Balanced Scorecard

REPORT
INSIGHT, EXPERIENCE & IDEAS FOR STRATEGY-FOCUSED ORGANIZATIONS
HARVARD BUSINESS
SCHOOL PUBLISHING

Volume 6, Number 1
January–February 2004

Another exclusive excerpt from Kaplan and Norton’s new book, In This Issue:
Strategy Maps: Translating Intangible Assets to Tangible Outcomes
Case File ........................6
Atlanta-Area School
System Wins High Marks
for Strategic and Academic
Part One of a Two-Part Series Performance
From cafeteria workers to school
Organization Capital: principals, alignment is the mantra
at Fulton County Schools in

Supporting the Change Agenda metropolitan Atlanta. At this

73,000-student, $600 million-budget
school system, the BSC has helped
That Supports Strategy Execution boost student and strategic perform-
ance amid the kind of budget
crunches that have caused many
By Robert S. Kaplan and David P. Norton public schools to falter.
Managing strategy is about managing change. A strategy describes Executive Insight ..........9
how an organization intends to create value for its stakeholders. And Adopting BSC Software:
One Company’s Experience
the strategy map defines and clarifies the logic of this value
To achieve its aim of becoming a
ONBalance creation process: how a customer value proposition will lead
to shareholder rewards, how a set of processes will support
global player, Zagreb, Croatia–based
PLIVA pharmaceuticals adopted
the BSC. Adopting BSC software
this value proposition, and how a set of intangible assets (people and followed. Then–project manager
technology) will enable these processes. But unless the organization Mislav Vucic recounts PLIVA’s
is able to execute the changes described by this logic, the strategy is step-by-step experiences, along
with useful tips about choosing and
worthless. We refer to this ability of the organization to mobilize and managing a BSC software provider.
sustain the process of change required to execute the strategy as New Perspectives ........11
organization capital. Organization capital, along with human capital and Linking Human Capital
information capital, constitutes the intangible assets of an enterprise. to Strategy: The Role of
Philosophy and Values
Organization capital enables integration, so that not only are individual intangible Stanford’s Jeffrey Pfeffer, one of
assets (human and information capital) and tangible assets (physical and financial) the world’s foremost authorities
on organizational behavior, argues
aligned to the strategy, but all are integrated, working together to achieve the organization’s that culture precedes strategy:
strategic objectives. An enterprise with high organization capital has a shared under- employees’ beliefs and attitudes
standing of vision, mission, values, and strategy; is led with strength; has created a allow a company to create the
capabilities that establish its
performance culture around the strategy; and shares knowledge up, down, and across competitive advantage. Human
so that everyone works together and in the same direction. Conversely, an enterprise resources is thus in the driver’s seat.
with low organization capital has failed to communicate its priorities and establish Measurement Corner..13
the new culture. The ability to create positive organization capital is one of the best The State of IT and Business
predictors of successful strategy execution. Alignment — 2003
On one hand, alignment between
Most organizations in our research database of strategy maps and Balanced Scorecards IT and business strategy is generally
identify three to five organization capital objectives in their learning and growth improving. On the other, initiative/
perspective; typical objectives include “build leaders,” “align the workforce,” “share budget mismatch persists. Balanced
Scorecard Collaborative’s director
knowledge,” and “focus on the customer.” But setting these objectives is usually an ad of research analyzes the latest
hoc and intuitive effort. Executives do not have a general framework in which to focus CIO Insight /Balanced Scorecard
their thinking on organizational culture and climate, and, in particular, align it to the Collaborative survey, “How Does
IT Funding Affect Alignment?”
strategy. Yet despite the absence of such a framework and the considerable diversity of
approaches, we have identified important common elements used by most executives. Technology Corner......15
We have synthesized these elements into a new, albeit still exploratory, framework for Timing Your BSC Software
Implementation
describing and measuring organization capital. Picking the right time to automate
your Balanced Scorecard is not
Continued on next page necessarily an easy decision. The
most important determining factor?
Your stage in the BSC life cycle.
Organization capital is typically
built upon four components:
Culture: All employees are aware
of and internalize the mission, vision,
and core values needed to execute
the strategy.
Leadership: Qualified leaders are
available at all levels to mobilize the
organization toward its strategy.
Alignment: Individual, team, and
departmental goals and incentives are
linked to the attainment of strategic
objectives.
Teamwork: Knowledge (with
strategic potential) is shared
throughout organization.
The strategy map describes how a
new strategy requires change, such as
new products, new processes, or new
customers. These changes, in turn,
define new behaviors and values that
are required of the workforce. The
first step in developing an organiza-
tion capital strategy is to define the
organization change agenda implied
by the broader strategy. This change
agenda identifies the shifts in organi-
zation climate necessary to effect
the strategy. Figure 1 summarizes the
typical change agenda that emerges
from our study of the organizations in
our database. The objectives fall into
two categories of behavioral changes:
those required to create value for
customers and shareholders, and
those required to execute the strategy.
Three different kinds of behavior
changes are consistently highlighted
for creating value:
• Focus on the customer
• Be creative and innovative
• Deliver results
Four additional behavior changes are
associated with executing strategy:
Some references in the To Learn More
sections may require readers to join BSC
Online. If you are not yet a member,
we invite you to become one —
membership is free. For details, visit
http://www.bscol.com.
2 publication are the property of their respective owners.
• Understand the mission, vision,
and values
• Create accountability
• Communicate openly
• Work as a team
No one organization has incorporated
all seven of these into its change agenda.
Typically, an organization will identify
two to four of these objectives for its
scorecard. For example, companies
in deregulated industries like utilities
or telecommunications place a heavy
emphasis on becoming customer-
focused and innovative because these
are totally new behaviors for them.
Previously, their culture involved
little more than operating efficiently,
avoiding risks, and negotiating effec-
tively with regulators so that revenues
from their monopoly position would
cover their costs. Pharmaceutical
companies, long driven by functional
and disciplinary capabilities that
supported their innovation strategy,
now strive to become more customer-
focused and to foster teamwork to
share knowledge across the organiza-
tion. Thus, the change agenda identifies
the three or four most important
behavioral changes required for the
new strategy to be implemented.
Using the organization change agenda
as the linkage between strategy and
organization capital, we can examine
Balanced Scorecard Report
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David P. Norton, President, Balanced Scorecard Collaborative
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its four components — culture, lead-
ership, alignment, and teamwork —
in more detail. Here, we focus on
culture; the other components will
be discussed in Part Two.
CULTURE
Culture reflects the predominant atti-
tudes and behaviors that characterize
how a group or organization functions.
“Shaping the culture” is the most
often cited priority in the Learning
and Growth section of our Balanced
Scorecard database. Executives
generally believe that: (1) strategy
requires basic changes in the way
organizations conduct business; (2)
strategy must be executed through
individuals at all levels of the organi-
zation; and, hence, (3) new attitudes
and behaviors — culture — will be
required throughout the workforce
as a prerequisite for these changes.
Culture can be a barrier or an enabler.
Studies have shown that a large per-
centage of mergers and acquisitions
fail to deliver synergies,1 and a prime
reason for this is cultural incompatibility.
Yet a company like Cisco is renowned
for its ability to integrate newly
acquired companies into its culture.
IBM Services and Electronic Data
Systems (EDS) have built large,
successful outsourcing businesses while
assimilating the staff of outsourced
units into their culture. Does culture
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ment and its impact on a changing world.
Balanced Scorecard Collaborative™ is a new kind of professional
services firm dedicated to the worldwide awareness, use,
enhancement, and integrity of the Balanced Scorecard as a
value-added management process. We partner with organizations
to execute strategy, transfer knowledge, and build capabilities to
deliver results fast. Our services include: education (conferences,
seminars, publications), training (public, in-house, certification,
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 January–February 2004

Figure 1. The Organization Change Agenda

Sustained shareholder value

Financial
Productivity strategy Revenue growth strategy
Perspective

Improve Increase Enhance Expand

cost asset customer revenue
structure utilization value opportunities

Customer Customer Value Proposition

Perspective

Price Quality Availability Selection Function- Service Partnership Brand

ality

Product/service attributes Relationship Image

Internal Operations Customer Regulatory and

Process Innovation
management management processes social
Perspective processes processes processes

Processes that Processes that Processes that Processes

produce and enhance create new products that improve
deliver products and customer value and services communication and
services the environment

Human capital

Information capital

ORGANIZATION CHANGE AGENDA

(Define the new behaviors required by the strategy)

Creating value
• Customer-focused: understands the customer/solves the customer’s problems
Creating • Innovative: challenges assumptions/proposes new ways Creating
alignment • Delivers results: produces results for customers and shareholders readiness

Executing strategy
• Understands strategy: understands the mission, vision, values, and strategy
• Accountable: defines direction, targets, and accountability
• Open communications: creates clear communication and feedback
• Teamwork: works across boundaries/shares knowledge

ORGANIZATION CAPITAL
The ability of the organization to mobilize and sustain the process of
change management required to support the strategy

Culture Leadership Alignment Teamwork

This change agenda — typical of the organizations in our research database — shows two types of behavioral change objectives:
those needed to create customer and shareholder value, and those required to execute the strategy.

dictate strategy, or does strategy dictate
culture? We believe it’s the latter. In
the case of companies such as Cisco,
IBM, and EDS, the ability to assimilate
new organizations into the company
culture is clearly an asset for their
growth strategies. Most strategies,
however, are not about assimilating
newly acquired organizations into an
existing culture. They require dramatic
changes in a company’s existing the early 1990s. With the telecom
culture. The leadership team must industry undergoing deregulation, the
introduce new attitudes and behaviors parent company had converted IMS
in all employees for the new strategy from a cost center to a profit center.
to be successful. Virtually overnight, IMS had to trans-
form itself from the captive supplier
Consider the experience of Information
of a monopoly customer in a regulated
Management Services (IMS), the
industry — where cost increases
internal IT department of a major
could be recovered through higher
telecommunications company in
Continued on next page

3
rates — to a freestanding unit that these changes were accompanied cultures, though, employees must
would be customer-focused and by the cultural shifts entailed in remain focused on customers and
market-competitive, competing for transforming from captive supplier how the value propositions they
external as well as internal customers. to profit-seeking entrepreneur, the create and deliver add value to
Long-standing culture, values, and strategy was doomed to fail. targeted customers.
management approaches had in an
Matching Change Objectives Innovation/risk-taking objectives
instant become obsolete. Moreover,
to the Strategy send a message to the workforce
this radical cultural transformation
that it’s OK to challenge the status
had to occur in the midst of a techno-
We have seen many organizations quo. Organizations C and D, both
logical disruption, one that had
embark on a cultural shift as dramatic deregulated utilities, used words
shifted the platform for information
as that faced by IMS. Among the like “entrepreneur,” “innovation,” and
technology from centralized, main-
most common cultural change objectives “creativity” to stress the behaviors
frame-based services to distributed,
is customer focus. It is also the required in their new world.
mobile client-server computing.
most frequently identified change
And customers had changed, too; Organizations introducing share-
at service companies — telecommu-
now they were looking to their IT holder value programs want a culture
nications, financial, healthcare,
supplier for solutions, not merely focused on results. Organization E,
transportation, energy, and utilities
new technology. a chemicals company, wanted to shift
organizations — that began competing
its employees from an engineering
In the past, IMS could recover its in deregulated environments. Employees
culture to one that could apply
costs through overhead allocations had to learn that customers, not
technology to deliver financial results.
imposed by the corporate parent on regulators, create value. Organization A,
Organization F, another newly
its operating divisions. Now IMS had a regional health plan, attempted to
deregulated utility, used the phrase
to earn profits and acquire business create a customer-centric culture for
“produce results” to signal that the
based on competitive fees, respon- executives by emphasizing “time
measure of success had changed.
spent by lead-
ership with Understanding mission and strategy
The beauty…of the Balanced Scorecard is that customers.” is an important objective for organi-
the act of measurement forces somewhat Front-line zations of functional specialists
vague and ambiguous concepts such as culture employees who must strike a balance between
and climate to be defined more precisely. were already maintaining excellence within their
close to cus- silos while simultaneously integrating
siveness, and value-added services for tomers, but executives also needed to with other parts of the enterprise.
customers. A new culture of results spend time with customers if they Organization G, a health plan,
delivery had to be established. The were to become more effective leaders. wanted to improve performance
implications for cultural change were Organization B, a regional bank,wanted by more closely integrating its
obvious and dramatic. The new IMS its employees to become solutions- medical staff with its administrative
could no longer view its customers as oriented, not transaction-oriented, so staff. Organization H, a professional
“captives.” It had to compete against that they could build closer consulting services firm, had its technology
companies such as EDS, Accenture, relations with targeted customers. group introduce innovative Web-based
and IBM by convincing customers, consulting services that appeared,
While customer focus would seem
internal and external, that it was the on the surface, to threaten the com-
most appropriate for companies shifting
preferred knowledgeable partner. pany’s consultants, who had grown
to a total customer solutions strategy,
IMS had to shift from measuring accustomed to delivering results
we have also seen objectives that
success by delivering system enhance- only through face-to-face interactions
relate to other strategies. For example,
ments on budget and on schedule with clients.
companies competing on consistency
to becoming an action-oriented,
and reliability will likely want to Accountability plays an important
entrepreneurial, and knowledgeable
establish a culture of quality and role in organizations that historically
partner with its customers, helping
continuous improvement. A culture have been internally focused or highly
them get bottom-line benefits from
of continuous cost reduction would regulated and then must become
IT solutions. These new attitudes and
be relevant for companies competing customer- and market-focused.
behaviors were fundamental to the
on low total cost, especially with Organization I is a manufacturing
success of the strategy. IMS would
nondifferentiated products. And company with international customers
have to introduce many changes
companies striving to maintain and a global network of manufacturing
to make this strategy happen. New
product leadership want to establish plants and suppliers. Formerly, I had
technologies, new processes, and
a culture of creativity and product defined executive responsibilities by
new skills were required. But unless
innovation. Even with these alternative function and used cost-based transfer

4

prices to measure success for manu-
facturing units along the supply chain.
No one was accountable for end-to-
end profitability and performance. I’s
new strategy simplified the organization,
provided more sourcing and buying
discretion, and measured the per-
formance of each unit with market-
based prices for inputs and outputs.
Open communications is an
important objective for strategies
that require a high degree of integra-
tion. Organization J, a pharmaceutical
company, was attempting to accelerate
the flow of knowledge and market-
place experience from its commercial
division to its product development
group.
Teamwork is important on the
change agenda when a strategy
redefines the role of different units.
Organization K, a multidivisional
manufacturing company with many
stand-alone brands, wanted to create
synergy among these brands through
more marketplace integration. The
term “dual citizenship” communicates
the simultaneous role for a distinct
brand to also be part of a corporate
image. Organization L used the
mantra “one team, one dream” to
show how different branch offices,
with somewhat different local objec-
tives, still contributed to the success
of the global corporate strategy.
Measuring Culture
Measurement of cultural values relies
heavily on employee surveys. The
beauty — but also the complexity —
of the Balanced Scorecard is that the
act of measurement forces somewhat
vague and ambiguous concepts such
as culture and climate to be defined
more precisely.
Organizational behavior expert
Charles O’Reilly and his colleagues
have developed a measurement
instrument, the Organizational
Culture Profile (OCP)2 that contains a
set of statements that describe possible
values of an organization. Employees
are asked to rank 54 value statements
according to their perceived importance
and relevance in the organization. From
these rankings an organization’s
culture can be mapped, with an
acceptable degree of reliability and
validity, into eight independent factors:
• Innovation and risk taking
• Attention to detail
• Results-focused
• Aggressiveness and competitiveness
• Supportiveness [of the
individual employee]
• Growth and rewards
• Collaboration and teamwork
• Decisiveness
The OCP statements are based on
norms, people’s expectations about
specific attitudes and behaviors. They
ask people to respond to questions
such as, “What does it really take to
get ahead?” and “What are the unwritten
rules around here?” A consensus
within a unit or organization on the
responses represents the culture of
the unit. The organization can assess
whether the culture is consistent with
its strategy. A lack of consensus
reflects a lack of a common culture.
Different cultures may be required
in different parts of the organization.
The culture within the R&D group
should be different from that of the
manufacturing group; an emergent
business unit should have a different
culture from that of a mature business
unit. Variations from norms are
desirable, depending on function
and business strategy. But executives
likely will want organization-wide
agreement around such values as
integrity, respect, and treatment of
employees. These are the markers
of the corporatewide culture.
The existence of an instrument like
the OCP indicates that culture has
now become a measurable construct.
But instruments like the OCP have
been influenced by a psychology
literature that stresses constructs such
as motivation and climate. Since the
strategy literature has not perceived
culture as being essential for effective
strategy implementation, none of the
existing instruments that measure
culture capture individuals’ beliefs
January–February 2004
and understanding of the strategy.
To align the culture dimension more
closely to an organization’s strategy,
rather than just its way of conducting
its day-to-day business, the value
statements in an OCP-type instrument
should be modified to allow employees
to evaluate a company on the dimen-
sions identified here, including the value
proposition underlying the strategy.
We have suggested possibilities such
as whether the culture is primarily
about continuous improvement and
quality programs, or creativity and
innovation, or a deep understanding
of individual customers’ preferences
and needs. Developing improved
instruments for measuring culture
along dimensions relevant to the
strategy is clearly an opportunity for
further work.3 Alternatively, organiza-
tions will have to develop and rely on
ad hoc questionnaires of their own to
measure this important dimension.
The Foremost Change Agent
Culture is the foremost factor influ-
encing an organization’s ability to
change. Thus, culture must be tailored
to support the strategy. Different
strategies call for different values:
new ways of working with customers,
peers, the chain of command, suppliers,
regulators, and so on. To successfully
execute strategy, an organization
must be clear about the new values
it requires — and must ensure that
they are adopted.
In Part Two, we will describe how
leadership, alignment, and teamwork
are similarly managed to create
positive organization capital.
1
S. Chaudhuri and B. Tabrizi, “Capturing
the Real Value in High-Tech Acquisitions,”
Harvard Business Review
(September–October 1999).
2
C. O’Reilly, J. Chatman, and D. Caldwell,
“People and Organizational Culture: A Profile
Comparison Approach to Assessing Person-
Organization Fit,” Academy of Management
Journal (September 1991).
3
For example, see the approaches available
at ThinkShed (www.thinkshed.com), which
draws upon the scholarly work of O’Reilly,
Chatman, and Caldwell.
Reprint #B0401A
5
CASEFile
Processes, Staff Learning and
Atlanta-Area School System Growth, and Financial Performance.
Wins High Marks for Strategic (See Figure 1.) The draft BSC was
then presented to the school board.
and Academic Performance “The board really embraced it,”
says Greenway, “because their
By Judith Ross, Contributing Writer constituents — parents and community
members, particularly those with
Reeling from revenue shortfalls, school systems nationwide private sector experience — gave
are being forced to cut programs and beg taxpayers to open them a lot of positive feedback. Even
their wallets again and again. Not Fulton County Schools. your typical PTA [Parent-Teacher
The metropolitan Atlanta-area school system has continued to Association] mom liked it because
improve its students’ performance year after year. By boosting she could see data about where we
accountability among employees and fostering partnerships are and where we are trying to go.”
with local business, the Balanced Scorecard has enabled
The result has been a Balanced
Fulton County to keep costs down without eliminating crucial
Scorecard loaded with details —
programs — thus fulfilling its mission to “educate students to possibly too many, Greenway admits.
be responsible, productive citizens.” Its success won it a place Performance measures under each
in the 2003 BSC Hall of Fame. objective cover a wide territory,
Educating youth may well be one of UPS, a longtime BSC user,1 told including many grade levels, subjects,
the world’s most important businesses, Fulton County executives about his student groups, staff types, and
yet we don’t usually think of a school company’s success with the BSC, operational processes. As elected
system as a business. In fact, with 83 they found their answer to aligning officials, school board members
schools, 9,500 employees, 73,000 strategy with system needs and can’t easily get formal consensus to
students, and a $600 million budget, measuring improvement. eliminate or prioritize items on the
Fulton County School System is systemwide scorecard. “They would
the mirror image of big business. Defining Goals prefer not to go on record as saying
Encompassing an 80-mile area out- that one thing is less important than
Translating the Balanced Scorecard another because they risk disenfran-
side of Atlanta, the system’s student
model to public sector and nonprofit chising some constituency,” says
population is racially, ethnically, and
organizations, with their unique Greenway. So with verbal input from
economically diverse, with 56% from
challenges, can often be difficult. the board, the administrative cabinet
minority or multiracial backgrounds
Fulton County Schools had the defines that focus for itself during the
and up to 50 countries represented
advantage of an “old hand” on its annual planning and budget process.
in some individual schools. The
staff to help implement the program.
number of students for whom English The BSC has nevertheless been a
Martha Taylor Greenway, chief plan-
is a second language has increased powerful tool for the board in setting
ning and communications officer,
85% in recent years. The enormous the direction for the school system.
had worked with scorecard cocreator
challenges posed by its size and When principals feel a particular
Robert S. Kaplan on the United Way’s
diversity prompted Fulton County target is too ambitious, given other
Balanced Scorecard before joining
Schools to adopt the Balanced imperatives — say, increasing the
Fulton County Schools.
Scorecard in 2000. pass rate while simultaneously putting
In leading Fulton County Schools’ more students into advanced-placement
Previously, Fulton County followed
BSC development, Greenway worked classes — Greenway suggests that
a bottom-up management approach,
with the system’s administrative they attend a board meeting to hear
in which each individual school’s
cabinet, made up of the school super- the debate. By witnessing the board’s
priorities were aggregated to deter-
intendent and division managers. passion about these daunting goals,
mine systemwide goals. Often these
Initially, the cabinet debated where principals gain a greater understanding
goals were not measurable. The school
on the strategy map to place “student of their importance and return to
system then adopted a management
achievement”: Should it be in the school with newfound motivation.
approach based on the Malcolm
customer quadrant, or should it “They become enlightened to the
Baldrige Award criteria. Fulton
replace the financial perspective? board’s point of view that not only
County executives became frustrated
In the end, the group devised five are we going to get more students
when this move yielded no systemic,
goal areas, or perspectives: Student taking advanced-placement [classes],
integrated efforts linked to clearly
Achievement, Customer and we are going to get more minority
defined performance improvements.
Stakeholder Involvement and students in those classes and we are
When Fulton County Chamber of
Satisfaction, Efficient and Effective going to continue to get high pass
Commerce member Mike Brown, of
Instructional and Administrative
6

Figure 1. The Fulton County School System Strategy Map
Student
Achievement
curriculum
Customer
and Stakeholder
School climate
is safe and
Involvement and
Satisfaction
enriching
Efficient and
Effective Instructional Instruction Transportation
and Administrative
Processes
is effective is safe
and efficient
Staff Learning
& Growth
competent
Financial
Performance
Fulton County Schools’ administrative cabinet debated whether
student achievement should be in the customer or the financial perspective,
ultimately positioning it at the top of its strategy map.
rates,” she says. That kind of
commitment from the top has been
the driving force behind ensuring
Fulton County’s schools carry out
their BSC objectives.
Top-to-Bottom Accountability
With the board’s strong support,
Greenway’s administrative team
began communicating the BSC to
local schools and departments within
months of adoption. After giving
several presentations around the
county, the team soon realized that
the message would be much stronger
coming from each school’s principal.
They provided principals with a
presentation deck and script so that
they could educate their teachers and
staff — as well as interested parents
and themselves — about the program.
To create its own scorecard, each
local school selects a team of staff
and is assigned a system-level
review team that is charged with
Students
master
Students
are nationally
competitive
Parents are
involved
Community
is involved
and has a positive
and satisfied
perception
Facilities are Resources are
in place for the first
safe and well
maintained day of school
have nutritious
Staff are
Teachers and
other employees
are satisfied
Sound fiscal
management
creating school-specific goals that
align with the systemwide BSC.
BSC designs vary from school to
school, but some best practices are
emerging. For example, one school
crafted a BSC for each grade; teach-
ers use the BSCs in staff meetings
to discuss each grade’s progress.
Some of the high schools have broken
their BSC down by academic area,
allowing the English department to
track different measures than the
math department. Still other schools
have developed metrics around areas
like high-order thinking skills or
citizenship that cut across a variety of
academic areas but are interpreted
and tracked differently by each
department. Regardless of the score-
card design, every school BSC offers
richer data than ever before available
that shows teachers if their students
are making the grade.
Fulton County’s BSC doesn’t just hold
teachers accountable for promoting
January–February 2004
student achievement; all staff, from
cabinet members and principals to
secretaries and custodians, are evalu-
ated against their BSC measures.
Students who arrive at school safely
and on time will perform better;
school bus drivers are thus measured
according to their number of days
without a preventable accident and
their percentage of on-time “deliveries.”
These results are posted each day
at the transportation centers where
drivers report. And since well-nourished
students perform better, school
cafeteria managers are incentivized
based upon their “participation” rate
Students
— whether students are eating their
meals food — and the meals they serve per
labor hour.
Being Strategic on a
Reduced Budget
In five years, SAT scores have gone
from meeting the national average to
exceeding it by 23 points. Of all Fulton
County high school graduates, 89%
have taken the SAT (a 2% increase
over the pre-BSC number), compared
with only 48% nationally. The ele-
mentary and middle schools have
increased their scores by five points
annually on the state’s criterion-
referenced test, which assesses mastery
of the state’s curriculum objectives in
each grade and subject. With students
doing well, parents are also happy: 82%
of those surveyed show a high level of
satisfaction with their schools, com-
pared with the national average of 68%.
The teacher attrition rate, one of the
systemwide BSC measures, is declining.
The BSC has also helped the school
system build new schools on time
and on budget, as well as reduce
administrative costs. Like most school
systems, Fulton County has had to
do more with less; with enrollments
growing every year, the system has
had to make significant budget reduc-
tions. As an integral part of the system’s
budgeting process, the BSC helps the
school board decide which programs
to eliminate — and which to retain.
“It’s a lot easier to say you are being
strategic when you are getting more
Continued on next page
7
money every year,” asserts Greenway. and many parents have already heard
“What really forces you to put the presentation from their children’s A Mixed Report Card for
your money where your mouth is school principal. One key to success Financial Incentives
is when you have to cut. For example, is the emphasis on local BSC imple-
The superintendent of Fulton
research shows that students who mentations. “What really gets teachers
County Schools and his direct
participate in extracurricular activitiesengaged is when they can see, for reports receive bonuses that are
instance, how directly tied to their BSC perform-
their own ance targets. Employees receive a
“Having the BSC in place — showing our
learning and bonus if their school meets a certain
numeric targets and our accomplishments
growth ties proportion of its BSC targets, with
within each goal area — bought us a lot of
into finding teachers, counselors, and social
credibility with the business sector. They
better ways workers winning a bigger cut than
actually went out and campaigned on our behalf secretaries, cafeteria workers, and
to instruct
for the sales tax increase.” custodial staff. The school-level
their increasing
number of incentives are largely based on testing
data, but they were discontinued
do better in school. The Fulton non-English-speaking students,”
in 2003 because Georgia tested
County school board has therefore notes Greenway. fewer grades on fewer subjects
continued to fund buses to transport than expected, thus shortchanging
Plenty of work remains to be done.
students home from after-school schools on the necessary data.
Greenway would like to see better
activities. At the school level, money
monitoring of new educational While the financial incentives
is allocated more strategically.
programs, whose sheer number “makes have given the BSC traction, chief
Principals refer to their school’s
strategy somewhat difficult to man- planning and communications
BSC when deciding whether to use officer Martha Greenway concedes
age.” Another hoped-for improvement:
discretionary funds to hire a reading they receive mixed reactions from
obtaining data, in particular, student
specialist or institute a new program participants. Financial awards are
performance numbers, sooner. To
for non-English-speaking students. public information. “Everybody
that end, the school system plans to
knew who got what — parents,
What’s more, in 2002, voters reapproved purchase a new electronic assessment
the community, teachers in other
another five-year, one-cent sales system using funds formerly allocated schools, even your neighbors. There
tax on every dollar spent locally; the to another testing program that the was a real concern that if your
additional revenue goes toward new BSC helped eliminate. This program school didn’t make it, it would be
school construction. Notes Greenway: will enable schools to give tests viewed as a bad school or you
“Having the BSC in place — showing comparable to the state assessment would be viewed as a bad teacher.”
our numeric targets and our accom- tests at interim periods, score them
Greenway also found that the
plishments within each goal area — electronically, and have the data in program put her staff in the
bought us a lot of credibility with the teachers’ hands within two weeks. uncomfortable position of deciding
business sector. They actually went out “This new systemwide tool will who was rewarded and who was
and campaigned on our behalf for the support discussion and review at the not. “Instead of being consultants
sales-tax increase.” Throughout the teacher level against the goals in our and supporters of quality school
system, new synergies have emerged. BSC,” says Greenway. strategic planning, we became
One high-performing middle school the judges of whether or not you
Finally, there is an initiative afoot followed the rules to get the money.”
offered to share its Teacher of the Year
to create cluster scorecards that Whether or not the financial incen-
with a lower-performing school on
encompass the aggregate work of a tives are reinstated, Greenway
the other side of the county. Else-
high school and its feeder elementary believes that Fulton County school
where, the BSC revealed that math
and middle schools. “Such a regional employees are firmly committed
achievement was the main weakness
BSC,” contends Greenway, “would be to the Balanced Scorecard. “They
in one school cluster. In response, the see the benefit of the program to
very powerful.” Talk about alignment
high school and its feeder middle and their school,” she says.
from A to Z.
elementary schools teamed up to bring
1
in outside experts for help in improving See “United Parcel Service: The Balanced
math instruction for students in every Scorecard Delivers the Goods for a Company
on the Move,” BSR March–April 2000 public school system, is profiled
grade level.
(Reprint #B0003B). in “Boosting Performance and
In three years, the BSC has truly Accountability with the BSC,” BSR
become embedded in the way Fulton To Learn More May–June 2003 (Reprint #B0305B).
County schools conduct their business.
Community awareness is high: people The Texas Education Agency, in Reprint #B0401B
refer to the BSC in their conversations, charge of the nation’s second-largest

8
EXECUTIVEInsight January–February 2004

extensive Internet searches, read

Adopting BSC Software: articles, and used Gartner Group’s
One Company’s Experience database and the Cranfield School
of Management Balanced Scorecard
An interview with Mislav Vucic, former project manager, strategy group, PLIVA; Software Report. We interviewed our
adapted from his remarks at the Balanced Scorecard Collaborative’s 2003 managing board and senior managers
European Summit to determine their requirements. We
By Avery Hunt, Contributing Writer chose 10 software vendors, homing
in on four to give live presentations,
Communism collapses. Your country’s breakup causes the with people from our various business
domestic population to plummet from 25 million to 4 million. units present to weigh in. We chose
Your main export market — the Soviet Union — dissolves. That between two and, in the end, had a
was the situation PLIVA faced 12 years ago. And for the largest strong consensus about the winner.
diversified healthcare company in central and eastern Europe, The whole process took about six
the region represented too limited a market. To achieve its vision months, which was plenty of time for
of expanding globally, PLIVA decided five years ago to focus sufficient evaluation.
solely on pharmaceuticals. In late 1999, PLIVA adopted the BSR: What tips would you offer
Balanced Scorecard; in 2002, the company automated it; and by anyone selecting a software provider?
2003, PLIVA was named to the BSC Hall of Fame. Then–project
MV: First, get them involved while
manager Mislav Vucic, charged with vendor management and
you’re still researching, so that they
software implementation, recounts PLIVA’s experience. will have a clear idea of what you
want to achieve and how you want to
BSR: Why did PLIVA adopt the asked marketing and sales to develop
get there. Bear in mind that vendors
Balanced Scorecard? sales forecasts and R&D to come
tend to have a “team A to team B”
up with new product timelines.
Mislav Vucic: Our main purpose approach. Salespeople (their team A)
That provided a reality check for
was to align all our employees will promise everything and insist
these targets. Once everyone agreed
with our strategy, something we their application can do anything you
on them, they become actionable.
had been struggling with. Today, can imagine. But when you start the
three years after we began imple- BSR: How tough was it to find actual implementation, you’ll be
menting the BSC, we find, based the right software provider? working with the technical people
on extensive employee surveys, that What were you looking for? (team B), who will tell you that half
75% understand our strategy and the things the salespeople promised
MV: Top management wanted a
their role within it. are not really possible. So be sure up
software application that provided
front that the vendor can do what they
We created successful buy-in through a comprehensive overview of the
say they can.
an intensive top-down, bottom-up business along with the ability to
Continued on next page
dialogue. At the top, we analyzed identify cause-and-effect links and
all the factors affecting performance, drill down to the roots of perform-
from internal concerns (like R&D, ance. They also wanted something At a Glance
our financial health, deploying people very easy to use, where they could PLIVA
in the best way) to external risks simply click to get color-coded Zagreb, Croatia
(such as the industry outlook). Then, results — easy enough, as one soft- Established: 1921
our management board (our operating ware company wag quipped, “for • Largest drug company in central
executives and president) proposed even a manager to understand.” and eastern Europe
long-range strategic objectives, with > Revenues: $815 million (2002),
We also needed a scalable application
four or five targets around revenues, $520 million (first half of 2003)
that everyone could use. (We had
profitability, and new products, all of > International sales share growth:
a total of 15 scorecards at the time,
which were cascaded to the business 47% to 84% (1997–2002)
counting BSCs for key support
units. On an operational level, the
functions like quality assurance and • Blockbuster product: Azithromycin,
board identified specific objectives in currently the biggest-selling
HR.) And finally, we had to connect
a shorter, one- to three-year horizon. antibiotic in the world
and integrate the scorecard with our
From the bottom, all the business units
management portal. • Listed on Zagreb and London
reviewed those goals, developed stock exchanges since 1996
their own related business strategies, BSR: With those criteria in mind,
and came back to the board with how did you go about looking? • Adopted BSC: 1999
achievable plans. Next came the • Named to BSC Hall of Fame: 2003
MV: The initial research was done
negotiation phase — balancing targets
by our core selection team (strategy,
against realities. Each division head
finance, and IT executives). We did 9
Also, of course, specify functionality,
deliverables, and responsibilities in your
contract. And make sure you have
all the details from the provider about
their post-implementation support.
That was key for us because not
all vendors have a local presence in
Croatia, and we wanted assurances that
we would get timely support for any
application problem.
BSR: How did you determine
the best approach to working with
your provider?
MV: We needed to balance time and
cost. Usually, the most efficient way
is to let your provider come in, do
all the work, and then leave. On the
other side of that equation is what I
call “intimacy,” where your organization outputs with the management portal
does a lot of the work and is heavily
“Understand that you are undertaking a
business project, not an IT project.… You need
your own philosophy of what you want to do
with the scorecard and then select the soft-
ware to make that happen.”
engaged throughout the implementa-
tion. Both approaches have their
pros and cons.
If you go for efficiency, you will
probably find that at the end of
the project, your implementation
team has a low level of competence
and confidence about the tool
itself. Consequently, it will be
tougher to evaluate your vendor’s
claims about your requests — for
example, whether you need changes
or whether your software lacks com-
patibility with another information
system. In addition, any changes you
may want to make later on would
require a renewed engagement with
the supplier.
On the other hand, if you go for
“intimacy,” you will initially lose
efficiency because you’re starting
from scratch, versus your supplier,
who has done many such implemen-
tations. You will also have frequent
changes of scope; people will start
suggesting new functionalities to add
10
to the original setup. That may lead
to delays and increased costs.
BSR: Which route did PLIVA choose?
MV: A little of both. We let our supplier
do almost all the basic work in the
initial phases of the implementation.
We increased our involvement toward
the end of the building phase to
understand how the system was being
structured and where the data came
from. Since the BSC application stores
information — hierarchy, structure,
reports, links between objectives —
in its own database, and since man-
agement is only accessing HTML
pages (outputs), we had to know how
to publish these pages. We took the
lead in the next steps, such as integrating
and linking them to an enterprise
resource plan-
ning system.
So we used
our supplier’s
efficiency in
the beginning
and acquired
our own knowl-
edge in later
phases. Now if we need to make
changes — and management always
wants to sooner or later — we won’t
necessarily have to engage the vendor
again.
BSR: How did your implementation
work in practice?
MV: We had 16 “power users” —
people from each business unit
who were trained thoroughly on the
application’s actual implementation.
Our provider was off-site, setting
up the initial structure. Before we
started, we sketched out strategy
maps, KPI [key performance indicator]
definitions, historic data, and the
targets, and sent those files to our
provider to help build the initial
application structure before coming
on-site. Then the provider came in,
and over an intensive 15-day period,
we built the strategy maps, scorecards,
and everything else. At that point, we
allowed ourselves about four weeks
to “digest” what we had built.
In the next phase, we called our
provider back in to help evaluate our
approach and sort out problems that
had come up. Most important, we
wanted help in creating an additional,
nonstandard BSC way of reporting —
by process. Specifically, we wanted a
scorecard for our new product devel-
opment (NPD) process, which required
collecting data for several different
KPIs from a number of different
units, from marketing to R&D to
sales. Then, in phase three, we did
some polishing and linking to our
management portal.
BSR: Based on your successful
experience, do you have any advice
for others?
MV: Be specific up front about your
user requirements. You can select a
great application and implement it
perfectly, but if the top people don’t
like what they see (for one, if there
are no colors!), they will not be happy.
If they’re not happy, the project
hasn’t succeeded.
Probably most important: understand
that you are undertaking a business
project, not an IT project. Although
we had IT people on our selection
and implementation teams, they did
not run the project or have final say
on our software selection. Why?
Because you don’t want your Balanced
Scorecard system dictated by the
available technology. You need your
own philosophy of what you want to
do with the scorecard and then select
the software to make that happen.
Also, clearly articulate your expectations
to your provider. Be specific from the
start about what you want: how many
scorecards, their mutual relationship,
the look and feel of the output, which
systems to link, security features and
policies, and whether or not you want
a Web-based solution. Establish efficient
communication channels with your
provider. Include “escalation” contacts,
so if you’re not satisfied, you know
who to call up the hierarchy to get
things done.
And finally, assess results at the end
of each phase to make sure you’re on
track throughout the process.
Reprint #B0401C
NEWPerspectives January–February 2004

Employee-Friendly Companies
Linking Human Capital Reap Financial Rewards
to Strategy: The Role of Companies like Southwest Airlines,
SAS Institute, and Whole Foods
Philosophy and Values Market actively combat employee
Adapted from a presentation by Dr. Jeffrey Pfeffer, the Thomas D. Dee II turnover and generally believe in
Professor of Organizational Behavior in the Graduate School of Business taking care of their employees. These
at Stanford University, at the Balanced Scorecard Collaborative’s Human companies focus on values and
Capital Summit 2003. philosophy as a means to financial
success. The traditional theory of
By Katherine Kane, Contributing Writer improving efficiency may be to
cut costs or benchmark, but rarely
Strategic human resources might sound like an has a company redefined industry
oxymoron to some, but not to Jeffrey Pfeffer. Pfeffer, performance in this way. Exceptional
one of the world’s leading experts on organizational returns cannot be benchmarked.
behavior and author of 10 books, including Hidden Benchmarking leads to middle-of-
Value: How Great Companies Achieve Extraordinary the-pack performance; to get to the
Results with Ordinary People (cowritten with Charles top, companies must defy conven-
Jeffrey Pfeffer
O’Reilly), has spent years studying the impact that tional wisdom. When companies take
engaged employees can have on a company’s bottom line. What care of their employees, employees,
he discovered is a strong relationship between human resource in turn, take better care of customers.
management practices and competitive advantage. Strategy is defined by the employees’
capabilities and their performance,
Companies rarely think about the role human resources is positioned to aligned with the corporate mission.
of human resources and core values guide the development and direction Men’s Wearhouse, the men’s clothing
in building competitive advantage. of employees, thus ultimately defining chain, serves as an excellent case
Often, the company sets strategy and building strategy. The human study of the merits of linking strategy
first — such as low cost, technical resources function can help senior to people management. Retail is a
leader, first-to-market, top in customer managers understand their implicit difficult and competitive industry;
service — and then defines the core and explicit
competencies needed to execute that mental models
Several of the most well-known and well-
strategy. At that point, the company of the business.
regarded companies have upheld human capital
determines the management practices Thus, strategy
as their most important and dominant value,
to execute the strategy — out of springs from
and have become industry leaders as a result.
which emerges its corporate philosophy. values and
Stanford’s Jeffrey Pfeffer suggests an beliefs, not the
alternative and truly progressive other way around. Human resources profit margins are thin, and the industry
approach to aligning human resources can — and should — drive strategy. isn’t known for valuing employees.
management and strategy. His Wages are low, benefits are scarce,
Pfeffer adheres to the belief that
approach begins with a company’s and turnover is enormous. Training
one of the most important means of
core values. By starting with the is minimal, typically focused on basic
building sustainable competitive
philosophy, from which it implements operations such as ringing up sales.
advantage is creating a strategy that
consistent management practices to Customer service thus suffers. Men’s
cannot be easily duplicated. Culture,
build supporting capabilities, a company Wearhouse stands apart in its industry
philosophy, and values are intangible
can break out of the crowd and achieve
assets that are impossible to re-create by putting its employees first. Its
status as an industry leader. Beliefs CEO, George Zimmer, explains that
in another environment. Several
and attitudes actually allow a company the company is actually in the people
of the most well-known and well-
to create the capabilities that establish business, not the suit business. The
regarded companies have upheld
a distinct competitive advantage.
human capital as their most important company focuses on operations rather
Historically, human resources has and dominant value, and have than on selling, pays more than
been viewed not as a strategic function, become industry leaders as a result. average, uses almost no part-timers,
but as a supporting, almost adminis- This is consistent with a resource- and provides extensive training and
trative entity. Yet it is the people in based view of competitive strategy: culture-building activities. The strategy
any organization, with their values a sustainable source of competitive has paid off considerably.
and beliefs, who determine and advantage comes from that which Continued on next page
execute strategy. In Pfeffer’s view, cannot be imitated or copied.

11
The philosophy at Men’s Wearhouse approach to its business and, breaks down corporate strategy in
is to uncover the untapped human ultimately, to become an industry such a way that it determines what
potential within every employee. The innovator. values are necessary to make the
company lives by a set of predetermined strategy work. Most importantly,
values visible in its management Where Should a Company Begin? Pfeffer believes, through the
practices. Developing people is Balanced Scorecard, a company can
Pfeffer advocates hiring employees
considered the number-one priority. define its corporate culture and its
on the basis of cultural fit rather
(Wardrobe consultants attend “Suits impact on performance and strategy
than simply on skills. Invest in people
University,” and there are annual execution.
and their development over time.
retreats in Monterey Bay, Calif., for
When economic times are at their Senior managers must be the “keepers
store managers and assistant store
worst, the companies that don’t cut of the culture,” Pfeffer advises.
managers.) Employee benefits even
important training programs are often The most significant organizational
include low- or no-interest loans.
the ones that succeed over the long change comes from altering paradigms
Employee care translates into com-
term. Pfeffer also recommends prac- of typical corporate strategy and
pany respect for individuals. Without
ticing open-book management. To management. Providing actual evidence
any electronic surveillance, Men’s
perform well, employees must know of management practices’ effective-
Wearhouse has among the lowest
about their organization and their role ness helps a company realize that
employee theft rate in the retail
in it. Team-based practices and systems, human capital really does affect the
industry. By putting culture at the
such as using bottom line. People are any organiza-
group bonuses tion’s most important asset; while
and letting they embody its values and philosophy,
For most companies, determining core values teams do they also foster change in its values,
before framing the strategy is unfamiliar territory. “management” assumptions, and philosophies. By
Values provide the company with a purpose, and tasks such as granting individuals the opportunity
a logical management strategy naturally follows. assigning work to think differently about themselves,
and redesigning their company, and their leadership,
work processes, an organization can begin to close
forefront of its business objectives,
are also critical for aligning people the gap between its current and
Men’s Wearhouse has given its
with strategy because they reflect the future desired state. And by allowing
employees a common mission and
impact of the employees’ contributions. human capital to lead, not just support,
purpose: providing men with a
And a sense of comradeship among strategy execution, companies can
service-oriented, efficient shopping
employees, promoted through com- redefine not merely their own per-
experience. These relate directly to
mon goals, is a proven way to keep formance, but their industry landscape
the success of the company. From
employees performing at a high level. as well.
1995 to 2000, revenues grew at a
30% compounded annual rate — Fear should never impede performance To Learn More
impressive in any industry, particularly or risk taking. Fostering a culture
when sustained over a five-year period. where employees feel safe to take Three noteworthy books by Jeffrey
The company is the dominant tailored the initiative will result in higher Pfeffer are: The Human Equation:
men’s clothing retailer today because its productivity; employees will be freer Building Profits by Putting People
value proposition is not just about low to learn from their mistakes and more First, Harvard Business School
prices, but about customer experience. likely to come up with new ideas Press, 1998; The Knowing-Doing
for efficiency. Gap: How Smart Companies Turn
The model that Men’s Wearhouse
Knowledge into Action (coauthored
follows is, Pfeffer points out, trans- The Balanced Scorecard is critical to
by Robert Sutton), Harvard Business
ferable to any industry. It starts with managing both strategy and people
School Press, 2000; and Hidden
a goal — in this case, to develop its because it enables a conversation
Value: How Great Companies
people — then follows with aligning and provides a common language
Achieve Extraordinary Results with
its management practices. For most for management practices. Words
Ordinary People (with Charles
companies, determining core values affect how we think, and they allow
O’Reilly), Harvard Business School
before framing the strategy is unfamil- implicit assumptions to be uncovered
Press, 2000.
iar territory. In Pfeffer’s view, values in explicit ways. The Balanced
provide the company with a purpose, Scorecard highlights the underlying Reprint #B0401D
and a logical management strategy philosophies and values in an organi-
naturally follows. zation. It shows what beliefs and
attitudes are valued and reflects the
Beginning with values permits the
organization’s focus. The scorecard
company to operate using a unique

12
MEASUREMENTCorner January–February 2004

Should IT expenditures achieve top-

The State of IT and line growth or bottom-line savings?
Business Alignment — 2003 The two groups’ views are not
notably different. For about one-third
By Randall H. Russell, Director of Research, Balanced Scorecard Collaborative of respondents in each group, top-line
growth is the goal. Two-thirds of
Alignment between information technology and business all respondents believe bottom-line
strategy is a perennial topic of interest — and strategic bogey — results are the goal. Again, the
within the IT community. Part of the challenge in closing the IT group may be feeling more of
chronic alignment gap is helping business executives understand a budget-allocation pinch.
the strategic value that IT can provide. In a year in which one
notable pundit famously asked whether IT still matters,1 recent These comparisons reflect that the
progress in closing the alignment gap may have hit a speed two populations share a common
experience, though their perceptions
bump. Herewith, reflections on the latest CIO Insight/ Balanced
differ slightly, invariably because of
Scorecard Collaborative survey, “How Does IT Funding Affect their different roles.
Alignment?”
The State of IT/Business
In mid-2003, Balanced Scorecard IT and Non-IT Executives: Alignment: Making Progress
Collaborative (BSCol), in partnership Drinking from the Same Stream?
with CIO Insight magazine, surveyed Are IT initiatives well aligned with
North American executives to assess How do these two groups compare business strategy? For 83% of IT
the state of IT and business alignment, on business and IT matters? executives, the answer is “yes,” while
and the role the Balanced Scorecard Responses to the question “Does only 69% of the non-IT respondents
plays in helping to close the gap. An your company have a clearly articu- agreed. Is the IT budget well aligned?
identical survey was administered to lated business strategy with clear Among the IT respondents, 70% said
two separate populations: IT executives financial objectives that have been “yes,” while only 59% of the non-IT
(of which 745 responded) and non-IT refreshed in the past 12 months?” respondents agreed. For both questions
executives (of which 543 responded). were nearly identical. About 80% of there is a 10-plus point difference in
A joint study on IT/business align- respondents in each group agreed or perception between the two groups.
ment was also conducted in 2002,2 strongly agreed with this statement. In either case, when the initiatives
although the questions were different This response provides a promising are better aligned with the strategy
(one reason: trends in alignment vary basis for understanding whether the than the budget is, there is a risk that
little from year to year). proposed strategy is, ultimately, well midcycle budget changes may derail
executed. How about the funding and planned initiatives.
When polling two separate populations direction of IT? This should indicate
on the same topic, it is important to how IT is perceived and what pur- Despite the persistent mismatch
know whether they represent similar pose(s) it serves. Here, we begin between initiatives and budgets, bright
organizations. We need to understand to see a slight divergence between signs are emerging: 89% of IT and
whether the two groups share the the two groups. Table 1 indicates 84% of non-IT respondents reported
same underlying day-to-day reality, perceived changes in IT spending that IT/business alignment has
even though they may be coming at (what executives recollect, not neces- improved over the past three years —
it from two different perspectives. sarily the actual figures) year over year. good news about something that’s
We found that the two respondent been a perennial challenge to the IT
groups were nearly identical in terms Table 1. Perceived Changes in IT Budget, community for more than 20 years.
of their organizations’ size. Fifty- from 2002 to 2003
Because the 2003 survey was
four percent of the IT respondents designed to shed additional light
Perception IT Executives Non-IT Executives
and 55% of non-IT respondents on the alignment question, we asked
Increased 37% 41%
represent organizations with 1,000- a series of seven questions, the
The same 34% 37%
plus employees. The top four industries answers to which collectively indicate
Decreased 29% 22%
represented in each respondent the points of greatest organizational
group were the same (financial improvement resulting from improved
services, government, manufacturing, Interestingly, IT spending appears
to be rising. The largest perception alignment. Interestingly, the responses
and healthcare), though they were from both groups converge on three
weighted differently; financial gap is the 7% difference in the
“believes decreased” category. The areas of benefit: cost savings, customer
services, for example, was the most satisfaction, and productivity. (See
common industry sector in the IT IT group is clearly feeling more
of a spending pinch. Table 2, next page.)
group, while healthcare was number
one in the non-IT group. Continued on next page

13
 Table 2. Top Three Areas Benefiting
from IT/Business Alignment
Sought
Sought Achieved by
Benefit by IT by IT business
Cost savings 78% 88% 73%
Customer
satisfaction 66% 86% 67%
Productivity 61% 88% 62%
Disagreement persists over the
extent to which the desired outcomes
have actually been achieved. The
non-IT respondents are notably less
optimistic (or more realistic?); in their
view, achievement lags IT respondents’
perceptions by 12% to 17% — a
significant difference of opinion.
But Breakthrough Strategic
Results Remain Elusive
With progress in alignment, is strategy
execution nirvana somewhere on the
horizon? Unfortunately, the answer
is an emphatic “no.” When asked
whether their organization success-
fully met its strategic goals in 2002,
only 20% of the IT group and a mere
14% of the business group believe
they have been “very successful.”
Thus, while progress is being made
in aligning IT with the business, the
larger goal of successful execution of
the business strategy remains elusive.
If we break out results to include
those who thought they were either
“very successful” or just “successful”
the numbers improve. A total of 65%
of IT and 55% of non-IT respondents
reported some success. However,
when we consider that two-thirds of
the two groups are pursuing cost-saving
strategies, the results are not that
impressive in terms of achieving
breakthrough strategic results.
How can we account for this deficit in
strategic effectiveness? As is typically
the case, we need look no further
than the strategy communication gap.
While it may be encouraging that
80% of the organizations indicated
they have a clearly articulated business
strategy with clear financial objectives
(similar to the 2002 findings), only
29% of the IT group and 26% of the
non-IT group believe that the business
strategy has been well communicated
14
and understood across the organiza-
tion. Thus, less than one in four IT
organizations (80% of 29% = 23%)
Achieved
by in the sample actually has a strategy
business
that is communicated to those who are
71%
expected to execute it. The survey
71% results are even more disappointing
76% with reference to the IT strategy;
only 20% of the IT group believe that
the IT strategy is well communicated.
Worse still, the non-IT group believes
this is true only 5% of the time! If IT
is an important contributor to strategic
success, then not understanding how
IT resources are being used to execute
the strategy represents a missed
opportunity for alignment. Unless
and until the strategy is well under-
stood and well communicated,
strategic performance will continue
to disappoint.
Connecting the Dots
What can be done? Within the IT
community it is important to identify
how IT helps make enterprise strategy
execution possible. Only about one-
fifth of the IT organizations that
responded to the survey indicate they
use a Balanced Scorecard. While
budget practices may obstruct IT’s
alignment with the business’s strategic
goals — as 39% of the IT group
indicated — an IT organization
scorecard can be used to show how
discretionary IT spending can support
strategic business initiatives. The
purpose of discretionary spending is
to achieve strategic alignment and
enable sufficient flexibility to respond
to new strategic challenges and
opportunities that can’t wait until
the next round of the formal budgetary
process. Since both groups of respon-
dents agree that as much as 30% of
all IT spending is discretionary —
it’s not accounted for in the formal IT
budget process — the lack of a well-
structured method for communicating
the strategic role of IT is a serious
handicap for the IT organization.
Without the benefit of a well under-
stood analytical and communication
tool, IT is left to defend its budget
with little more than a reference to
project-level ROI analysis. And,
given the fact that only 10% of the
IT respondents believe that the state
of ROI measurement is satisfactory,
this isn’t much of an alternative.
1
Nicholas G. Carr, “IT Doesn’t Matter,”
Harvard Business Review (May 2003).
2
See “Creating Strategic Alignment and
Readiness for IT” (BSR September–
October 2002; Reprint #B0209A) and
“Strategic Alignment Surveys Show
Misalignment of Intangible Assets”
(BSR November–December 2002;
Reprint #B02110E).
To Learn More
For more on the CIO Insight/
Balanced Scorecard Collaborative
survey, see CIO Insight’s special
issue “The Strategic Alignment
of IT,” November 10, 2003
(www.cioinsight.com). The same
issue includes articles by David
Norton and Robert Gold, BSCol’s IT
strategy management practice leader.
Reprint #B0401E
In the News
Scorecarding in
North America Study
Goes Global
Recently, Raef Lawson of the
University at Albany, SUNY, and
William Stratton of Pepperdine
University released the results of their
11-month online survey of scorecard
practices in North America. Some
150 respondents spanning the service,
manufacturing, and public sectors
shared their experiences with score-
cards — which included everything
from unorganized sets of measures
to frameworks such as the Balanced
Scorecard and the Baldrige Award.
Sponsored by a consortium that
included the AICPA, CAM-I, and
CMA Canada, along with Hyperion
Solutions, the study investigated
such issues as the reasons for
implementation, implementation
timelines, the link between measures
and strategy, and the use of software.
Phase Two of the study, which
begins this January, will extend the
study’s reach by inviting worldwide
participation. To participate, visit
http://graziadio.pepperdine.edu/shaps
or contact Raef Lawson
(Lawson@albany.edu) or Bill Stratton
(William.Stratton@pepperdine.edu).
TECHCorner
Timing Your BSC
Software Implementation
By Christopher J. Palazzolo, Consultant and Software Practice Leader,
Balanced Scorecard Collaborative
When to implement BSC software is almost as important as
the decision to automate your BSC. The timing will affect your
chances of success and, in turn, the success of your entire BSC
initiative. The decision depends on many factors specific to your
organization — most important, its stage in the BSC life cycle.
Because businesses increasingly
rely on data and technology, the
advantages of automating your
Balanced Scorecard are clear.
Extracting and synthesizing informa-
tion from native systems into BSC
software can save administrative
time and ensure data integrity. Since
it’s easier to link measures across
scorecards, data is more easily
pushed to parent BSCs, thus helping
to enforce alignment. Other benefits
include linking incentives, the budget,
and strategic planning to one central
BSC system.
When Is the Optimal Time
to Automate?
First, consider which phase of the
BSC life cycle your organization
is in. In the Development phase,
organizations are still building BSCs,
identifying their objectives, measures,
targets, and initiatives. In the Use
phase, organizations have begun to
populate their completed BSCs with
data. In the Managing phase, organi-
zations are actively using the BSC
to review strategic operations. By
the time organizations reach the
Strategy-focused phase, they have
adopted the BSC as the centerpiece
of their management, budgetary,
incentive, and reporting activities.
They’re using the BSC to test the
validity of the strategy in a continu-
ous feedback learning system.
While organizations can adopt
software at any phase of the BSC
life cycle, most do so in the Use
or Managing phases. (There have
been successful Development stage
implementations, notably the U.S.
Army, a BSC Hall of Fame winner.)
But generally, the Development phase
is too early because BSCs haven’t
been fully defined (they may not even
be finished) and there’s insufficient
information with which to populate
the tool (not to mention that all data
sources have not yet been identified).
Also, at this stage, organizations
wisely prefer to focus on methodology
rather than technology to ensure that
their BSC is not constrained by their
choice of software.
At the other end, automating your
BSC at the Strategy-focused phase is
generally too late. The transition to
this phase is arguably the most difficult Adopting BSC software in Phase 2
in the BSC life cycle because of its
transformative
effect on
established
While organizations can adopt software at any
processes.
phase of the BSC life cycle, most do so in the
Becoming
Use or Managing phases.
a Strategy-
Focused
Organization requires the seamless
integration of management processes
and functions such as HR, finance,
operations, and IT. Because BSC
software can enable this integration,
we generally recommend that organi- accomplish both tasks, data extraction
zations leverage software to help
make the transition to this phase.
Automating in Phase 1
(BSC Development)
Organizations should first focus on
completing their BSCs to be sure
they have adequately articulated
and cascaded their strategy. Software
can store BSCs, but it can’t clarify
strategy.
January–February 2004
However, large organizations with
multiple BSCs may want to adopt
software early, especially if develop-
ing their BSCs will take more than
one year. They’ll have more time to
assess IT infrastructure and function-
ality requirements to design a
scalable implementation that can
support the organization through later
phases of the BSC initiative. Large
organizations also tend to have bigger
IT support, which can facilitate the
launch of enterprisewide software.
Finally, implementing in Phase 1 may
actually speed the move to Phase 2,
as managers are eager to automate
their BSCs for day-to-day operations.
Automating in Phase 2 (BSC Use)
Here, organizations are starting to
use the BSC by populating it with
data and other performance analysis.
Objectives, measures, targets, and
initiatives have been aligned across
the organization. A reporting process
by which accurate and timely data
can be collected to populate all BSCs
is already in place.
allows two key capabilities: rolling
cascaded measure information from
one BSC up to a parent BSC and
extracting data from other systems
such as finance and operations. While
most BSC software is designed to
is often more limited than you might
imagine. Typically, only 10% of
measures can be derived from a
subordinate (“child”) BSC, and only
20% have data in a format that is
extractable from other systems. That
means populating BSCs in Phase 2
is often more of a manual process
than most organizations assume.1
Many organizations prefer to start
out with existing software (usually an
Continued on next page
15
Excel spreadsheet plus PowerPoint).
That way, they focus on choosing
useful data, not simply on inputting
available data or data the software
asks for. While at first this approach
is easier and more flexible, it can
later prove difficult and expensive
to link measures and extract data
from native systems using existing,
unspecialized software.
Whether to automate in Phase 2
depends on which matters more to
your organization: flexibility or data
linkage. The key in Phase 2, however,
is to keep your organization focused
on the process and benefits of popu-
lating BSCs rather than the means of
storing the information.
Automating in Phase 3
(Managing with the BSC)
By Phase 3, organizations have
already made a strong commitment to
their BSC initiative and have begun
ingraining it into their management
processes. They’ve already success-
fully populated their BSCs with data
and have established a data gathering
and reporting process. So why is
this an opportune point to automate
if they haven’t yet done so?
For one thing, the methodology,
processes, and framework of the BSC
are by now familiar to everyone,
but there remains a missing link
between the various BSCs. Usually
the BSC reporting process is separate
from other reporting processes, and
because it’s manual, it is invariably
more time-consuming. By adopting
BSC software now, organizations can
immediately gain major efficiencies
in extracting data from disparate
systems as well as from subordinate
BSCs to roll up to parent BSCs. For
example, sales data from regional
offices need not be calculated at the
enterprise level if it can simply be
extracted at the end of the reporting
period from each region’s BSC or
financial system.
To subscribe to Balanced Scorecard Report, call 800.668.6705. Outside the U.S., call 617.783.7474.
http://bsr.harvardbusinessonline.org
Product #B04010
In addition, organizations that wait
until Phase 3 can apply the knowledge
and experience they’ve gained about
the BSC to software selection and
implementation. Buy-in and support
for the BSC initiative already exists,
so BSC software is seen as the icing
on the cake, a way of making data
collection more efficient. By this
point, manual reporting has likely
become an administrative burden
that impedes efficiency. It is often
easier to get resources and funding
now because the value of automation
is readily apparent.
Automating in Phase 4 (the
Strategy-Focused Organization)
Strategy-Focused Organizations
use the BSC in all aspects of their
business and have integrated it with
other management processes. But
few organizations wait until Phase 4
to implement BSC software because
they see the value of automating the
BSC long before this phase.
It is possible to operate at this stage
without BSC software (consider
Mobil, another BSC Hall of Fame
winner). And organizations have
certainly become strategy-focused
before the advent of technology-
enabled BSCs. Clearly, organizations
that wait until Phase 4 to implement
software value their manual processes
and find creative ways to link the BSC
with other functions — for example,
exporting relevant data from existing
systems to a spreadsheet, which is
then used as the input for a manual
reporting system. While there are
still efficiencies to be gained in
both management and reporting,
organizations that wait until Phase 4
have already forgone potential cost
savings, efficiencies, analytical
sophistication, and convenience.
Listen to Your Organization
While we advise timing your soft-
ware adoption to your phase of BSC
Coming Up in BSR
• Part Two of Kaplan and Norton’s
Organization Capital: Leadership,
alignment, and teamwork
• Follow the Money: IT Finance
and Strategic Alignment
• The venture capital Balanced Scorecard
• The triple bottom line scorecard
at Brazil’s Amanco
• Leading by Example: How IT can
lead the way for an enterprisewide
BSC adoption
• Quick tips for choosing your
Balanced Scorecard measures
• Aligning personal and team goals
and compensation to the BSC
implementation, it’s best to heed your
organization to determine the right
timing. Implementing BSC software
requires a substantial investment
in dollars and people. You must think
carefully about your organization’s
phase in the BSC life cycle and what
other organization-specific factors —
like another major enterprise initiative
that’s under way — might influence
the timing of your implementation.
There are clearly tradeoffs in terms of
flexibility and data linkage. And
automating requires strong buy-in from
senior executives. Then, once you
determine the optimal moment, make
sure the right resources are devoted
to the project from beginning to end
to ensure its success.
1
See “Considerations on Cascading BSC
Measures,” BSR September–October 2003
(Reprint #B0309E).
To Learn More
“The Four Steps to BSC Software
Selection,” by Christopher
J. Palazzolo and Kent Smack,
BSR November–December 2002
(Reprint #B0211F).
Reprint #B0401F