Organizing the implementation

Scorecard success can hinge on how and where you implement it. Make sure you make an informed decision about where it’s best to start

By Raef Lawson, William Stratton, and Toby Hatch

In the previous article, we discussed the basic implementation strategies companies have for scorecarding systems. But there's much more to consider during an implementation than the size of your organization and whether implementation should be top-down or otherwise. Organizations that have evaluated the costs and benefits of scorecarding systems then have to decide how to proceed: choosing the performance measurement framework, the levels at which to implement the system, and linking the measures to the organization's strategy.

Our recently completed scorecarding survey of over 150 service, manufacturing and governmental organizations of varying sizes helps address these issues by providing details of how other organizations have organized their scorecards and the effectiveness of those approaches.

The framework

One of the first and most important decisions is the scorecard framework and selecting the scorecard measures. The framework should reflect an organization’s strategic business model and provide balance to its performance measures - a cause-effect hypothesis for gaining and maintaining a competitive edge. Figure 1 illustrates these ideas using a modification of the Kaplan-Norton framework (financial, customer, internal process, and learning & growth). The figure shows the link between an organization’s business model and its scorecards. Our modifications to the Kaplan-Norton framework include the addition of a requirement for process improvements to be customer-focused and the reinvestment of the excess financial results sufficient to support continuous learning and process improvement. Similar frameworks can be constructed for organizations that embrace the Baldrige National Quality Award process and other models. There is no ideal framework; we strongly believe that all organizations should articulate the one that best fits their business model.

Of the companies responding to the survey, the most common framework (59%) is Kaplan-Norton’s; a much smaller number of organizations used either the Baldrige criteria (leadership, strategic planning, customer, information and analysis, HR focus, process management, and business results) or Accenture’s Value Dynamics (physical, customer, financial, employee & supplier, organization). A significant number of organizations (20%) did not use any of these frameworks but instead developed their own. Finally, and perhaps surprisingly, 12% of the respondents did not use any framework to organize their scorecards.

The organizations in our survey that used one of the three organizing frameworks mentioned above were most likely to agree that their system captures the focus of their strategy: on a scale of 0 to 4 (where 0 represented strongly disagree and 4 represented strongly agree) their average response was 3.26. This was followed by organizations that had developed their own framework (an average response of 2.60) and those that did not use any organizing framework (an average of 2.20).

An organization’s choice of framework affects its success in implementing a scorecarding system. The organizations in our survey that use one of the three frameworks described above are most likely to agree that their system has achieved significant benefits - their average response was 2.24 (on the same scale mentioned above). These were followed by organizations that developed their own framework (an average response of 2.07) and those that did not use any organizing framework (an average of 1.89).

In summary, the survey indicates that achieving significant benefits from a scorecarding system is directly related to the existence of a framework and its ability to adequately capture an organization’s strategy (business model), and to provide balance to an organization’s performance measurement system.

Measured levels

Scorecards can be used to measure organizational performance at many levels. Most commonly (68%), they are used to measure overall performance. Also frequently measured are the performance of functional areas (60%) and divisions (51%). Less frequently, scorecards are used at the product/service (36%), customer (29%), team (29%), and individual manager (26%) levels.

The implementation level is important - organizations believe that the benefits gleaned from scorecarding correlate with how thoroughly it’s implemented in the business. A comparison of the responses indicates that the greatest relative benefits were gleaned from implementation at the customer level. We expect that the Baldrige Quality Award framework might gain in popularity because of its focus on achieving customer value. Implementation at the team, organization, and division levels also yielded benefits. Implementation at the individual manager and functional area levels, however, did not yield any significant benefits to those that adopted the scorecard at that level. Considering these observations, organizations considering a scorecarding system may wish to start implementation at one of the more successful levels.

Industry differences

The implementation of scorecarding systems varies widely by industry. Nearly 40% of the organizations in the service sector use scorecards at the individual manager level; half that number of organizations in the manufacturing and governmental sectors use scorecarding at that level, and none do so in the retail and wholesale trade industries.

Implementation at the team level is most common in the service industry. Implementations at the division level are more prevalent in government organizations; at the customer level for manufacturing organizations; and at the functional area level for trade and governmental organizations.

These implementation practices reflect the differences among these types of organizations and indicate the need for each organization to customize performance measures to fit its needs.

Framework and use levels

The implementation framework adopted influences the levels of an organization that use scorecards. These implementation differences reflect the differences in the business models underlying the frameworks.

Organizations using a Kaplan-Norton framework are most likely to implement at the organization-wide level. They are also the most likely to implement scorecarding at the individual manager level, but among the least likely to implement at the customer level. (This result supports our addition of the term “customer-focused” in Figure 1.)

“Baldrige” organizations, on the other hand, are most likely to implement at the functional area and product/service levels, both in absolute terms and relative to those adopting other frameworks. They were also most likely to implement at the customer level and least likely to implement at the organization-wide level. We expected this outcome because one of the core values driving the Baldrige process is “delivery of ever-improving value to customers, contributing to marketplace success.”

These results show the critical importance of selecting the right scorecarding system framework.

Implementation practices

Implementing a scorecarding system is a significant undertaking and is usually accomplished in stages. Organizations can take one of three basic approaches to implementation. Most (74%) use a top-down approach, where the scorecarding system is implemented at some high level in the organization initially and then subsequently rolled out to lower levels. Other organizations (8%) use a bottom-up approach, in which the system is implemented at a low level in the organization and subsequently rolled out at higher levels. Finally, the system can be implemented in a limited segment of the organization and then, after the validity of the methodology is established and experience is gained in implementing scorecard systems, rolled out to other parts of the organization. This “pilot project” approach was used by 8% of the organizations in our survey.

As might be expected, a large proportion (72%) of the top-down implementers implement at the organization-wide level. Surprisingly, an even greater percentage (78%) of the pilot project adopters ultimately implement at this level. Pilot project implementers are most likely to implement at the individual manager, division and team levels and least likely to implement at the product/service level.

Of the organizations using a bottom-up approach, the most common level of implementation is the functional area. No organization in our survey using this approach implements scorecarding at the individual manager level. Half of these organizations implement scorecarding at the division and organization-wide levels.

Implementation plans

More than half (53%) of the respondents indicated that they are planning to implement scorecarding deeper within the organization. Another 41% are going to keep the scorecarding system at the same level. The remaining 6% indicated that they are going to reduce the scope of scorecard implementation.

The most frequently mentioned future level of implementation is at the individual manager level. Implementers adopting a pilot project approach are most likely (56%) to indicate the desire to extend scorecard implementation to this level. Only about one-third of both the top-down and bottom-up implementers are planning such an implementation.

Based on our previously mentioned results, such plans to implement at the manager level are cause for concern, as the benefits from implementation at that level are not apparent from our results.

Strategy links

In the first article of this series (June/July 2003), we reported that a critical success factor in implementing scorecard systems is having formal ties to strategy. Having a well-conceived strategic framework (like Figure 1) is a logical ingredient for this recipe.

Successful implementers link strategy to their scorecard system most often by assigning responsibility for implementing strategy actions or initiatives to individuals (or teams, departments, etc.), where the initiatives are supported by measures that appear on the scorecards of the responsible person (the “responsibility” method). Figure 1 depicts this link. For example, suppose management has set the action “reduce order lead time” in support of the customer-focused process improvements component of the business strategy. The responsible managers would include the sales and production managers. Performance measures might include order lead time and throughput time. These measures would be placed on the scorecards of sales and production managers along with targets and scores based on actual results.

To establish links between this person or group and other areas in the company linked to this strategy, scorecards can be rolled up. In the “roll-up” concept, each scorecard rolls up to the next level to support the organization’s strategy. Approximately a quarter of the organizations using the “responsibility” method also used the “roll-up” method for establishing links. For example, one of several methods for rolling up scorecards is shown in Figure 1. The company could roll up the level A and level B scorecards by incorporating key measures from these scorecards on the overall organization scorecard.

A fifth of the organizations used a second concept, called the “weighting” method, for establishing links. Using this method, weights are established for each component of the framework and for specific measures within each component. The measures support the various strategic objectives and are combined to determine the overall score for the organization. For example, an organization with the framework shown in Figure 1 that has a strong belief in the importance of learning and growth may assign this component a weight of 40% with the remaining 60% allocated to the other three components. Similarly, suppose there were two key performance measures for learning and growth - say, “employee satisfaction score” and “per cent of employees trained in advanced production techniques.” The satisfaction score may be weighted more heavily to reflect management’s belief that this measure is a key driver of strategy.

It’s important to understand the difference between a well-thought-out strategy that is linked to a scorecard system and a collection of scorecards that have been developed with little attempt to tie into strategy. Users of each of these three linking methods achieved greater benefits from their scorecarding systems than those who had no links between their scorecards and their strategy, or who attempted to achieve it in some other way.

An organization implementing a scorecarding system faces numerous implementation decisions. To maximize the success of an implementation, the organization needs to carefully match its vision, mission and strategy with the framework chosen to organize its performance measures. It also needs to consider how this affects the levels of the organization in which it plans to implement scorecarding and the method it will take to accomplish such an implementation. Finally, management should formally link the scorecard system to its strategic business model. By carefully considering all of these factors, an organization can maximize its chances for scorecarding success.

Dr. Raef Lawson and Dr. William Stratton are the supervisors of this study. Dr. Lawson is a professor at the University at Albany, State University of New York. Dr. Stratton is a professor at Pepperdine University. Toby Hatch  is the study coordinator. For further information regarding the study, contact Raef Lawson at Lawson@albany.edu or Bill Stratton at William.Stratton@pepperdine.edu.

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