by Bob Stephen

The “balanced scorecard” (BSC) -- a popular management system that enables organizations to clarify their vision and strategy and translate them into action -- has been around for more than a dozen years. The longevity of this management tool suggests that it isn’t another passing fad. In fact, the Harvard Business Review recently named BSC one of the 75 most influential management ideas of the 20th century.

Further evidence of its staying power is the adoption rate by companies across industries -- half of the companies in the Fortune 1000 claim to have a BSC -- and the successes of organizations like Duke Children’s Hospital in Durham, NC, Falls Memorial Hospital in International Falls, MN, Montefiore Medical Center in New York City, Hilton Hotels, and BMW, all of which use the BSC to improve performance and execute strategy.

Even so, there are rumblings of discontent regarding BSC. In his recent book, Balanced Scorecard Diagnostics, Paul Niven points out that as many as half of all organizations claiming to have a BSC are not seeing the value or results they anticipated.

Is this the beginning of the end for the BSC? Probably not. Rather, these results are an indication of two things. First, the BSC concept has become so widespread that the term has taken on new meanings, so not everyone claiming dissatisfaction with BSC is using a “true” balanced scorecard approach. Second (and more importantly), many organizations have not realized all of their opportunities to improve BSC performance.

BSC is more than just measuring different types of data; it is a strategic management approach. To realize the BSC’s full value, it is critical that it contain key elements and be used as a management tool. Otherwise, it can come to be viewed by managers as just another reporting burden.

A Quick Quiz for the Disillusioned Majority

Is your organization part of the disappointed 50 percent? Honest answers to these 15 questions can help you pinpoint the reasons why.

Scoring: Any “no” answers you provided to questions 1-9 indicate immediate opportunities to improve the performance of your BSC. “No” responses to questions 10-15 suggest long-term opportunities to improve your scorecard success.

Balanced Scorecard Value Drivers

So what factors influence the success of a BSC? In our experience, there are five areas that drive the value. First, scorecard development must follow a proven approach with all critical elements intact. Second, the organization must approach its BSC with the right mind-set. Third, it is critical that the effort continues beyond the initial scorecard development. Fourth, the scorecard must be simple to use and not add effort. And finally, the organization must look for opportunities to continuously improve its scorecard. This article explores these items relative to their ability to drive immediate (Phase 1) or longer-term (Phase 2) value.

Phase 1: Immediate Value

The items covered in Phase 1 are most critical to organizations with significant BSC issues. These are the items that can get you back on track or help avoid complete loss of your BSC investment. Understanding these issues can also be valuable for organizations just now starting down the BSC path.

Planning and Development

The first place to look for scorecard improvement is the development process. This is where we find the “low-hanging fruit” -- those issues that are critical to success and easy to spot. There are three primary areas to examine.

Ownership

The No. 1 predictor of scorecard success or failure is executive ownership. For BSC to succeed, at least one person from senior management (preferably the CEO or administrator) must be an active champion and supporter of BSC. With executive support comes serious commitment (and resources) to fully develop the scorecard. Executive owners set the tone for the process; if they take the BSC seriously, others will too.

If you cannot readily identify a strong executive sponsor for BSC within your organization, you need to find one -- fast. This owner should be willing to assume accountability for leading BSC meetings, holding team members accountable for their assigned actions, and communicating BSC information to the rest of the organization. If an executive owner cannot be found, your best course of action may be to put a halt to BSC development or implementation until the ownership question is resolved.

Strategy Mapping

Sound BSC implementations begin with a strategy map. As the example below shows, a strategy map is a graphical depiction of the organization’s strategy, showing how strategic objectives fit into the BSC framework (i.e., into the scorecard’s various “perspectives”). It is very important that each of the strategic objectives is linked, so the cause-and-effect relationship is crystal clear and the organization can focus on the right strategic objectives.

The completed strategy map will identify strategic objectives that add little or no value to the organization. It will also identify strategy gaps, where new strategic objectives must be developed. In short, the strategy map (1) validates the organization strategy and (2) begins the process of translation into BSC language. Each strategic objective should be the driver for developing scorecard measures, with one or two corresponding measures for each objective.

Are strategy maps really necessary? True, some organizations have developed and launched successful scorecards without strategy maps. However, we have found that these organizations typically expend more effort in developing and refining their scorecards. In management discussions with two hospitals that went down this path, senior managers have told us that if they had it to do over again, they would first develop strategy maps. From their point of view, this approach leads to better, stronger measures that connect directly to strategy.

What if you have a scorecard but no strategy map? Our advice is to validate your scorecard with a new strategy map. Map your strategic objectives and then see how (or if) your current measures fit the map. Then adjust your existing measures accordingly.

Perspectives

One of the critical steps of the strategy mapping exercise is translating the strategy into the BSC framework. The framework language is centered around perspectives that describe how different stakeholders view the strategy. This framework provides flexibility to rename perspectives or add perspectives, but at the same time, it’s critical to retain the logic of the framework.

The chart below shows how Wipfli’s logical steps to attaining our strategic vision have been linked to our BSC perspectives.

Unfortunately, many organizations fail to use a similar logic-bound framework. A recent European study (Seckbacher et al, 2003) found that one-third of large companies using the balanced scorecard had no “learning and growth” (or equivalent) perspective. These organizations are missing a critical piece of the strategy story: the investment in people and infrastructure that enables an organization to succeed.

Again, it is not essential that your organization use specific perspective names or adhere to four perspectives. Most of our clients have changed the perspective names to fit their organizations or to be consistent with other major initiatives, such as Six Sigma or the Studer model. A few have even added perspectives to give greater detail to learning and growth. But, in all cases, the logic remains in place.

If your scorecard is missing a key element (or lacks perspectives all together), take the opportunity to revalidate your scorecard. Re-map your objectives (just as with the previous section) using the full framework logic.

Setting Expectations

It is possible to have the right pieces in place during scorecard development and still fail to see value. One reason for this relates to the idea of inconsistent expectations. Consider three common scenarios.

• Scenario 1: A scorecard is completed, but each member of the management team has a different interpretation of what is truly important. With more than 20 measures on the scorecard, discussions are likely to be unfocused and characterized by competing agendas.
  
  
• Scenario 2: Scorecards are often completed, but data has a hard time finding its way to the scorecard each month. This typically happens when senior leadership does not establish firm accountability for data submission. Without current information, it is difficult to sustain interest in the scorecard, and management discussions lose much of their value.
  
  
• Scenario 3: Senior management creates a scorecard but fails to communicate the importance (or in some cases, even the existence) of the scorecard to the rest of the organization. There is little buy-in for the scorecard since it is not generally understood how it will involve anyone else in the organization. The result is that organizational change is not realized.

Each of these three scenarios is fairly common in BSC implementations. The solution is tied to the issue of executive ownership mentioned earlier. Senior leadership must step up to the plate, set expectations, and hold the team accountable.

Prioritization

To eliminate the first scenario, organizations should add prioritization to their scorecards. To do this, the leadership team typically will identify those strategic objectives that are currently most important to the organization (some will choose the most important objective(s) in each perspective). This brings the team onto the same page, and these prioritized objectives can then serve to focus the agenda and to allocate scarce resources.

Prioritization also helps to sharpen communication. A number of simple approaches to prioritization can be used, such as simple voting (vote for your top 5 objectives) or weighting (rank each objective on a scale of 1 to 5). It is best if this activity is carried out by the senior management team responsible for the scorecard.

Deadline Enforcement

The second scenario is addressed very simply. Scorecard production schedules are established, and the executive owner delivers a clear, forceful message that all data must be turned in on time. Most of our clients schedule a monthly scorecard review and establish a data submission deadline one week prior to the meeting.

The excuses for missing data tend to revolve around competing priorities and the lack of time to get everything completed. However, most data on the scorecard should already exist in the organization. It’s also worth pointing out that only with complete information can the entire management team avoid wasting the meeting time.

Communication

When everyone understands the scorecard process and how they will be involved with it, greater improvement gains are realized. Several approaches are used to achieve broad understanding. First, the scorecard must be shared with the broader organization. Secondly, it is beneficial to develop a communication plan. In the plan, identify all of the major stakeholders (managers, employees, physicians, board trustees), then determine when and how they will learn about the scorecard.

A good plan will also identify how the scorecard will be “cascaded” into the organization. There will be greater interest and buy-in to the high level scorecard if managers and employees know that they will be developing their own scorecards soon.

Focusing on Use

The majority of BSC books, articles, and conferences focus on the design and development of scorecards. While this is an important part of a BSC initiative, it is also somewhat unfortunate. Too little attention is paid to how the scorecard should be used once it is developed.

Successful organizations are those that recognize BSC as a management tool and make the scorecard a part of their management process, ensuring accountability and explicitly linking action to the scorecard.

Meeting Structure

It is not very realistic to expect BSC to instantly become part of the management process. It needs time and attention by senior leadership. Two effective methods of introducing the BSC into management culture include (1) restructuring existing management meetings around the scorecard or (2) scheduling regular scorecard review meetings. In either instance, the idea is to use the scorecard to set the agenda, as opposed to making it an agenda item.

Some organizations force all meeting business to fit within the scorecard framework, with agenda sections for financial issues, customer issues, internal processes, and learning and growth. Others simply ensure that managers review the scorecard’s priority items at every meeting. The ultimate meeting structure should fit the culture of the organization and the team.
 
Accountability

For meetings to be effective, accountability should be in place. Ideally, each measure on the scorecard should have an “owner”—a person who will take responsibility for ensuring that data is current and, more importantly, that they own the results and can clearly articulate what is happening relative to improving performance. This accountability will provide for more productive meetings.

Initiatives

While meetings and accountability are important, it is absolutely critical that initiatives be identified, defined, and tracked for the highest-priority strategic objectives.

Here again, because so much effort is spent on choosing measures, this critical phase is often overlooked. But without direct ties to action, BSC is just a scorecard—a tool that once a month tells the organization what its performance is. To be a management tool or a catalyst for change, there must be action.

While many organizations have some idea what is important to do, they rarely take the time to plot out who is responsible, what are the expected results, when the results should be expected, and how will the results will be achieved. Formal definition of initiatives is a great benefit. In many ways the scorecard review meetings described above are initiative review meetings -- in reviewing performance and discussing status, it is imperative that initiative status be central to the conversation.

One note of caution: It is important to focus initiatives and the attention they receive. A great starting point is to define the one or two critical initiatives for each of the strategic objectives prioritized earlier in the process. These initiatives should be fully defined and discussed in scorecard meetings. Other initiatives should be tracked, but the same level of detail is not required. This prioritization is a key concept; without it, the organization may become overwhelmed by too many initiatives and not enough time.

Below is an example of a prioritized strategy map and scorecard with initiatives identified.

Phase 2: Long-Term Value

The items described in Phase 1 are most critical in examining value. But suppose you do everything recommended -- are you guaranteed long-term success? Of course not. BSC must change with the organization, and it must provide greater value than the effort required.

The following sections deal with long-term value drivers. These drivers are not universally applicable for every organization, but they should be considered and used whenever appropriate.

Ensuring Ease of Use

BSC is a very powerful yet simple management tool. As the scorecard is adopted within the organization, it is essential that the simplicity is retained and the scorecard is easy to use and maintain. However, all too often BSC implementations become increasingly complex and eventually collapse under the weight of too much detail and extra work.

The experience of a CEO at a large tertiary care center is instructive. He described how the hospital twice implemented a balanced scorecard. Both times senior leadership saw positive improvement come from the process; however, in each case, the benefit was not sustained and BSC eventually was dropped.

Looking back, the CEO blames the failure of BSC on the complexity of having too many measures throughout the organization combined with the extraordinary effort required to keep the scorecard current. He suggests that more time should have been spent building a supporting infrastructure to make maintaining the scorecard easier.

In our experience, there are three areas an organization should look at relative to simplicity. They are tied to the issues of scorecard design, rollout, and infrastructure.

Understandability

Ensure that the actual scorecard is not too detailed or complex. Keep the high-level organization scorecard to one or two pages. Departmental and lower-level scorecards should fit on a single page and the number of measures should not be too high. A good target is 24 or fewer measures on the high-level scorecard.

Keep the scorecard visually clean, and show only the essential information. Use colors to denote performance (many organizations choose red, yellow, and green, or a similar palette). Include only the necessary information for each measure, such as measure name, target and alarm values, actual current values, trend information, and a comment field. Anything more will make it hard for the audience to digest the contents.

Do not confuse BSC with an executive information system or business intelligence system. The BSC is not intended to provide every possible piece of information or directly lead to detailed analysis. It is appropriate for measure owners to have more detailed backup, but this information should not be part of the scorecard.

Minimal Effort

BSC should not be viewed as yet another responsibility but rather as the reallocation of activity to focus on what really matters.

This usually holds true for the high-level scorecard if existing measures are selected. But if the organization develops brand new measures requiring new data sources and development, then momentum can be lost as too much time is spent collecting data. While these new measures may be superior and necessary, it is better to start with what is easily available. This allows the organization to build momentum and gives time to develop new measures appropriately.

While the high-level scorecard is typically a focusing of existing measurement, cascaded scorecards throughout the organization are a different story. Oftentimes, these business units do not have the same information available.

Imagine, for example, an organization that decides to require its 30 departments to develop and maintain scorecards with an average of 20 measures each. In this scenario, there is suddenly the need to get everyone on the same page, develop and track 600 measures, and keep all of the scorecards coordinated and current. To avoid such a scenario, it makes sense for an organization to slowly nurture a BSC implementation.

Cascading full scorecards throughout the organization is not advisable. Two options include cascading 4-6 priority objectives to business units or to expand BSC to new business units over time. Both of these options help to keep the organization from becoming overwhelmed.

Technology Tools

Try as we might, there are times when complexity cannot be avoided. A full scorecard implementation in every business unit requires resources to track and collect information.

In many organizations, dedicated FTEs are often hired to administer the scorecard using Excel spreadsheets. These FTEs ensure that data is current and that current scorecard copies are available. However, a better, more cost-effective alternative may be to adopt a BSC technology solution.

BSC technology tools can provide benefits through cost and resource savings as well as helping to institutionalize BSC within the organization. Technology can streamline and automate the data collection process and ensure that everyone has access to current information. These systems can also support greater collaboration and initiative tracking.

Balanced Scorecard Collaborative, a consulting firm established by BSC originators Robert Kaplan and David Norton, provides a list of BSCol Certified Software that makes a good starting point to identify possible technology solutions. As the examples below show, different vendors offer different on-screen approaches to presenting BSC information.

One caution: Development and implementation of the scorecard should always come before technology is considered. During the development and implementation periods, the organization is already trying to adopt a new approach to management. Technology only serves as a distraction if used too early and, in some cases, the added complexity may destroy any BSC momentum.

Continuous Evolution

The final area of long-term BSC value comes from the organization’s ability to evolve and adapt. By their nature, scorecards are not static. The objectives, measures, and initiatives must change over time to reflect reality and the organization’s strategic priorities. The other area of change is the degree to which BSC links to other key activities in the organization.

To evolve the scorecard, it is important to evaluate the effectiveness of measures and change the target (raise the bar) or the measure itself if necessary. On a regular basis, the strategy map should be reviewed to make sure that the strategic objectives—and the original prioritization—still stand. If either of these changes, it will require the leadership team to adjust the scorecard accordingly. It can be helpful to force critical looks on a quarterly basis.

Two areas of the typical scorecard can often merit additional focus, as change may not come as planned and measurement may be difficult.

Process Modeling

First, within the internal process perspective, it can be helpful to identify and model key processes. Modeling can be done through process mapping or activity-based costing. Either approach should help identify specific problems with key processes, suggest improvement initiatives, and lead to very specific measures. As improvement occurs in one process, move on to the next critical process.

Organizational Culture

The second area is culture within the learning and growth perspective. Culture can be one of the most critical investments an organization can make, yet change (and effective measurement) can be elusive. In these instances, it makes sense to bring in outside expertise to help shape specific initiatives and better measurement.

Strategic Interconnection

To be a truly effective management system, BSC must link to other key management processes. Examples of these include operational and capital budgeting and employee performance evaluation and compensation. All too often, the effectiveness of a BSC will be limited because it does not connect with these other areas. It is difficult to move the organization to implement strategy if budgets and resource allocation do not reflect strategic priorities. While these linkages should not be attempted too early in BSC implementation, they should be an eventual goal.

Conclusion

BSC represents sound management. If your organization is not seeing the value expected, use the information in this article as a framework to evaluate your scorecard (or your planned scorecard initiative). Remember that value from a BSC increases immediately if a sound approach to development is utilized, expectations are set and communicated, and importance is placed on regular use. Longer-term value is created when the scorecard is easy to use and understand, dynamic, and linked to other drivers of organizational behavior.

Bob Stephen is a Wipfli health care business professional with more than 15 years' experience in the industry. He applies cutting-edge business tools and analytical techniques, including BSC and strategy mapping, to health care organizations across the nation. He can be reached at (703) 250-2578 or bstephen@wipfli.com.