you to look at sustainable activities in isolation rather than as a part of what everyone does. Both create problems for organisations and undermine sustainable and environmental activities.

As you will discover reading further, you can represent any environmental strategy for an organisation within the balanced scorecard framework as a theme, which does not destroy its structure and increases the impact of your environmental strategy, objectives, measures and initiatives. It also makes it easier to tell the story of your environmental strategy: and that must be a good thing.

Some argument you need a dedicated environmental perspective in the scorecard otherwise it does not address the significance of Kyoto (or other environmental legislation) and its impact on management reporting. For instance with Kyoto:

Chapter 40 of the Kyoto agreement sets out some national level PI's related to the environment and sustainability. Kyoto Chapter 40 defines Performance Indicators for use at Government level, and Government will pass the necessary measures into law that will force organisations, profit and not-for-profit, into reporting on them. Chapter 40 effectively demands such reporting be placed on the statute book of signatory nations with much the same level of precedence as financial reporting. The UK Government and other signatories have already implemented a number of measures as a direct result of Kyoto. Other Governments are doing the same kind of thing.

Does sustainability reporting, as a global issue, fit into the Norton & Kaplan scorecard model? Isn't this balanced scorecard model ultimately profit driven? Doesn't sustainability address a wider social impact? Therefore it seems legitimate, if only on a practical data management basis, to have "Environment" as a fifth perspective.

This is all true, but leads to a wrong conclusion. Trying to argue for a separate "Environmental perspective" misses a fundamental understanding of the balanced scorecard model.
Why this thinking is wrong? Lets us look at some examples that demonstrate how sustainability as a strategy is best represented.

Sustainability and environmental strategy are themes, not perspectives.
Your sustainability or environmental strategy is a theme of your strategy that spans the existing balanced scorecard perspectives. It is a (vertical) theme of your strategy map.

To understand this, just for a moment think of all the other similar aspects of a business. You could introduce new (horizontal) perspectives for financial compliance, Health and safety, Innovation, Customer service, Sales, Cost reduction and every other potential theme of the strategy (as people amazingly do).

Guess what? When you then ask "How are these related to the other perspectives in a cause and effect framework?" there is not a simple answer. Why? Because what they are doing is lumping anything associated with the environment into a single perspective of the strategy map whether they be related to values, capability (learning and growth), process, customers and their needs, financial impact or CO2 emissions. Therefore you lose the causal nature of the thinking and relationships between perspectives. They lose anything that drives and tells the story of the strategy. You also lose the ability to ask, questions about how the strategy happens.

There are at least five potential themes in a sustainability strategy map that illustrate how they should work. All of these illustrate how all the Balanced Scorecard's perspectives apply. Along side an organisation's strategic themes of making some sales, managing costs, complying with health and safely, etc, there are possibly another 5 themes to do with the environment.

To find out what these 5 theme might be visit our website and read the rest of this article

http://www.excitant.co.uk/pages/bsc_environmental.htm

Phil Jones