When a manager states that “we did well,” how can anyone detect if the entire organization benefited overall from whatever that department did when it sup- posedly “did well”? How does management know how much of that depart- ment’s work and outcomes advanced their organization toward realizing their strategy, and how much was errant work on less relevant pursuits?
One way to answer these questions is to improve the organization’s measure- ment system itself. Strategy maps and scorecards are excellent tools in the quest for a strategy-supporting measurement system that links to operations and tac- tics. These are management tools that establish strong relations between the vital areas of the strategy and the organization’s measures. They do so by:
Making crystal clear the vital few strategic objectives (the strategic focus areas) of the strategy plan;
Establishing the cause-and-effect relations betweenstrategic objectives;
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Cascadingstrategic measures to employee teams whose performance is be- ing monitored; and thus
Aligning employee behavior with a common focus on the strategic objec- tives typically defined in the boardroom or by the governing body.
Strategy mapsare like geographical maps that visually aid in understanding how one gets from point A (the present capability, organization, and focus of the enterprise) to destination B (the future desired state of capabilities, organization, and focus, as laid out in the enterprise vision, mission, and strategy plan). Score- cardsare like a cockpit enabling managers and employee teams to navigate and steer. Scorecards without strategy maps may lead to failure. When scorecards are built and reported in isolation, there is no direct linkage to strategy.
As its name suggests, a scorecard contains the key and relevant performance measures. A scorecard is like the coxswain of a racing boat crew who periodi- cally shouts critical information to the rowers. The scorecard’s critical role is that it puts the measures (key performance indicators, or KPIs) in the context of the strategy. The concept of contextis important. It elevates this methodology well above management by objectives (MBO) and spreadsheet performance reports.
With strategy-linked measures reported through scorecards, the scorecard imme- diately explains not only what happened but also where that leads to and why it is important.
Performance measures that are related to the strategic objectives defined in the strategy map are usually referred to as strategic measures. Strategic measures are gathered in what has become popularly known as a balanced scorecard—bal- ancedbecause it is comprised of both financial and nonfinancial as well as lead- ing and lagging measures. Lower-level measures can optionally be derived from the strategic measures in a top-down measurement cascading process that will soon be described, as a way to create a common focus on an awareness of the strategy. These lower-level measures are typically referred to as tacticaland/or operational measures. Tactical and/or operational measures are gathered in func- tionalscorecards that are understandably not balanced in the way that measures at the enterprise level are. (See the discussion of functional scorecards in the sidebar “Enterprise-Wide versus Functional (Local) Scorecards” in Chapter 6.) As a result, the term scorecard—not the balanced scorecard—is reserved for the functional level, not the enterprise level. For the remainder of Part Two, I will use the generic term scorecardas synonymous for both balanced scorecards and functional scorecards.
Strategy maps and scorecards go hand in hand. Once created, they embody the strategic intent of the organization and communicate to all both the strategic
42 STRATEGY MAPS AND BALANCED SCORECARDS
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objectives the organization intends to meet as well as the critical measures of success for attaining those objectives—be they strategic, tactical, or operational measures. A way to think of this is how the organization’s vision and mission statement answer the questions, “Where do we want to go?” and “Why are we here?” whereas and how the strategy map and scorecard answer, “How are we going to get there?” Through continuous reporting of the actual scores against the KPI targets, they then keep the organization on track as part of PM. The or- ganization’s values are an additional concept that shapes the vision and mission.
Values should be thought of as timeless, deeply held beliefs of the organization, which are applied as guiding principles to assure the organization retains what initially made it successful.
Typically this endeavor to manage the strategy is performed separately from the annual budgetingprocess, which is done without linkage and usually by the finance department. The budgeting process needs to be much more than manag- ing the next year-end financial results; it must link to executing the strategy. Now there is a great opportunity for the budget to be an extension of the strategy.
Think of these interrelationships as a perpetual cycle:
Strategy mapstell where are we going and why.
Scorecardsexplain how well and provide guidance for what can be next.
Budgetstell how.
How do you know if your organization’s measures are driving the right behav- ior? Correctly developed strategy maps and scorecards dramatically increase the likelihood that they are. Strategy maps and scorecards provide a framework for lit- erally keeping score of the functions and processes that are most important to the success of an organization. Focusing on the vital few measures for different em- ployee teams is a key. What you measure you can likely control, and what you control you can improve. With the strategy map–derived scorecard, performance is monitored based on weighted measures reflective of their importance to achieving the strategy. Typical organization measures are haphazard, excessively emphasiz- ing after-the-fact financial measures, and consequently the entire measurement system is imbalanced and usually fragmented across multiple computers.
Just like at a sports event, a scorecard quickly conveys how teams are doing at what matters most. However, unlike with a sports event, an enterprise scorecard system allows managers and employees to keep digging deeper for explanations, to view trends, and to get answers, particularly for unexpected results. With scorecards, measures have measures within measures—as briefly explained ear- lier, high-level measures for executive and senior managers (strategic measures)
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and derived lower-level tactical and operational measures for employee teams or even individuals.