Balanced
Scorecard Strategy
FOR
DUMmIES
‰
by Chuck Hannabarger,Rick Buchman,
and Peter Economy
Balanced
Scorecard Strategy
FOR
DUMmIES
‰
by Chuck Hannabarger,Rick Buchman,
and Peter Economy
Balanced Scorecard Strategy For Dummies®
Published by
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About the Author
Chuck Hannabarger: Chuck (Tyler, Texas) is founder and president of PSI
Associates, a business consulting and training firm founded in 1992 with headquarters
in Tyler, Texas. As a business consultant, Chuck has consulted with
many of the Fortune 100 companies and is recognized throughout the world for
his work in the areas of Balanced Scorecards, Six Sigma, Lean Manufacturing,
Business Process Reengineering and Project Management. Chuck’s course on
Project Management has been offered at UC Berkeley, Pepperdine University,
San Diego State University, and Michigan State University, to name a few. He
received his BSBA and his MBA in technology management from the University
of Phoenix. To schedule Chuck or one of his associates to discuss your business
improvement needs, contact him at www.PSIAssociates.com or e-mail
him at Charles.Hannabarger@psiassociates.com.
Rick Buchman: Rick, who lives in Woodland Hills, CA, has worked with many
of the Fortune 100 companies for over 20 years, as both an organizational
member of executive management, and as an external consultant, in designing,
developing, and implementing operational excellence and continuous
improvement programs worldwide. He received his bachelor’s degree in mathematics
from Western Illinois University, his MBA in business from California
Coast University in Santa Ana, CA, and has completed all but the dissertation
for his PhD in management as well. Currently, Rick is working as a consultant
with several major global clients toward designing and implementing their
continuous improvement programs, focusing on lean leadership and improving
the flow of value to deliver products and services to their customers
worldwide. You can reach Rick at creative_edge00@yahoo.com.
Peter Economy: Peter is Associate Editor for the award-winning magazine
Leader to Leader, Senior Consultant for The Jana Matthews Group, a member
of the National Advisory Council of the Creativity Connection of the Arts
and Business Council of Americans for the Arts, and bestselling coauthor of
The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology
Company, as well as Managing For Dummies, The Management Bible,
Enterprising Nonprofits: A Toolkit for Social Entrepreneurs, Writing Children’s
Books For Dummies, and many others. Peter invites you to visit him at his
Web site: www.petereconomy.com.
Dedication
From Chuck: Dedicated to my father and mother, Don and Emma, who have
always been in my corner, and to my wife Denise, our children and grandchildren,
without whose support and understanding I wouldn’t have been able to
write this book.
Authors’ Acknowledgments
We give our sincere thanks and appreciation to our publishing team at Wiley,
including Joyce Pepple, Michael Lewis, Jennifer Connolly, and Darren Meiss,
Josh Dials, and to our Technical Editor, Bill Lareau.
Chuck: Thanks to Rick and Peter for their friendship, steadfast support, and
dedication to making this project happen.
Rick: Thanks to Mona, my mom, and my family, who helped me think through
the many ideas, models and tools of the balanced scorecard, and who always
cheered me on.
Peter: Thanks to Chuck and Rick for their diligent efforts throughout this
project—no matter where in the world they happened to be at the time
(and let me tell you, these guys get around!).
Publisher’s Acknowledgments
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Contents at a Glance
Introduction .................................................................1
Part I: The ABC’s of Balanced Scorecard ........................7
Chapter 1: Goals, Scores, and the Balanced Scorecard.................................................9
Chapter 2: Building and Balancing Scorecard Strategies............................................31
Chapter 3: Planning For the Balanced Scorecard.........................................................49
Chapter 4: Putting Your Balanced Scorecard into Action ...........................................61
Part II: The Customer — The Critical Leg .....................73
Chapter 5: Understanding Your Role with Customers.................................................75
Chapter 6: Creating a Customer Scorecard...................................................................89
Chapter 7: Building the Customer Leg Dashboard.....................................................111
Part III: Financial Measurement —
The Foundation Leg...................................................125
Chapter 8: Understanding Your Role in Financial Measurement .............................127
Chapter 9: Building the Financial Leg Scorecard .......................................................149
Chapter 10: Building the Financial Leg Dashboard....................................................177
Part IV: Internal Business Processes —
The Value-Creation Leg .............................................197
Chapter 11: Understanding Your Role in Internal Business Processes ...................199
Chapter 12: Building the Internal Business Process Scorecard ...............................229
Chapter 13: Building Dashboards for Internal Business Processes.........................243
Part V: Knowledge, Education, and Growth —
The Learning Leg......................................................255
Chapter 14: Understanding Your Role in Learning and Growth ...............................257
Chapter 15: Creating the Knowledge, Education, and Growth Scorecard...............285
Chapter 16: Creating The Knowledge, Education, and Growth Dashboard............305
Part VI: The Part of Tens ...........................................321
Chapter 17: Ten Tips for Balanced Scorecard Success .............................................323
Chapter 18: Ten Biggest Scorecard Mistakes to Avoid ..............................................331
Chapter 19: Ten Tips for Overcoming Barriers ..........................................................339
Index .......................................................................345
Table of Contents
Introduction..................................................................1
About This Book...............................................................................................2
Conventions Used in This Book .....................................................................2
What You’re Not to Read.................................................................................3
Foolish Assumptions .......................................................................................3
How This Book Is Organized...........................................................................3
Part I: The ABC’s of Balanced Scorecard.............................................3
Part II: The Customer — The Critical Leg ...........................................4
Part III: Financial Measurement — The Foundation Leg ...................4
Part IV: Internal Business Processes — The Value Creation Leg .....4
Part V: Knowledge, Education, and Growth — the Learning Leg.....4
Part VI: The Part of Tens .......................................................................5
Icons Used in This Book..................................................................................5
Where to Go from Here....................................................................................5
Part I: The ABC’s of Balanced Scorecard .........................7
Chapter 1: Goals, Scores, and the Balanced Scorecard . . . . . . . . . . . .9
Getting Familiar with Balanced Scorecard..................................................10
Just what is Balanced Scorecard, anyway?.......................................10
Leaning on the four legs of the scorecard.........................................10
Achieving Organizational Balance ...............................................................11
Analyzing Your Customers: Critical Leg......................................................12
Knowing who you sell to .....................................................................12
Focusing on future customers ............................................................13
Considering your internal customers................................................14
Following the Money: Foundation Leg ........................................................14
Measuring your financial health.........................................................15
Common mistakes made in finance ...................................................17
Tracking Your Internal Business Processes: Value-Creation Leg .............18
Assessing the current state of your business...................................18
Installing effective measures for tracking processes.......................19
Anticipating your business’s future state .........................................20
The top five process-tracking problems............................................20
Managing Company-wide Knowledge, Education,
and Growth: Learning Leg ........................................................................21
Understanding the importance of taking care of your own............22
Measuring knowledge, education, and growth.................................23
Staying on the right course in the fourth leg of the scorecard ......25
Using Dashboards to Apply Balanced Scorecards to Your Business ......25
Market, environmental, and technology considerations
for your dashboards.........................................................................27
Reviewing strategy, operational, and tactical scorecards
and dashboards ................................................................................28
Chapter 2: Building and Balancing Scorecard Strategies . . . . . . . . . .31
Understanding How the Four Legs Interact and Link to Strategies.........32
Putting strategies in the driver’s seat................................................32
Focusing resources on your strategies..............................................33
Borrowing from Other Companies’ Success...............................................34
Translating strategies into operational terms..................................35
Aligning your organization to the strategies.....................................36
Making strategies everyone’s daily job .............................................36
Turning strategic deployment into a continual process.................36
Mobilizing change through your executive leadership team .........37
Developing Your Strategy Map: A Balancing Act .......................................38
Doing your mapping homework.........................................................38
Drafting the strategy map ...................................................................39
Ensuring a Balanced Scorecard (And What to Do When Yours Isn’t) .....40
Adapting to Changes in Your Markets or Business....................................43
Spotlighting external influences and their effect
on your business...............................................................................43
Recognizing early warning signals .....................................................47
Balancing in today’s environment — a moving platform................48
Chapter 3: Planning For the Balanced Scorecard . . . . . . . . . . . . . . . . .49
Getting Your Planning in Order ....................................................................49
Planning Your Work and Working Your Plan...............................................51
Planning for the resources you will need..........................................51
Garnering support from management and others ...........................52
Building the Foundation and the Structure of a Scorecard ......................53
Stacking the building blocks for implementing a scorecard...........54
Adding flexibility so you can adjust a scorecard for effectiveness....55
Contingency planning methods .........................................................57
Adding the Final Touches..............................................................................58
Taking care of the details ....................................................................58
Ensuring that your scorecard is fireproof.........................................59
Performing a final inspection..............................................................59
Chapter 4: Putting Your Balanced Scorecard into Action . . . . . . . . . .61
Deciding When to Launch Your Balanced Scorecard ................................61
The Scorecard passed the pilot, and everyone knows it! ...............61
The Scorecard is seen as genuinely adding value............................62
Sustaining the Balanced Scorecard .............................................................62
Promoting the scorecard concept......................................................63
Making scorecard the talk of the town ..............................................64
Cooking up the best time to launch...................................................66
Balanced Scorecard Strategy For Dummiesx
Mastering the Art of Communicating Your Balanced Scorecards ...........66
The view from the top: Senior executives.........................................67
Surviving scorecards as a middle manager ......................................68
Spreading the word from the front line .............................................69
Avoiding communication pitfalls........................................................70
Part II: The Customer — The Critical Leg ......................73
Chapter 5: Understanding Your Role with Customers . . . . . . . . . . . . . .75
Five Things You Must Know about Customers ..........................................76
Not all customers are created equal..................................................76
Customers can go away.......................................................................77
You must master the art of customer service ..................................78
Customers watch you closely.............................................................79
Do right by your customer .................................................................79
Using Customer Info to Keep Your Customers Happy ..............................80
Gathering info about your customers’ satisfaction levels ..............80
Being proactive to find out what your customers desire................82
Walking miles (and miles) in your customers’ shoes ......................84
Setting customer-based strategic measures.....................................84
Linking Customer Measures to Your Strategies, Policies, and Plans.......85
Developing customer strategies.........................................................85
Creating customer plans and tactics .................................................86
Taking action when your customers don’t get what they want .....86
Following Up With Your Customers for Adjustments................................87
Chapter 6: Creating a Customer Scorecard . . . . . . . . . . . . . . . . . . . . . .89
Zeroing In on the Right Customer Measures..............................................90
Weeding out the wrong measures ......................................................91
Discovering customer measures that matter ..................................91
Understanding customer loyalty........................................................92
Taking customer measurements ........................................................94
Getting Dependable Data ..............................................................................96
Hocus, pocus — the focus group .......................................................97
Asking all the wrong questions...........................................................98
Keeping data charts simple ................................................................99
Avoiding Interpretation Pitfalls ..................................................................100
Drawing wrong conclusions..............................................................100
Communicating timely with your customers .................................102
Reading between the lines ................................................................102
Building the Customer Scorecard ..............................................................103
Strategic-level scorecards .................................................................103
Operational-level scorecards............................................................105
Tactical-level scorecards...................................................................106
Analyzing a Scorecard and Determining a Course of Action..................107
Knowing which way to go .................................................................107
Making sure you stay on course.......................................................109
xiTable of Contents
Chapter 7: Building the Customer Leg Dashboard . . . . . . . . . . . . . . . .111
Customer Dashboard Fundamentals.........................................................112
Dashboard basics...............................................................................112
Determining ownership and responsibility ....................................113
Taking appropriate action: Who, when and how ...........................114
Building the Customer Dashboard ............................................................115
Keeping-it-simple-style dashboards (KISS) .....................................115
High-end dashboards with all the fluff.............................................116
Just-in-time versus just-too-late dashboards..................................118
Tracking and Analyzing the Customer Dashboard ..................................120
Figuring out who needs to know ......................................................121
Updating the customer dashboard ..................................................122
Drilling down to root causes.............................................................123
Part III: Financial Measurement —
The Foundation Leg ...................................................125
Chapter 8: Understanding Your Role in Financial Measurement . . .127
Five Things You Must Know About Financial Measurement ..................128
Your financial measures must be accurate
and highly dependable...................................................................128
Your financial measures must truly reflect
the value of your business.............................................................129
Your financial measures must cascade easily
from top to bottom.........................................................................131
Your financial measures must be easy to use and explain ...........132
Your financial measures must adhere to current regulatory
and tax laws.....................................................................................134
Finding The Financial Data Gold Mines.....................................................135
Scratching the surface of a goldmine ..............................................135
Knowing your business equals leveraging your financial data ....135
Using key measures to gain a significant competitive edge .........136
Turning difficulties to your advantage ............................................137
Measuring and Interpreting with Accuracy..............................................139
Making sure the right people do your measuring..........................140
Using consistent and dependable measures ..................................141
Avoiding measurement pitfalls.........................................................141
Turning Numbers into Information............................................................142
Examining reporting pitfalls..............................................................142
Showing financial info simply ...........................................................143
Linking Financial Measurements To Strategies, Plans And Tactics.......144
Financial measurement is dependant on strategic focus..............145
What you do depends on what you want........................................145
Using Failure Mode Effects Analysis (FMEA) to assess risk ........146
Balanced Scorecard Strategy For Dummiesxii
Chapter 9: Building the Financial Leg Scorecard . . . . . . . . . . . . . . . .149
Key Aspects of Financial Measures............................................................150
Focusing on the right things .............................................................150
The WIIFM (What’s in it for me?) station everyone tunes into ....151
Timeliness is your competitive edge...............................................152
Financial Measures That Matter.................................................................152
Key questions help you see what to measure ................................153
Selecting key performance indicators (KPIs) .................................155
Tips for finding key measures...........................................................155
How measures differ ..........................................................................156
Ensure competitive success by revisiting measurement..............158
Creating The Financial Scorecard ..............................................................159
Select either a strategic, operational, or tactical level..................159
Customizing your financial measures, and how to score them ...160
Examining examples ..........................................................................162
A word or two (or three) about information management...........166
Interpreting Financial Measures for Balanced Scorecards .....................168
Understanding scorecard financial measures,
and what they tell you....................................................................168
Pointing toward additional information and insight......................170
Structures for decision making from scorecard
financial measure............................................................................171
Understanding the Essence of Accuracy ..................................................173
Oh no, the numbers are wrong!........................................................174
The right numbers, the wrong analysis...........................................174
Tracking the numbers by automatic pilot.......................................175
Chapter 10: Building the Financial Leg Dashboard . . . . . . . . . . . . . . .177
The Basics of Financial Dashboards..........................................................177
Determining ownership and responsibility of the financials........178
An emphasis on real-time measurement and response.................179
Taking appropriate action: Who, when, and how ..........................180
Creating Financial Dashboards That Have Impact...................................181
Keep it simple, complete, and effective!..........................................182
Types of dashboards..........................................................................183
Some examples of dashboards that work! ......................................186
Enabling response and adjustment agility and flexibility .............189
Avoiding Pitfalls While Designing Dashboards.........................................190
Selecting the wrong measures..........................................................190
Organizing goals and objectives poorly ..........................................191
Having the wrong number of financial measures...........................191
Thinking in the short-term thinking ................................................191
Understanding Your Financial Dashboard................................................192
Make it part of your daily work ........................................................193
So what does it mean, and how will I know what to do next? ......194
Follow through — it’s what’s for breakfast .....................................196
xiiiTable of Contents
Part IV: Internal Business Processes —
The Value-Creation Leg..............................................197
Chapter 11: Understanding Your Role in Internal
Business Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .199
Five Things You Must Know about Internal Business Processes...........200
Waste abounds in your processes....................................................200
Many process measures don’t link to the customer......................202
Your measurement system is probably broken..............................202
Process workers are under-utilized and unappreciated ...............203
Technology isn’t always the right answer.......................................204
Creating Value...............................................................................................205
Looking at your value streams’ current state.................................205
Where you want to be when: The future state ...............................206
You Get What You Reward ..........................................................................207
Sending mixed messages ..................................................................207
Old rewards do not create new behaviors .....................................208
Rewards that matter ..........................................................................209
Building-In Continuous Improvement........................................................210
Process improvement in a nutshell..................................................211
Determining, what, when, and where to measure..........................211
How to measure your performance .................................................213
Acceptance and ownership means getting everyone involved....213
Pitfalls to Continuous Improvement .........................................................215
Implementing continuous improvement.........................................215
Identifying core processes and outsourcing...................................217
Technology isn’t always the answer................................................218
The Weakest Links in Internal Business Processes .................................219
The problem with integrating strategies, plans, and tactics ........220
Systems thinking and internal business processes .......................222
It’s a people thing ...............................................................................224
Tying Internal Processes to Your Strategies, Plans, and Tactics ...........226
Playing catchball: The art and science of deployment .................226
Developing your process strategies, plans, and tactics................227
Chapter 12: Building the Internal Business Process Scorecard . . .229
Finding the Right Measures for Internal Business Processes.................230
Identifying the critical few measures...............................................230
The Input-Process-Output diagram: Your best friend....................232
Waste, scrap, and other bad things .................................................233
Where’s the variation?.......................................................................234
Building Scorecards for Internal Business Processes .............................235
Strategic level scorecards .................................................................235
Operational level scorecards............................................................236
Tactical level scorecards...................................................................236
Balanced Scorecard Strategy For Dummiesxiv
Making Process Decisions That Give Competitive Advantage...............239
Involving the right people in process decisions ............................239
Staying ahead of the competition: Tools that help ........................240
Common mistakes made with internal business
process scorecards.........................................................................241
Chapter 13: Building Dashboards for Internal
Business Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .243
Understanding Internal Business Process Dashboards ..........................244
The what and why of internal process dashboards.......................244
Getting to real-time data and information.......................................246
Drilling down to get the gold ............................................................247
Creating Your Internal Business Process Dashboards ............................248
Who should be involved with your dashboards and how ............248
Making sure you’re hitting the right targets ...................................250
Ten common mistakes with business process dashboards .........251
What Your Internal Business Process Dashboard is Telling You ...........251
Analyzing your dashboards ..............................................................252
What to do if you’re not getting there .............................................253
Five common mistakes made in business process
dashboard analysis.........................................................................254
Part V: Knowledge, Education, and Growth —
The Learning Leg.......................................................255
Chapter 14: Understanding Your Role in Learning and Growth . . . .257
Getting Schooled on Knowledge, Education, and Growth......................258
Putting your finger on the elements of productivity .....................258
Understanding how information flows ...........................................260
Examining leadership style and culture .........................................261
Identifying and filling competency needs .......................................262
Aligning your employees organization ............................................263
Have a Clear Direction for the Future........................................................264
Growing means changing: the concern of complacency...............265
Getting clarity from learning and growth chaos.............................266
Having a plan for growth and development....................................267
Knowing and Understanding Liabilities ...................................................269
Turning liabilities into assets, weaknesses into strengths ...........270
The dangers of shortcutting training for growth ...........................272
Inventorying Knowledge, Skills, and Abilities ..........................................273
Your company’s wish list: Defining what you need .......................274
Step away from the office! Getting to know your people ..............275
Mind the gaps: Determining knowledge
and skill gaps and filling them.......................................................277
Linking Your Strategies, Operations, and Tactics
for Learning and Growth .........................................................................280
xvTable of Contents
Balancing at the strategic level for organizational
knowledge and growth...................................................................281
Having an operational focus for the future.....................................282
Acting tactically for growth, capability improvement,
and retention...................................................................................283
Chapter 15: Creating the Knowledge, Education,
and Growth Scorecard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .285
Finding The Right Measures For Knowledge, Education And Growth.....286
Determine key growth goals for the future .....................................286
Identifying operational goals, measurements for growth .............287
Indicators at the action level ............................................................288
Constructing The Knowledge Management Growth Scorecard.............291
Aligning key growth measurements, for strategies
and their impact..............................................................................291
Determining the right measures for today and tomorrow............292
Always reassess and adjust, per market changes as well.............293
Some examples of growth and development scorecards..............294
Determining What Your Scorecard Is Telling You ....................................300
How to read your future ....................................................................301
Adjusting when it’s not what you want ...........................................302
Some mistakes to avoid in interpretation .......................................303
Chapter 16: Creating The Knowledge, Education,
and Growth Dashboard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .305
Requirements For Knowledge, Education, and Growth Dashboards ....306
Translating growth goals into meaningful daily measures ...........306
Selecting key short- and long-term measures.................................307
Wait! It’s time to do a sanity check!..................................................308
Creating Dashboards That Increase Knowledge Management...............309
Formulating the structure of your growth dashboard for action...309
Setting up feedback systems ............................................................311
Using the dashboard to achieve greater potential.........................311
Analyzing Your Knowledge, Education And Growth Dashboard ...........312
How to use the growth dashboard to make adjustments
to scorecard balance......................................................................313
What your dashboard is telling you as you work
toward achieving your future........................................................314
The importance — and the risks — of being truthful ...................315
Understanding the Pitfalls of Analysis ......................................................316
Performance results alone do not a benchmark make..................317
Comparing apples and elephants: best practices where? ............318
Beware of cookbook approaches and case studies.......................319
Balanced Scorecard Strategy For Dummiesxvi
Part VI: The Part of Tens............................................321
Chapter 17: Ten Tips for Balanced Scorecard Success . . . . . . . . . . .323
Establish (and Remember) Where Your Company is Headed................323
Understand and Stay Current with What Your Customers Want...........324
Define Your Scorecard and Dashboard Roles and Responsibilities ......325
Charter Effective Steering Committees.....................................................325
Establish and Maintain Accountability .....................................................326
Link Your Scorecards and Dashboards to Your Strategies,
Goals, and Objectives ..............................................................................326
Communicate Your Personalized Four-Legs Approach to Everyone ....327
Use Feedback and Feed-Forward Loops ...................................................327
Plan and Execute Your Balanced Scorecards Relentlessly .....................328
Synergize Your Scorecards for Competitive Advantage
and New-Market Entrance .......................................................................329
Chapter 18: Ten Biggest Scorecard Mistakes to Avoid . . . . . . . . . . .331
Cherry Picking..............................................................................................331
Following Case Studies Too Closely ..........................................................332
Delegating Responsibility without Authority ...........................................333
Ignoring the Soft Stuff..................................................................................333
Focusing Too Much on the Tools...............................................................335
Overanalyzing...............................................................................................335
Not Dealing with Key Detractors................................................................336
Sending Mixed Messages.............................................................................337
Exaggerating the Returns............................................................................337
Ignoring the Customer.................................................................................338
Chapter 19: Ten Tips for Overcoming Barriers . . . . . . . . . . . . . . . . . . .339
Empower Your Employees..........................................................................339
Be Flexible.....................................................................................................341
Apply Psychology ........................................................................................341
Identify and Use Influential People ............................................................342
Limit the Use of Force..................................................................................342
Don’t Shoot the Messenger; Make Everyone the Messenger .................342
Implement Stage-Gate Reviews ..................................................................343
Reward, Recognize, and Celebrate Success..............................................343
Communicate, Communicate, Communicate
(And Don’t Forget to Talk).......................................................................344
Provide Structure for Coaching, Mentoring,
and Learning from Mistakes....................................................................344
Index........................................................................345
xviiTable of Contents
Balanced Scorecard Strategy For Dummiesxviii
Introduction
There are many reasons for reading a book about implementing Balanced
Scorecards in your business. Perhaps you’ve read or heard about Balanced
Scorecards, and you want to know more about how they can improve your
business processes and enhance the bottom line. Or maybe you have taken a
new job and inherited a Balanced Scorecard system that isn’t working right —
and that is taking far more time to maintain than it’s worth. Or you might
have a highly tuned Balanced Scorecard system in place — complete with
well-designed dashboards — but you would like to get some advice on how
to fine-tune your Balanced Scorecards and continually improve them.
Balanced Scorecard Strategies For Dummies was written to respond to each of
these needs — and many more. The book avoids the business fad-of-the-month
approach common in many works of this type, instead focusing on tried-andtrue
solutions to the most common situations and problems that real business
leaders face: solutions that will stand the test of time and be just as effective
tomorrow — or a year or decade from now — as they are today.
Balanced scorecards have emerged as one of the most effective business
tools available today. The bad news is that there is much confusion out there
in the business world as to exactly what a Balanced Scorecard is, and how to
design and implement ones that work. The good news is that this book solves
these problems — and more.
We specifically designed this book to provide you with the very best and
most up-to-date ideas, concepts, and tools for designing and implementing
Balanced Scorecards — successfully, and with a minimum of muss or fuss.
Apply them, and we are certain that you’ll be able to benefit from their significant
promise — achieving the high level of business success that Balanced
Scorecards can unlock in any organization.
About This Book
Balanced Scorecard Strategies For Dummies is full of useful information, tips,
checklists, and figures for everyone who aspires to implement Balanced
Scorecards and dashboards in businesses of any kind in any industry. If you
work for an automobile or computer manufacturer, this book is for you. If
your business delivers healthcare or software development services, this
book is for you. If your business is large or small, old or new, product or service
oriented, this book is for you. For a fraction of the cost of an hour’s time
with a top-rank consultant, this book provides you with an easily understandable
road map to today’s most innovative and effective Balanced Scorecard
and dashboard techniques and strategies.
This book is perfect for all levels of managers and business professionals.
New managers can easily find the basics that they’ll need to know to be successful,
while more experienced managers will find higher-level material that
can be used to make an existing Balanced Scorecard program even better.
Despite the old saying about teaching old dogs new tricks, you can always
make changes in your approach to doing business that will make it better and
more effective.
Whether you’re new to the job or a seasoned pro, it’s our hope that you’ll
learn something new that will help you improve your business — making you
and your team more valuable in the process. Don’t worry about making an
occasional mistake as you push for needed changes in your organization —
we all make mistakes from time to time. The secret is to learn from mistakes
and to avoid making them again. When you do make a mistake, simply pick
yourself up, laugh it off, and learn from it. We wrote this book to make learning
easier so you won’t have to learn the hard way.
Conventions Used in This Book
We use the following conventions throughout the text to make everything
consistent and easy to understand:
ߜ All Web addresses appear in monofont.
ߜ New terms appear in italic and are closely followed by an easy-to-understand
definition.
ߜ Bold text indicates keywords in bulleted lists or highlights the action
parts of numbered steps.
When this book was printed, some Web addresses may have needed to break
across two lines of text. If that happened, rest assured that we haven’t put in
2 Balanced Scorecard Strategy For Dummies
any extra characters (such as hyphens) to indicate the break. So, when using
one of these Web addresses, just type in exactly what you see in this book,
pretending as though the line break doesn’t exist.
What You’re Not to Read
We’ve written this book so that you can find information easily — and readily
understand what you find. We also simplify it so you can identify “skippable”
material, that is, text that you can come back to later when you’ve got some
extra time on your hands (as if you had a lot of that!). Sidebars are the shaded
boxes that appear here and there. They share fun facts, but nothing that’s
essential to the success of your Balanced Scorecards. Enjoy them when you
have the time!
Foolish Assumptions
We wrote this book with some thoughts about you in mind. For example, we
assumed that you are a manager, executive, or other business leader who is
motivated to discover some new approaches to improving your organization’s
processes and enhancing its bottom line. We also assumed that you’re
ready, willing, and able to committing yourself to making your organization
more efficient and effective, and in helping others to do the same.
How This Book Is Organized
This book is divided into six parts — jump in wherever you want. The following
sections explain what you’ll find where.
Part I: The ABC’s of Balanced Scorecard
The use of Balanced Scorecards has become more popular than ever for measuring
the whats and hows of business, and for good reason — they work. This
part provides a basic understanding of the four legs of Balanced Scorecards —
the customer leg, the financial leg, the internal business processes leg, and
the knowledge and growth leg — and provides you with the best ways to
understand your needs and to make plans for implementing your own
Balanced Scorecards.
3Introduction
Part II: The Customer — The Critical Leg
Every business needs customers to exist — without customers, after all, who
would pay for the products you manufacture or the services you deliver?
This part describes the customer leg in detail, including understanding your
role with customers and measuring what they want and need. We describe
how to build your customer scorecards and dashboards, how to understand
what they tell you, and the pitfalls to avoid.
Part III: Financial Measurement —
The Foundation Leg
The financial leg of the Balanced Scorecard is the cornerstone of any business,
and it determines its health, performance, and long-term viability. This
part addresses financial measurement and the use of metrics — along with
management’s role in determining and implementing them. We describe how
to develop and implement financial scorecards and dashboards, and point
out a number of pitfalls that can derail even the best-laid of your Balanced
Scorecard plans.
Part IV: Internal Business Processes —
The Value Creation Leg
Believe it or not, your business’s internal processes can and do create value for
your customers — or not, depending on how well they are designed and implemented.
In this part, we address the role that Balanced Scorecards can play
with internal business processes, and how you can use them to create value.
We also address the pitfalls to avoid in this leg of the Balanced Scorecard.
Part V: Knowledge, Education, and
Growth — the Learning Leg
While most organizations have a natural tendency to focus on financial performance,
it is critical that they not ignore knowledge, education, and growth.
In this part, we consider the manager’s roles and responsibilities in implementing
this “learning leg” of the Balanced Scorecard, showing how scorecards
and dashboards work together, as well as a variety of pitfalls to avoid.
4 Balanced Scorecard Strategy For Dummies
Part VI: The Part of Tens
This part contains quick resources that provide information in an easy-to-digest
fashion. Explore some tried-and-true tips for Balanced Scorecard success, mistakes
to avoid, and ways to overcome barriers to your improvement efforts.
Icons Used in This Book
To make this book easier to read and simpler to use, we include some icons
in the margins that can help you find and fathom key ideas and information.
These tidbits provide expert advice to help you save time, money, or frustration
in the Balanced Scorecard process.
This icon highlights important information to store in your brain for quick
recall at a later time.
Avoid mistakes by following the sage words of advice that appear by this
icon.
Check out the true stories that accompany this icon so you can learn from
the business experiences of others.
Where to Go from Here
The great thing about this book is that you decide where to start and what to
read. It’s a reference you can jump into and out of at will.
If you’re new to the wonderful world of Balanced Scorecards, you may want
to start at the beginning of the book and work your way through to the end. If
you’re experienced pro, then you can look up any topic you like and find your
way directly to it. Just head to the table of contents or the index to find the
specific information you want. Whichever approach you take, you’ll find a
wealth of information and practical advice. Simply turn the page and you’re
on your way!
5Introduction
6 Balanced Scorecard Strategy For Dummies
Part I
The ABC’s of
Balanced
Scorecard
In this chapter . . .
Balanced scorecards have become not only popular
within companies both large and small, they have
become essential to measuring and managing the what’s
and how’s of business. Having a basic understanding
of the four legs for balanced scorecards — the customer
leg, the financial leg, the internal business processes leg,
and the knowledge and growth leg — is the first step in
establishing your balanced scorecard strategy for your
organization. After we cover the basics, we consider the
best approaches to understanding your needs and making
plans for implementing your own balanced scorecards.
Chapter 1
Goals,Scores,andthe
BalancedScorecard
In This Chapter
ᮣ Defining Balanced Scorecard and the issues surrounding it
ᮣ Forming the four legs of a Balanced Scorecard
ᮣ Incorporating dashboards to get continuous feedback for success
An old saying goes something like this: If you’re not keeping score, you’re
just practicing. If you ask us, truer words were never spoken — especially
in today’s topsy-turvy business world. To make (and keep) your business a
success, you need to not only keep score, but also predict your score in advance
by setting goals and then achieving them on a consistent basis. And we’re not
talking about easy-to-achieve goals and scores. No! We’re talking about goals
that stretch your imagination and push your creativity and ingenuity to the
limits — as well as the creativity and ingenuity of your employees.
Can you imagine what the people working at NASA in the 1960s thought when
they were asked to build a rocket and space capsule that would transport
Americans to the moon — in less than ten years? We can imagine them wondering
exactly how in the heck they would pull it off, but never doubting that
they would. NASA put a massive stretch goal before them, and they achieved
it. Balanced Scorecard Strategy is the tool that will allow your company to set
and achieve stretch goals.
In this chapter, we give you an initial peek at Balanced Scorecard, preview its
four legs, and offer a glimpse of how you can ensure that your company’s
scorecard stays balanced.
Getting Familiar with
Balanced Scorecard
What’s a Balanced Scorecard? Glad you asked, because in this section you’ll
get your first glimpse at what a Balanced Scorecard is and how it works.
You’ll see that scorecards aren’t rocket science, but they do require some
good business structure, analysis, and planning in order to get it right.
Just what is Balanced Scorecard, anyway?
To better understand what a Balanced Scorecard is, maybe you should first
learn where it came from and why. The Balanced Scorecard was first developed
in the early 1990s by two guys at the Harvard Business School: Robert
Kaplan and David Norton. The key problem that Kaplan and Norton identified
in today’s business was that many companies had the tendency to manage
their businesses based solely upon financial measures. While that may have
worked well in the past, the pace of business in today’s world requires better
and more comprehensive measures. Though financial measures are necessary,
they can only report what has happened in the past — where your business
has been — and they are not able to report where it is headed: It’s like
trying to drive your car by looking in the rear view mirror.
In order to provide a management system that was better at dealing with
today’s pace of business and to provide business managers with the information
they need so that they can make better decisions, Kaplan and Norton
developed the Balanced Scorecard. Note that we said that the Balanced
Scorecard is a management system — not a measurement system. Yes, measurement
is a key aspect of the Balanced Scorecard, but it is much more than
just measurement: it is a means to setting and achieving the strategic goals
and objectives for your organization.
So, what is the Balanced Scorecard? In short, it’s a management system that
enables your organization to set, track and achieve its key business strategies
and objectives. Once the business strategies are developed, they are
deployed and tracked through what we call the Four Legs of the Balanced
Scorecard. These four legs are made up of four distinct business perspectives:
The Customer Leg, the Financial Leg, the Internal Business Process Leg,
and the Knowledge, Education, and Growth Leg.
Leaning on the four legs of the scorecard
Your Balanced Scorecard Strategy relies upon four different yet integrated
perspectives: The Customer Leg, the Financial Leg, the Internal Business
10 Part I: The ABC’s of Balanced Scorecard
Process Leg, and the Knowledge, Education, and Growth Leg. These four legs
of the Balanced Scorecard are necessary for today’s business executives and
managers to be able to plan, implement and achieve their business strategies.
The four legs will make the difference between whether your business
succeeds or fails. The following list takes a closer look at the four legs:
ߜ Customer scorecard: Measures your customers’ satisfaction and their
performance requirements — for your organization and what it delivers,
whether it be products or services.
ߜ Financial scorecard: Tracks your financial requirements and performance.
ߜ Internal Business Process scorecard: Measures your critical-tocustomer
process requirements and measures.
ߜ Knowledge, Education, and Growth scorecard: Focuses on how you
train and educate your employees, gain and capture your knowledge,
and how you use it to maintain a competitive edge within your markets.
Achieving Organizational Balance
When reflecting on the many companies we’ve worked with (and we’ve worked
with a lot!), we notice that many organizations tend to be unbalanced — that
is, they focus only on two legs of the Balanced Scorecard: their financial measures
(see Part III) and their internal business process performance (see Part
IV). As a result, they miss the mark in measuring and tracking other critical
parts of their businesses — things like their customers (see Part II) and their
internal knowledge and growth (see Part V).
These four elements, or legs, have to be measured, analyzed, and improved
together — continuously — in order for your business to thrive. If you ignore
any one of these four legs, it will be like you’re sitting on a four-legged stool
with a broken leg. You’ll eventually lose your balance and fall flat on your face.
And, last time we checked, lying flat on your face is no way to run a business!
You not only have to measure these critical four legs, but also set strategies,
goals, objectives, and tactics to make them happen. And while you’re at it,
you have to make sure that your strategies and tactics are congruent. They
have to work together and create a single thread, tying them together in ways
that make sense. This isn’t an optional exercise; it’s essential. The future of
your business depends on it.
Following a total balanced-scorecard approach gives your business the balance
needed to ensure that these critical areas get the attention they deserve. Organizational
balance isn’t all that difficult to understand, but achieving it . . . well,
that’s a different story. (And we don’t have enough pages in this chapter to
tell that particular story!) Balance takes effort and persistence and can be
achieved in any business, in any country, at any time. The old saying “It won’t
11Chapter 1: Goals, Scores, and the Balanced Scorecard
work in this place — we’re different from all those other guys out there” just
doesn’t wash. If you think that way, your competition will thank you — all the
way to the bank!
Analyzing Your Customers: Critical Leg
Each of the four legs have equal importance in your Balanced Scorecard
(after all, if they didn’t have equal importance, they wouldn’t be balanced),
but your customers are your reason for being, your raison d’etre. Without
them, you’d have to close your business’s doors and go home to stare at the
television all day long. Yet, as important as they are to you, customers often
get lost in the swirl of the many everyday tasks you accomplish in your business.
You may lose sight of who you do all this stuff for: your customers.
Many companies don’t have a clue about what the customer really wants —
including those who make the product, fulfill the service, and have the greatest
impact upon the customer.
Ask yourself this question: “Does every person in my company know what
our customers want and how their work affects the customers?” Go ahead, go
out into your workplace and ask your employees this question. What answers
do you get? Something generic, like “Yeah, um . . . we need to deliver quality, I
guess.” Or something specific and measurable, like “I have to make sure that I
get this part between 0.10 and 0.12 millimeters.” Do you see the difference? If
not, your customers certainly do, as do your competitors.
You have to know what your customers want from you — what they demand
in terms of quality, cost, and delivery – and you have to know what they will
be wanting from you in the future. To do this, you first need to find out who
your customers are — in and out of your organization — and who they will
become. For more on analyzing your customers for this leg of the scorecard,
see Chapter 5.
Knowing who you sell to
Identifying customers seems like a pretty basic task that all companies should
have mastered, right? Here’s a news flash: Many don’t do it. Tracking sales
and identifying existing markets aren’t very difficult duties, but many companies
don’t continually track these elements. Situations change. Customers
change. Markets change. And woe be unto those companies that miss those
changes, for they’ll soon find themselves in a downward spiral to bankruptcy.
They’ll wake up one day and wonder what happened.
12 Part I: The ABC’s of Balanced Scorecard
In today’s globally competitive business environment, where the customer
has a multitude of choices, it’s imperative that you know who your customers
truly are. It doesn’t matter if you’re a senior executive, a middle manager, or
on the front lines making products or delivering services. If you don’t know
who your customers are, how can you ever satisfy them? (Hint: You can’t!)
For more on how to identify your customers and how they fit into the scorecard,
check out Chapters 5 and 6.
Focusing on future customers
While taking a look at your existing customer base (see the previous section),
you also need to be keeping your eyes on the future. Ask the following questions
pertaining to your business and industry:
ߜ Where are your markets heading?
ߜ What new trends are emerging in your industry?
ߜ What’s the state of technology, and how will it impact your customers
and your business?
ߜ Can you identify ways to leverage what you currently do and move into
other markets to get additional customers?
The bottom line: You need to look at what your company really does and
don’t limit yourself to a particular market, industry, or customer base. Look
outside your sandbox, understand what’s at the core of your business, and
13Chapter 1: Goals, Scores, and the Balanced Scorecard
Cracking the whip on nearsighted
business practices
Perhaps you’ve heard the lament about the poor
old buggy whip manufacturers that operated
around100 years ago, when some character
named Henry Ford was driving around Detroit,
Michigan in his new fangled “automobile.” Ford
ended up putting most of the buggy whip manufacturers
out of business. Instead of remaining
stuck in the past — hanging onto old products
and old markets — those buggy whip manufacturers
should’ve looked toward the future
and stayed focused on their real expertise:
making things out of leather. Had they followed
that path, they may have redirected
their production into leather seats and padding
for Ford’s automobiles. Long story short, the
whip manufacturers may have not only survived,
but also thrived in the new era. Unfortunately,
they insisted on making buggy whips —
a going-out-of-business plan in a fast-changing
market.
look for other markets and customers to sell to. To take a look into your company’s
crystal ball, head to Chapter 6.
Considering your internal customers
You have more customers out there than you may think, and you need to
identify and account for them all. For instance, executives often don’t realize
that they have customers within their own companies. As an executive, midlevel
manager, or front-line supervisor, each employee who reports to you is
your customer. Now there’s a shift in thinking, huh? Your job is to provide your
employees with the tools they need to satisfy their internal and external customers.
Specifically, they need knowledge, skills, authority, equipment, budget,
and so on — tools that allow them to do their jobs right the first time.
Your employees have internal customers, too. Your business operations often
are a combination of processes, requiring many different operations and
people to get work done. If an employee does his job and hands off his work
to another employee so that she can do her job, isn’t she his internal customer?
Shouldn’t their company measure what the internal customer wants
and needs and how well the internal supplier satisfies them? Shouldn’t the
first employee know what his internal customer wants from him so that they
can do their jobs with the least amount of hassle? Shouldn’t the work provided
to fellow employees be fit for use, just like you want your products to
be fit for the end users — the people who pay for what you do and pay your
bills? The answer to all these questions is a resounding “Yes!”
A key part of the Balanced Scorecard Strategy is getting in touch with all your
customers, including those within your company. Know what your customers
need so that you can keep the end users satisfied and motivate them to buy
your products and services time after time.
Following the Money: Foundation Leg
Businesspeople track their money like their lives depend on it . . . and they
do. Managing the money is foundational to any successful business. Knowing
where you get your money from — how much you bring in — and where you
plan to invest it, is essential. The problem with many companies is that they
focus too much on the financial leg and not enough, if at all, on the other
three legs of the Balanced Scorecard.
When you start to look at your financial leg, it’s always best to start at the
strategic level. Here are some questions you can ask of your business at the
14 Part I: The ABC’s of Balanced Scorecard
strategic level. These questions will help you to focus on your long term
financial goals and objectives for your organization and will allow you to set
the operational and tactical measures for your Balanced Scorecard Strategy:
ߜ What are your financial strategies?
ߜ Do you plan to invest and grow your business? If so, in what
products/services and in what markets?
ߜ Are you in the more mature stages of your products/services lives? Are
you milking them for all the cash they can deliver?
ߜ Are your products/services in decline, causing you to sweat the future
because you don’t know what’s next on the horizon and you’re wondering
if you’ll still be in business this time next year?
These are basic financial questions in the business world, and you better
know the answers to them. The financial leg of the scorecard will give you the
help you need to track the right financial measures. For more on the financial
leg of the scorecard, head to Part III.
For some reason, many businesspeople consider financial workers to be a
necessary evil. They’d like to keep these number crunchers in a closet with a
sign on the door that says “Enter only in case of extreme emergency.” Don’t
hesitate to open lines of communication with your financial people. If you
want a head start on this leg of the scorecard, learn their language and find
out what gets them excited. For example, figure out how to translate your
need to invest in new equipment into their language — like discussing
improved cash flow and return on investment. You’ll find that financial advisors
are real easy to talk to.
Measuring your financial health
Market shares, costs of goods sold, financial ratios — such as the price-toearnings
(or PE) ratio — cash flows, return on investment and assets, internal
rates of return — it’s enough to boggle the mind (or at least give it a good
workout)! These are just a few of the common measures that can show up in
financial scorecards. An operational manager must understand them all and
know how they affect business.
Your senior executives and financial people decide what financial measures
your company chooses to focus on. The required measures differ from company
to company. Heck, they can even differ between different organizations
within a company. Regardless of the measures that you use, you need to
understand how to measure your financial health and tie it to your Balanced
Scorecard strategies, plans, and tactics.
15Chapter 1: Goals, Scores, and the Balanced Scorecard
When you cut through all the different measures, though, you’re left with
some pretty basic stuff:
ߜ Earnings
ߜ Profits
ߜ Cash flow
All the possible financial measures can be tied back in some way to these three
simple measures. How you account for them is up to your bean counters and
accountants. Maximizing them is your job. Do you want to grow your company’s
revenues? Sure you do. But how can you do it? That usually relies
upon increased sales and market share — selling to new customers and forging
boldly into new markets. What you do in your business depends on where
you want to be 5, 10, 20 years from now and the expected market conditions
when you get there.
16 Part I: The ABC’s of Balanced Scorecard
Working in isolation: Departmental benefit
and company downfall
A material control manager for a company that
builds airframes was losing around $60,000
every month in rivets (the things that hold the
aircraft together) because employees would
drop them and they’d fall to the floor. After they
hit the floor, the rivets couldn’t be used until they
were swept up and gathered and sent to an
inspection area, where people would inspect
and bag them to be put back into the system for
use. The manager wanted to get a handle on this
system, but the approach he took wasn’t optimal.
The company stocked and distributed the rivets
by providing bins throughout the plant so that
workers could get them without going very far.
They could walk a few feet to the rivet bins, grab
a bunch, and quickly go back to work. When you
consider that there were over a million rivets
per airframe, this system made a lot of sense.
So, what did the material control manager do?
He set up a system that got rid of all the rivet
supply locations by creating two rivet locations
that limited the number of rivets any one worker
could obtain at one time.
With the new system, the workers had to walk
miles every day to get their rivets. Along the
way, they took coffee breaks and spoke with
friends they ran into. They wasted time in huge
amounts, but the company labeled the material
control manager a hero because losses went
down significantly. But what about the costs to
the other operations? Assembly and manufacturing
costs went through the roof because the
proper amount of work wasn’t getting done. The
system put schedules in jeopardy, and the end
result was millions of dollars in losses — all so
the material control manager could control his
department’s costs. By any measure, the material
control manager made a bad decision and
hurt his company and its customers more than
he helped.
Common mistakes made in finance
One of the most common mistakes in the business world is that leaders focus
too much on short-term returns on investment and on quick fixes. The drive to
maximize shareholder value and acquire quick, easy money makes for some
interesting decisions for sure. And when we say interesting, we mean destructive.
These decisions tend to foster short-term thinking and dissuade companies
from making long-term investments that would improve the health of the
companies. Improvements in equipment, people, and processes are ignored.
At the operational and tactical levels, the most common mistake is managers
focusing on their own performance metrics without wondering whether
achieving operational goals could hurt the overall performance of the organization.
We call this mistake sub-optimization. One reason for this behavior is
the desire to pit business units against each other to “motivate everyone to
improve performance.”
You need to be mindful of the impact that achieving individual goals has on
the overall goals of your company. For instance, always ask how goals link
directly to the goals of the business, measuring profitability, on-time delivery,
and quality of the products and services you deliver to the customer.
17Chapter 1: Goals, Scores, and the Balanced Scorecard
Don’t Lean too heavily on customers
A company in India was shipping kits to a major
customer. In order to appear responsive, the
company would ship kits immediately to the
customer whenever they became available. The
company wanted to score high on customersatisfaction
and process-shipping-performance
indicators. Some of the kits had several dozen
parts or assemblies, so the department transported
partial kits whenever it could, sometimes
several times a day. This system continued for
some time, even though the company noticed
rising costs, because the managers thought they
were supporting the customer’s needs. In fact,
the system was causing major havoc — not
only with the company’s shipping process, but
also with the customer’s receiving process. The
customer had to rent out additional space just
to manage the partial kits and all the parts and
sub-assemblies that it received but couldn’t put
into final assembly.
A Lean workshop identified the problem and
determined that the company should just ship
complete kits. The company used a Kanban
(called a pull system, based on customer
demand) rather than a push approach to the
customer. The customer could now apply the kits
to its final process immediately when needed.
On a related note, here’s another common operational mistake: Depending on
a department manager to make decisions instead of requiring the input of all
the key department or functional managers. In some companies, the operations
manager will decide to ship or not to ship based on operational goals,
neglecting factors such as quality, expediting costs, or customer capability to
handle the product.
Tracking Your Internal Business
Processes: Value-Creation Leg
Many companies track some of their internal business processes, but they
often ignore many of the things they should be measuring and tracking —
especially all the non-core processes within their businesses (those things
that you have to do in your business that don’t add value to your product or
service): paperwork, databases, purchasing, quality departments, warehousing,
distribution, and even management. The support processes just seem to
keep doing what they do, with no one really paying attention to how well they
function. In many cases, business processes are ripe for improvement and can
offer up some tremendous returns when companies start digging into them.
That’s what the internal business process leg of the Balanced Scorecard is
for. In the following sections, we take a look at how your internal business
process create value and how you can install effective measures to monitor
and improve your processes. We will also discuss the need for looking into
the future and anticipating change and the top five problems that managers
have in tracking their processes.
Assessing the current
state of your business
In order to reap the benefits of process improvement, you first have to know
where your company is right now. You have to assess your current performance
so that you can determine where problems lie and what you must deal
with now. You should measure the time it takes to get things done and how
your quality levels compare to what your customers demand.
And for many businesses that look inward, what they find is poor quality. Poor
quality costs money — often big piles of money. Studies show that poor quality
often costs companies more than 25 to 30 percent of their revenues. However,
you can recoup much of that revenue by paying attention to where the
losses are generated and fixing the problems. Specifically, you can examine
your internal costs, external costs, appraisal costs — the list goes on and on.
18 Part I: The ABC’s of Balanced Scorecard
If you improve your quality, through methods such as Six Sigma or Lean
Manufacturing, you’ll reduce your costs and the time it takes to move products
through your operations and to get them to the customers. After realizing
that much of your processing doesn’t do anything but cost you time and
money, you can focus on the things that create value to the customer. You
can develop and deliver systems and processes that provide maximum value
to the customer, with high levels of quality, while maximizing your profit margins
and increasing your customer base.
For much more on quality improvement, check out Quality Control For Dummies,
by Larry Webber and Michael Wallace (Wiley).
Installing effective measures
for tracking processes
When it comes to tracking your processes, you need to install some effective
measures so that you’ll know how you’re doing in two key areas: time and
quality. You need to measure time because time is money – the longer it takes
you to deliver your goods and services to your customers, the greater the
costs. You need to measure quality because if you don’t, your business won’t
be along for very long. Every business has some measures of quality, but
many of the measures commonly used are too late in the game to be of any
help in getting to the meat of cost reduction and quality improvement: they
tend to be reactive, rather than proactive. When you get down to the nittygritty
of your business at the tactical levels scorecards, you want to get to
the measures that allow you to be proactive..
Some common measures of time that most businesses use are as follows:
ߜ Lead times: The amount of time between the placing of an order and the
receipt of the goods ordered by the customer .
ߜ Cycle times: The total time from the beginning to the end of your production/service
process, as defined by you and your customers. Cycle
time includes process time, during which you work on a unit to bring it
closer to an output, and delay time, during which a unit of work must sit
idle until you’re ready to take the next action. In a nutshell, cycle time is
the total elapsed time it takes you to move a unit of work from the beginning
to the end of a physical process.
ߜ TAKT time: “Takt” is a German word for an orchestra conductors baton.
Takt Time refers to the rate — or beat — at which your processes must
be able to operate at in order to meet customer demands for your products
or services: It’s the output requirement from your processes to
meet your customer demand.
19Chapter 1: Goals, Scores, and the Balanced Scorecard
Some common measures for quality used by most businesses are as follows:
ߜ Defects per unit produced (a preferred measure to use because, unlike
tracking defective units which may have multiple defects for any defective
unit, defects per unit tracks the individual defects by type, thus
allowing for better analysis and improvement)
ߜ How many defective parts per million
ߜ Defects per million opportunities
ߜ Scrap and rework costs
ߜ Warranty and sales returns
You’ll undoubtedly have several of your own measures as well, depending on
your business, your industry, and the customers you serve.
Anticipating your business’s future state
Knowing the current state of your business is only part of tracking your business
processes; you also have to look at where your customers, markets, and
industry are headed. What’s happening on the technology front? Which of
your suppliers’ actions may have an impact on your business in the future?
Understanding the impact of the future is the job of any business executive,
manager, or supervisor, so you have to stay plugged into the available information
sources. Here are some sources that provide glimpses of the future:
ߜ Business journals and magazines
ߜ Industry journals
ߜ Seminars and workshops
ߜ Conventions and trade shows
The key to anticipating your future is fully understanding where you are
today and what’s going on around you (see the previous sections). You have
to continually move your focus from the horizon to the microscopic details of
your business and back to the horizon again. While you’re at it, keep your
eyes and ears open for any new technological developments coming down
the road. Sometimes, breakthrough technologies will travel far above the
posted speed limit; if you’re not careful, they may run you right off the road.
The top five process-tracking problems
After looking at the problems that can and will occur while you’re tracking
your process performance (remember, if something can go wrong, it will),
20 Part I: The ABC’s of Balanced Scorecard
we’ve identified five that tend to be the most predominant. No matter where
we go in the world for business, we run into these measuring issues:
1. Not involving the process workers in the measurement of their
processes and work. You shouldn’t rely solely on automated datagathering
systems, staff, and quality departments to own and measure
process data.
2. Not analyzing the process data for statistical control. You should use
simple process performance-analysis tools, such as line/bar charts and
control charts.
3. Having micro-process tunnel vision. Don’t focus solely on the microscopic
details of the processes; look also at the overall systems and how
the processes work together within those systems. Very often, changes
made in processes to improve their performance can actually hurt the
performance of the business as a whole. You have to make the right
process improvements for the sake of the business, not the sake of the
individual processes.
4. Getting the wrong data. A big problem is measuring the wrong
processes, such as those that don’t relate to customer needs and wants.
A good example of this is a company who spent a ot of time and money
to measure and improve the finish on the product they sold to another
company. Unknown to the supplier was the fact that the first thing the
customer did with the product was that they roughed up the finish on
the part so that they could use it in the assembly of their products.
5. Not getting real-time data. You need to measure often enough to get
real-time information on your process performance.
If you eliminate these five key problem areas in tracking your process data,
you’ll put your company ahead of many others in the world that don’t get it
right. Congratulations! You’ve made a giant step forward.
Managing Company-wide Knowledge,
Education, and Growth: Learning Leg
Managing your knowledge, education and growth is a vital, yet often ignored,
aspect of any business. We’ve all hear the stories of organizations that were
severely hurt by the retirement or attrition of a key individual that had tons
of knowledge about the business and – oops - that knowledge went out the
door with them. It has become such a critical issue that whole new systems
designed solely for the purpose of knowledge management have been created.
Unfortunately, many companies just don’t do a good job — or any job at all,
for that matter — of managing the knowledge, education, and growth of their
21Chapter 1: Goals, Scores, and the Balanced Scorecard
business. This is, without a doubt, the most neglected and ignored leg of the
Balanced Scorecard. And companies wonder why they have an employeeturnover
rate of 300 percent or more along with massive quality and cost
issues! They are amazed when a competitor introduces a new feature or technology.
In these organizations, it always seems that the employees are to blame
in the eyes of management. In fact, nothing could be further from the truth.
The ones to blame for being blind-sided by the competition, the high turnover,
poor quality, and cost issues are the managers who hire and lead their people.
They’re responsible for training the employees and making sure they have
the necessary tools to do their jobs right. They are the ones responsible for
keeping their eyes and ears open fo new developments in their industries and
markets. The time has come to take a look into the mirror. If your organization
is having troubles because your people don’t seem to know what to do,
when to do it, and how to do it, or you always seem to be behind the eightball
when it comes to your competition, it’s a pretty good indication that you
haven’t been paying close attention to this leg of the Balanced Scorecard. By
paying attention to this leg of your Balanced Scorecard Strategy, you will prevent
these issues from occurring in the first place – and that’s why you use
the Balanced Scorecard!.
In the following sections, we cover the importance of taking care of your
employees’ and their development, measurement for your knowledge, education
and growth scorecards, and keeping this leg of your Balanced Scorecard
on track.
Understanding the importance
of taking care of your own
You need your employees not only for the work they do in your business, but
also for their ideas and creativity. For your company to be successful, your
workers need to be highly trained and skilled in the following areas:
ߜ In the tasks they perform
ߜ In measuring their processes
ߜ In communicating
ߜ In team-based problem solving
ߜ In getting along with others
Plenty of competitors have this truth already figured out — that you must
take care of your own to be successful — and they’re ready to use this knowledge
to their advantage.
22 Part I: The ABC’s of Balanced Scorecard
For all the talk you hear about how companies value their employees, we still
deal with many companies that ignore the development of their workers. It all
starts in the very beginning, when they hire new employees. Many people get
jobs because managers like them, not because they have the necessary skills
for the jobs. On the other hand, a new hire may have the necessary skills, but
he or she doesn’t quite fit in with the culture of the organization. For many
reasons, companies try to hammer round pegs into square holes. The result?
A lot of headaches for everyone involved.
Allow us to be honest here: The days of workers leaving their brains at the
door and just doing the work as management instructs are long over. And
thank goodness for that! Can you afford to ignore this vital leg of the
Balanced Scorecard? We don’t think you can. But what do you think?
Measuring knowledge,
education, and growth
Measuring the knowledge, education, and growth in your company is very
different from the measures of the other three legs of the Balanced Scorecard.
With the other legs, you focus on achieving excellence in performance. With
this leg, though, you focus on excellence in capability, in terms of where
you’re going and how you’ll get there.
To measure the knowledge, education, and growth aspect of your Balanced
Scorecard, you need to follow these steps:
1. Evaluate the core competencies your organization relies on to provide
your products and services.
2. Examine your workforce to see what you have currently with respect
to these core competencies. What are your strengths, and where do you
need to increase competency and capability?
3. Determine where you have gaps between Steps 1 and 2. When you
understand what you need, you can compare the needs to your employees’
current job skills and knowledge — skills and knowledge that you need not
only to get work done, but also for your company’s future capabilities.
4. Choose an appropriate strategy to close the gaps. You can count on one
of the following:
• Employee development (training, for example)
• Talent and capability acquisition (buy a company with the specific
competence you need)
• Recruiting (hire subject-matter experts)
23Chapter 1: Goals, Scores, and the Balanced Scorecard
5. Plan and execute your strategy. Make sure you adjust accordingly along
the way, because your work here ties into the other three legs of the
Balanced Scorecard.
Appropriate, accurate, and timely measurement here makes the difference
between whether your organization leads or follows in a market. For instance,
we have seen recently where two hotels competed in a highly tourist-based
market. The one hotel chain focused on fundamental services, and trained its
workforce on precision, courtesy, and the rules of the hotel. The other, while
still focusing on courtesy, trained its workforce on what is going on around
the city, where to go for good food, entertainment, shopping or sightseeing.
The second hotel chain had done a bit of market analysis, and determined
most of the clients were from out of town, and wanted to get out and see the
town. So, while the first hotel excelled in service and room amenities, the
second hotel surpassed the first by a rate of two to one in their fill rates,
because their employees were well versed in finding out what the client really
wanted, and then helping the client get it.
It also determines how you measure progress and how fast you can detect
and correct for any deviations from the expected scorecard performance
objectives. Be sure you examine the following areas of your company:
ߜ A good place to start is to look at what your company makes — the
products and services it provides. To whom do you provide? In what
markets? To what degree? Owning 85 percent of a market requires a different
approach — perhaps expansion to other markets — than if you
own only 5 percent (in which case you may look to expand your market
share). Also, understanding the types of products you provide in your
markets can suggest other applications, expansions, and opportunities.
ߜ You need to know the geography of your market share. For example, you
may own 15 percent of the global market, which may consist of 90 percent
of the Central European market for your product. In this case, you
need to think about how your group will need to approach the other 85
percent in ways that are different, given the different geographic and cultural
aspects of these prospective clients.
Some companies design and use a simple matrix with employee names in the
vertical column (Y-axis) and required job skills in the horizontal row (X-axis).
They populate the matrix so that they can determine basic worker capabilities
and the work their employees can perform, as well as gaps that need
additional knowledge, skills, and capabilities — acquired through planning
and executing employee development plans.
24 Part I: The ABC’s of Balanced Scorecard
Staying on the right course in the
fourth leg of the scorecard
Due to the pace of business (fast — very fast), you need a plan for measuring
growth, education, and knowledge, and you need to monitor your progress
against it. To stay on the right course takes effort and constant vigilance. As
employees come and go due to internal transition, promotions, and attrition,
the front-line managers must have the tools necessary to assess and develop
employees. The real nuts and bolts of this leg of the scorecard are in the
hands of the immediate supervision, whether they be process workers,
supervisors, or managers.
All guys and gals who have employees reporting to them should have a
knowledge, education, and growth dashboard that examines current needs
and how they’re met, as well as future needs and how the managers should
be developing their people to meet those needs.
Using Dashboards to Apply Balanced
Scorecards to Your Business
One of the most effective ways to ensure that your business is on course on
all four legs of the Balanced Scorecard is through the use of dashboards.
Dashboards provide you with critical, current information about the operation
of your business, just as your car’s dashboard gives you critical, current
information about your car. Business dashboards allow you to keep track of
how things are operating and let you know what needs attention — either
through immediate action on your part (your engine light comes on, so you
turn your engine off) or through action in the near future (your gas-tank icon
lights up, so you need to put gas in before you run out). See Figure 1-1 to see
how dashboards fit into the Balanced Scorecard.
People see and use all kinds of dashboards in their daily lives; here are a few
examples:
ߜ In aircraft cockpits, allowing pilots to make course or altitude corrections
to stay on their planned flight parameters.
ߜ In air-traffic-control centers, which use radar tracking systems both as
a tool to manage the multitude of aircraft coming and going and as a
25Chapter 1: Goals, Scores, and the Balanced Scorecard
dashboard to provide continuous status reports of where each aircraft is
and its respective heading and altitude.
ߜ On your television, in the form of stock-market reports that flash across
the screen to tell you what the value of a stock is at any given moment.
In business, dashboards provide the same intelligence but in different ways,
depending on the information and how you’ll use it. Companies use dashboards
as a way to manage their daily, weekly, and monthly activities according
to the guidelines and key process inputs established in their Balanced
Scorecards and business-performance expectations. Here are a few business
dashboard examples:
ߜ A water treatment company may set up a dashboard to monitor liters
per minute of water treated and the quality and flow parameters, tying
directly to the company’s revenue stream for the amount of water
treated per minute.
ߜ A hotel may set up a dashboard to examine occupancy on a daily basis
and issues that come up. For instance, the hotel could focus on turnover,
theft, and other operational issues that tie into the bottom line.
ߜ An automotive manufacturer can establish dashboards at different levels
so that it can see activity by the minute on the assembly line while tracking
and adjusting sales rates daily. The dashboards allow the company
to still manage development of new products to condensed cycle times,
with better integration and time to market.
BALANCED
SCORECARD
Customer
DASHBOARD
Value
Excellence
Leadership
Strategy
Operations
Tactics
Market
Environment
Technology
Financial
Growth
Processes
Figure 1-1:
How
dashboards
fit in with
Balanced
Scorecard.
26 Part I: The ABC’s of Balanced Scorecard
When applying dashboards across a Balanced Scorecard’s four legs, don’t
take the easy way out and try to get one, all inclusive dashboard that tries to
capture everything on one page. Your business is far too complex for that.
Developing dashboards that go across process and systems and that link
among the strategic, operational and tactical levels take some thought, careful
preparation, and lot of planning, measurement and diligence. You probably
won’t get them perfect the first time you try them. They will need to be
adjusted and refined. As your business changes, so must your dashboards.
The really cool thing about dashboards is that after you create them, your
job of monitoring your business, knowing where your problems are, and
taking appropriate action in a timely manner will become much easier. And
what you’ll really come to appreciate is that dashboards will keep those
“We’re here to help you!” staff and management types from breathing down
your neck. Now that’s something worth shouting about!
The following sections dig a bit deeper into the topic of dashboards.
Market, environmental, and technology
considerations for your dashboards
As you plan for, develop, and implement your Balanced Scorecard Strategy
and related dashboards, you need to consider many factors that that will
affect what you focus on and measure. Here they are:
ߜ Market: You need to look at your particular market performance characteristics,
including new-product-introduction cycle times and any quality
and delivery issues (long lead times, for example). You should tailor your
dashboard to support your business-specific market needs to give you a
competitive advantage. Be sure to include aspects that would give you a
clear advantage in the marketplace, and use these aspects to drive your
decisions.
ߜ Environmental impact: Look not only at your local region, but also across
the broader environmental arena in which customers use your products
and services. This includes the business environment and its implications
regarding Sarbanes-Oxley and other legislative edicts issued in recent
years (in the United States), as well as any regulatory constraints specific
to your business. You can design your dashboard to monitor and manage
your risks in these areas; early-detection and -correction systems can help
you avoid potentially damaging and costly mistakes in your operation.
27Chapter 1: Goals, Scores, and the Balanced Scorecard
ߜ Technology: The final consideration focuses on technology specific to
your industry and your products and services, and actually integrates
with the other two considerations. Your dashboard needs to reflect the
technology associated with your business — not only to provide realtime
updated intelligence, but also to enable you to stay competitive by
providing technology intelligence as early as possible and where it may
impact your business most.
For example, when new products in the cellphone business boasted of
Bluetooth capability over traditional wired headsets, companies raced
to incorporate this technology into their latest models. The fastest
gained dramatic advantage in the market, albeit only temporarily. But
these companies were able to set the standard by which everyone else
had to strive to.
Your dashboard must be able to indicate technology shifts and enablers
in all four legs of the scorecard — especially in the customer and process
areas because providing a poorly supported new capability is worse
than not having it at all.
Reviewing strategy, operational, and
tactical scorecards and dashboards
Okay. Let’s take a minute or two to review the scorecards and dashboards
among the three levels: the strategic, operational and tactical levels. The strategic
level scorecard is developed by senior executives and it’s the driving force
for all of the other scorecards, dashboards and their measures. It’s the “big elephant”
in the room. At the strategic level, you will develop your strategy map
and then use that map to determine the measures and tactics that you will use
for tracking your strategies and tactics at the strategic (executive) level, the
operational (mid-management) level, and at the tactical (front line) level.
The key consideration when looking at your strategic, operational, and tactical
scorecards/dashboards is linkage — or what we call “stringing the single
thread.” Linkage is achieved by ensuring that your measures at the strategic,
operational and tactical levels are tied together and supportive of one another,
as well as being linked across the four legs of the Balanced Scorecard. These
scorecards/dashboards have to be well-integrated or they won’t do the job
you want them to do.
The things you do and measure at the tactical level, such as defects or errors
per day, have to support and achieve the things you have on your operational
dashboards, such as the quarterly departmental goal of reducing overall defects
by 25 percent; the operational scorecards/dashboards must achieve the things
you need at the strategic level, such as reduce the costs of a particular product
28 Part I: The ABC’s of Balanced Scorecard
or service line by 75 percent within three years. Also, you have to know how
much the tactical and operational measures will contribute to achieving your
strategic goals and objectives — by how much and when.
The following list presents a process called Catchball that will help you
accomplish the linkage you need among the strategic, operational and tactical
levels and across your organizational functions.:
ߜ Strategic Leadership Team
Objectives:
• Define strategic goals, objectives, and metrics for the four legs of
the scorecard (often defined by competitive and best practices
benchmark studies).
• Deploy goals, objectives, and metrics throughout the strategic
leadership team.
• Identify the actions and steps necessary to achieve the goals,
objectives, and metrics.
• Pass down to the operational level.
ߜ Operational Level Team
Objectives:
• Determine if the strategic-level passdown is achievable. If not,
resolve the issues and pass back up to strategic level team to get
concurrence and consensus. If so, set operational-level goals,
objectives, and metrics.
• Deploy goals, objectives, and metrics to the operational team.
• Identify the actions and steps necessary to achieve goals, objectives,
and metrics.
• Pass down to the tactical level.
ߜ Tactical Level Team
Objectives:
• Determine if the operational-level passdown is achievable. If not,
resolve the issues and pass back up to operational level to get concurrence
and consensus. If so, set tactical-level goals, objectives,
and metrics,
• Deploy goals, objectives, and metrics to the tactical team.
• Identify the actions and steps necessary to achieve goals, objectives,
and metrics.
• Make it happen!
29Chapter 1: Goals, Scores, and the Balanced Scorecard
30 Part I: The ABC’s of Balanced Scorecard
Chapter 2
BuildingandBalancing
ScorecardStrategies
In This Chapter
ᮣ Linking your strategies and the four legs of the scorecard
ᮣ Balancing scorecards with a strategy map
ᮣ Fixing an un–Balanced Scorecard
ᮣ Dealing with change in your markets and business
The problem with many companies — at least those that choose not to use
the balanced-scorecard strategy to manage their businesses — is that
they’re unbalanced. No, “unbalanced” doesn’t mean that their buildings are
leaning over like the Tower of Pisa. When companies are unbalanced, they
don’t pay attention to some very important aspects of their businesses. And
like the town drunk trying to walk a straight line to get to the next bar, an
unbalanced company will fall down and get hurt — sometimes seriously hurt.
For instance, they may pay attention to their financials and internal processes,
but they may totally ignore their employees’ needs for learning and growth or
do a haphazard job of finding out what their customers really want. As a result,
unbalanced companies employ poor strategies and make a lot of wrong decisions.
They get blindsided by things that seemingly come out of nowhere, and
they spend time and money trying to figure out what went wrong and assessing
blame. And after they fire the “culprits,” they keep on doing the same things
that got them into trouble to begin with.
The bottom line: Balance is essential. But to achieve the balance your company
needs, you first have to understand a few things: how to determine and
link your strategies across the four legs of the Balanced Scorecard, what to
do if you lose your balance, and how to deal with the shifts in your markets
that affect your long-term strategies. In today’s fast-paced business world,
ever-changing landscapes will require you to make changes. You have to be
pretty swift of foot to keep up.
This chapter takes you into the world of strategies and how they drive your
Balanced Scorecards — in other words, it helps you understand the few things
you need to make your company balanced. You also get some good tips on
how to stay ahead of the ever-changing tides of your markets and the external
forces that will come along and force change upon your organization.
Understanding How the Four Legs
Interact and Link to Strategies
At the core of every Balanced Scorecard is the need for a company’s senior
executives to develop corporate strategies for all the legs of the scorecard.
You can’t just set up the four legs with measures and then go off and do your
thing. That “thing” you do has to be tied to your key scorecard strategies,
and your strategies have to be linked in such a way that you know how they
affect the four legs of your Balanced Scorecard.
So, before you begin developing strategies for your business, you need to get
an idea of how your strategies affect the four legs of the Balanced Scorecard
and how your resources play a vital role in making those strategies work. Use
the information in the following sections to establish a firm view of how your
strategies and resources relate to the Balanced Scorecard.
Putting strategies in the driver’s seat
Figure 2-1 shows how your company’s leadership, scorecards, dashboards,
and measures for the four legs provide the pillars that support your company’s
vision and strategies.
How heavily are each of the four legs influenced by your strategies? Get ready
for our favorite MBA school answer: It depends. It depends upon the strategy,
on your business, and on the things that influence them, both internally and
externally. The key is that you give each leg its due consideration, figuring
out how each of your strategies impacts each leg and then developing the
plans, tactics, projects and measures that will achieve your long-term goals
and objectives.
The following list gives you an idea of the things that need to be done when
putting your strategies into the driver’s seat:
ߜ Develop your vision, mission, and guiding principles for your organization
(usually done by the executive team with the help of mid-level
management)
32 Part I: The ABC’s of Balanced Scorecard
ߜ Develop your long-term strategies and goals based upon strategic analysis
and planning (usually done by the executive team with the help of
mid-level management)
ߜ Develop your strategy map, operational and tactical plans, goals, and
objectives analysis and planning (done by mid-level management with
help from their direct report employees and senior management)
ߜ Develop Balanced Scorecards and dashboards (done by mid-level
management with help from their direct report employees and senior
management)
ߜ Implement plans, measuring and monitoring progress and updating
scorecards and dashboards as necessary
ߜ Adjust strategies, plans, and tactics as necessary to achieve success
This is not a one-time event! It is an ongoing process that becomes an integral
part of the way you manage your decision-making process and run your
business.
Focusing resources on your strategies
Identifying and focusing your strategies on all four legs of the scorecard is only
part of the equation (see Figure 2-2 as well as the section “Developing Your
Strategy Map” for more on identifying and developing strategies) — although
it’s no small accomplishment in itself. You also need to ensure that you align
and focus your resources when implementing your strategies. This means
focusing like a laser beam on achieving your strategic goals and objectives by
• Develop your
vision, mission
and guiding
principles
• Develop your
strategy map
• Develop your
scorecards for
the Four Legs
• Develop your
balanced scorecard
measures and
dashboards
• Establish your
leadership and
management
team’s alignment,
authority and
responsibilities
VISION, MISSION
GUIDING PRINCIPLES
Figure 2-1:
How
strategies
affect the
Balanced
Scorecard .
33Chapter 2: Building and Balancing Scorecard Strategies
applying the resources needed to succeed. Resources to be budgeted include
things like:
ߜ Money (you knew that one was coming, didn’t you?)
ߜ Time (yours, and your employees’)
ߜ Administrative support and supplies
ߜ Training and education of your employees (scorecards and dashboards,
team and process improvement skills, job skills, etc.)
ߜ Space to meet and operate, and places and systems for display and communication
of scorecards and dashboards
ߜ Integrating scorecard and dashboard software with your information
technology systems and databases to allow ongoing monitoring of your
strategic and four legs goals, objectives, and performance
Now, we’re not saying that you open up your wallet or purse and start writing
blank checks. Like any other business function, a good amount of business
financial planning and cost accounting goes a long way. The level to which
you allow your teams autonomy to handle their funding and make decisions
on their own depends upon their maturity and development in handling such
decisions.
Borrowing from Other Companies’
Success
As you focus and align your resources to achieve your scorecard strategies,
you’ll zero in on some key areas. Robert Kaplan and David Norton, the fathers
of the balanced-scorecard approach, identified five principles that are common
IT INTERGRATION
SPACE
$$ MONEY $$
TIME
TRAINING
ADMIN SUPPORT
Figure 2-2:
How to
focus your
resources
on your
strategies.
34 Part I: The ABC’s of Balanced Scorecard
to companies that have enjoyed success through the use of Balanced Scorecards.
In the following sections, we list the five principles and explain how you
can benefit by taking the same approaches to Balanced Scorecard strategies.
By using the approaches outline in these principles, your Balanced Scorecard
becomes not only a method, but also a system for the long-term strategic view
of your organization. It becomes a process wherein you translate your company’s
vision, communicate and link your strategies to your business-planning
processes, and develop feedback based on what you learn along the way.
During the entire process, you communicate, communicate, communicate —
and then communicate some more.
Translating strategies into
operational terms
The first principle is translating your scorecard strategies into operational
terms — in other words, into tangible and measurable terms.
You translate factors like the following into terms that you can measure and
manage for value creation:
ߜ Reducing cycle times translates into reducing the number of minutes or
seconds it takes to complete the detailed steps within a process
ߜ Increasing market share translates into increasing the percentage of a
market for your specific product or service and the need to forecast for
the expected increase in volume, potential needs in human capital, training,
plant and equipment, and so forth
ߜ Increased innovation translates into the number of new ideas, methods
or features that better satisfy the customer or that improve the business
ߜ Improving employee and customer satisfaction translates into increasing
the number of retained employees and customers (reducing turnover
rate), or improving employee and customer satisfaction levels, and reducing
employee absenteeism rates
ߜ Focus on core competencies translates into improvements in your value
streams and the potential outsourcing of non-core systems or processes
These sometimes financially intangible measures translate into the value they
create for your customers and shareholders, such as revenues from new services
and products, retained customers, and profits. Translated strategies
provide a common language and framework for your entire company to use.
Instead of one function speaking English, one speaking Chinese, and the others
speaking who knows what, all your functions speak in the same language —
one that’s well understood and measurable.
35Chapter 2: Building and Balancing Scorecard Strategies
Aligning your organization
to the strategies
To align your organization to your scorecard strategies, you want to create
synergies among your various business units and functions. The breaking
down of functional silos and barriers and improved communication and coordination
are the keys. To achieve this, your executive team should set a consistent
message and priorities, linking business units and shared services
within the company.
Making strategies everyone’s daily job
Incorporating the strategies into your employees’ everyday work means
ensuring that all your employees understand the strategies and how they can
contribute to attaining and sustaining the strategic goals and measures. An
executive’s job becomes one of communication, education, and eventually
empowerment of the workforce to continually improve and work toward
achievement of the strategies.
Strategies should be deployed downward to the operational and tactical levels
of the company, and the various levels should be allowed to individualize
their scorecard measures and to go beyond functional boundaries and silos.
Team-based and corporate-gain rewards and recognition incentives should be
established to motivate scorecard knowledge and achievement. You don’t
want your people walking around like a bunch of mind-numbed zombies; take
the blinders off and allow them to view the organization as a whole.
Turning strategic deployment
into a continual process
You must take three basic actions to make strategic deployment a continual
process:
ߜ Link your strategies to your budget.
ߜ Call on management to hold regular reviews of the strategies during
their normal meetings and reviews.
ߜ Develop a process for learning and adapting the strategies.
Rather than the once-or-twice-a-year, half-hour review of strategic goals and
performance, with the associated variance analysis where everyone gets two
minutes (or less) to explain why they’re not achieving goals as planned and
36 Part I: The ABC’s of Balanced Scorecard
what they think they can do to get back on track, strategic deployment becomes
a topic for discussion on a regular basis. By regular we mean once or twice a
month, not once or twice a year. And, oh by the way, the meeting may take a
few hours—or even more—if necessary.
Mobilizing change through your
executive leadership team
You must strive for the active involvement, support, and ownership of the
process by your executive team. It comes down to walking the walk and not
delegating the strategic deployment and balanced-scorecard approach to
other staff members. If your executive team sends the message that Balanced
Scorecards and strategies are important but they’re too busy to get involved,
your company will hear the real message loud and clear. And if it isn’t important
to the executives, it won’t be important to them. Every person has the
same 24 hours in a day, and we all seem to make time for the things we consider
to be priorities.
You’re looking at a changed management approach, not just another triedand-failed,
go-out-and-measure-everything-and-keep-score exercises. It comes
down to making a fundamental change in how your managers and executives
view the management of your business and its culture. Remember, keeping
score by itself doesn’t tell you a darn thing about how to win the game. If you
try to manage solely by the score on the scoreboard, you’ll win only by the
luck of the draw. In order to win consistently, you need to have
ߜ Good team players who get actively involved in the scorecard game.
ߜ A sound strategy and gameplan for winning based on your team’s
knowledge, skills, and abilities.
ߜ A good understanding of your competition and their strengths and
weaknesses .
ߜ A willingness and ability to change in the face of new and unforeseen
developments.
What if the four legs of the scorecard — customer, financial, internal
processes, and learning and growth — aren’t enough? What if your executive
team thinks they need more than four legs to truly achieve organizational balance?
Perhaps they want some additional scorecards that handle research
and development, your supply chain, or your company’s leadership. Well, go
ahead and add them! The four legs create a template for you to use, but they
aren’t written on stone tablets. You can be versatile and use scorecards in
whatever ways you find necessary to cover all your bases. The four legs are
just the bare minimum.
37Chapter 2: Building and Balancing Scorecard Strategies
Developing Your Strategy Map:
A Balancing Act
Developing your scorecard strategies and making the strategies the core
of your business objectives are the main goals of the balanced-scorecard
approach. To meet your goals and to achieve balance among the four legs of
the scorecard, you need to develop strategy maps. These maps are typically
(and best!) developed by senior executives and their direct reports, and they
form the basis for the operational and tactical level plans, projects, and
scorecards.
Strategy maps are the vehicles by which you ensure that your scorecards
have balance. Strategy maps also allow you to see how your operational and
tactical plans and initiatives are linked and work toward achieving your
strategic objectives.
It takes some work on your part and the part of your management team to
create strategy maps, but the effort is really worth it. So, call a meeting with
all your management peers, lock the door when everyone enters the room,
and don’t leave until your strategy map is done (make sure you order some
coffee, doughnuts, and bagels — and don’t forget the cream-cheese spread!).
Doing your mapping homework
Before you gather the faithful and lock the meeting-room door to get your
strategy map done, you need to do some strategy homework. Gather and
review the following information:
ߜ Your annual reports
ߜ Your mission statement (if you don’t have one, get it done!)
ߜ Your corporate and organizational values and guiding principles
ߜ Your vision for the future
ߜ Your project plans and initiatives
ߜ Consultant studies, reviews, and reports
ߜ Performance reports for the past 12 months
ߜ Competitive data and analysis
ߜ Your organizational history (to get in touch with what the founders of
your company valued and wanted to achieve)
38 Part I: The ABC’s of Balanced Scorecard
ߜ Stock-market analysts’ reports (if available)
ߜ Trade journals and news articles on your company
ߜ Benchmarking reports and information
Be cautious not to play follow-the-leader and just do what other companies
have done — especially when it comes to competitive and benchmark analysis.
These have to be your strategies and scorecards, not just carbon copies
of what other companies have done. And, while you’re at it, look for a consistent
thread regarding your vision, mission, values, and guiding principles. If
these statements aren’t consistent, revise them to make them so.
Drafting the strategy map
If you’ve done your strategy homework (see the previous section), you
should be ready to develop your strategy map. The strategy map in Figure 2-3
gives you a good idea of what the end result may be. Your strategy map will
undoubtedly be more complex than this example.
Increase
Profit
Profitable
Financial
STRATEGIC
GOALS
Increase
Revenue
Increase
Market Share
Competitive
Price
Easy
Rental
Reliable
Car
Reduce
Rework
Reduce
Costs
Streamline
Rental
Car
Utilization
Staff Hire/
Training
Car
Selection
Sales
Training
Customer
Internal
Processes
Learning &
Growth
Shareholder Longevity
Figure 2-3:
A simple
strategy
map.
39Chapter 2: Building and Balancing Scorecard Strategies
To create a strategy map, follow these basic steps:
1. Gather and analyze the necessary information: Market studies, industry
reviews, SWOT (Strengths, Weaknesses, Opportunities, and
Threats) analysis, financial statements, etc.
2. Develop business strategies, such as: Grow the business by 50 percent,
or increase customer retention rate by 15 percent within three years.
3. Develop the objectives and goals for each leg of the scorecard.
4. Ensure that all of the interactions and linkages are defined among the
four legs.
Some companies want to start with the financial leg first by setting financial
goals before working on the other three legs. Others may start with the customer
leg first, assessing customers, markets, and customer trends and forecasts
for the future before getting into the financial leg. It may be one of those
“Which came first: the chicken or the egg?” discussions. Your executive team
must make the call, but we’ll say this: There’s some logic behind starting with
your customer and market studies. Many companies set unrealistic financial
goals and then try to force them upon their organizations, only to find out
that their customer bases and markets won’t support them. Starting with the
customer leg and then moving to the financial leg based on a realistic assessment
of your customers and markets helps you avoid this issue, which prevents
some potential rework in the long run.
Using strategic-planning tools such as SWOT analysis, Delphi analysis (futurists’
view of likely trends in markets), best practice and competitive benchmarking
can be invaluable when developing your long-term strategies. For
more information on these topics, simply do a web search and you’ll find
tons of information at your fingertips, both for free and for a price.
Ensuring a Balanced Scorecard (And
What to Do When Yours Isn’t)
Making sure that you have balance within the various legs of your scorecard
comes down to a close examination of your strategy map (see the previous
section). Did you miss anything? In other words, can you identify any holes in
the map? Get your people back together to review the strategy map. Though
you will constantly be reviewing and revising your strategy map while it’s
being developed, you should do one final check before blasting it to the
world and issuing your marching orders, just to make sure nothing slipped
through the cracks. You should also have a continual review and revision
40 Part I: The ABC’s of Balanced Scorecard
process in place to make sure no unanticipated problems develop as things
change (don’t you hate it when that happens?).
The reviewing process of your strategy map gives you a great opportunity to
communicate your strategies to your people. Take full advantage of it. As you
make changes to your strategy map, review it with your people to get their
ideas; check it for any holes or omissions; and communicate with them about
your strategies. The balanced-scorecard approach is, after all, a continual
process.
When reviewing your strategy map, check for holes or omissions, such as:
ߜ Obvious holes made by ignoring one or more of the four legs in your
strategy map
ߜ Failing to link strategies between the four legs, such as: Not taking into
account the potential technological ramifications of a decision to enter a
new market (impacting upon all four legs of the Balanced Scorecard
through potential impacts to customers, increased financial needs, new
or revised internal business systems and processes, and needs for new
employee knowledge and skills)
ߜ Undefined ownership, responsibility, and authority for each element
identified on the strategy map
ߜ A lack of defined and measurable goals for each element of the
strategy map
Figure 2-4 is a diagram of a nifty tool, originally developed by Walter
Shewhart and W. Edwards Deming, called the Shewhart Cycle (though some
know it by the name of The Deming Cycle, PDSA, or PDCA Cycle).
1. PLAN4. ACT
2. DO
THE SHEWHART CYCLE FOR
CONTINUAL IMPROVEMENT
ALSO KNOWN AS THE PLAN, DO, STUDY
(OR CHECK), ACT CYCLE
3. STUDY
Figure 2-4:
The
Shewhart
Cycle is a
tool that
helps you
maintain
scorecard
balance.
41Chapter 2: Building and Balancing Scorecard Strategies
By using the Shewhart Cycle and applying it to your strategy map and Balanced
Scorecards, you put your organization in a continual process of
Plan
Do
Study
Act
After you plan for and select the strategies, projects, initiatives, and measures,
you implement them do. After implementation, you study them to ensure that
they do what you intended them to do and measure what needs to be measured.
Once they are just right and on the mark, you act to make sure that
you sustain and control them. Then you start the cycle all over again, when
appropriate.
By following the Shewhart Cycle, you ensure that you’ll never lose your balance
with your strategy map or Balanced Scorecards. Continual improvement
is a wonderful thing, indeed!
42 Part I: The ABC’s of Balanced Scorecard
Getting more than lip service
One company that we worked for (in a distant
galaxy, far, far away) adopted a once-everythree-or-four-months
— whenever the urge hit
theseniorexecutives—strategymapandscorecard
review style. Well, it eventually became
apparent that the process was broken because
during each review, the people presenting
would have to get up in front of the executives
to explain why they weren’t hitting their marks,
why they had variances, and what they planned
to do to get back on track. This went on for
about two years until someone decided that the
reviews were only giving lip service to the entire
process and no one, including the executives,
was taking the process seriously.
Fortunately, the executives were learning about
some guy named Dr. Deming and a thing called
the Plan, Do, Study, Act Cycle and how it drives
continual improvement. In one of those famous
(or infamous) closed-door meetings that executives
love to have (especially when things get
interesting), our executives resolved to make
strategy maps and Balanced Scorecards important
parts of how they ran the business. They
went back to square one, starting over and
taking the steps we discuss in this chapter. They
began to hold frequent reviews — once a week
at first and then every other week — and as the
message was heard loud and clear throughout
the organization and people started to achieve
and report progress rather than recovery plans,
they went to once-a-month reviews. By applying
the PDSA Cycle, the executives got the business
back on track — and kept it there.
Adapting to Changes in Your
Markets or Business
“Change is constant” is one of those universal laws of life, and it never rang
so true as in the business world. When it comes to change, you have only two
options: manage it as best you can, or bury your head in the sand and get run
over by the steamroller that is your competition. We recommend the former
option; it’s far less painful!
Here’s our no-money-back guarantee: Change will affect your strategy map
and your Balanced Scorecards. You can do nothing but be prepared for it and
manage it. Accepting the need to roll with the changing tides of your markets
and business will put you far ahead of companies that take the steamroller
approach. That’s the good news. The not-so-good news is that it requires time,
effort, and due diligence to make sure you see the signs of change coming
before they run you over. The sections that follow give you some good direction
to ensure you’re prepared for and can anticipate changes that will affect
your scorecard.
Spotlighting external influences and
their effect on your business
So many external influences can force change upon your organization, and it
may become a little overwhelming at times. Fortunately, you can do some
things to stay ahead of the curve and remain prepared for change. We discuss
how to prepare for changes that affect each of the four legs of the
Balanced Scorecard in the following sections.
Customer-leg influences and their effects
You better believe it: Your customers change over time. Their expectations
can change for any number of reasons:
ߜ Higher expectation levels
ߜ The effects of your competition driving ever-increasing demands for
better quality and service
ߜ Always faster and maybe cheaper products/services
ߜ New technologies and ways of doing things
43Chapter 2: Building and Balancing Scorecard Strategies
Whatever the reasons, the customer expectations placed upon your products/services
will constantly be changing, so you need to forge very close
relationships with your customers. Listen to what they have to say about
your company.
Just because customers are happy with you today doesn’t mean that they’ll be
happy with you tomorrow. A wise fellow from Japan named Kano understood
this and developed what’s called The Kano Model. In the model, he describes
how a company’s performance that satisfied the customer at one time won’t
even come close as time goes on. Why? Because the customer comes to expect
more from you and your company. Kano went on to say that the things that
delight the customer now will be expected performance in the future.
The Kano Model forces you to continuously look for new innovations and
ways of delighting your customers while you work on delivering what they
already expect at the basic levels of performance. You can’t rest on your laurels
when it comes to the customer leg of the scorecard! Not when it comes
to what customers expect from you.
To stay ahead of the ever-changing customer-demand curve, you also need to
look outside your organization:
ߜ Keep your competition in your sights — especially what they’re doing
and how they’re doing it.
ߜ Examine your competitors’ best practices, and find out if a company
that isn’t your competitor may have some practices that you can benchmark
and make your own.
44 Part I: The ABC’s of Balanced Scorecard
A chilling look at customer expectations
One need only take a trip to the refrigerator to
see how The Kano Model is true. In the dark
beginnings of time, people didn’t have frost-free
freezers; layers and layers of ice were the norm.
These layers of ice invariably grew thicker over
the course of a month, eventually choking off
the freezer and encasing its contents in an
arctic prison. The cure? Users had to unplug the
freezer for a few days to let the ice melt. The
invention of frost-free freezers was understandably
a real delight to customers. They
didn’t have the product before, and they were
tickled pink to have this new innovation in their
kitchens. Customers would even pay a little
extra just to have the luxury.
Try to go out now to any appliance store to find
a refrigerator that doesn’t have a frost-free
system. Good luck — you’ll be looking for a
while. Would you even consider buying one?
Heck no! You see, the innovation that was a real
delighter has become a basic level of expected
performance. If a refrigerator manufacturer
doesn’t provide it, the company isn’t even close
to being in the game as far as the customer is
concerned.
ߜ Look into developing your own latest-and-greatest innovation or new
technology (this can get expensive and risky, but if you hit a home run, it
really pays off).
ߜ Make it a habit to rummage through business and industry journals to
see what’s out there and in the pipeline for future developments in your
markets.
While you’re at it, find out if you can borrow some ideas from outside
your industry and markets. Many of the so-called “inventions” and “innovations”
in the marketplace were actually adopted from unrelated industries!
Do the proverbial “thinking outside the box” and see what you can
borrow from others.
Financial-leg influences and their effects
Let’s hear it for Wall Street! So, do you think the dot-com businesses felt the
influence of any external financial changes forced upon them? Maybe just a
little? How about a lot! And the thing is, for companies that really paid attention
to what was going on, they saw the changes coming. Almost every day,
some newspaper or radio talk show was saying how overpriced the dot-com
market had become. Yet, when the crash came, plenty of companies got
caught flat footed and really felt the pain.
Always watch the markets and read the reports about what’s going on in your
business and industry — especially within your market segment and their
stocks. Read the analysts who review your market segment, watch the cost of
capital, and track investment dollars. See where the smart money is going.
Some of the common financial influences include
ߜ The effects upon costs of goods sold resulting from a change in the price
of a commodity or raw material (for example, consider the ramifications
of the changes in the price of oil, especially on airlines and transportation
and the markets they serve).
ߜ Unexpected shifts in the cost of capital
ߜ The emergence of a new competitive product that eats into your market
share
ߜ Mergers and acquisitions within your industry
The one thing you may be powerless to predict is a global political happening.
Sadly, the attacks of 9/11 falls into this category. The influence of that day
on business was profound. Travel was curtailed because nobody wanted to
fly anywhere. Plans for new products and services were put on hold. Almost
everyone went into a wait-and-see-what-happens mode, and some of these
modes lasted more than a year. Some companies never recovered from the hit.
For more on the financial leg, see Part III.
45Chapter 2: Building and Balancing Scorecard Strategies
Internal-process-leg influences and their effects
The internal-process-leg influences are much the same as your customer-leg
influences. Your internal processes are heavily influenced by the following:
ߜ Your customers
ߜ The competition
ߜ Innovation
ߜ Best practices
The financial side also influences internal processes, in terms of cost of capital
and investments in new or upgraded plants and equipments.
When looking at ways to understand the effects of external influences on
your internal processes, take a long look at the things that influence your
organization both from the customer and financial arenas.
Learning-and-growth-leg influences and their effects
The effects of your need for employee knowledge, skills, and abilities can be
just as profound for your organization as the other legs — maybe even more.
When new technologies, systems, and processes come into the market, that
knowledge comes at a very high premium. Just take a look at what happened
with the Six Sigma quality move (see the upcoming sidebar). Seeing the huge
salaries available, Six Sigma experts flooded into the experience vacuum to
take advantage of the market conditions for their knowledge.
For this leg, you should keep a close eye on universities, colleges, trade
schools, new technologies, and consultants. You need to see what’s in the
pipeline in the education system and what influences new technologies are
exerting that require new knowledge, skills, and abilities.
Can supply and demand for new knowledge and skills have an impact on your
company? You bet it can! Therefore, some companies will wait out the new
technologies and the knowledge requirements that go along with them until
the situations stabilize. This is a strategic and tactical decision on the part of
your company that has to be balanced with what your customers want and
need and what you’re willing to pay in order to deliver it (versus the costs if
you don’t).
Keep your eyes on the places where new knowledge is being introduced and
see what’s coming down the pike. Based on your observations, weigh your
options and make your decisions on the best course of action: jump on the
bandwagon or sit out for a while and wait for things to cool down on the
supply and demand curves.
46 Part I: The ABC’s of Balanced Scorecard
Recognizing early warning signals
Early warnings of potential issues, concerns, and problems are worth their
weight in gold (or platinum or diamonds, for that matter). The good news is
that you can use Balanced Scorecards to do just that: give you some early
warning signals, particularly at the tactical level.
At the tactical level, you measure and report on the key indicators at the project
and process levels of detail. Your tactical-level scorecards and dashboards—when
they measure the right things with timely information—will
provide early warning signals that things will soon go wrong at the operational
and strategic levels. You can catch those things before they become
problems at the higher levels.
What are some of the things you can catch at the tactical level before they hit
the executive suites?
ߜ Quality of products/services that are going wrong
ߜ Process issues that affect delivery
ߜ Revenues that aren’t quite performing as needed
ߜ Rising costs of goods sold
Almost anything and everything you measure at the tactical level should
provide an early warning signal that, if you don’t fix an issue, it will hit the
operational and strategic scorecards and dashboards in a negative way. Isn’t
that neat?
47Chapter 2: Building and Balancing Scorecard Strategies
Dealing with the supply and demand of knowledge
When Six Sigma first became the latest-andgreatest
thing, a trained and experienced Black
Belt could easily get a salary of over $150,000 a
year. Why? Because these experts were hard
to come by, and it was a simple matter of supply
and demand — demand was high and supply
was low. Master Black Belts could get even
higher salaries.
Now try to find out what Black Belts are making
today. If you check the papers or do an Internet
search, you’ll find that they get much less than
$100,000 a year. Sure, some companies pay
more, but they tend to target Black Belts who
also have some managerial abilities (like directors
and managers of quality or supply-chain
managers). Again, it comes down to supply and
demand. The demand is still there, but the
supply is now fat, dumb, and happy.
Balancing in today’s environment —
a moving platform
It bears repeating and keeping in mind: You have to be ready for change. You
have to prepare for it. No matter what your plans are, you should have some
contingency plans ready for when things don’t go the way you want them to.
Trust us, your organization will have to change them from time to time.
One way to make sure your business is prepared is to do some what-if scenarios.
It’s a simple process, asking the question, “what if this happens?” or
“what if that happens?” Conduct some good brainstorming sessions and be
open to many possibilities. Questions can be far reaching and varied:
What if the competition does this or that?
What if a new technology on the horizon comes along faster than
anticipated?
What if one of your suppliers goes in the tank?
What if . . . well, you get the idea.
In some organizations, what-if people are looked upon as nay-sayers. They
seem more than willing to throw a wrench into the works with their visions of
potential doom and gloom. Just as people are getting ready for the first chorus
of Kumbaya, the what-if types pop up and put a halt to the celebration, and
everyone groans and moans. Well, you need to encourage everyone to embrace
the what-if people because they can save your bacon. They help you keep your
feet firmly planted when your platform moves on you so that you’re ready
and prepared to deal with the situation. You’ll have your contingency plans in
pocket; all you have to do is pull them out, dust them off, and get going.
48 Part I: The ABC’s of Balanced Scorecard
Chapter 3
PlanningFortheBalanced
Scorecard
In This Chapter
ᮣ Mapping out the basic planning process
ᮣ Acquiring the necessary resources and support
ᮣ Setting the foundation for your Balanced Scorecard
ᮣ Giving your plans a final inspection before implementation
So, you’ve decided to try a Balanced Scorecard approach for your organization
(or are at least considering the possibility). First, congratulations!
But before you head straight to the meat of this book to get started, we need
to talk. You have a few things to put in place before you can start establishing
and using a Balanced Scorecard. Planning is an unnatural thing to do; it’s a lot
more fun to just start doing an activity so you feel like you’re accomplishing
something. But, before you jump into an activity — especially in the business
world — it makes sense to lay out a roadmap so you can be certain of where
you are now and where you want to go.
You may be surprised at how similar a company is to a house. The foundation
of a house must be sound in order to safely support the rest of the house.
A company is no different — the foundation of a business defines the success
of its structure and systems. In this chapter, we explore the critical elements
and framework necessary for Balanced Scorecard implementation and sustained
success. In this chapter, we introduce several key planning considerations,
explain how to ensure that the foundation is solid, and review ways for
both sustaining and communicating your scorecards for a continued competitive
advantage in your marketplace.
Getting Your Planning in Order
Getting started in planning your Balanced Scorecards means following a simple,
standardized multi-step roadmap to first confirm what you want to do and
how you intend to do it, then defining how you intend to measure doing it, and
finally outlining what specifically you will do better than your competitors.
And you’ll do this all while taking changes in your market, customers, employees,
suppliers, components, data and many other factors into account.
When planning your Balanced Scorecard, you should go through the following
steps in the order shown to achieve the best results:
1. Design your Balanced Scorecard strategy. The Balanced Scorecard should
align with the overall business strategy of your company. Elements of
consideration should include key company or organizational achievements,
goals, and objectives. One of the best tools to use in this step is
the Strategy Map (see Chapter 2).
2. Plan the framework of your scorecard. The framework should be customized
to your business and your industry, and consist of the four legs
of your scorecard, and include key elements such as risk and variation
indication, and interrelationships between the legs as well. It is here that
you will build the foundation and structure of your Balanced Scorecard
process. Elements of consideration should include how each leg of your
scorecard will provide insights into how the company is doing now, and
how it will do in the future. Also include feedback/flexible loops that can
both enable detection and response to key changes which may affect
business performance.
3. Plan how you’ll put your scorecard together. This includes all of the
key metrics identified in the earlier steps, interlinking them in such a
way that they are directly related to each other. Elements to consider
should include how well the metrics relate to the direction and mission
of the company, how well they show what you need to see, and their
ability to indicate change or variation quickly and effectively.
4. Set up support for the scorecards. You’ll need support throughout the
organization, but especially with its leaders and managers. Elements to
consider here must include their input, from design to metric selection
to how performance will be assessed, as participants, not just onlookers.
5. Plan the implementation and tracking of your Balanced Scorecard. Link
the scorecard to every activity and event, and to the key performance indicators
for your department and your business. Elements of consideration
will include how your managers and employees will perceive and successfully
implement and communicate their scorecards, the effectiveness of the
feedback loops, and flexibility to changing conditions, among other things.
6. Plan a self-assessment process. As mistakes are occasionally made,
your organization can learn quickly and effectively from them and make
adjustments along the way. This enables a continuous improvement and
refinement capability, which is critical to the long term success and sustainability
of your scorecards. Elements of consideration should include
designing a good “lessons learned” process, and integrating the study
and understanding of the results of this process into new project and
scorecard implementation processes.
50 Part I: The ABC’s of Balanced Scorecard
Planning Your Work and
Working Your Plan
The plan for your Balanced Scorecard involves some complexity in both
width (across your company) and depth (within each department or function).
In this section, we introduce you to the initial key actions you need to
take before developing your scorecards and dashboards (for the basics on
dashboards, see Chapter 1).
Planning for the resources you will need
To understand and apply your company’s resources when and where you
need them most in the planning stages of scorecard implementation, you
must consider these vital five points:
ߜ Resources are constrained. We never have enough people, money, time,
space for everything we want to do. For planning, we need to tailor our
approach to the level of available resources we can dedicate, in terms of
level of effort, timing, and response—both in funds and people.
ߜ Successful scorecards are collaborative. This can be a force multiplier
when planning your scorecard resourcing, because everything in a company
is related to everything else. Utilizing this characteristic in planning
means aligning the different available resources to support more
than one leg or scorecard component, in order to gain advantage with
fewer resources.
ߜ Priorities can and will change. Plan for this, especially as different priorities
can and do impact resource allocation. Build processes into your planning
for shifts in direction, so that you are prepared with contingencies.
ߜ The future is important, but so is the present. It’s easy to get caught up
in the future, but you have to be careful not to compromise the present.
Watch your key risks regarding planning for resources in the current
state situation, and where they need to be allocated best for scorecard
support. Then, plan for an effective transition for your resources toward
supporting future initiatives.
ߜ What to do when you don’t have what you need. Options include, but
are not limited to:
• Paring down what you want to do
• Stretching the time period for action
• Planning for some of the resource responsibilities to be shared
with management and key leaders, to free up key resources
51Chapter 3: Planning for the Balanced Scorecard
• Reconsidering how you were planning to use the resources, and
seeing if there is another way that might prove more effective.
• Narrowing the task to a specific area, division, product line, or
function first, and then to the other ones in turn.
Garnering support from management
and others
Planning for, designing, implementing, and sustaining a Balanced Scorecard
system requires support, encouragement, and involvement from just about
everyone in your organization — especially key leaders and managers, since
they are the decision makers within your organization, and they have the
power to enact change in the work environment. Imagine planning a deployment
strategy for a new product line, or to break into a new market, and then
attempting to execute the plan all by yourself. It is highly unlikely to happen.
The reason is that you need to work with and depend on a variety of key
people who are needed to bring such a plan to fruition. Implementing your
Balanced Scorecards is no different, because your leaders and managers likewise
have to feel the same level of ownership and commitment, since their
scorecards (and even dashboards) will work together in enabling the overall
organization to accomplish its mission. Enlisting their support must happen
early and often, and include the design, development, and implementation of
the scorecards as well as their support structure.
Within your group or organization, you need to contract for Balanced
Scorecard support. All your leaders need to integrate their different actions
to manage the Balanced Scorecard so that your company can minimize
duplicity and enhance its skill and knowledge leverage.
If you’ve ever implemented any kind of change program, you know that you
have to spend a fair amount of your time selling the concept — idea, the
roadmap, the benefits, the WIIFM (“What’s in it for me?”), and many other
aspects of the program. Here are several tactics you can use to get everyone
on the Balanced Scorecard bus:
ߜ From the beginning, especially during the planning period (see the first
section of this chapter), include fellow managers, and invite critics to
participate as well. As these people participate in the planning process,
they’ll commit to the overall implementation, too.
ߜ Publish as many of your scorecard submittals and ideas as you can, giving
credit where possible. This has a good chance of motivating people to
provide input and get involved — especially the “the wait and see” folks.
52 Part I: The ABC’s of Balanced Scorecard
ߜ Conduct reviews with different groups before scorecard implementation
to get their feedback.
Involve many people, and invite different perspectives to get innovative,
new ideas about Balanced Scorecards, from planning concepts to expectations,
and be genuinely interested in every submittal. You’ll come across
as a leader who’s interested in the feedback and ideas of others, and you’ll
benefit from the collaborative, diverse thinking of many people.
ߜ Set up a phone number for folks to call and ask questions. Put a policy in
place to return answers within 24 hours. And make sure you get it done!
ߜ Don’t assign one person to always give answers to scorecard questions.
Solicit ideas from multiple managers whom you’ll count on to develop
and implement their own Balanced Scorecards and dashboards.
ߜ Set up a list of standard questions or FAQs (frequently asked questions)
on your company Web site about Balanced Scorecards, dashboards,
your deployment plans, and your roadmap. Include some text about why
your company is doing this and the benefits of scorecards. Express your
need to have people involved and committed, and encourage employees
to share their thoughts, ideas, and experiences.
Building the Foundation and
the Structure of a Scorecard
When everyone in your company is on board with scorecard implementation,
supporting your vision and concepts of what needs to be done, you can start
laying the foundation for your scorecard. (If you don’t have everyone on
board, just skip back to the section, “Planning Your Work and Working Your
Plan” for info on how to get them aboard.) A good foundation has
ߜ Key involvement across the company
ߜ A sound understanding of customer/supplier relationships through the
product and service value streams
ߜ Systems and processes in place to support the implementation and sustaining
of a Balanced Scorecard approach
ߜ Dashboards set up for measurement tracking
In this section, we look at what it takes to establish your scorecard’s foundation
and structure. You need to put the building blocks in place, make room
for adjustments as needed, and consider contingency plans if your assumptions
are inaccurate.
53Chapter 3: Planning for the Balanced Scorecard
Check in with your employees frequently to renew their support and build
their faith in themselves as they move forward in the planning steps. This will
also ensure that the people who are planning the scorecard deployment have
an opportunity to share their thoughts with you, and gives you the chance to
correct any misperceptions or make adjustments along the way in real time.
Stacking the building blocks for
implementing a scorecard
One of the critical aspects during the initial planning stages is to ensure that
all four legs of the Balanced Scorecard are included, as well as considering
the concepts, benefits, general steps, and key indicators of success and
return expected of scorecard implementation. You may not want to go to the
detailed level of a blueprint, but perhaps paint an overall picture in order to
give folks some idea of what you have in mind and to indicate distinctive differences
in the approach from how things are done now, to help assure success.
If we compare the process to building a house, it would be like a
diagram to highlight several floors, vaulted ceilings, and innovations in bedroom,
bathroom, and other areas.
Planning building blocks are critical to ensure that you build the right systems
that work best with the structures in place. You wouldn’t build a skyscraper
on a garage foundation; it wouldn’t have the proper support. A foundation
must provide the necessary attributes to allow Balanced Scorecards to work
well and enable dashboards to be effective tools in managing your business.
You need to put the following specific building blocks in place to be sure that
you have a good foundation:
ߜ Make sure your approach is clear, complete, and simple to explain.
Management depends on others to make scorecard implementation
work, so be clear and concise about what it is that you want to do so
that everyone understands your concept of how to deploy Balanced
Scorecards.
ߜ Review your company’s strategies for growth, development, performance,
and understanding and meeting customer needs to ensure that they’re
sound and concrete. Update any missing or incomplete information based
on the latest market, customer, technology, or environment findings.
Make sure your strategies contain no contradictions. In other words, if
you want your company to grow, make sure your predictions for growth
don’t contradict your margin-achievement actions. Likewise, you can
discuss cost-cutting measures, but be consistent when combining them
with increasing headcount to create competencies in new areas.
54 Part I: The ABC’s of Balanced Scorecard
ߜ You need to have some initial degree of agreement amongst your leaders
regarding your overall scorecard approach. This means setting up structures
for discussion, review, and adjustment in Balanced Scorecard
deployment strategies against your plan. Companies often achieve this
through an executive steering team that oversees deployment and determines
any changes to the plan for maximum effectiveness.
ߜ You need to comb through your company’s results/analysis systems and
structures. You need to
• Make sure information is readily available to you.
• Check out the current systems with which your company analyzes
information and makes decisions.
• Find out how your company evaluates decisions regarding operational
and strategic performance.
You need to integrate the results/analysis systems and structures into
the Balanced Scorecards and especially the dashboards developed and
utilized throughout your company. Use any strengths of these systems
to your advantage, and understand and take into account any weaknesses
or limitations.
ߜ You may have to install certain process measurement capabilities before
you can implement Balanced Scorecards. You need basic information
about financial performance and other operational measures, and if
these measures aren’t available or aren’t current, you need to fix this
problem first.
Adding flexibility so you can adjust
a scorecard for effectiveness
Famous leaders have always alluded to the fact that after you implement a
plan, you often need to make adjustments after the fact — sometimes within
the first several moments. So, you need to plan not only the scorecard implementation
well, but also your methods for tracking progress and leaving
room for the possibility of change. After you implement, you may need to
adjust actions, observe the results, and change again.
Some people want to plan immaculately, taking months to make sure they take
everything into account. Others realize that they just need sufficient planning
and communication to get going; they recognize that things will change, and
they build in systems that allow them to make adjustments quickly and effectively.
The latter groups are the folks who are getting things done; the others
are busy talking about changes or trying to decide why they can’t be done.
55Chapter 3: Planning for the Balanced Scorecard
The key is to strike the best balance of advance planning and flexibility possible,
to enable quick, decisive action when the current environment requires
it. In other words, plan enough to get started—realizing that the plans will
change anyway—and begin.
With all the changes that occur in markets and with customer demands, technology,
and environment — not to mention changes due to people moving
and changing careers and goals — you need to be sure to include a flexible
structure to allow for changes in your Balanced Scorecards and dashboard
deployment. The key is to build in processes to a enable quick, responsive
assessment capability of your current business situation, along with a decision
process that can take this information and process it to give you options
regarding what has to change and when. For example, if your primary supplier
of a key component was to go belly-up, then having such an assessment
and decision process in place would enable early detection of this problem,
and enable quick consideration of various contingencies for the best solu-
tion.
The following list presents some more things to consider when building flexibility
for change into your scorecard plan. The next section explains in detail
which tools or methods are best for this approach:
ߜ List your assumptions in your plan, and put a process in place to regularly
assess them. You want to see if they still hold, and you want to be
alerted when they’re no longer valid. For example, a truck transport
company would need to regularly check assumptions around driver
skills, driver and truck availability, diesel fuel pricing, and changing traffic
construction conditions. If options and contingencies are planned
well in advance, then when changes are detected early, adjustments can
be made to minimize the impact on performance.
ߜ Build in a way to assess the risks associated with specific actions taken
when implementing your Balanced Scorecards and dashboards. You
could do a “what-if” for each action to see cause-and-effect relationships
and to see if you’ve planned for each effect adequately. This way, you can
trade-off risks to decide the best course of action for a given situation.
ߜ Build in a periodic self-assessment process so each manager can look
at his or her scorecard and dashboard objectively. To ensure objectivity,
you could have different managers look at each other’s scorecards
and offer suggestions or ideas for improvement.
ߜ Put change processes in place that enable fast adjustment and have
good measurement capability. You want to be able to detect mistakes
early and allow for re-adjustment. Deploy all changes to the appropriate
level, favoring distributed rather than centralized decision support.
Most people are visual learners by nature, so pictures and graphs go a
lot further in providing clarity and understanding in trend analysis. You
want your employees to easily see key indicators of performance.
56 Part I: The ABC’s of Balanced Scorecard
Contingency planning methods
Now it’s time get into the meat of your friend and ours: contingency planning’.
Contingency planning isn’t risk management; risk management needs
to occur at all levels, but contingency planning is about planning for alternatives
on the basis of potential changes in market conditions, customer behavior,
or other external influences to your business. Contingency planning
means looking at what would happen if some of your assumptions about the
market, customers, and environment turn out to be untrue. You can also plan
for regulations that may change or customer demands that could shift. For
instance, in the music industry, iPod digital-music technology has completely
altered the future market of CD-based businesses.
Some companies have devised very effective ways to plan for contingencies.
Most have not. A common problem is the only people attempting to plan for
alternatives are the same people who set up the strategy in the first place.
People have a natural bias toward believing that their plans are going to
work; basic assumptions about the world in which your plan exists couldn’t
possibly be wrong, could they? You need a method to ask that question and
ask it effectively so that you can include options and alternatives for possible
eventualities.
The best example of a successful contingency planning process is the
Wargaming portion of the U.S. Army’s Military Decision Making Process, or
MDMP. There we find the staff split up into role players, each determined to
challenge the planning of his or her colleagues in a simulated battlefield environment,
to see what would happen if events did not occur as expected. The
success of our armed forces is proof that this tried-and-true process works
well. For businesses, it can be no less demanding to plan effectively for contingencies
and alternatives, so that if and when things change in the marketplace,
they are ready.
You need to have “new eyes” on your plan — both in the planning and the
execution — so that you don’t become susceptible to groupthink or other selfconvincing
traits common in groups or teams. Involve outsiders who don’t
have a vested interest in making the plan work. The cost of not considering
possibilities may be your customers, your market, and even your company.
Here are some key elements instrumental in planning for contingencies in
your operations:
ߜ Systems in the planning process that allows you to challenge the plan.
You can use force-field analysis, devil’s advocate role playing, or Ed deBono’s
6-Hat Thinking methodologies. Many other methods would work,
too; you should design a system that works best for you and your team.
ߜ Call in an outside expert to assess your plan regarding risk and contingency
planning. Even if you are sure you know best, install an “outside
57Chapter 3: Planning for the Balanced Scorecard
eyes” process check within your contingency planning process, and be
sure to bring in the best, so that your planning can ultimately take the
right perspectives into account.
ߜ Require managers who plan for their Balanced Scorecards to also set
up contingency planning processes. Require deliberate, standardized
methods that require managers to critically assess their plans and actions
based on possible changes, and make this a pass/fail gate to plan authorization
and implementation.
ߜ If possible, compare contingency plans from similar organizations,
departments, or functions. Set up a benchmarking process to look for
the best planning practices both in and out of your industry, and enable
sharing so that each team can benefit from other planning methods.
ߜ Design triggers in your Balanced Scorecard implementation plan that
will warn you and others when certain conditions change. Once you
have planned effectively, run a Failure Mode and Effects Analysis (FMEA)based
risk assessment tool, and ensure you have designed effective
detection and warning signals into your scorecards, and especially your
daily dashboards.
Adding the Final Touches
After you’ve tested and proven your plan and have shared it with other managers
and groups to get their feedback, you have another task to accomplish
before execution: You need to add the details — the small yet significant items
so necessary for a plan to enjoy success. The following sections help you focus
on the final touches that might be easily overlooked.
Taking care of the details
The following list outlines some details that allow you to put the final touches
on your scorecard foundation:
ߜ Clearly identify roles and responsibilities for the people who will play a
part in your plan to deploy Balanced Scorecards. Make sure you have
their commitment to these roles and responsibilities prior to execution.
ߜ Identify the milestones by which you’ll evaluate your plan and make them
clear on your scorecard. Also include the measurements on your dashboards
so that you can see and report progress quickly and efficiently.
ߜ Establish configuration control on the final version of your plan.
ߜ Start the clock rolling after you put your plan into motion, not before.
58 Part I: The ABC’s of Balanced Scorecard
ߜ Put specific review dates on the calendar to review progress, performance,
and any other meetings or key activities regarding Balanced
Scorecards and dashboards. Get commitments from key participants for
these reviews.
ߜ Track and adjust your plans/scorecards openly and honestly. Search for
help and advice from teams and other managers, and communicate frequently
with supervisors so that they know what you’re doing and why.
Ensuring that your scorecard is fireproof
For whatever business you’re in, you need to plan a direct relationship
between what you need to measure with your Balanced Scorecard and your
dashboards. Whether you work in retail, wholesale, manufacturing, engineering,
consulting, or even banking, your managers have to make sure that their
scorecards balance all four legs and that their dashboards appropriately indicate
relevant factors for change.
For example, a clothing retailer would balance between existing inventory
and new models and financial performance against growth rates, and it would
devise a dashboard to indicate how these would relate in simple terms. The
company would also establish threshold alarms to detect any variation in the
balance that needs immediate attention and adjustment. Such a retailer
would want to make sure that its measurements and dashboard truly indicate
potential risk factors. It wouldn’t make sense, therefore, for the retailer to
measure thread or button consumption, phone calls per day, or perhaps garments
mis-racked per day, because these measures wouldn’t relate directly to
the key performance indicators (KPIs) relevant to the business — such as
margin, profit, volume, inventory levels, and style changes. We will cover this
connectivity throughout this book specifically through each of the scorecard
legs, since dashboards are the daily barometers of our company’s performance
planned for in our Balanced Scorecards.
Performing a final inspection
So, you’re ready to implement your plan. The last question you must answer
is, “Can I live with our Balanced Scorecard system, our dashboards, and the
methods we’ll use to monitor, update, adjust, and respond to the performance
of our department, operation, or business? In other words, will this system
be something beneficial to me and my peers and other managers?”
This question is very important. People often get caught up in the excitement
of all the action around them and forget to stop and reflect on what
they’re doing. Sometimes, what kicks us off in certain a direction isn’t enough
59Chapter 3: Planning for the Balanced Scorecard
by itself to keep us going, and we wonder what we were thinking in the first
place.
When it comes to Balanced Scorecard planning, you need to feel like you can
commit to the program, from the very start until the end, and that the program
will indeed bring your group to the level of performance and continuous
improvement you’ve always wanted to achieve.
If the answer is no or if you aren’t sure, go back and review your plan again,
and look for where it begins to come apart. Many times, a reality check by the
author or program manager of an initiative will uncover a fatal flaw that went
undetected in the planning process. The flaw may be small yet absolutely key
to the success of the plan or initiative.
60 Part I: The ABC’s of Balanced Scorecard
Chapter 4
PuttingYourBalanced
ScorecardintoAction
In This Chapter
ᮣ Launching your Balanced Scorecard
ᮣ Making sure your scorecard passes the test of time
ᮣ Spreading the word of scorecard throughout your business
As you know with any change or improvement, sustaining power is the
key. So is it the same for scorecards. In this chapter, we will talk about
when to put your scorecard into action, and how to ensure it sustains, in
order to best support your initiatives toward competitive advantage.
Deciding When to Launch
Your Balanced Scorecard
After much hard work and preparation, it’s finally time to launch your scorecard!
The key people are in place, metrics are selected and allocated to the
appropriate leg, and measurement systems are working to sustain the scorecard.
But wait: there are two things that must first be in place when you
launch your scorecard.
The Scorecard passed the pilot,
and everyone knows it!
The pilot is where you prove the value, worth, and effectiveness of your scorecard.
By implementing your scorecard in a controlled pilot environment, you
can seen how it works, adjust as you go, and ensure that the goals and objectives
are successfully met — and perhaps even exceeded.
When your scorecard passes the pilot, be sure to share the success with
everyone, every day, at every level — whenever you get the chance. You
want word to spread about the success of the pilot, and about how getting
workers involved with the development and implementation of the scorecard
was instrumental in this success. Also, you need to share the results in terms
of key performance impacts on the business. By getting the word out, you are
setting up for general acceptance and agreement as to the overall value
added of your scorecard. When you have completed this, you are ready to go
to the second step:
The Scorecard is seen as
genuinely adding value
Getting employees to see the scorecard as adding value to your company is a
critical step in the ultimate success of your scorecard efforts. For scorecards
to have lasting power, people have to believe they will work, that they add
value to the organization, and that it is worth their while to participate in
their success. You have to be sure that most of the folks believe that the
scorecard will actually help them in their achievement of their goals and
objectives, and that this will work without appreciable added work involved.
You know this to be true. But you need to be confident in this shared belief.
Once you have confidence that most of the people are willing to work with
their scorecard, and feel comfortable with the success of the Pilot, you are
ready to launch!
Sustaining the Balanced Scorecard
The Balanced Scorecard has to become second nature to your company and
your managers. For this to happen, you need to make sure that the process of
managing with Balanced Scorecards is sustainable and flexible (so you can
adjust it to better fit current needs).
Having your Balanced Scorecard in place is one thing. How many times have
you seen a newly initiated system or process last only until the next full moon,
never to be seen again? This often happens, as you may know, because the
change was supported by a memo or maybe even some training, but not much
else. Common flameouts include policy changes, changes in shift schedules,
new travel process changes, and other administrative actions.
62 Part I: The ABC’s of Balanced Scorecard
Another important concept to remember is that the planning and execution
of your Balanced Scorecards and dashboards have to happen in concert, if
the scorecards are to be effective. Think of it like this: If a symphony was
played one instrument at a time, first a flute, then horn, then violin, there
would be something that might be able to be labeled as noise, but nothing
remotely resembling music. Only when all instruments play together and support
each other does harmony happen. So the same is true when making
business decisions for the company.
Indeed, even the name “Balanced Scorecard” implies a need for balance, harmony,
and symphony, especially in its implementation and while you sustain
it. Managers and leaders need to listen to each other and adjust their activities
as they support each other and the company while they move toward
achieving long term goals and objectives.
In this section, we talk about the fundamentals of implementation and sustainability
as they relate to Balanced Scorecard and dashboard use, communication,
and contingencies.
Promoting the scorecard concept
An effective way to help sustain your Balanced Scorecard initiative is to make
it part of the very fabric of your company. In other words, treat it like it was
part of the program all along, no different than any other process. However,
you should make it seem promising, as if it will be very important to your organization’s
future success. So, how do you do this? Take the following actions:
ߜ Make the scorecard part of your strategic planning. Refer to balancing
your business through scorecards and utilizing dashboards to support
your business decisions every day.
ߜ Promote Balanced Scorecards in a very positive light. Refer to successful
examples where companies with similar products and services
implemented the Balanced Scorecard approach.
ߜ Encourage your staff, subordinates, and others to read about
Balanced Scorecards. Ask them to talk about the topic amongst themselves
and consider how they may apply the concept and practice to
their businesses, departments, or sections (for more on the basics of
scorecards, see Chapter 1).
ߜ Recognize others in your company who are considering Balanced
Scorecards and how they can help, and recognize and support scorecard
applications, regardless of the outcome. The important thing is to
encourage experimentation and consideration, in spite of the perceived
risks or unfamiliarity that may come with these ideas.
63Chapter 4: Putting Your Balanced Scorecard into Action
ߜ Be quick to recognize and adopt business practices that use Balanced
Scorecards, and encourage others to do the same. Look for ways to
standardize as well, and make the practice an integral part of management
policy and practices within the company.
For more on communicating these thoughts and ideals to your coworkers,
see the following section.
You must manage expectations on the part of your employees. A Balanced
Scorecard program allows for better decision making, more real-time data
management, and greater flexibility and decisiveness. However, your employees
shouldn’t expect and demand immediate and significant change. Reminding
everyone that although the Balanced Scorecard is a critical tool in successful
business management, it doesn’t guarantee success in and of itself.
Your company must implement the scorecard in an environment that’s open
to self-evaluation and to potential changes necessary for better performance,
which may require fundamental changes to the structure and systems currently
in place.
Making scorecard the talk of the town
You know the guy who talks and talks about a particular sport, obsessed with
this player or that key maneuver, to the point where you want to tell him in
no uncertain terms that you’ve had enough? Are you that person? If so, good
news: When it comes to sustaining the Balanced Scorecards, your people can
never get enough. Of course, you must become the obsessed manager who
can talk of nothing else in every form of communication — be it at meetings,
during discussions, through memos, on references, and even when conversation
is light and unrelated to work.
To sustain the scorecard through communication, you need to take a look at
the different ways you communicate — be it through conversation, all-hands
gatherings, e-mails, phone discussions, and meetings, and integrate them to
create a sustained, regularly re-invigorated, continuous conversation about
the scorecard and how we are doing. The following list covers the ways you
can make scorecard the talk of the town:
ߜ Work some reference to Balanced Scorecard into pretty much every
business conversation you have, regardless of whether the topic seems
related to the discussion or not. For example, during a conversation
about a potential new client, ask how we will measure success. Another
example would be if you are reviewing today’s performance with the
foreman, ask how he or she is measuring process performance and
where improvements are being made, and how does he or she know?
There are hundreds of opportunities to link activities with scorecard
elements in a relevant and meaningful way.
64 Part I: The ABC’s of Balanced Scorecard
ߜ Adopt some special phrase to stick at the end of your sign off on all
e-mails and correspondences. For instance, many people include quotes,
or a famous saying, or a fond wish for a safe future. .
ߜ Insert a set of coach questions into key discussions surrounding performance
and relating to measures, scoring, visibility, and flexibility in
responding to changing conditions. For instance, when discussing performance
of a business unit, ask about customer and process metrics,
how they know they are doing well, and how that ties to financial measures
as well.
Offer ideas on how to measure, track performance, and link processes to
knowledge or financial performance (see Part III for more). Ask your
employees how they make key decisions and why, and prompt them to
think about using scorecards and dashboards to help manage their
areas better.
ߜ Challenge processes that have stayed the same for a while. Old habits
die hard, as they say, but with the world changing as fast as it is, we
need to ask why we are doing things today the same way we did them
five years ago. This has be done everywhere, especially in the finance,
HR and legal departments.
ߜ Set up management discussions with your peers to discuss integrating
operations and functions. Use these times to talk about balance in your
business and ways to better integrate skills development with operational
and financial performance. Again, suggest in these discussions
how scorecards and dashboards can help.
ߜ If your business has a Web site, consider adding content that introduces
how you’re balancing your business or department. Include discussions
that focus on each leg of the Balanced Scorecard and how scorecard
helps performance, and insert some helpful hints on how to implement
each leg. Direct your employees to this site to spread the word.
ߜ Consider your company’s guiding principles, and look for ways to integrate
a balanced-scorecard approach to support them in conducting
business.
ߜ Highlight examples of companies that have planned and executed their
scorecards with success, and mention new and innovative dashboards
as well.
If possible, you should c solicit ideas and guidance from a company communications
or PR specialist for these and other ideas. Also, make sure your
scorecard plans integrate well with your organization’s communications
plans and activities to reinforce synergy and coalition. The upcoming section
“Mastering the Art of Communicating Your Balanced Scorecards” discusses
the topic of communication even more.
65Chapter 4: Putting Your Balanced Scorecard into Action
Cooking up the best time to launch
Most chili experts say that it takes many hours — even days — to create the
perfect pot of chili; they scoff at the idea that a good chili can be prepared in
only an hour or two. They believe the chili has to cook slowly so you can let
the ingredients blend together at very low temperatures to allow for the best
flavor, simmering, and mixing.
Balanced scorecards are launched and sustained well because, just like chili,
the ingredients of the mix or blend are founded on your company’s blend of
factors such as market and customer changes, product mix, internal politics,
and the internal workings of your organization,, all come together in just the
right way. The foundation is in place as well, to ensure the measures are consistent
with the measures used in key decisions.
For you, creating the right environment to launch and sustain means patience
as well as perseverance. The pace may seem incredibly slow, but you have to
hang in there. Here’s how you can get through and help others get through
the waiting — patiently:
ߜ Talk to and highlight progress with leaders and managers. The key is
to talk about how Balanced Scorecards will provide key advantages to
your organization, and consistently use every opportunity to encourage
and highlight progress in your company.
ߜ Be there for your employees. For your employees, scorecard launch
means change. You need to be with them and help them when they have
doubts, encourage them when they try, and coach them when they fail.
ߜ Support learning from mistakes, rethinking, and adjustment. In other
words, taste the chili as you go. For sure, the first set of scorecards will
probably be wrong, and the dashboards may be completely unrelated.
However, you will learn, and your people will learn, and they may even
surprise you after a while with possibilities in dashboards and scorecard
elements you did not think of or consider.
Mastering the Art of Communicating
Your Balanced Scorecards
Communicating with your organization about Balanced Scorecards is an art.
Yes, we said art, and we mean it. Communication is a huge factor in planning
and executing Balanced Scorecards; whether you do it well can and does
determine to a large degree the success you achieve. In business, companies
66 Part I: The ABC’s of Balanced Scorecard
have to focus energy on delivering customer value and achieving market
share while providing good (and even great) return on investment. We like to
think of communication as the lubricant that makes your company successful
in these areas.
When planning your Balanced Scorecard strategies and actions, you need to
consider and design your communications strategies as well. You want communication
to support your plans and to enable employees at all levels to
understand the whys, hows, whens, whos, and whats of your scorecard and
dashboard implementation. With this understanding, your managers can
design and implement scorecards throughout the company.
In this section, we look at communication at the different levels within your
organization and how powerful it is in shaping and defining your balancedscorecard
approach.
The view from the top: Senior executives
If you’re a senior executive, you’ve led a significant change within an organization
before. The difference is, with Balanced Scorecards, you must decide
what’s necessary to communicate in order to convince and motivate your
managers and employees about the benefits. How can you help them manage
their areas and support the decisions needed as things change, which they
often do?
With Balanced Scorecards and integrated dashboards, your managers can
detect and correct deviations from your strategic and operating plans. What
you communicate sets the stage for how well this happens and for what
direction their decisions will take your company going forward.
The following list presents some key communication considerations for
senior executives implementing the scorecard approach
ߜ Above all, share your vision and long-term strategy for the company.
Present your vision in a way that includes implementing Balanced
Scorecards and dashboards throughout the company. Talk about how
employees can use scorecards and dashboards to see how well they’re
working toward achieving the goals of the organization. Also, talk about
how they can use dashboards to make and support better decisions.
Employees look to you for vision, direction, and consistent leadership,
all of which benefit from the successful deployment of Balanced Scorecards
throughout your organization. What you say, do, write, and support
says volumes about what you believe to be important. Sharing your
strategies and expectations about Balanced Scorecards sets everyone
67Chapter 4: Putting Your Balanced Scorecard into Action
on a common path and ensures that your workforce works hard to support
your vision for the long term. (For more on communicating to the
company, see the section “Making scorecard the talk of the town”.)
ߜ Discuss the importance of knowledge sharing. Knowledge sharing is
a key strategy for today’s companies — especially those that want to
stay ahead of the competition in terms of new products, services, and
capabilities. Communicate that Balanced Scorecards will enable greater
sharing of knowledge, skills, and capabilities within your company
through integrated measurements and scoring. Also be sure to remind
how they can use dashboards to quickly detect and correct potential
inconsistencies.
ߜ Stress the need for long-term thinking. Help your people understand
that Balanced Scorecards don’t resolve short-term performance; they’re
an investment in providing for a better working environment. Over time,
information will be shared, not controlled, and informed management and
workforce teams will make better decisions about process improvements.
ߜ Reinforce that Balanced Scorecards are here to stay. You aren’t just
running a new activity or program to “save the day.”
Surviving scorecards as a middle manager
Middle managers have the most difficult job as far as communicating scorecard
knowledge and strategies is concerned. Why? Because of the following
responsibilities:
ߜ They must communicate in the interest of doing the right things right
and motivate their sections, departments, or function to deliver products
and/or services as required
ߜ They must be cautious about what gets communicated in their areas
and consider the repercussions to them, their teams, and their management.
Managers need to know what to communicate and what to withhold
as well as how to protect the company’s interests.
ߜ They must manage expectations because they’re the front-line leaders
who work with the teams responsible for delivery of goods and services.
ߜ They have to work within ever-changing environments, deal with
increasing demands from both senior management and their workforces,
and constantly face newer tasks with fewer resources.
Alas, the middle manager has the most important role in ensuring the successful
implementation of Balanced Scorecards. While the senior managers
are busy forming strategy and direction and the workforce members are
68 Part I: The ABC’s of Balanced Scorecard
executing the critical actions that deliver value to customers, the middle
managers have to juggle implementing the strategic actions occurring across
the company with managing the hundreds of daily activities that provide
products and services to your customers.
When it comes to Balanced Scorecards, middle managers form the backbone
of any organization:
ߜ Leading their groups through performance challenges on a daily basis
ߜ Working to achieve their goals and objectives
ߜ Integrating their actions with other departments to form a well-oiled and
operating company
ߜ Sharing with other managers how well the company is doing
ߜ Integrating all four legs of the scorecard so that executives and managers
can make decisions quickly and effectively
Supervisor involvement will ensure greater communication, skill development,
and practice, and help integrate the different levels of management
with the reality of the operating teams environment.
Spreading the word from the front line
The front line — the people manning your workforce — is where the action is.
Employees make, assemble, pack, and ship parts and products/service. They
buy, transfer, and consume components. They execute services every day
and plan, schedule, conduct, complete, and record countless transactions.
Because supervisors and line leaders can most directly relate production
with performance, they must understand the advantages and gains to be had
from communicating a balanced-scorecard approach on the front lines.
Some of the key advantages you can gain from the front lines include the
following:
ߜ Process workers are closest to your business reality (satisfying the customer),
so they can help a lot in the communication department by verifying
your measures and your performance.
ߜ After members of the workforce come to understand the idea behind
balancing a business with scorecards, managers can include them in the
assessment and improvement of processes toward better performance
against the scorecard.
69Chapter 4: Putting Your Balanced Scorecard into Action
ߜ Involving the workforce in scorecard communication can improve the
design of dashboards and reinforce the importance of self-development
within teams and overall departments.
ߜ Supervisor involvement will ensure greater communication skill development
and practice, and help integrate the different levels of management
with the reality of the operating teams environment.
Involvement = commitment, so by bringing your supervisors and their workforces
into the Balanced Scorecard world, your company fosters an environment
of commitment toward using scorecards and dashboards for possible
performance improvement. Your company also demonstrates that its business
decisions will take all four perspectives (or legs of the scorecard) into
account and go beyond the previous short-term, near-sighted financial goals
Avoiding communication pitfalls
All businesspeople have made communication mistakes in the past. When
some people think they’re communicating, they may be just confusing, and if
they don’t check back occasionally, you can bet they’ll leave the people hearing
their messages room for interpretation. Interpretations of messages may
come close or be very far away from the intended meanings.
The following list presents some communication pitfalls you must avoid
when putting your Balanced Scorecard into action:
ߜ Touting scorecard as the big, be-all, end-all program: Be careful with this.
Be honest about what Balanced Scorecard will do for your company —
how it will help you coordinate and integrate your activities better —
but also include the implementation and sustaining challenges as well.
ߜ Making up a reason to change: You don’t want to send the message that
you’re changing the organization just because you want to install a scorecard.
You first must have and communicate a need to change — regarding
market or customer penetration or performance improvement — and
explain how the balanced-scorecard approach will help you achieve this
change.
ߜ Not being aligned with one message: When senior managers talk about
synergy, integration, and collaboration, but lower-level managers talk
about internal competition where one shift, line, or department beats
another in performance, you don’t have alignment with a common message.
Giving mixed messages will destroy any scorecard progress you
make, so guard against sending out conflicting or contradicting statements
70 Part I: The ABC’s of Balanced Scorecard
or actions. Work to focus all leaders and managers in a collaborative
way (see the earlier section “Making scorecard the talk of the town”).
When your company commits to Balanced Scorecard and what you plan
to do, stick to the message, even though it may not work well in the
beginning. Whenever people try something new and it doesn’t work
so well, they want to fall back to what’s familiar, no matter the consequence.
You need to be consistent and persistent in your message,
having patience all the while. Be unwavering in your resolve to say and
do the same things toward successfully bringing Balanced Scorecards to
your business.
ߜ Communicating in a vacuum: You don’t want to rely on one-direction
communication, where you send messages but have no way to know if
people hear, receive, understand, or comprehend what you’re trying to
say. This happens when managers conduct large, all-hands meetings to
communicate a message and then expect everyone to know what’s going
on. Half the people may not have understood, and the other half think
they understood, but most heard only what they wanted to hear.
Large group announcements don’t work, and never really have — unless
you want to announce the company picnic or pizza party. To make sure
all people understand your messages, you need to communicate in small
groups and allow for feedback in multiple ways.
ߜ Portraying insincerity: You can’t hide insincerity. People communicating
about scorecard must believe in the Balanced Scorecard and come
across in a sincere way. You want employees to trust you and actually
try out the concepts, even with the risk of failure, because you truly
believe it will work in the end.
ߜ Trying to tell everyone all by yourself: Face it, you don’t have enough
hours in the day to sing the praises of scorecard by yourself, nor do you
really want to try. Part of successfully deploying Balanced Scorecards is
delegating the responsibilities to lead, develop, and implement scorecards
at different levels. You’ll realize that it’s often better to learn by
doing than by being told what to do.
ߜ Dispensing inadequate communication: Believing in and implementing
Balanced Scorecards takes not only considerable planning and timing,
but also constant nurturing, attention, and advocacy by you, your management,
and workforce teams. Most folks find managing four legs of the
scorecard simultaneously within a complex business environment scary,
so they need constant reminders that it will work.
71Chapter 4: Putting Your Balanced Scorecard into Action
72 Part I: The ABC’s of Balanced Scorecard
Part II
The Customer —
The Critical Leg
In this part . . .
No business exists without their customers, including
yours. To be successful with your Customer Leg of
the Balanced Scorecard Strategy, you must first understand
your role with customers and how to measure what
they want and need. You then need to know how to build
your customer scorecards and dashboards and figure out
what they are telling you — and the pitfalls to avoid so
that you consistently hit the mark with your customers.
Chapter 5
UnderstandingYourRole
withCustomers
In This Chapter
ᮣ Knowing the essentials about your customers
ᮣ Using customer info to create appropriate measures
ᮣ Developing your customer strategies, plans, and tactics
ᮣ Staying in touch with your customer and making adjustments
Understanding customers is difficult for many businesspeople. Heck,
many customers don’t even understand themselves. Delivering what
customers want, when they want it — and then giving them just a bit more to
“delight” them — often seems like an overwhelming task in many organizations.
But it is a necessary task. Your workers need to understand how their
jobs directly impact your customers instead of focusing solely on day to day
tasks, crises, and deliveries. Establishing the customer leg of the balanced
scorecard will help you focus your employees on the customer.
“What do our customers value, and what are they willing to pay for?” “How do we
know if we’re truly delivering value to our customers?” “How do we know if we’re
hitting the mark and dealing with problems before they become customer complaints?”
These are just some of the questions your company must answer
if you hope to gain as much as possible from your balanced scorecard and,
ultimately, from your business.
So, how do you get in touch with your customers to find out what they really
value so you can play your role in their lives? And how do you translate that
understanding into tangible measures that you can examine on a day-by-day
basis so that you know you’re consistently delivering value to them? Glad
you asked, because that’s what this chapter is all about! Here I discuss the
things you must know about your customers, how you can gather customer
information, and how you can link that information to your company’s strategies
and goals in the balanced scorecard.
Five Things You Must Know
about Customers
Getting to know your customers isn’t rocket science. They want what they
want — faster, better, and cheaper. And they want to feel like you really care
about them. Pretty simple, huh? Coming to grips with how your customers
view your company and its products and services — and why they have their
views — can be a mind-numbing experience, though. But it doesn’t have to
be. Your balanced scorecard’s customer leg should provide you with the
information you need to track what your customers think and how they feel
about your products and services.
Not all customers are created equal
This may surprise you, but it’s true: Not all customers are created equal. Sure,
you should treat all your customers fairly, with dignity, and with respect —
but you shouldn’t treat them equally.
Consider the following: Do you treat your biggest, most loyal repeat customers
the same as customers who don’t buy from you very often and contribute very
little to your overall revenues? Do you give some special concessions to your
top-level customers that you don’t give to other customers? If you don’t, you
should. If you treat your repeat, top-spending customers the same as all your
customers, you could end up losing your cash cows.
Allow us to make this point a little more personal, because it’s very important.
Say, for example, that you’re in the market to buy a new car. You want to
buy a very high-end car, one that costs more than $80,000. When you go to
the dealership, don’t you expect to be treated differently — like you’re really
special — than you would be at a dealership that sells $12,000 cars? Wouldn’t
it upset you if the salesperson brushed off your price demands and hurried
you so he or she could go to lunch? ? Of course it would. And rightfully so.
When reviewing and creating your balanced scorecard’s customer leg, you
have to define your customer strategies by understanding who your top customers
are and determining the level of service you need to provide to go the
extra mile for them. The policies and procedures you put in place for customer
service must be well-thought-out and detailed so that all your customer-service
reps know how to treat customers in the ways that they deserve.
Figure 5-1 gives you a chart that will help you track the customer strategies,
policies, and procedures placed in the customer leg of the scorecard.
76 Part II: The Customer — The Critical Leg
Customers can go away
In business, you can’t sit back and assume that your customers will be “customers
for life.” Customers can and do go elsewhere to find the products and
services they desire. Why do customers go away, never to return? Price?
Could be, but studies have shown that price isn’t as big a factor as some may
think. Price is important but isn’t the primary reason customers flee to the
competition. The fact is, studies have shown that 68 percent of customers
leave because they’re treated with indifference. They don’t feel like anyone
cares about them. They want to be appreciated and treated with dignity and
respect, and they didn’t get that.
Loyal customers actually spend more when doing repeat business with you. A
well-accepted rule of thumb says that for every lost loyal customer, a company
has to find between eight and ten new customers to make up the difference.
It’s a lot easier to keep the customers you have than to find so many new customers.
And here’s something to keep in mind: The customers who make purchasing
decisions based on price alone rarely, if ever, develop a loyalty to any
one company. After all, price is everything to these customers, and unless
you always have the lowest price, they’ll take their business elsewhere.
The main key to keeping customers is to improve the overall customer
experience — how you treat them and how they feel about the relationship
they have with you. If you treat customers with indifference, you’ll be replaced,
and losing customers gets to be very costly. When building your balanced
scorecard’s customer leg, you should keep track of your percentage of repeat
customers and customer losses, along with the reasons why they stay or
leave (see Figure 5-2).
Customer Segment Level
Customer Segment A
Customer Segment B
Customer Segment C
Product/Service
Product Line X
Product Line Y
Product Line Z
Gain/Loss
+5%
–2%
No Change
High End
Middle
Low End
Reason
Service
Quality
Figure 5-2:
Tracking
customer
losses and
the reasons
for them.
Customer Segment Level
Customer Segment A
Customer Segment B
Customer Segment C
Product/Service
Product Line X
Product Line Y
Product Line Z
High End
Middle
Low End
Figure 5-1:
Tracking the
customer
leg of the
scorecard.
77Chapter 5: Understanding Your Role with Customers
Aside from leaving due to unacceptable treatment, customers will take their
business elsewhere because
ߜ They no longer need what you sell.
ߜ They move to another purchasing category. They go upscale or downscale
with their buying.
ߜ They’re unhappy with what you’re selling them.
ߜ They pass away. This is very sad, but you can’t do much about that.
You must master the art
of customer service
Customer service isn’t just the job of your customer service department and
representatives, it’s the job of every employee in your company. And service
starts at the highest levels of a company. To that end, creating the balanced
scorecard customer leg is a great way to keep customer service in the minds
of every worker in your company.
The following list presents the four key elements of good customer service:
ߜ A high level of trust in your company and in the people customers
deal with
ߜ Knowledgeable employees who understand what customers are talking
about
ߜ The company and its employees not wasting customers’ time
ߜ Friendly employees who will go the extra mile for customers
The question is: “How does my company get to a high level of customer service,
where the key elements become second nature to my employees?” Here
are four steps you must take to achieve great customer service:
ߜ Make sure that everyone in your company understands and measures
the customer experience. Employees must know how their jobs impact
the customer, and they must become obsessed with providing satisfaction
to the customer.
ߜ Educate your people about how they should act and treat customers.
They must realize the importance of good customer service and what
you expect from them.
ߜ Communicate examples of good customer service to your employees.
78 Part II: The Customer — The Critical Leg
ߜ Make sure that potential and new employees have the kind of
customer-service mindset that you want.
ߜ Deal with employees who can’t or won’t deliver the customer service
you need. You can move them to other areas of business or let them go,
but you have to take action quickly.
Not dealing with the employees who don’t have a customer-service
mindset can be deadly to your company. Bad apples can spoil your
efforts to deliver satisfactory levels of service to your customers.
Customers watch you closely
The modern customer is a pretty savvy consumer. He or she hears what you
say and promise and then watches closely to see if you deliver. You’ve probably
had some experiences as a customer where a company’s walk didn’t match
its talk, and you probably took your business elsewhere. In your business, you
have to continually find out if you’re delivering the things you promise to your
customers. It’s natural to want to promise your customers the world, but you
can’t do so unless you know that you can deliver the world — or at least a sizable
piece of it!
So, how can you find out how you’re doing in the promise-delivery department?
ߜ Ask your customers for feedback.
ߜ Keep in close contact with your employees and get their feedback,
too. Ask them how they’re doing and solicit ideas about how you could
help them do better.
Do right by your customer
Some wise person once said that managers are more concerned with doing
things right, while leaders are more concerned with doing the right things.
We believe that you should do the right things right, no matter your position.
Although you should set out to accomplish both goals, doing the right thing
should be your first goal. After you identify the right thing to do, you can
then make sure that you do it right.
When setting your policies and procedures for satisfying customers in the
customer leg of the balanced scorecard, make sure they’ll achieve the
desired results — that they’ll “do the right things,” in other words. Then
make sure that the policies are carried out correctly, by everyone, time after
time. By working with the customer leg of the balanced scorecard, you’ll be
79Chapter 5: Understanding Your Role with Customers
able to identify the right things and figure out how to measure doing them
correctly.
Some companies seem to fall in love with policies and procedures. Putting
too many policies and procedures in place tends to restrict the ability of your
people to deliver outstanding customer service. For instance, you shouldn’t
set policies and procedures to take care of a rare exception; you don’t want
to set a rule that’s inflexible and will end up losing you customers. When setting
your policies, be sure to evaluate whether they’re necessary. Will they
help or hinder your ability to deliver what the customer needs and wants?
What do your employees think?
When in doubt, maintain flexibility and trust your employees to know the
right thing to do. If they understand the importance of customer service and
how their jobs impact customers, they’ll know what to do and how to do it.
Using Customer Info to Keep
Your Customers Happy
If you have a good understanding of your customers, (if not, see the section
earlier in this chapter, “Five Things You Must Know about Customers”) you’re
ready to acquire the information you need to create your balanced scorecard
customer leg. Using info from your customers helps you create goals and
measures that fall in line with your customers’ needs and desires. In the following
sections, we not only show you how to find out what you need to
know about your customers, but we also show you how to use that info to
create customer measures that can help you reach your goals in servicing
your customers.
Gathering info about your customers’
satisfaction levels
You have many ways to gather customer information about their satisfaction.
One common way is to troll your customer service inbox for letters and e-mails.
If a customer is dissatisfied with what you’ve provided in terms of quality or
service, he or she is likely to send a letter or e-mail to let you know about the
issues (after chewing out some managers, of course). No doubt, you have a
method for dealing with customer complaints and the issues that arise from
time to time within your company. The balanced scorecard customer leg is
ideal for tracking these issues.
80 Part II: The Customer — The Critical Leg
Here are other common ways you can gather information from customers:
ߜ Evaluate communication at call centers and help desks
ߜ Check out product-return centers
ߜ Interview field service reps and technicians
ߜ Conduct surveys and send out questionnaires
ߜ Hire a third party (consultants, Web sites)
ߜ Hold discussions with focus groups
The problem with most of the ways of measuring customer satisfaction is
that it’s too late in the game to prevent dissatisfied customers. In fact, the
methods in the previous list typically measure how many customers are mad
at you and how mad they are. These measures usually involve measures of
quality, time, and cost.
Because the event has already happened, all you can do now is react to it.
Hopefully you didn’t make the customer too mad at you so you can salvage
something from the relationship.
81Chapter 5: Understanding Your Role with Customers
Solving problems rather than spinning wheels
While working on customer returns with a company,
co-author Charles noted that its
Corrective Action Team (the guys and gals who
look at the problems customers are having and
try to solve them) was reviewing customer
returns only every two weeks. Charles observed
that the number of customer returns was
increasing and that the team was overwhelmed
with data every two weeks. Management was
all over the team because it didn’t seem like
the team was getting anywhere in its problemsolving
efforts, and it wasn’t — the members
were spinning their wheels.
Charles recommended that the team meet more
regularly and advised them to use the balanced
scorecard approach to track customer issues
and solve problems. The team started meeting
for one hour each day. The members soon noted
that they could actually identify problematic
issues and solve the problems quickly, and they
reduced the overall number of customer complaints
significantly by doing so. After they got
the number of complaints down, they continued
collecting customer data and information in the
balanced scorecard customer leg so that the
members could anticipate problems before they
reached the customers.
Are we saying that you shouldn’t use these kinds of measures? Not at all. It
must be done. The thing you need from this information is speed: The faster
you can get it, the better. Waiting for a yearly, quarterly, monthly, or even
weekly report isn’t good enough. Why is fast necessary? Because you’ll
greatly reduce the impact to other customers by fixing a problem sooner, and
you’ll save yourself a bunch of headaches and money. The customer leg of
the balanced scorecard will help you get the information.
Being proactive to find out what
your customers desire
Knowing what your customers want before you provide something they don’t
is a key to keeping your customers happy. So, where can you turn to get
some ideas about what your customers think and what they want? Where do
you get information that’s actually “before the fact” — not reactionary information
that puts you behind the 8-ball (see the previous section)? Here are a
few places for you to look:
ߜ Futurists: Guys and gals who look into their crystal balls and see things
in the future based on trends and their in-depth knowledge of such things.
ߜ Conferences and seminars
ߜ Surveys and focus groups: You can send out surveys and bring together
focus groups of your customers and probe them about their desires and
what they don’t want. Ask about the following, in particular:
• What they want in terms of basic/expected performance
• What would be some neat stuff they’d like to get but don’t expect
• Who the guys are that you compete with and how you stack up
against them
What are your customers telling others about you? What are they telling
your competition? Customer surveys and focus groups can tell you the
answers to these questions. It’s a tough, dog-eat-dog world out there,
and you need to be prepared for the good news and the bad. When using
surveys to obtain customer information, don’t forget to find out how
your competition is doing stacked up against you. Have your customers
rate you and your competitors (and find out who they are!) on a scale of
1 to 5. You’ll either read ‘em and weep or celebrate. Either way, you have
work to do- no time for resting on your laurels!
Focus groups can take time and cost some money, but they’re worth
the effort when done well. The key to focus groups is to stay hands-on
throughout the process. You have two options: You can conduct the
focus groups yourself or hire a third party to help you. We generally recommend
that you use an experienced third party. Customer research is
too important to make errors with your own trial and error efforts.
82 Part II: The Customer — The Critical Leg
Just make sure you don’t let the third party to do it all. They can help
you create the questions and the format, but make sure you stay intimately
involved. Participate in the focus group sessions so you can ask
insightful questions that only you know need to be asked, and follow any
threads that may develop during the focus group.
ߜ Industry experts and consultants: For a little bit of money, you can hire
an experienced consultant to help you create surveys and hold focus
groups. It will be well worth the effort. You can find a variety of free online
survey and questionnaire services, but they typically limit the amount of
questions and the number of surveys you can send out. They also invariably
use standard “boiler plate” questions. Although these surveys may
be good enough to get you some preliminary data, they’re very limited
in their ability to satisfy your thirst for customer knowledge.
ߜ Journals and periodicals
ߜ Market studies by third parties: You can search the Internet for studies
done on your types of customers to find out what they think and want.
In some places, you can get free information; accessing other studies
can cost from less than $100 to over $3,000. You can even commission
your own study — for a price!
Your customer leg of the balanced scorecard is a great place to keep track of
these sources of information. Use it, and don’t lose it!
83Chapter 5: Understanding Your Role with Customers
Making sure your reputation precedes you
Co-author Rick Buchman once witnessed an
interesting situation that may be familiar to you:
A company’s sales weren’t good and, naturally,
management was worried (imagine that).
Something had to be done, and it had to be
done now. The management team thought it had
the answer: “Who needs all these studies,
anyway?” The managers thought the reason for
the bad sales was that the company had a bad
reputation with the customer. Fix the reputation
and sales would go up.
But before rushing out and acting on these
assumptions, the managers did something
smart: They validated their assumptions with
data by doing a study (another one!) of customer
satisfaction - in other words, they got up
close and personal with customers. When
the study results came in and they crunched
the data, what a surprise! Their assumptions
were wrong. Their “customers” didn’t have any
real opinions one way or the other about the
company or its products. Why not? Because the
“customers” they were trying to reach had
never heard of the company before! Imagine
management’s surprise! Not only that, but the
actions the company needed to take were very
different than those they may have taken based
on their “bad reputation” assumption.
By going to their customers for information, the
company saved a bundle of money and determined
what to do to gain recognition in the
industry. Had the managers been using the balanced
scorecard customer leg, they would’ve
avoided the whole problem and saved even
more time, money, and effort!
Walking miles (and miles)
in your customers’ shoes
A trick to getting to know your customers so that you know what satisfies
them and what they value is to put yourself in their shoes. Putting yourself in
your customers’ shoes means more than just walking a mile in their shoes.
You must go on a never-ending journey, where you follow them everywhere
they go. You want to see firsthand how, why, where, and when they use your
products and services. You talk with them face to face. You visit your customers’
locations from time to time. You listen to them - what they want, what
you give them, what others give them. You take notes and brief your coworkers.
Are you beginning to see why so many organizations don’t have a very
good understanding of what their customers really want? It takes time, effort,
and relationship building. You have to be persistent; managing your customer
relationships is one place where persistence really pays off.
Managing your customer relationships becomes much easier when you take
the time to do a thorough job of developing your balanced scorecard’s customer
leg. It doesn’t matter if you make products or provide services; you
have to ask a basic but important question: “Why do our customers choose
to buy from us and not from the competition?”
Setting customer-based strategic measures
When you know what’s critical to your customers’ satisfaction (see the previous
sections of this chapter), you can start the process of measuring the
things you do that affect the things the customers want. By measuring, you
ensure that you hit the mark, time after time, and that you know you’re hitting
the right mark!
When translating the customer’s voice into the things that you can measure
within your company, you can — you guessed it — look at and measure certain
basic things. Some of the more common measures you have for measuring
customer satisfaction are as follows:
ߜ Faster: Examine your speed of service or product delivery. For instance,
look at time from order to delivery, on-time delivery, the time a single
process takes in order to make a product or provide a service, and so on.
ߜ Better: Examine how you set and meet customer specifications and measures
for quality.
ߜ Cheaper: Examine product/service costs - both purchase costs and total
lifecycle costs.
And, of course, always measure how you stack up against the competition on
all the previous measures.
84 Part II: The Customer — The Critical Leg
Linking Customer Measures to Your
Strategies, Policies, and Plans
The time has come to develop the customer leg of the balanced scorecard.
When developing your balanced scorecard customer leg, you should center
your work on the following questions:
Where do you want to be in the market?
Do you want to be an industry leader, far ahead of the competition, or a
follower, willing to let others set the direction and lead the way?
Within your market(s), do you want to target the high end, the middle, or
the low end? All the above?
The answers to these questions, as well as the following sections, can help
determine what your customers can expect from you, and they’re absolutely
necessary in developing your balanced scorecard customer leg.
Developing customer strategies
Generally speaking, your balanced scorecard customer leg calls for five basic
core strategic goals. According to Robert Kaplan and David Norton in their book
The Balanced Scorecard (Harvard Business School Press), they are as follows:
ߜ Increase market share: How much of the overall market do you have?
ߜ Maintain a high customer retention: Keep your eyes on the number of
repeat customers you have.
ߜ Increase customer acquisition: How many new customer can you attract?
ߜ Keep a high level of satisfaction: Your customers need to stay happy
with you.
ߜ Strive for high profitability: How much do particular customers contribute
to your overall profits?
Figure 5-3 takes another look at the chart you’ve used for your scorecard
strategies and uses it to link your plans and tactics.
Customer Segment 3 Year Strategy
Customer Segment A
Customer Segment B
Customer Segment C
Product/Service
Product Line X
Product Line Y
Product Line Z
Annual Plan
+5%
No Change
No Change
Grow 15%
Maintain
Maintain
Tactic
Service
Quality
Measure
SP 0107-2
QP18-2
Figure 5-3:
Linking customers
and
strategies.
85Chapter 5: Understanding Your Role with Customers
Creating customer plans and tactics
You have several things to consider when setting up customer-based plans
and tactics for the customer leg of the balanced scorecard. The following list
presents some of the more critical things you must do:
ߜ Develop and implement a measurement and benchmarking (best practices
and competitive) program to improve customer service processes.
ߜ Leverage your metrics results to develop new customer strategies.
ߜ Measure and enhance the customer experience.
ߜ Improve customer satisfaction by responding to quantified customer data.
ߜ Align your customer-service department and workforce with corporate
strategies.
ߜ Utilize Six Sigma and other business-process-improvement tools to continually
improve customer interactions and service.
ߜ Measure your multi-channel, contact-center, and online customer service.
ߜ Utilize metrics and benchmarks to increase responsiveness and drive
customer retention.
ߜ Develop metrics to manage any outsourced and/or offshore customer
service.
Taking action when your customers
don’t get what they want
Nothing is more frustrating when you’re working on the customer leg of the
scorecard than thinking you know what your customers want and need and
then finding out you’ve missed the mark. Trying to recover is not only costly
in terms of time and effort, but also can kill your product or service in the marketplace.
Some companies never recover from such a fatal error. You need to
get on top of the situation and do it fast if this occurs. This is one reason why
the balanced scorecard is so critical: It lets you know when you’re on track and
when you’re missing the mark, and it enables you to get back on track — fast.
When what your customers want and what they get don’t link, you need to go
back and review your customer research strategies and your plans and tactics
for the customer leg to find where the disconnects occurred. Ask the following
questions:
ߜ Is the information from your surveys and focus groups accurate?
ߜ Are you dealing with real or perceived information (in other words, does
the information come straight from customers)?
86 Part II: The Customer — The Critical Leg
ߜ Are your relationships with your customers satisfactory? Are you close
enough to your customers?
ߜ Are you communicating customer information to your employees, and
do they know what to measure and how?
The key to success in the customer leg of the scorecard is getting your
workforce obsessed with customer satisfaction and giving them the
tools and measures that allow them to focus on customer satisfaction.
Your employees have to know what your customers want and how their
jobs impact the customer experience. They have to know how they add
value to the customer experience, how to measure the experience, and
what to do when they’re not hitting the mark. Customer survey and
focus group data — and your balanced scorecard customer leg — have
to be communicated and made available to all employees.
ߜ Is your system for measuring accurate and capable?
The answers to these questions should pave the way to fixing any disconnects
you have between the strategies, plans, and tactics within your scorecard.
Following Up with Your Customers
for Adjustments
Unfortunately, rather than follow up with customers, many companies will
foul up with their customers. That’s good news for you, especially if the ones
who are fouling up with them are your competition and you’re the ones who
are following up with them. It’s a sad and sordid tale about the number of
companies that don’t validate the conclusions they reach about their customers
and what they think they know. It’s almost like they were marksmen
who follow a process of ready, fire, and who cares about aiming. As any good
marksman will tell you, you hit the target consistently only when you follow a
process of ready, aim, fire. And we know you want to be one of those who are
hitting the mark of customer satisfaction consistently.
In order to hit the bulls-eye like a true marksman, you have to validate your
data and information with your customers. Doing so enables you to adjust
your aim based upon new information, and finding out this new info is as
easy as asking the following questions:
ߜ Did we get this right?
ߜ Is this what you’re talking about?
ߜ Is this what you want?
ߜ Are we on the right track?
ߜ Did we miss something?
87Chapter 5: Understanding Your Role with Customers
And then, you need to keep your customers informed about what you’ve
learned and the changes you make as a result of your new knowledge. If you
do, you can manage the information they get and keep them thinking about
you and your company. After all, they will think about you when it comes
time to buy your service or product in the future. So keep your customers
informed by:
ߜ Putting out company newsletters or putting valuable information on
your Web site are excellent ways to keep you customers informed about
what you and your company are doing.
ߜ Another way to keep customers informed is through newspapers and
journals. You can use them to generate a buzz about new products and
services and about how you’re dealing with issues that are important to
them. Let them know they matter to you and that you care about them.
ߜ If a customer has a complaint, send them a personal letter, letting them
know you are working the problem and you appreciate their business
and will work hard to solve their issues. When solved, send them another
letter, letting them know it’s solved and what you’ve done to correct it.
Yes, we said a personal letter! Not one of those boilerplate, cookie-cutter
kind of letters that get printed out en masse that has all of the personality
of a pet rock. We know, it takes time to do this, but put yourself in
their shoes. Getting a personal letter makes you feel special, and isn’t
that how you want your customers to feel — special?
88 Part II: The Customer — The Critical Leg
Chapter 6
CreatingaCustomerScorecard
In This Chapter
ᮣ Taking the proper customer measures
ᮣ Creating customer scorecards at the strategic, operational, and tactical levels
ᮣ Reviewing your customer scorecards
Discovering the key measures you can use for your customers is the critical
first step in building the customer leg of your balanced scorecard
(for basic info on the scorecard setup, see Chapter 1). As a manager, you
have to work with members of senior management to help them establish the
strategies your company will pursue (and their strategic scorecards), and
you have to work with the levels of management that report to you to develop
the tactics and scorecards they’ll use to achieve your organization’s operational
goals and to keep your scorecards on track. The following diagram in
Figure 6-1 shows how you’re at the center of the scorecard process.
After you zero in on the customer measures you want to examine, you need
to put them into a system for tracking and communicating them so that you’ll
never lose sight of how you’re meeting (or not meeting) customer requirements
and so you can let your people know how they’re doing in this regard.
What kind of system? We’re glad you asked: A balanced scorecard!
In this chapter, we explore the setup (the measures) and the creation of the
customer leg of the balanced scorecard. We look at the measures that really
matter to your business and your customers and at the common mistakes
made in measuring customers. We also explain how to build your customer
scorecards at the strategic, operational, and tactical levels so that you can
see how they tie together and so that, no matter your position within the
organization, you’ll be able to measure and track how you’re meeting customer
needs. After you acquire this powerful information, you’ll be able to
determine not only how you’re doing, but also what actions you need to take
if you’re not hitting the mark. Happy tracking!
Zeroing In on the Right
Customer Measures
How do you measure your customers? Do you get a ruler and size them up,
or do you count them out one by one? Most companies already have some
data and information on their customers, and we’re sure you do, too. That’s
well and good, but the first thing you need to ask when beginning the customer
scorecard is if your data and information includes the right measures.
Do they really reflect what your customers think and how they feel about
your products/services? Do they focus on the critical few things that are truly
important to customers? In short, does your data measure what you really
need to measure?
You can take many different approaches to measure your customers, but the
key is to find the critical measures that are important to you and your company
so that you can hit the right mark and avoid costly mistakes. The following
sections work to help you identify these proper measures and weed out
the bad ones. We also assist you in implementing the tracking measures, and
we list the common mistakes you want to avoid at this stage of the process.
Strategic Level Customer Scorecard
Senior Management has responsibility
with help from Middle Management
Operational Level Customer Scorecard
Middle Management has responsibility
with help from Tactical Management
Consensus and “Catchball” between
Senior and Middle Management
Consensus and “Catchball” between
Middle and Front-line Management
Tactical Level Customer Scorecard
Front-line Management has responsibility
with help from Middle Management
Figure 6-1:
The
strategic-
operational-
tactical
diagram.
90 Part II: The Customer — The Critical Leg
The measures you select depend on where you are in your organization. A
strategic-level customer scorecard, for example, will have measures that
comprise high-level objectives, such as customer retention and loss rates
and profit and revenue per customer. Customer scorecard measures at the
operational and tactical levels will be more specific. For example, you can
measure what it is about your product or service that drives retention, profit
and loss, or revenue measures at the strategic level. Such measures usually
focus on things like quality, cost, and speed of delivery. For more on the specific
scorecards, see the later section “Building the Customer Scorecard”.
Weeding out the wrong measures
Your company (or department) almost certainly has some systems for tracking
sales returns, late deliveries, and customer satisfaction. But are these the
measures that really matter to your customers? You guessed it — the answer
is no! Sure, these measures are important to you and your business, but they
don’t go far enough in giving you the information you need to satisfy your
customers. Why? The measures for tracking such things as sales returns, late
deliveries, and customer satisfaction
ߜ Only measure how many customers you’ve potentially angered because
of your failure to meet their needs.
ߜ Are just too late in the game. With these measures, you’re always
behind the power curve, trying to play catch-up without the ability to
ever get there. The measures put you into a mode of reaction rather
than prevention.
Relying on these measures to satisfy customers is very much akin to trying to
drive your car by always looking in the rearview mirror. Sooner or later, you’ll
miss something and cause a wreck that can be very costly. And you don’t
want that to happen, do you?
Discovering customer
measures that matter
In trying to translate the customer’s voice into things you can measure within
your company (French? Spanish? Mandarin Chinese? English?), you have — you
guessed it — certain basic factors you can look at and measure. The measures
your customers are concerned with — and the things you should focus on in
the customer leg of your balanced scorecard — include factors like the quality
91Chapter 6: Creating a Customer Scorecard
of your products and services, their cost, and the speed of delivery.
Specifically, your customers want your products/services
ߜ Faster: What’s your time from order to delivery? Do you always have ontime
delivery? What’s the time a single process takes in order to make
your product or provide your service?
ߜ Better: How do you set and meet customer specifications and measures
for product/service quality?
ߜ Cheaper: What are your product and service costs (both purchase costs
and total lifecycle costs)?
Customers also want to feel like you really care about them. They want to
matter and not be treated with indifference when dealing with your company.
That’s not too much to ask, is it?
Understanding customer loyalty
One of your jobs when choosing measures to track customers is to gauge
customer loyalty. Some customers find a company they like and stick with it.
Others will make buying decisions based on lowest price alone; these customers
don’t develop a loyalty to any one company. Trying to keep these customers
can be a waste of your time and effort, because they’re always willing
to go wherever they can get the bottom-line lowest cost.
If you want to better understand the kind of customer who’s loyal to your
company, ask why you think your customers buy from you — or your competition.
Do customers base their decisions on
ߜ Better features?
Do customers prefer what your product does, how it does what it does,
how it looks, and so on?
ߜ Higher performance?
Is your product/service better or faster than the competition?
ߜ Longer-lasting and more durable products?
Are your products robust and withstand the environment and how
they’re used, or do they break or malfunction when used in ways that
should be expected?
ߜ How they’re treated?
Do you act like your customers’ business is very important to you? Do
they receive products and service that go beyond what they expect?
92 Part II: The Customer — The Critical Leg
You find the answers to these questions by — yep, asking more questions.
The following sections cover more questions you must ask and different ways
you can go about collecting customer information.
Asking the right questions
The best way to gauge customer loyalty is to ask the right questions. The following
list presents some basic questions to ask of your customers when
developing your balanced scorecard for them.
Many companies ask customers to answer on a scale of 1 to 5 for most of
these questions, with 1 being the most negative answer and 5 being the most
positive. These questions are typically asked in surveys (written or online
surveys) or in face to face sessions (such as focus groups).
1. How often do you use our product or service?
2. When was the last time you purchased our product or service?
3. Overall, how satisfied are you
a. With our product or service?
b. In dealing with any complaints you had?
4. Did you get your product or service in a timely manner?
5. How would you rate the features of our product or service?
6. How would you rate the durability of our product or service?
7. How would you rate the reliability of our product or service?
8. Were the sales/service people you worked with helpful?
9. Were the sales/service people you worked with friendly?
One thing to keep in mind while you’re presenting these questions: Your customers
may base their answers on how you stack up against the competition.
They’ll give you their gut feelings and thoughts based on the choices they
have when looking to spend their hard-earned money. When analyzing the
answers with this in mind, you can get some good competitive benchmarking
information from your customers.
With this in mind, you also may want to ask a couple important questions
that require longer answers and some thought on the part of your customers:
10. What are the key considerations that help you decide whether to purchase
from us or others?
93Chapter 6: Creating a Customer Scorecard
11. What recommendations can you give us to help our organization
improve?
a. Quality
b. Speed of delivery
c. Cost
d. Customer experience before the sale
e. Customer experience during the sale
f. Customer experience after the sale
Don’t take any of their answers personally, and make no assumptions! The most
negative answer could end up being the most beneficial for your company.
Collecting customer info
Companies must decide whether to gather customer information on their
own or through third-party consultants. We suggest that you take the time to
gather the customer information yourself — actually, through your employees
who have day-to-day direct contact with your customers or other people
who are closest to the customers (the so-called “customer-facing people”
within your organization).
Some companies prefer to use third parties. If you want to use a third party
to gather your customer information, try not to rely solely on that service. If
you do, you’ll lose your listening ability and eliminate all the wonderful possibilities
that develop when you get up close and personal with your customers.
A good use for third party consultants is to have them validate your collected
data. The best way to work with third parties, though, is to rely on their
expertise in creating and conducting surveys and customer studies but
counting on your people to lead the way and ask the questions.
Taking customer measurements
After you identify what’s critical to your customers (if you don’t know, check
out the section earlier in this chapter, “Discovering customer measures that
matter”), you can start figuring out how to measure the things you do that
affect the things your customers want. And, believe us, what you do here has a
huge impact on your customers! By measuring, you ensure that you hit the
mark, time after time — in other words, you satisfy your customers on a consistent
basis. Not only that, but you ensure that you hit the right mark!
94 Part II: The Customer — The Critical Leg
The following list presents some examples of measures you can take for the
customer leg of your balanced scorecard.
ߜ Customer satisfaction and loyalty levels (which you can find out from
surveys and focus-group data)
ߜ Length of your customer relationships
ߜ Repeat customer rate
ߜ Number of customer complaints
ߜ Product return/warranty rates (per 100 units, 1,000, 10,000, and so on)
ߜ Number of complaints resolved the first time
ߜ Customer response time
ߜ Cost of complaints
ߜ Customer loss and retention rates
ߜ New customer acquisition numbers
ߜ Total number of customers
ߜ Price of your products/services
ߜ Total product lifecycle costs
ߜ Your price compared to the competition
ߜ Revenue per customer
ߜ Revenues from new customers
ߜ Sales volume
ߜ Sales per product/service line
ߜ Sales per employee or per employee contact
Common mistakes made in customer measures
Measuring and tracking the wrong things in the customer leg of your balanced
scorecard can not only waste your time, money, and effort, but also
cost you customers. In the end, it can be fatal to your business. You need to
avoid that deadly mistake and those in the following list and all the problems
that come with them if you want your business to be the kind of success
story that appears in all the leading business magazines:
ߜ Not getting help when obtaining customer data and information. You
should ask for the aid of outside consultants or a third party when you
need it; don’t always believe that you can do it all by yourself.
95Chapter 6: Creating a Customer Scorecard
ߜ Not getting the cooperation on tracking the customer measures and
objectives from the employees who are responsible and accountable
for them. Your employees don’t want to have measures and objectives
forced down their throats by higher ups or people outside of the
processes and systems being measured.
ߜ Shoving old (and often flawed) customer measures and objectives into
your balanced scorecard. Do your customer measure homework and do
it the right way.
ߜ Having a lack of data integrity. You can’t have people fudging or decorating
numbers so that they can avoid changes, critical issues, and
potential conflicts or confrontations.
ߜ Not taking measures often enough to get real-time or near real-time
data. Don’t rely on bi-weekly, monthly, quarterly, semi-annual, or annual
data reviews.
ߜ Not acting upon the data and information you gather. Don’t develop a
sense of complacency or a “we’ll worry about that tomorrow” type of
attitude. Take the info you gather and use it to create your customer
scorecards (see the following section).
ߜ Denying what your customer information is telling you or arguing
over the validity of the data until it’s too late to resolve the issues in a
timely and cost-effective manner.
ߜ No drill down from the high-level measures and objectives to the
areas that drive those measures and objectives. You need to pass information
from the strategic level down through the operational- and
tactical-level scorecards; see the following section for more on this
topic.
ߜ Trying to measure everything. Focus on the critical measures that
really matter to your customers and your organization (see the earlier
section “Discovering customer measures that matter”).
Getting Dependable Data
Notice, we didn’t give this section the title “Getting Data.” We said, “Getting
Dependable Data.” There is a huge difference! Anyone can get data. That’s
never a problem, really. Getting dependable data can be.
In this section, you’ll learn some of the more common pitfalls when dealing
with data and their sources. You’ll check out some of the pitfalls with data
from customer focus groups, data mining, and surveys. Then, you’ll delve
into the pitfalls associated with the questions you might be asking your customers
and the pitfalls of over complicating how you chart your data and
information.
96 Part II: The Customer — The Critical Leg
Hocus, pocus — the focus group
Conducting focus groups can be a fun and exciting experience. They can also
be interesting, like a root canal can be interesting: get it wrong, and it can be
very painful. Get it right, and you will find a wealth of information that will
help you to better understand what your customers want and need from your
company and its services and products.
Just as with any other form of direct contact with your customers, your focus
groups need to be well thought out and planned before you conduct them.
They are not to be left to the novices and first timers. You need people who
know what they are doing throughout the process, or you may end up wishing
you were having that root canal, instead of trying to figure out what your
focus group data is telling you.
The following list of pitfalls will help you understand some danger signs that
may indicate your focus group sessions will not be as effective as you might
hope.
ߜ Not getting experienced people involved in conducting the design, planning
and execution of the focus group involved from the very beginning
ߜ When meeting with a focus group for the first time, not informing the
focus group who you are, why you are doing the focus group, what you
want to achieve, how the information you obtain will be used, and that
the information they give is confidential
ߜ Making the group too small or too large — typically three to eight people
is best
ߜ Not getting a true representative sample of your customer base
ߜ Cherry picking your focus group members to provide people who are likely
to gives positive answers to the questions and topics being discussed
ߜ Not maintaining a level of flexibility or staying to tight to a script, thus
not allowing for follow through and a deeper discussion of emerging
themes and issues that come up during the focus group
ߜ Making audio or video recordings of the focus group (something you
should do) makes people feel uncomfortable
ߜ Allowing individuals to avoid contributing to the discussion or giving
their opinions (a good and experienced focus group facilitator will
ensure everyone participates — even those who are shy or afraid to
speak up in a group)
ߜ Too many outsiders – or people not involved in running the focus
group — showing up and asking questions. Leave the running of the
focus group to the experts and ensure they are the only ones who
interact with group members.
97Chapter 6: Creating a Customer Scorecard
By now, you should have a good feel for the fact that running a focus group of
your customers can be very valuable, but it needs to be well managed and run
by experts. Get the help you need so that you get the information you want!
Asking all the wrong questions
When using customer surveys and interviews, you will need to design a questionnaire
to get answers to your questions and gather your customer data
and facts. We’ve all been the user (and sometimes the victim) of questionnaires
of some sort. Sometimes, you may have been left wondering what the
whole thing is driving at and why they asked certain questions. Designing a
questionnaire isn’t all that difficult, if any old thing will do. Getting it right
takes some planning.
Designing a good questionnaire, one that gives you the answers you’re looking
for — takes some thought and skill to accomplish. A poorly designed
questionnaire will send you down the wrong path faster than you can say, “This
questionnaire is messed up!” Well-designed questionnaires will minimize your
sources of bias and will give you the accurate and relevant information that
you need to gather from your customers. That said, questionnaires need to
be as focused and as simple as you can make them.
The following is a list of the more common pitfalls made in designing and
using questionnaires.
ߜ They may provide only limited insight into problems because they typically
allow for only a limited answer to the question being asked
ߜ Many times, the wrong questions are asked
ߜ The questions asked may be open to interpretation, resulting in
responses that don’t accurately answer the question asked
ߜ Bias may enter into the picture by way of questions that lead the respondent
into the kind of answers that don’t reflect their true thoughts and
feelings on the issues
ߜ Questionnaire design is often left to those who have no understanding
or background in how to create and implement a well thought out and
planned questionnaire
ߜ The questions asked may ask for personal information that respondents
don’t feel comfortable in answering, such as name, address, phone
number, income level, or other information they don’t want to — and
may not — answer
ߜ Poorly designed questionnaires will ask the most important questions at
or near the end
98 Part II: The Customer — The Critical Leg
ߜ Designing the questions in no particular order, without a logical flow
ߜ Not providing a cover letter that explains the what, how and why of the
questionnaire
ߜ Not running a pilot of the questionnaire to proof it and assist in its development
before blasting it out to the whole world
ߜ When using a Likert Scale for your questionnaire, respondents have a
tendency to “be nice” and answer in a positive way or to answer in the
neutral or middle of the road with no feelings expressed one way or the
other, thus not allowing you to measure and analyze their true feelings
Remember that you will most likely get only one shot at getting your interview
or survey right. Having a fast horse in a horse race is a good thing, but
not if it goes off in the wrong direction and never crosses the finish line. Don’t
rush through the process of developing your questions and the design of
your questionnaire. It needs to be well thought out and planned for. Take the
time to do it right so that you get the data and information you need to keep
you in touch with your customers. Make sure you cross that finish line!
Keeping data charts simple
Have you ever noticed that people sometimes overcomplicate things way
beyond any needs they may have? It almost seems to be a condition of the
human element. If we can make something harder than it needs to be, we
invariably will. This is especially true when looking at data and information.
In today’s world of powerful computers and software applications, with all
the neat things they can do for us, there often seems that there are system
capabilities just looking for a victim that it can be applied to. It’s kind of like
having a hotrod car and then always driving the posted speed limit — you
just have to put the accelerator to the floor every now and then just to hear
the engine growl — you just can’t drive the speed limit! Like the old song
says, you just can’t drive 55!
Well, just because you have the capability to do all those fancy graphs and data
analysis doesn’t mean you should use it. In fact, if you do, you may end up
creating a fuzzy picture and getting the analysis — and your decisions — wrong.
Take a look at some of the more common pitfalls you’ll want to avoid so that
you can keep your data and charts simple and easy to understand.
ߜ Not providing the who (name), what (type of information) and when
(date) details on the charts
ߜ Not including a legend for comparative data shown on charts
99Chapter 6: Creating a Customer Scorecard
ߜ Cluttering the chart with too much information
ߜ Listing a long line of data and expecting people to be able to interpret
and understand what it is saying
ߜ Trying to show too many comparisons on any one chart, making it hard
to read and understand
ߜ Using too many colors on the chart or fancy and confusing color
schemes, especially as a background for the charts
ߜ Not staying focused on the story the chart is trying to tell
ߜ Using complicated analytical charts when they are not necessary to tell
the story you’re trying to convey — if you are using anything other than
simple line, bar or pie charts, make sure you really need to use them
ߜ Not proofreading the chart for information and grammatical errors
ߜ Assuming people will understand any of the abbreviations used on the
charts
ߜ Not educating people on how to read and interpret your charts, especially
those used for the first time or showing data in a new and different way
ߜ Not cross checking with people to see if they understand what the chart
is telling them
Charting is a powerful way to take data and make it tell a story that may be
otherwise hidden. Avoid these common pitfalls, and you will get the power of
charting.
Avoiding Interpretation Pitfalls
No matter what kind of company you work in, there are mountains of data
available to you — it’s all over the place. It’s in this or that database, on the
wall, in your emails, and on the internet. It’s here, it’s there — it’s everywhere.
Some might think it’s like reading the tea leaves — there’s some kind of magic
required or it takes a special kind of potion to understand it all. Interpreting
customer data and turning it into powerful information can be a tricky thing,
indeed. But it doesn’t have to be. Be sure to avoid the pitfalls described in
the following sections.
Drawing wrong conclusions
Good data, the kind of data you can use to make good decisions, is a wonderful
thing. That is, unless you’re drawing the wrong conclusions from it and
100 Part II: The Customer — The Critical Leg
making the wrong decisions. Then, off you go to the Milky Way, chasing your
tail by doing all the wrong things, though maybe for all the right reasons.
Then, you’re left with your head in your hands, wondering how this could
have ever happened. Where did things go wrong? How could this be? Here
are some things that are most likely to lead you to this sorry state of affairs
so avoid them:
ߜ Making incorrect assumptions about the data
ߜ Introducing bias into your data — and its analysis
ߜ Believing that a correlation means a cause-and-effect relationship. Would
you believe that there is data that shows that storks deliver babies? It’s
true! A city in Germany has data showing a rise in the sightings of storks
at the same time as there was a simultaneous rise in the number of children
being born. Assigning a cause-and-effect relationship to this data
might lead us to believe that storks are bringing the babies to this city,
but we know that is just plain silly, don’t we? Just because two things
may be correlated doesn’t mean there is a cause-and-effect relationship
going on!
ߜ Using sample data that is not representative of the population, thus
giving you flawed information and conclusions from the analysis of
the data
ߜ Using the wrong measurement and analytical tools — in other words,
the right data but the wrong approach, methods or tools are used to
analyze it
ߜ Using data taken with a flawed or faulty measurement system
ߜ Trying to make the data fit a predetermined conclusion or solution
ߜ “Cherry-picking” the data to fit your predetermined solution — often
characterized by throwing out or ignoring certain data and outliers that
don’t support your solution
ߜ Doubting what the data is telling you, based upon gut feel or personal —
and often hidden — agendas by analysts and decision makers
ߜ Using historical data without understanding any holes, problems or
issues they might have
ߜ Failing to understand the context and conditions under which the data
was gathered and analyzed
ߜ Using novices to apply analytical tools and methods without any coaching,
mentoring and supervision by experienced analysts
ߜ Failing to validate your data
101Chapter 6: Creating a Customer Scorecard
Communicating timely
with your customers
You should rarely, if ever, be surprised by customer-related problems. And, if
you have a good system for measuring and monitoring how you’re doing with
your customers, you won’t be. You’ll know what’s going on with them as soon
as problems arise. This requires a system that is timely — as in real time. Not
the once-a-year, quarterly, or monthly review of what your customers are
doing, but an ongoing system — updated daily, hourly, or even minute to
minute — to gather the information you need.
The key in being timely with customer information is in staying close and
personal with your customers. Keep the avenues of communication open
and two-way — especially with those customers who generate the highest
revenues — your most important customers to your business.
Reading between the lines
When you get real-time customer information from your system, you may
have to do some reading between the lines. This is especially true with
survey, focus group, and interview data and information. After all, warranty,
sales returns and similar types of hard data are pretty much cut and dried:
they are what they are. But with interviews, surveys and focus groups, you
can get deeper into the needs, wants and expectations your customers have
of you, your services and your products, which is the sort of information you
need to stay ahead of the game, keep problems from occurring, and to keep
your customers satisfied.
With interviews, surveys, and focus groups you develop the questions and
drive the interactions with your customers, leaving a lot of room for bias and
interpretation on your part, so be extremely careful when setting up your
interactions and in analyzing your data and information from these sources.
Quite frankly, if you don’t have anyone who has good knowledge and experience
with these kinds of information and data gathering, consider hiring
someone to do it, either as an employee or as a contract consultant. This is
not an area where you want to get it wrong. There have been far too many
who have minimized the process of developing customer interview, survey,
and focus-group questions and tried to do it on their own, and have regretted
102 Part II: The Customer — The Critical Leg
it in the worst way. Don’t be one of them! Do it right the first time. You may
not get a second chance.
Building the Customer Scorecard
If you know what to measure (see the previous sections of this chapter),
building the customer leg for your balanced scorecard is pretty simple. The
trick is using it effectively so that it leads you and your employees to take the
right actions to stay on the right track. And that means constant measurement,
review, and analysis. See the following section “Determining the Right
Course of Action” for more on this important topic.
The following sections look at some examples of building scorecards for the
customer leg at three different levels: strategic, operational, and tactical. By
working on the different levels, you’ll see that no matter where you are in your
organization, the scorecards tie together and allow you to drill up or down
through the organization. What we mean by drill down is this: If a measure at
the tactical level is off-target, it will impact a measure at the operational level,
which will in turn impact a measure at the strategic level — if you leave it
unresolved.
Your measures at the tactical level should be early-warning signals for your
measures at the operational and strategic levels. In this sense, they’re leading
indicators for trouble ahead in your efforts to achieve your annual operational
and long-term strategic objectives. Without corrective action, off-target
measures at the tactical level will cause the measures for your operational
and strategic objectives to also go into the red zone. That’s why it’s so important
to continually measure, review, and analyze your scorecards. You always
want these measures to be in the green.
Strategic-level scorecards
To build your strategic-level customer scorecards, keep in mind that they
should involve your long-term goals in at least three- to five-year timeframes.
A simple scorecard matrix works well in helping you to construct with this in
mind. As Figure 6-2 shows you, a matrix helps you tie this scorecard together
with the short-term scorecards for your operational and tactical objectives,
stringing the proverbial thread among them.
103Chapter 6: Creating a Customer Scorecard
In developing your strategic level scorecard for the customer leg, you need to
be able to determine what your strategies are. These strategies will relate to
the markets you serve and the position your company will take within those
markets (leader, fast follower, late entrant). With that in mind, you have to do
the following to create the strategic-level scorecard for your customer leg:
ߜ Take a look at your markets. Looking at the markets you serve will help
you to develop your market strategies, Is your market for a product/
service in a rapid growth period, a period of stability, or in decline?
Answering this question will help you in determining your strategies for
your product/service and thus the appropriate measures for that strategy
and your scorecard. For instance, you determine your market is in a
declining stage, but the market strategies you were following were for a
growth market. For a true story about this part of the process, see the
upcoming sidebar.
ߜ Answer the basic question of where you want to be as a company. Do
you want to be an industry leader, far ahead of the competition? Perhaps
you’d rather be a fast follower in the market, letting others do the expensive
research and development work and then jumping in after the products
and services are developed and proven? Or maybe you prefer to
enter mature markets and exploit the mistakes that others have made
with your own innovative solutions so that you can take customers away
from your competition.
Increase Retention Rate
Increase New Customers
Reduce Cost of Complaints
Reduce Response Time
Reduce Lifecycle Costs
Increase Revenue / Customer
Increase Sales Volume
Increase Satisfaction Rating
90%
25%
75%
50%
12%
5%
10%
90
Three Year
Strategic Goal
Customer Leg Scorecard with Strategic Measures
Figure 6-2:
Strategic-
level
scorecard
example.
104 Part II: The Customer — The Critical Leg
ߜ Relate the answer of the previous question to your products, services,
and customer base. Determine what impact the answers you develop
will have on your strategies and strategic goals and measures for your
products, services and customer base.
ߜ Compare how you stack up against the competition. What strategies
are your competition following and where do you need to be related to
them? What your competition is doing will influence and impact your
strategic decisions (the strategies you select and measure) and your
scorecard measures.
Operational-level scorecards
The scorecards you build for the operational level should typically cover a oneyear
timeframe and contain your annual operating plan goals and objectives.
105Chapter 6: Creating a Customer Scorecard
Doing your homework, not jumping the gun
While we were working for one company
(which shall remain nameless to protect the
guilty), members of senior management for our
division projected sales volume increases of
greater than 50 percent for the next year.
Everyone in our division went to work, setting
their plans for the increased volume. People
contacted suppliers; procurement personnel
worked overtime to figure out how to get the
added materials, parts, and subassemblies
delivered; and managers signed contracts for
the additional goods and services. Human
resources spent time deciding how many more
people needed to be hired. Manufacturing
wanted to figure out how to get the additional
volume through its existing processes or, if the
existing processes weren’t enough, what new
equipment it needed to make it happen.
Engineers went crazy to design new features
and get them ready for the additional sales.
Everyone was working very hard and, as you
may imagine, people were very excited. The
next year was going to be great!
That is, until word of the plans hit corporate
headquarters. During a presentation of the good
news at headquarters, one corporate executive
went to the viewgraph (this was back in the
transparency days), took the chart that showed
the projected 50-percent growth, and flipped it
upside down on the projector. As members of
division management looked on in amazement,
the senior exec said, “The customer will be
reducing the need for our product by 50 percent,
not increasing it.” You see, we were working in
the defense industry, and the Berlin Wall had
just come down. As a result, defense spending
would be cut drastically, meaning our product
was no longer needed; therefore, our projections
for growth were nothing more than a
dream — one that would never be realized!
The moral of the story: Do your homework on
your markets before setting your customer leg
strategic goals.
These goals and objectives must tie directly to your strategic-level scorecard
(see the previous section). Often, you’ll have more than one operational-level
initiative to support your higher-level strategic scorecard; knowing how
much each operational objective will contribute to your higher-level objectives
is essential. In Figure 6-3, an example of an operational-level scorecard
for the customer leg shows you how this works.
Tactical-level scorecards
Just like the operational-level scorecard (see the previous section), the tacticallevel
scorecard dives deeper into your customer measures and initiatives. The
tactical-level scorecard should feature a day-to-day view of your progress on
the things you do — you guessed it — on a daily basis. The tactical level scorecard
should measure the work you do to achieve your scorecard objectives
and measures. These scorecard measures need to be real-time or as near realtime
as you can get them. Figure 6-4 gives an example of the tactical-level
scorecard.
The tactical level scorecards and their measures are your early-warning signals
for the strategic and operational scorecards. If work isn’t going well at
the tactical level, these measures and results are sure to have a negative
impact on the higher-level scorecards. You want to catch the bad news as
early as possible and take action to fix the problems pronto!
Increase Retention Rate
Increase New Customers
Reduce Cost of Complaints
Reduce Response Time
Reduce Lifecycle Costs
Increase Revenue / Customer
Increase Sales Volume
Increase Satisfaction Rating
90%
25%
75%
50%
12%
5%
10%
90
Three Year
Strategic Goal
75%
15%
50%
30%
8%
3%
7%
80
Annual
Operational Goal
Customer Leg Scorecard with Operational Measures
Figure 6-3:
Operational-
level
scorecard
example.
106 Part II: The Customer — The Critical Leg
Analyzing a Scorecard and Determining
a Course of Action
After you’ve created your balanced scorecard for the customer leg, you need
to analyze it and understand what it’s telling you and what actions you need
to take going forward. If your scorecard review brings good news and you’re
on target, great! Please pat yourself on the back for all your hard work and keep
doing more of the same. If the news is bad, though, and you’re not hitting the
mark (or don’t think you’ll be able to), now’s the time to figure out the corrective
actions necessary to get back on track. After all, if you don’t take action
when you’re not hitting the mark, why bother creating scorecards at all?
The following sections give you tips on how to figure out the direction you
should take in analyzing your results as well give you strategies for making
sure you stay on course.
Knowing which way to go
To analyze your scorecards, you have to start asking questions — sometimes,
a bunch of questions. You have to go back to the very beginning and make
Increase Retention Rate
Increase New Customers
Reduce Cost of Complaints
Reduce Response Time
Reduce Lifecycle Costs
Increase Revenue / Customer
Increase Sales Volume
Increase Satisfaction Rating
90%
25%
75%
50%
12%
5%
10%
90
Three Year
Strategic Goal
75%
15%
50%
30%
8%
3%
7%
80
Annual
Operational Goal
72%
12%
30%
20%
4%
1%
2.5%
75
First Quarter
Tactical Goal
70%
10%
28%
10%
5%
0.75%
–2%
62
January Q1
Performance Trend
Customer Leg Scorecard with Tactical Measures, Performance and Trends
Figure 6-4:
Tactical-
level
scorecard
example.
107Chapter 6: Creating a Customer Scorecard
sure that all the dots connect. The following list is a checklist you can use for
the review process.
When determining which way to go by analyzing your customer scorecards,
you have to be collaborative. You have to work with your people and teams,
and you may also want to include your customers in the conversation. After
all, they’re the ones you’re trying to satisfy. Don’t do this by yourself in your
office or cubicle. Get your team involved!
1. Do the mission and vision make sense?
Yes_____ No_____
2. Do our customer strategies tie in to the mission and vision?
Yes_____ No_____
3. Can our customer leg strategies be achieved as stated?
Yes_____ No_____
4. Do we have the right measures and objectives for our customer
strategies?
Yes_____ No_____
5. Do our operational-level customer measures and objectives directly
influence and connect to the strategic-level measures and objectives?
Yes_____ No_____
6. Are our operational-level customer measures and objectives
achievable?
Yes_____ No_____
7. Do we have the right operational-level customer measures and
objectives?
Yes_____ No_____
8. Do our tactical-level customer measures and objectives directly influence
and connect to the operational-level measures and objectives?
Yes_____ No_____
9. Are our tactical-level customer measures and objectives achievable?
Yes_____ No_____
10. Do we have the right tactical-level customer measures and objectives?
Yes_____ No_____
Did you answer “No” to any of these questions? If so, those points are where
you need to begin your corrective actions. Actually, you need to review and
108 Part II: The Customer — The Critical Leg
possibly revise each question below the point where you answered No to get
back on track, because a change may influence the questions and answers
below that point in the checklist. For example, if you answer No to Number 4,
you may have to revise your operational and tactical measures and objectives
to ensure proper alignment after you take care of your strategic-level
issues. Indeed, you may need to go through this checklist a few times and
then a few times more. But we’re confident that you’ll think the time you
spend on this will be worth the extra effort in the end.
Making sure you stay on course
Staying on the right course is the bottom line of the customer scorecard — or
of any scorecard, for that matter. It’s why you use them to manage and lead
your organization on a daily basis. You have to make your scorecard a living
document — one that you use to get the real-time or near real-time information
you need to stay on track and hit the marks you’ve set for your organization
or department.
If you find that you’re consistently failing to hit the goals and objectives laid
out in your scorecard, pull out the checklist from the previous section, ask
the questions again, and review the answers. But what if you can still honestly
say “Yes” to all the questions? Houston, you have a problem! You need
to take some corrective action because you’re missing something. Something
within your process isn’t working for you, and you have to find it and fix it.
The sooner the better.
Here’s an example of what we’re talking about. Say that you want to retain 80
percent of your customers, and your customer scorecard shows that you’re
retaining only 65 percent. The obvious question is, why? Doing a little investigation,
you determine that your scorecard measure for customer service is
lower than you need it to be. Bingo! Maybe your customer service is causing
you to lose customers, thus the low marks. Maybe your service people aren’t
following the policies and procedures you’ve put in place. Perhaps your service
people are following them, but your policies and procedures need to be
reviewed and changed so that your people can deliver the level of service
you need. See how this works? When things go wrong, ask why!
You can use a well-known process for trying to get to the root cause of a
problem called “The Five Why’s.” In short, the concept states that by the time
you ask “Why?” five times, you should be able to get to the root cause. Now,
asking the question five times isn’t written in stone; it may only take three
why’s, or it may take six, seven, or even more. The key is to ask why enough
times to get to the answer you need so you can solve the root of the problem,
not one of its symptoms.
109Chapter 6: Creating a Customer Scorecard
Always put processes and systems under the microscope first, not your people.
Usually, when people are making errors, the systems or processes they have
to work within are causing the problems, so be careful when assigning blame
to people. After all, most people do the best they can, trying to do the right
thing. No one comes to work hoping to do a bad job! Trust your people to do
the best they can, and they may surprise you with their performances.
110 Part II: The Customer — The Critical Leg
Chapter 7
BuildingtheCustomer
LegDashboard
In This Chapter
ᮣ Exploring dashboard fundamentals and basics
ᮣ Building dashboards using the keep it simple style approach
ᮣ Analyzing the customer dashboard
Your customer leg dashboards and scorecards are probably the most
important ones you’ll ever work with. Your customers are your reason for
being and doing what you do and how you do it. They create your profits —
or losses — and they determine whether your business thrives, or dies. Now,
that’s not to say that you can ignore the other legs of the scorecard strategy.
To do so would be — well — unbalanced, and that just wouldn’t be right. But
it does let you know that your customer dashboards and scorecards are
pretty important and can’t be taken lightly.
When it comes to your customer dashboards — or any of the dashboards,
for that matter — there are some fundamental things you need to know and
understand, so in this chapter, you first get a good dose of what those basics
are. Then, you see how to build your dashboards, from the basic keep-it-simple
style, to the more complex, and you see how keeping it simple is the best
option — not only for the ease of creating and updating them, but for the
ease of reading and understanding, too. And finally, you get a good understanding
of how to analyze and update your dashboards.
Customer Dashboard Fundamentals
The customer dashboard you build depends upon
ߜ The markets you serve
ߜ The customers you have
ߜ The critical few key process indicators that you identify to measure your
customers
The most basic measurements for your customer dashboard will be your customer
satisfaction measures (see Chapters 5 and 6). Your measures may also
involve indicators like revenues per customer or market segment.
Once you’ve identified those critical few measures for your customer dashboard,
you need to get them into a single page dashboard. Remember, the
objective of the dashboard is to keep it simple, yet display the data and information
in a way that is easy to read and understand. It tells a story that is
read at a quick glance.
Dashboard basics
You have a lot of choices when it comes to creating your dashboards. Software
for dashboards is cropping up like dandelions in an open field on a
mid-summer’s day. Good products are all over the place and spreading faster
than a wildfire in dry brush. The good news in this is that you have a lot of
choices, out there. The not-so-good news is you have to choose carefully, or
you just might end up with something that doesn’t work for you. Then you’re
stuck with something that is like a nagging relative that moved in, full of
promises to be no bother at all, but then does nothing but bother you, from
sunrise to sunset.
The dashboard has, at its core, one simple function: to present the information
you choose in some form that makes it available for you to see in a
format that is easily read and understood. Beyond that basic function, software
providers have crammed a lot of functionality and options into their
products. Knowing what functions and options to get — well, that’s the job
you’re faced with when selecting your dashboard software. It’s not a decision
to be taken lightly. Choose carefully, and choose well, because you will be
living with that choice everyday for quite some time.
112 Part II: The Customer — The Critical Leg
At its core, a dashboard needs to have the following key attributes:
ߜ Quickly communicate information to show performance and trends —
easy to read at a glance
ߜ Easy to use and update — user friendly
ߜ Good visualization - no fancy graphics and backgrounds that distract
one’s eyes and requires time to filter through to get the message and
information being conveyed
ߜ Charting and graphing capability
ߜ Ability to link and drill-down to key process and metrics drivers
Determining ownership and responsibility
Ask the question in some companies about who owns data and information
you’ll either get a shrug of the shoulders and raised eyebrows, or you’ll hear
that, if it’s data and information, the Information Technology people must
own it. Well, when it comes to a dashboard, that’s the wrong answer!
So, who does own the customer leg dashboards? Are you ready for the classic
business school answer? Here it comes. The answer is: It depends.
Depends on what?, you ask. Well, it depends on who generates and uses the
data. Sure, the information technology staff will most likely have some responsibility
in the process, like helping to capture and distribute the data and information,
and working the software and systems issues, but they don’t own the
data and information. If they own anything, it’s the systems and technologies
used to manage the dashboards — and that may be a very big if, indeed.
Ownership of the data and information comes down to one simple word:
management. Yes, management owns the data and is ultimately responsible
for it. Try as you might, you can’t delegate this important responsibility to
someone at a lower place in the organization. Each manager is responsible
for ensuring the data and information they use are reliable, well managed,
kept up to date, and used effectively.
So, guess who has ownership and responsibility for the dashboards? You
guessed it: management!
When you think about it, it makes sense. Managers are the people who need the
dashboards to run the business. They are the ultimate users of the dashboards
113Chapter 7: Building the Customer Leg Dashboard
to track and steer the organization in ways that achieve the strategic aims
they have set. They have deployed the scorecards, determined the goals and
measures to be pursued, they lead the entire effort, so they have the ownership
and responsibility for the dashboards. Enough said? Good!
Taking appropriate action:
Who, when and how
If management has ownership and responsibility for the customer dashboards,
can you guess who needs to take the appropriate action when using
the dashboards? You got it, it’s management, again. They are the decision
makers or they are the ones ultimately held responsible for the decisions
they delegate to empowered employees. Whether or not you choose to delegate
is your call, based upon your company’s culture and environment. But
there is no escaping the fact that management has to take the actions dictated
by what they see in the customer dashboard.
Regarding when to take action, one good approach is to use control charting
to provide you with the answers you seek as they were designed with this
specific issue in mind. Now, we’re not going to go off on a long dissertation on
how to do control charts, but we highly recommend you become familiar
with them, if you aren’t already. Specifically learn how they are used — they
can be a little tricky if you’re not careful — and the meaning of common and
special cause variation. For more information on this topic, take a look at Six
Sigma for Dummies and do some research on Walter Shewhart and W.
Edwards Deming. These sources will give you all the help you need.
When it comes to the how to take action, that’s pretty simple. Get your
people together with the data and information in hand and work it out with
them. Make sure that you have the right people involved — subject matter
experts, people affected by the decisions that are likely to be made, maybe
even the customers that are affected — and hammer it out. After all, when
we’re talking about customer dashboards, you’ll often be dealing with customer
satisfaction issues. Woe be unto those who leave the customer out of
the discussion!
We cannot stress this enough: Do not leave your customer out of the
process when making decisions and taking actions that will affect them. They
are what the whole thing your working on is about, aren’t they? Why would
you want to leave them out of it? Sure, it takes a little extra effort to get them
involved, but you’ll find that rather than guessing at what they want and
need (which means what you want and need to do), you’ll know what needs
to be done.
114 Part II: The Customer — The Critical Leg
Building the Customer Dashboard
When building your customer dashboards, you need to consider what information
they should display. You want them to give you the information you
need, when you need it. You want them to be easy to read and understand at
a glance. You want them to be easy to use. Not asking much, are we? And —
oh, by the way — can you get all this information onto just one page?
Keeping-it-simple-style
dashboards (KISS)
At the very lowest end of your dashboard options are the home-grown and
standard off-the-shelf software packages. These will be your least expensive
alternative, but they will also have the lowest levels of options and connectivity
to your company’s databases and other information systems for automatic
updating of your scorecards and dashboards.
For the do-it-yourselfers that want to go with the bare-bones, no frills approach,
you have the ubiquitous Microsoft Excel software. The beauty of Excel it is
that you most likely already have it on your computers and people in your
organization use it every day. It’s probably on your computer, right now.
When getting started with your scorecards and dashboards, this is probably
where you want to start learning and gaining your experience — at the low
end, using these less expensive options. After you’ve gotten some knowledge
about running your manual dashboards, you will be in a far better position to
start looking around for some more advanced ways to create and run your
dashboards. Then again, you may just find that what you already have works
just fine and stick with it.
The fundamental purpose of a dashboard is to communicate. It is a visual
tool designed to communicate your important business information. The
visual techniques you use to communicate that information is one of the
most critical elements of your dashboards. If you and your people cannot
quickly and easily differentiate data and information, you have failed in
designing a dashboard that successfully communicates that information.
When designing your dashboards, just ask these simple questions:
ߜ Does my design enhance or inhibit visualization?
ߜ Does it make it easier to read, or does it cloud the message behind a
bunch of fancy presentation styles and a lot of useless bling, flash, fluff
and confusing color schemes?
115Chapter 7: Building the Customer Leg Dashboard
After all, you’re not looking for dashboards that will win the prize for the use
of the most colors and backgrounds or the greatest amount of graphic complexity.
You’re looking for simple — repeat simple — and easy to read and
use dashboards.
If you’re looking for prize-winning customer dashboards (or any dashboard,
for that matter), follow the advice of Henry David Thoreau: Simplify, simplify,
simplify! Keeping it simple will get you what you want: Dashboards that are
effective by being easily read and understood. When you’re successful, you
can see relationships and trends in your key business information and that
makes it a whole lot easier to make sound business decisions.
The example in Figure 7-1 details a keep-it-simple style dashboard. Note that
it keeps it to one page, doesn’t have a bunch of glitzy graphics and background
color schemes that detract one’s eyes from the key information, and
it is easily read and understood.
High-end dashboards with all the fluff
There are some places where you want to have a whole lot of capability — and
there are some places where it just gets in your way and becomes a distraction.
When it comes to your dashboards, high-end software and its capability may
just get in your way.
There, we said it! Be very careful when you go looking for software for your
dashboards. If you want easy-to-create and understand dashboards, stick
with the low-end software. Quite honestly, they work just fine, and probably
have more capability than you’ll ever need.
April Total:
$736,233
$1.8M
April Goal: $.7M
Status:
To Plan +5%
Hi
AUS
EU
K
Lo
S. Am
S.W.
N.W.
1 2 3 4 5
Sales Strategy Step
Bill Bob Sue
Sales to date (U.S. $):
NW NE SE SW EU A EGY SA CA AUS CH JA K
Regional Breakout
Harry’s Widgets – Global Sales April 2007
.5M
1M
Figure 7-1:
Basic KISS
dashboard.
116 Part II: The Customer — The Critical Leg
The whole key to your dashboards comes down to two things:
ߜ Presenting the data and information you need with ease
ߜ Presenting that data and information in a visual way that makes it easy
to read and understand
You want to be able to quickly focus on the message being presented and you
don’t want to have to go looking and searching through a bunch of fancy,
fluff-filled graphs and charts that detract you. 3D bar charts, with all sorts of
shading effects, cone charts, and all the other options that you will have at
your fingertips will distract the reader’s eyes from the main message: the
information you’re presented with and the analysis of that information. Sure,
they look nice and you can wow people with your ability to make very pretty
and colorful charts and graphs, but in the end, it all detracts from what you
want and need in your dashboards.
Resisting the temptation to go with higher-end dashboard software, and all
the glitzy things they can do, may be tough. Some people in your organization
may push you hard to use them. The recommendation is for you to resist
that temptation and get yourself prepared to explain why it isn’t a good idea
to go with the glitz. If you want effective dashboards, stick with the keep-itsimple
style dashboards and the software that will provide it for you.
Just one word of advice. Okay, maybe two or three:
ߜ When looking at your dashboard options and making your decisions
about which ones to use, you may feel a little like you’re in the market
for a new car, so be prepared.
ߜ Know what you need from your dashboards, find those dashboard
providers that have what you need, and then look around. Compare
options and prices. Take them for a test drive.
ߜ Steel yourself against any possible high-pressure sales tactics, and make
your choice wisely. You may even have to convince some of your own
people that the high end is not where you want to go.
In the end, you have to go with what works best for your and your organization.
Benchmark best practices in dashboards? Sure thing. It’s always a good idea
to see what others are doing. But, don’t jump on a particular presentation or
dashboard style just because it works for the XYZ Company or some other
organization. Do what is best for you and the people you work with and for.
For more information on how to create effective dashboards, you might want
to take a look at a book by Stephen Few, Information Dashboard Design: The
Effective Visual Communication of Data (O’Reilly Media).
Figures 7-2 and 7-3 are some examples of more complex customer dashboards.
You will note that there are two examples: one using higher-end software and
117Chapter 7: Building the Customer Leg Dashboard
one — well, it shows an example of the sort of things you really want to avoid
in your dashboards. Things like too many colors, too much confusion caused
by fancy graphics. When looking at them, try to figure out what they are trying
to tell you with a quick glance. Do you have to look at them and take some
time to figure it out? If so, they are not what would be considered a good dashboard,
even though the data and information maybe on point and accurate.
Just-in-time versus just-too-late dashboards
There are a couple of elements involved with just-in-time dashboards. The
obvious one is how often you update the dashboard itself. You want your
dashboards to be updated as often as necessary to give you the hands-on
information that you need for measuring and monitoring your key indicators.
Depending on your business and your information needs, this could be anywhere
from real-time updates, to once an hour, daily, weekly . . . whatever is
needed for you and your organization. And again, the real power is how you
use that information to not only monitor your organizational performance,
but to make timely decisions. That’s where you gain a strong competitive
edge: making timely decisions — and the right decisions!
April Goal: $.7M
Status:
To Plan +5%
Hi
AUS
EU
K
Lo
S. Am
S.W.
N.W.
1 2 3 4 5
Sales Strategy Step
Bill Bob Sue
Sales to date (U.S. $):
NW NE SE SW EU A EGY SA CA AUS CH JA K
Regional Breakout
.5M
1M
April Total:
$736,233
$1.8M
Go
Show:
- Down
- Up
Update
- Daily
- Weekly
- Monthly
- Yearly
Display
- L-R
- R-L
- Moving
- Blinking
- Alternate
Dk/Lite
Data is
- Current
- 1 Wk
- 2 Wks
- 3 Wks
- 4 Wks
Jan
Feb
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Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
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Apr
May
Jun
Jul
Aug
Sep
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Nov
Dec
Jan
Feb
Mar
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May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
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Aug
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> 11111
> 11122
Options:
> 12345
> 22341
> 23351
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> 68894
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> 11547
> 90245
> 90324
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> 01324
> 00233
> 65574
> 86725
> 88322
> 99501
Standard:
On
Off
Sort by: Type Size Disp. Rank Date PM Function Det1 Det2 Det3 Det4 Stat1.3 Stat1.7
Figure 7-2:
Higher end
dashboard.
118 Part II: The Customer — The Critical Leg
The other element of just-in-time versus just-too-late dashboards is in the
information itself. What we call lagging and leading indicators.
ߜ Lagging indicators provide performance, output or outcome information:
they are just too late for prevention of major problems and issues.
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
$ 10K
$ (000)
8K
6K
4K
2K
0K
SWIMWEAR
GOLFWEAR
TEAMWEAR
SKIWEAR
50% OFF SALE
50% OFF SALE
PRE-XMAS
SELL-ATHON
$10.0
$8
$6
$4
$2
$0
TOTAL SALES
(MILLIONS US $)
MONTHLY RETAIL SALES - YEAR TO DATE
$10.0
$8
$6
$4
$2
$0
$10.0
$8
$6
$4
$2
$0
$10.0
$8
$6
$4
$2
$0
SWIMWEAR
TEAMWEAR
GOLFWEAR
SKIWEAR
NOTE: The chart on the top shows the same data as the one on the bottom: Which one is easier to
read and understand? Remember, all the glitz, color and fancy graphics just get in the way of the real
message, which – in this case – is the trends in sales over time.
WANNABE BETTER SPORTSWEAR, INC.
US NORTHEAST REGIONAL SALES
Annual Retail
Sales
Performance
Wannabe Better
SportsWear, Imc.
US NORTHEAST REGIONAL SALES
Figure 7-3:
Dashboard
to avoid
with too
much junk.
119Chapter 7: Building the Customer Leg Dashboard
ߜ Leading indicators are used to predict future performance: they are justin-time
and help you to prevent problems and issues from becoming a
major catastrophic event.
Both types of indicators are needed for your Balanced Scorecards and dashboards.
Lagging indicators are used for holding people accountable, while
leading indicators are used for internal management. For example, many
financial performance measures are lagging indicators since they report past
performance, or measure things that have already happened. Customer loyalty
and employee willingness to learn and change are more likely to be leading
indicators. They often lead your customer measures for satisfaction and
performance. These performance drivers may vary, depending on how you’re
using them. For example, one company found that employee satisfaction was
a leading indicator for customer satisfaction, which in turn was a leading indicator
for their company’s profitability.
You need both types of indicators. But which type do you think is harder to
develop and measure? Of course, it’s the leading indicators. That’s why they
are often ignored. Well, just because they’re harder to come up with doesn’t
give you a get-out-of-jail-free card for ignoring them. They are necessary if
you want to stay ahead of the game and to be just-in-time with your business
decisions. If you rely solely on lagging indicators, you will always be just-toolate
with your decision making and you will always be placed into the no-win
game of playing catch-up. No, we didn’t say playing ketchup, where you sprinkle
some tomato type substance all over the place (though playing ketchup
may be fun as on off-site team building exercise, playing catch-up is not only
very messy, it’s extremely painful and costly, too).
Another thing that drives your just-in-time versus just-too-late dashboard is how
often they’re updated. For now, we’ll just say that you want them to be updated
often enough to make sure you can take timely action when things go wrong.
This is especially true at the tactical levels. Get your information updates at
the tactical levels right, and you’ll avoid problems at the operational and
strategic level dashboards. If you have just too late tactical level dashboards,
you’ll have nothing but trouble at the operational and strategic levels.
Tracking and Analyzing the
Customer Dashboard
When it comes to your tracking and analysis of your customer dashboard,
don’t put it off until the elusive time for it comes around the bend. When it
comes to dashboards, there’s no time like now.
120 Part II: The Customer — The Critical Leg
Diligence is the name of the game when it comes to tracking and analyzing
your customer dashboard — or any other dashboard, for that matter. If you
put it off and procrastinate, you’re well on your way to a lot of very serious
problems. It’s something you have to stay on top of. Just like riding a horse,
you have to stay in the saddle, or you won’t get anywhere and the old horse
will just go wherever it wants.
Once you get your customer dashboard set up, you then have to figure out
who is going to use them and keep them up to date. You will also need to
understand how your dashboards at the strategic, operational and tactical
levels integrate and what day-to-day processes they link to. If you don’t’
understand the integration and linkages, there is no way you will be able to
drill down, or up, when problems occur. Without this drill-down capability,
you lose one of the key aspects of the Balanced Scorecard and dashboards:
early warning signals of problems that will impact your overall functional and
corporate performance before they become major issues.
Figuring out who needs to know
If you’re going make any mistakes in communicating your customer dashboards,
it’s much better to err on the side of communicating more, rather
than less. Just because someone isn’t responsible for updating or analyzing
the dashboard and taking action, doesn’t mean they wouldn’t find value in
knowing what’s going on. Especially when it comes to your customers.
Very often, companies treat employees like mushrooms. They are kept in the
dark and fed a bunch of garbage. This is a very risky prospect when dealing
with information about your customers. Employees need to know what their
customers are thinking about your services and products. Employees need to
know how the things they do, day in and day out, affect the customer and
your organization’s ability to achieve what customers want. And it’s up to
you to communicate that information and to make sure your employees
understand how what they do impacts the customer.
Customer dashboards must be communicated to those who have decisionmaking
responsibilities. Executives, managers, and supervisors who are
responsible for making decisions must have customer dashboards for their
respective functions:
ߜ At the strategic level, executives need to see how the operational plans
are helping to achieve their strategic goals for the customer scorecard. If
everything at the operational and tactical levels are linked properly, with
the right measures identified and all is well, the executives should snug
as a bug in a rug because they should never see any issues or problems
arising on their dashboards. How can that be said, you ask? Because the
operational and tactical level scorecards and dashboards are the early
warning signals for the strategic level scorecards and dashboards. When
121Chapter 7: Building the Customer Leg Dashboard
properly linked and measured, your operational and tactical level measures
will catch issues and problems before they hit the strategic level.
It’s as simple as that.
ߜ The same holds true for your operational level. Your directors and midlevel
managers need to know what’s going on with the customers. How’s
marketing going after new customers and how the new products will
affect their areas of responsibility and how existing customers feel about
their current mix of products and services.
ߜ Your tactical-level measures, dashboards and scorecards are the early
warning signal for the operational level. Any problems or issues that
show at the tactical level, with timely and effective decisions and corrective
action, will prevent the warning signals from going off at the operational
level.
So, in answering the question of who needs to know about the customer
dashboards, the answer is that pretty much everyone. Even though an
employee may not be a decision maker, he or she needs to have a customer
focus and understand how their job impacts upon the customer.
Updating the customer dashboard
When it comes to updating the customer dashboard, it’s the same story as
with communicating: if you’re going to make a mistake, it’s better to update
more, rather than less. It’s always easier to adjust to a less frequently if necessary,
than it is to ramp up to a more frequent update scheme.
How often you update your dashboards depends upon their target audience:
ߜ At the strategic level, you may only need to update them weekly or biweekly.
It just wouldn’t make sense to update strategic level dashboards
on a real-time, hourly or daily level, now would it?
ߜ At the operational level you dashboards may need to be updated once,
twice a day, or weekly.
ߜ At the tactical level, you will probably find that real time, once or twice a
day updates are the best option.
You have a couple of ways to update your dashboards. One way is to do the
manual approach. It’s time intensive and may have some opportunities for
things to slip through the cracks if someone becomes ill, or just doesn’t have
the time to get to it.
Another option is to set up some automatic updating capabilities, with automatic
access to your databases and information technology systems. In the
end, you’ll most likely find out that you will need to have some of both types.
You may find that this is particularly true at the tactical level. Information and
122 Part II: The Customer — The Critical Leg
data gathered at the tactical level may have to be gathered and your dashboards
updated manually, but that the drill up to the operational and strategic
levels can then occur automatically as the tactical dashboards are updated.
Now you come to the question of who should do the updating. The simple
answer is the people who own the data. This is especially true if using a
manual updating process. Basically, the processes and process workers that
generate the data, own the data. It’s all theirs and no one else’s.
Your Information Technology (IT) department and the systems they use do
not own the data! This is a problem often found with automatic updating systems
that make use of IT professionals and systems. Do not fall prey to this
fallacy. You and your workers own the data and information. IT is just a set of
systems and tools that help you and your people to manage, communicate
and analyze your data.
Drilling down to root causes
Dashboards should be linked between the strategic, operational and tactical
levels. Information from the dashboards are linked so that the tactical level
dashboards feed up to operational the level and the operational level feeds
up to the strategic level. This is why you need to ensure they link. It enables
your drill-down and up capabilities.
As you drill down, the levels of data and information become more actionable.
Let’s take a look at a simple example in Figure 7-4.
STRATEGIC
LEVEL
DASHBOARDS
DRILL DOWN TO
OPERATIONAL
LEVEL
DASHBOARDS
DRILL DOWN TO
TACTICAL
LEVEL
DASHBOARDS
Figure 7-4:
Making data
actionable.
123Chapter 7: Building the Customer Leg Dashboard
Let’s say that a strategic level measure has gotten into some trouble. Customer
satisfaction is in trouble. It’s trending in the wrong direction because the
product or service quality is in the tank. Senior executives are getting a little
nervous (they tend to be that way when things aren’t going according to
plan). They should be able to drill down and find the things at the operational
level that are driving the issue: the things that aren’t going right at the
operational level. Maybe it’s a certain customer service policy that isn’t being
properly followed, or the quality of a product has gone south due to some
equipment or supplied materials problem.
The executives, being the take-charge-and-find-out-what’s-going-on types they
are, call in the operational level manager(s) responsible for this travesty. The
thing they’ll want to know from the responsible operational level manager(s)
is what’s driving this travesty and what are the root causes. The operational
manager(s), being on top of their game and having their dashboard drilldowns
in hand, will be able to answer these questions by quickly showing the
executives the specific tactical level processes and measures that are the culprits
and let them know what they’ve been doing to solve it.
The whole beauty of the drill-down-and-up capability of scorecards and dashboards
is that the executives should never have to get nervous because there
is a problem on their strategic dashboards and scorecards. Why? Because, if
your on top of things at your level, their dashboards should always be green
and trouble-free. If there are problems at the tactical level, and you’re doing
things right, the issues will be dealt with long before they become an issue on
the operational and strategic dashboards.
Now, when you do your drill down to find those little culprits that have caused
you trouble, don’t go on a witch hunt of who to blame and hang for the problem.
Very rarely are people to blame. Look to the systems and processes. Just
like the people own the data and information they generate, the management
team owns the processes and systems. When mistakes are made or things are
going wrong, look in the mirror and repeat this saying: I own the systems and
process. And believe it! Yes you — management — are the ones who make the
decisions on what systems and processes are used. You — management —
determine the course of action and makes decisions regarding the work and
how it’s done. Even if you have an empowered workforce, you own it. If you
want your dashboards and scorecards to fail, there is no quicker way to make
that happen than to start using them as a means to beat people over the head
and to point the finger of blame. If you’re going to point the finger, point it in
your direction — and then get busy fixing the systems and processes that are
the real problems.
124 Part II: The Customer — The Critical Leg
Part III
Financial
Measurement—
TheFoundationLeg
In this part . . .
As the cornerstone of the business, it is the financial
leg of the balanced scorecard that lays the groundwork
for determining the health and performance of the
business, and even its solvency. In this part, we introduce
financial measurement, first discussing management’s role
in financial metrics, then outlining how the scorecard and
dashboards are developed and support each other, and
finishing by providing some insight into pitfalls to avoid.
Chapter 8
UnderstandingYourRolein
FinancialMeasurement
In This Chapter
ᮣ Seeking the true simplicity of financial measures
ᮣ Figuring out how finance helps you understand performance
ᮣ Fitting it all together
Financial measures have been the backbone of companies for decades,
consistently reporting on balance sheets, income statements, and cash
flow. We see them in every industry, in every form of business — large and
small. Financial measures are used by business leaders to make key decisions,
and to determine the financial status of a company or business.
When we ask CEOs and COOs what plans they are making for the long-term
future, we get great answers, about having a shared vision, compelling missions,
clear direction — everything a growing company would need to succeed.
However, when we ask mid-level managers the same question — and
especially when we ask the folks who make, buy, assemble and produce the
products shipped to customers — we get answers more along the lines of
“We don’t know what the company has in mind for the future,” or “I’ve got no
idea, I just work here.”
Startups never have this problem. They always know exactly where they are
going, and they can’t wait to get there. Everyone is involved, and everyone
has the same razor-sharp focus on where they are going, how they will get
there, weaknesses they have to overcome, and a plan for their own path for
the future. Such cohesiveness is indicative of shared clarity in direction, and
a common understanding of the road it will take to achieve the organization’s
goals, both by overcoming weaknesses, and by learning from others who
have already been there.
As you might guess, there are countless considerations, criteria, and reasons
for selecting specific financial measures. To be effective in planning and
achieving your goals and objectives, we must determine what we need from
this sea of financial confusion. In this chapter, we start by identifying key
aspects of financial measurement, the opportunities available, and how you
ensure your measures align with the company’s strategy and direction.
Five Things You Must Know About
Financial Measurement
Financial measurement—just those two (not so little) words can give us the
chills, and even make some people break out in a cold sweat. Others simply
run away in fear, or ignore them—hoping they will go away. But, we need not
fear financial measures, and if we can learn not to fear them, we can discover
their power, and use them to help us make crucial, strategic and tactical decisions
for our business, and for the future.
Here’s the good news: Most of the financial measures we need involve only
simple addition and subtraction, with some minor division thrown in every
once in awhile to keep you on your toes. In fact, if the financials are too complicated,
they are probably not helpful to you anyway.
Your financial measures must be accurate
and highly dependable
Well, duh! But, you would be surprised how often we have found actual financial
measures in use by companies that are not only inaccurate and even
inconsistent, but calculated differently, and with wide variations in rules and
assumptions about the numbers and what they are supposed to do.
For example, we have seen:
ߜ Different assumptions in different countries and regions about what to
include in gross profit calculations, and what determines a variable cost.
ߜ Within a region, different definitions for the same terms, such as date of
invoice, cost of capital, and even what constitutes a receivable or
payable.
ߜ Different operational assumptions region to region regarding cost of
goods sold, and where to put accruals and depreciation, and what constitutes
a capital asset.
This often happens when we acquire different companies and expect them to
integrate seamlessly. It can also happen when we employ different leaders and
managers with widely different backgrounds, and do not indoctrinate them
into our financial measurement system. If you don’t teach what your system is
all about, most employees will default to whatever they used at a previous
128 Part III: Financial Measurement — The Foundation Leg
employer — which may or may not resemble your company’s approach. The
result? Disparate systems, incongruent data, and an inability to make clear,
meaningful decisions. Not exactly the outcome most of us would prefer.
For you to be able to make clear, unambiguous decisions based on dependable
data, you will need to first ensure your measures are accurate and highly
dependable. If they are not, then you must resolve this issue first — before
any other issue you might have. Without clean consistent measures, you will
not be able to make key decisions about the business accurately or effectively.
You can do this through several ways:
ߜ You can ask each business unit leader to do this too, within his/her business
unit, with each department, again for the same reason and desire to
have consistent measures.
ߜ Once the business unit leaders have provided assurances that their financial
measures are consistent across their units, you can get the general
managers together — with their financial advisors — and conduct a workshop
to sort out what the standard way to calculate each financial measure
should be. Have them convert to this new standard right then and there —
together with their financial managers — documenting the changes they
will need to make to ensure consistency across the business units.
ߜ If there is huge time pressure, you can also ask for an explanation of the
calculation of each of the business financial measures you are using, and
with the aid of a financial expert, run a comparison to see where differences
are, how different they are, and the adjustment required to make
them all consistent with what you need. If you do this, you will need to
send it back out for agreement and approval from the business units, to
ensure they will buy into and support and work with the standard financial
measures.
If you want the buy-in, support, and even the ownership by your company’s
top management team, you will need to be sure to include them in the
process of selecting financial measures. Many companies make the mistake
here, defining the measures for the company without input or involvement of
members of management, usually resulting in disconnects in measuring performance,
and finger pointing, blame, back stabbing, and other nasty behaviors
all meant to justify why objectives were not met. Take our advice: It’s
much better to get management involvement and engaged in developing the
key financial measures you want everyone to use.
Your financial measures must truly
reflect the value of your business
The ultimate goal is to make sure that the financial measures you are using
reflect the total value your company is providing, in terms of speed, quality,
129Chapter 8: Understanding Your Role in Financial Management
and delivery, to result in higher sales, margin, and cash. It is easy to get off
track, what with the different ways we can define revenue (usually at time of
delivery, not necessarily when we get paid), cost (usually amortized instead
of when actually incurred), and cash flow (easy to mistake for accounts
receivable less accounts payable, cash management incorporates investments
as well as payments schedules.). Fortunately, there are some things
you can do to help ensure your financial measures reflect the value your
company is providing:
ߜ First, be consistent in defining your assumptions and calculations. For
example, date/time of delivery, invoice date, gross and net profit, and
working capital. This does not preclude you from taking advantage of
legal variations, just pick one and be consistent across your business.
ߜ Demystify and simplify your financial measures, by selecting simple,
effective and easy to understand terms.
ߜ Be clear about what is included above and below the line, or the gross
profit number. “Above” usually are sales, cost of goods sold (COGS)
numbers. “Below” are the operating expenses, and interest and taxes.
Remember: Being consistent is key to managing those factors above the
line, which usually vary a bit more than the others.
ߜ Be clear about just what sales, COGS, cost of services (COS), and operating
expenses are. For example, operating expenses are those costs not
directly related to making the product or delivering your services.
130 Part III: Financial Measurement — The Foundation Leg
Clearing up calculations
Working with a large international firm, we
attacked the issue of parts and components
made and shipped from three separate plants in
three different countries to a final assembly
plant located in a fourth country. So far so good,
but costs of final assembly in the fourth country
were climbing out of control, and nobody knew
why. When we took a close look at the financials
for all four plants, we soon discovered the
problem: Two of the three component plants
were charging a surcharge above the normal
price to cover shipping to the final assembly
plant and, ultimately, to make sure they would
achieve their budget performance for the year.
The problem had gotten so bad that the final
assembly plant was starting to buy, under the
table of course, less expensive components
from competitors in order to meet their margin
goals and objectives. Once we got the company
to convert to a Balanced Scorecard, they saw
the devastating impact from this structure, and
changed it immediately, eliminated the surcharge,
and worked to improve the entire value
stream to the customer, and the costs as well.
Within three months, we saw an immediate
turnaround in performance, and by year’s end,
all plants were hitting on all cylinders.
Your financial measures must cascade
easily from top to bottom
Don’t worry: For results type measures such as sales, costs, and expenses,
chances are you’re probably already cascading your financial measures. What
do we mean by cascading? We mean that financial measures roll down from corporate
to division, from division to region, to plant or function, down to lines or
departments. Most companies do this. However, we need to go beyond cascading
basic financial measures and be sure that key process measures cascade as
well, especially as they are directly related to performance of the value stream
in how well and consistently products and services are delivered. This must
include measures for specific periods, such as hourly, daily or weekly.
Where most companies drop the ball, and do not realize it, is in asking this
important question: If all lower-level objectives are all met, does this assure —
with near 100-percent certainty — that every goal at the next level up will be
achieved? If the answer to this question is not “yes,” then we may be surprised
when goals at the department level are all completed, but goals at the regional
or divisional goal are not. What happened? What happened is that we did not
check back up the ladder, to make sure that 100 percent of the goals at the
higher level were covered by 100 percent of the actions at the lower level.
Once you start asking these questions, you force a two-way dialogue between
different levels in your business, and they become the quality check for performance.
They also act to track and adjust the appropriate financial measures
that cascade both up and down the different hierarchy levels of the
organization, helping to ensure that goals at all levels are completed as originally
planned.
Many businesses generate financial measures once a month. If something
changes in the market during the month, however, these businesses will not
be able to adjust. The result? Financial loss, lost opportunities, and even lost
customers. Not the results we typically hope for in our businesses. A critical
point here is to implement a system to not only check back up the chain for
100 percent coverage, but also that allows regular review and adjustment of
the measures, so that if something should shift — for example, if the acceptable
performance cycle time is cut in half, or standard cost expectations drop
45 percent, or volume level expectations double — that you can respond by
adjusting or changing the measures within a very short period of time, in
order to stay ahead of issues and resolve them before they become problems.
By implementing a more real-time focus with appropriate financial measures
focusing on all four legs of the Balanced Scorecard, you will be able to
respond much more rapidly, perhaps within days or a week maximum. This
will in turn allow you to minimize the impact of the change on your performance
and ultimately on the financial results measures for the month.
131Chapter 8: Understanding Your Role in Financial Management
Your financial measures must
be easy to use and explain
You know what we mean. Using magnifying glasses to see the numbers on a
spread sheet has gone out of style. Receiving a financial report for the month
that is about half an inch thick is also old fashioned. And sitting through
hours and hours of financial reports — with most of the sheets looking
almost identical from one to the next, and someone presenting the information
line by line — is also out.
Certainly, we need to have the data. No question. However, we need to make
our financial measures as visual as possible to help us understand important
information quickly and efficiently. The solution at many companies is to
develop dashboards that depict trend information using graphs or charts
instead of lists or tables of data. The key is to make the presentation useful
by providing the data in a way to helps users analyze and understand what
they need to look at and how to view it. Here are some ways you can make
your financial measures communicate much more than numbers:
ߜ In general, provide graphs that help users see trends in performance.
Trend charts are useful — and control charts are even better — to help
understand the mean and degree of variation of a particular measure.
Figure 8-1 shows how we can use such a line chart to focus on key issues
(in this case, why the costs would suddenly fluctuate in Q4 for example).
ߜ Analog data are often more useful than digital data. By this, we mean
that, where percentage of error is useful to determine failure rates, it
does nothing to help you understand the nature of these failures. Yet, if
we have the raw data, we can see swings or clusters around specific
aspects of performance, such as failures in first pass yield (first time
right, no rework, through a process step).
ߜ For specific financial measures pertaining to each of the other three legs,
you can be inquisitive in both selecting the measure and deciding the
best way to depict it. For example, you might compare takt time (a six
sigma term for the time it takes to do a specific value added step) to
total time in bar charts. Or you might show weekly rework by area on a
trend chart, to see if it is predictable and stable, to best determine corrective
action. (If it varies a lot, that suggests the process needs to be
brought under control before it can be improved.)
ߜ For customer metrics, clearly you want to focus on what the customer is
interested in. And, by measuring more frequently, issues will be detected
sooner and can be corrected while still relatively small, rather than
having a great, big problem.
132 Part III: Financial Measurement — The Foundation Leg
ߜ Behavior of data can often lead to understanding and setting priorities.
A pareto (or bar chart) diagram is often useful in this way, to accrue
value, or occurrence, or average time needed per data point, and display
by the largest bar where the greatest opportunity is. Figure 8-2 clearly
demonstrates how we can use this graphic tool to help us decide where
to further investigate performance problems in first-pass yield failures.
0
2
4
6
8
10
12
14
16
18
20
Count
W
rong
info.M
issing
info.M
issing
form
Late
form
W
rong
form
IllegibleNotapproved
Type of Failure
Pareto of FPY Failures
Figure 8-2:
Financial
measures
correlated
to key first
pass yield
failures.
Control Chart of costs
0
2
4
6
8
10
12
J F M A M J J A S O N D J F
Months
$K
Figure 8-1:
SPC
(Control
Chart) on
financial
cost control.
133Chapter 8: Understanding Your Role in Financial Management
It’s all about deciding what you need to know, and how best to get the information
simply and effectively. Select those financial measures that tell a story
relating to all four legs of the scorecard, not just financial performance. And be
sure the financial measures show how well the value stream is performing — to
support current as well as future growth and development requirements, as
well as revenue trends.
Your financial measures must adhere
to current regulatory and tax laws
You would think that this one is a no-brainer. Well, it isn’t. Every day we see
more and more companies veering into questionable business practices. These
same companies are surprisingly not aware of their walk on the criminal side
of life until after they have already broken a law, resulting in hefty fines and
penalties.
We can’t emphasize this enough. With the advent in the United States of
Sarbanes-Oxley and other financial accounting laws and regulations, more
than ever you need to have financial measures that are not just useful, but
also legitimate and lawful. With companies globally distributed, this is a huge
challenge, given different regional, country, and even state or district laws
regarding taxation, environmental and labor law compliance.
Here’s the good news: There are a variety of techniques you can use to
ensure you are compliant:
ߜ Pass financial measures and their assumptions through your legal department
to have them reviewed for potential legal implications.
ߜ Have all financial measures reviewed by the governing board of directors,
which should consist of both officers of the company and other
chief executives and prominent business leaders who do not have a
vested interest in the particular company. Having such a body involved
eliminates possible collusion, and ensures objective selection is made.
ߜ Enlist a team of legal and financial eagles to develop and publish guidelines
to all management, outlining what would and would not be acceptable
according to generally accepted accounting principles (GAAP), with
lots of examples, so as to help middle managers in selecting appropriate
financial measures consistent with regulatory and legal requirements. Of
course, audits would need to ensure continued compliance. One thing:
remember that GAAP is different for different countries — what works in
the U.S. may not work in the U.K.
ߜ Tracking and publishing compliance problems to determine chronic
repeatable issues while providing feedback to management can ensure
that legitimate policies and procedures are practices by well-informed
management.
134 Part III: Financial Measurement — The Foundation Leg
Finding The Financial Data Gold Mines
Understanding a company’s finances, and how these finances impact a company’s
operations, is one of the most important indicators of success for
today’s business leaders. Successful leaders use real-time updated information
pertinent to their business in order to leverage actions toward a competitive
advantage, balancing growth with results, and customer satisfaction
with financial performance. In the sections that follow, we explore these and
other aspects of competitive leverage.
Scratching the surface of a goldmine
When successful leaders make the kinds of decisions that will shape the
destiny of their companies, they almost universally rely on a few extremely
powerful — but simple — considerations.
A number of these business gold nuggets relate directly to financial measures.
The following basics get you started in using financial measures to their fullest:
ߜ Understanding the fundamentals of your business and its products and
services is critical to success: This includes how products and services
come together, what they consist of, and how they are provided to your
customers.
ߜ Understanding how your customers use your products and services,
and where it adds value to their lives, their operations and how they
meet their customers needs: Knowing this enables an understanding of
how to leverage key advantages such as quick delivery, technology or
even packaging.
ߜ Keeping it simple is also important, as this means keeping the number
of measures down to a significant few, to better credibly compare performance
in a reasonable period of time: This works too, because ratios
transcend specific products or services conditions, such as revenue per
employee, or product development cycle time, or even trends in
ߜ Real-time information update is fundamental to their success as well:
This means they had a dashboard approach, with ways to get updates at
least daily, in order to see trends, and make timely adjustments.
Knowing your business equals
leveraging your financial data
Learn your business. The more you know how your business works, and
more importantly, how your competitors’ business runs, the better prepared
135Chapter 8: Understanding Your Role in Financial Management
you will be to take advantage of any opportunity. These days, opportunities
come and go quickly, so you must be ready to act quickly, too. So, what kinds
of things should you be looking at?
ߜ As you pursue cost control, learn how your direct competitors control
similar costs. Also, seek information on how companies in other industries
control similar costs, to see if you can capitalize on better practices.
ߜ See how your products and services are used by your customers, and
learn lessons about how you can help your customers improve their
performance. You can then leverage what you learn to offer to add value
to your customer’s business processes, and ultimately his bottom line.
ߜ Collaborate with colleagues in other functions, and discuss key aspects
of each as they contribute to the overall company profitability. Then,
investigate how you as a group can use the Balanced Scorecard to integrate
your actions and interrelate your departments’ financial measures.
ߜ Tend toward analog or actual performance data information, and
away from digital or “yes/no” type of information. Granted, you may
need to see go/no-go results to determine where to dive into further
detail, but you will need raw data to determine how best to analyze performance
and determine best application. For example, percent on-time
delivery will tell you what it is. But, actual delivery time of each step can
help you understand which step takes the longest, and therefore identify
time targets for improvement.
Knowing your business can enable your financial measures to tell you how
well you are taking advantage of any market or technology advantage, as well
as help you determine possible expansion opportunities, into other markets,
with other customers, or to cross over to completely different applications.
The key is to use a combination of lean applications with fundamental technology
applications in your business, to enable you to see leverage opportunities,
to either add value to current customers or engage new customers and
thereby increase market share.
Using key measures to gain a
significant competitive edge
Return on investment, often simply known as ROI, is a fundamental financial
measure to help you understand and decide on investment opportunities.
Using this financial measure can give your business a definite competitive
edge in a number of different ways. First, you can determine the potential
return of an investment as a function of its magnitude and the level of increase
in sales and profitability over a specific period of time, to decide if it is an
136 Part III: Financial Measurement — The Foundation Leg
investment worth making. Second, when you make the investment, as you
assess progress through your scorecard, you can make adjustments to key
actions to control costs and/or increase revenue.
The simplest system to calculate ROI is payback: Just divide the total investment
by expected revenue per year. The result is an estimate of how long it
will take to break zero, and begin to achieve positive ROI. To show this as a
calculation, we should first look at an example investment:
Investment: $25,000
Expected revenue per year: $7,000
ROI = $25,000/$7,000 =3.5 years
For someone who has to decide if the investment is worthwhile, it would be
important to know the payback time period toward profitability. So, the question
to ask is: Is this soon enough? The answer might be different based on
current strategy, key market and technology penetration plans, and possible
competitive advantage gained.
Even as most managers do not need detailed, calculated financial measures
in order to do their job, the pitfall to avoid here is to assume you don’t need
any measures at all. As a manager, you need to understand the basics of what
financial measures tell you to make good decisions using this important data.
This doesn’t mean, however, that you need to know and understand financial
measures as well as your controller or chief financial officer. Call on experienced
professionals as you need them to help you make your decisions. See
the section, “Making sure the right people do your measuring,” for more
information on finding professional help.
Turning difficulties to your advantage
Given certain data trends or partial information, managers will often make
assumptions about things. Sometimes these assumptions are good ones, and
sometimes they are not. They make assumptions even though it involves some
risk — especially when considering decisions involving whether and where to
invest, make capital expenditures, or institute cost-cutting measures.
By using financial measures linked to a Balanced Scorecard instead of making
assumptions or using your gut feelings, you can make better decisions, by
taking the whole business perspective into consideration. This is especially
important when you are faced with less-than-stellar performance, a downturn
in the market, or unexpected costs. When difficulties arise, we are sometimes
forced to make difficult choices quickly about costs, investments, or those
actions related to future growth and development. With a Balanced Scorecard
approach, the right decision is much more likely.
137Chapter 8: Understanding Your Role in Financial Management
Let’s say you see a dip in sales this month, and your data projects the dip to
continue for the next three months. Traditional financial management would
lead you to immediately cut costs, reduce investments, and consolidate operations
wherever possible in the short term, to preserve margin levels. With
limited financial information available, this looks on the surface to be a reasonable
and even prudent strategy. However, there may be any number of
reasons why this approach is a very bad idea, and they become apparent
when you look take a total business perspective:
ߜ Cutting costs and consolidating operations may negatively impact
internal process costs beyond just the income statement. Cost cutting
might include buying cheaper parts, shipping bulk, or increasing consignment.
However, cheaper parts may affect quality, resulting in rework or
additional purchases or expediting costs. Bulk purchasing might increase
inventory, work in process (WIP), and if errors occur, greater levels of
rework and expediting. Increasing consignment can also increase costs,
and compound other issues as well. To avoid these risks, you will need to
know more about the ramifications of such cost cutting measures, and
see if other ways can achieve the desired results without such risks.
ߜ Reducing investments may also seem reasonable. Yet, if the investment
is for key operational improvements, or technology, then you could
mortgage the future for the present. Avoiding such risks will necessitate
trade offs, to assure we do not compromise improvements and technological
advantage for present, short term perceived savings.
ߜ Consolidating operations, or more likely, transferring activities to
lower cost countries, will not solve key cost issues. Transferring broken
processes to a lower cost area will only continued enable poor performance
to impact not only operations, but increase delivery cycle times
as well, and will most likely increase costs. In fact, the right approach —
looking at it from a combined perspective of internal processes coupled
with customer focus — would dictate using a lean approach, enhancing
value added, and eliminating non-value added activities related specifically
to delivering products and services to customers.
ߜ Other measures, such as layoffs, for example, also put the company at
risk, much more beyond just determining potential labor savings. See
the example in the sidebar “ Weighing labor savings against risk . . . or not.”
How can you avoid making wrong or costly decisions when times are tough?
The answer is in the application of the Balanced Scorecard, and looking for the
right mix approach to yield the best financial return for the whole company,
both in the short term and the future. Here are several ideas to consider:
ߜ Price is not just what you charge — it should be compared to competitor
pricing. Look for trends in seasonality, or even during the week (gas
prices always go up Friday, and come back down Monday or Tuesday
morning.).
138 Part III: Financial Measurement — The Foundation Leg
ߜ Look at your costs, and make sure you are taking the total cost idea
into account. Total cost means the complete cost incurred along the
entire product chain, from order to creation to delivery to payment.
Cheaper parts may result in lower quality or higher inventory.
ߜ Look to other valued aspects of your products or services, such as
breadth of selection, timeliness of availability (Wal-Mart’s availability
averages less than two hours), service, and reliability. Do you offer
added services such as training, assistance, or explanation with your
products.
ߜ Customer loyalty is also very important to consider, and should not
be underestimated. Return customers often define the livelihood of
many companies, not just in service industries such as U-Haul or fast
food, but also with larger firms needing specific products or services on
a regular basis (Frank Allen and Associates provides comprehensive
hiring and staffing services, above and beyond normal search activities.
They have one of the highest client return ratios of any search firm.
ߜ Finally, not all ratios are bad, and some are better when seen with
other ratios. For example, a trend of decreasing margins taken by itself
is a red flag for improvement. However, when seen against acquisition
investments, decreasing margins may not be a problem at all. And rising
travel costs alone may tend to indicate loss of control. Yet, coupled with
an increase in sales and expanding customer base, we rising travel costs
might indicate positive position development. The point is, look at your
ratios with an attitude to the whole business, not just one part.
Measuring and Interpreting
with Accuracy
You would think that obtaining consistent and dependable financials would
be easy — a piece of cake. Guess what? They’re not! Very often, companies
make decisions based on financial measures and key financial indicators
developed with assumptions that are inaccurate, and that depend on conditions
that change quickly and unexpectedly.
We know that there are certain assumptions about the rules by which financial
measures are established. Revenue is declared at some point, either where
products or services are provided, or perhaps when such deliverables are
qualified and acknowledged as received by a customer. On-time delivery has
a specific definition, otherwise, it could be just about anytime, as early as inplant
verification to as late as final tic-list completion. Given such potential
variation, it becomes clear why we would need to establish consistency of
definitions right away, to avoid erroneous assumption, which could result in
mistakes in revenue, earnings, cost and delivery values. It also becomes clear
139Chapter 8: Understanding Your Role in Financial Management
how dependable our assumptions need to be in order to ensure they don’t
change too often or without good reason.
In the sections that follow, we show you how to find the right people to measure
the right things, all of which builds a better scorecard (see Chapter 9).
Making sure the right people
do your measuring
When people take responsibility for financial measures, but are not responsible
for their assessment and utility, the inevitable result is errors, disconnects,
and a clear disregard of discipline in maintaining these measures, or
understanding which ones are key. This problem keeps compounding when
decisions are then made based on these errors and disconnects. The results
can be simply bad or completely devastating.
Financial measures must be captured and assessed in detail by the manager
whose performance is most closely linked with them. Anyone else, and you’re
setting yourself up for failure.
You may sometimes encounter the automatic acceptance in a corporation to
any idea or suggestion from higher up. But deference to status and authority
has caused more inept, unusable, and irrelevant data collection than any
other cause, often resulting in the creation of entire departments to track,
manage, and create the data and its collection. Guard against this tendency
whenever you see it rear its ugly head. See the sidebar, “Status doesn’t imply
better,” for an example of the problems such deference to status can cause.
Sources for assistance in applying and interpreting financial measures are
usually found in different places, depending on the measure and its application
on the dashboard.
ߜ Basic information: Common to most businesses, such as the type of
results measures found in financial reports (for example, Return on Net
Assets (RONA), Net Profit, Earnings Before Interest and Taxes (EBIT),
Cost of goods or services sold (COGS, COS), Cash flow, and others).
Resources for help with this information will consist of your average
accounting manager or analyst. These individuals can provide all the
necessary background on these figures, and then some.
ߜ Process financial information: This comprises the information related
to the process performance from a financial perspective, such as cost of
first pass yield failure, on-time and off-time delivery costs including
expediting costs, investment levels for growth, and process competency
capability modeling and costs. Resources for help with this information
will most likely come from controllers, and financial planning and analysts
dedicated to specific product or service lines.
140 Part III: Financial Measurement — The Foundation Leg
ߜ Strategic elements of financial risk assessments regarding failure
severity, probability and detect-ability, to include long term capital,
total product or service family risks, applications of alternatives in
shop floor layout or alternative process flow analysis: Resources for
help with this perspective might be your strategy planning chief, or the
DFO, or even in the legal department as well.
Identify who you want to talk with, quickly articulate what it is you want to
know, and listen carefully to the discussion.
Using consistent and dependable measures
You can’t measure everything, although many keep trying to. When you try to
measure everything, and link everything, it starts to get a little crazy.
Here’s an example: a retail clothing boutique wanted to improve its profit
margin. Clearly, this is a financial measure, yet of course it also links to the
growth (increased profits means higher revenues), operations (how will my
inventory be affected?), and customer (buying trends) legs of the Balanced
Scorecard as well. The temptation was to measure not only cost against sales
price, but also sales levels as a ratio of sales price, to try to get the highest
price possible, and to measure sales and sales costs by product type, region
and other market characteristics. They also tried to connect key market and
strategic decisions to financial performance.
The way to avoid this problem is to do a simple test: Ask if the specific goal is
directly or indirectly related to delivering value products and services to the
customer. If direct, the measure is probably ok, although we need to monitor
closely. If indirect, we will need to determine a link, if any real link exists, and
what level of importance we will need to attach. If we can’t find a link, then
the metric may best be set aside, or identified as a supporting measure.
The general rule for financial measures is no more than five to eight core
measures, with perhaps another three to six supporting measures. This allows
between nine and fourteen total financial measures, which is more than enough
for most companies. If you are tracking dozens of measures, then you’re not
focusing on what is most important in your organization. The cure? You should
reduce your key financial measures to those five to eight ones that are truly
core to what your company does.
Avoiding measurement pitfalls
Not a bad idea, at least on the surface. But, the pitfalls begin to appear when
key strategic decisions are made based on these comparisons. There are
several reasons:
141Chapter 8: Understanding Your Role in Financial Management
ߜ To determine the best price, instead of testing the market (easy way),
you try to set the best price through calculated sales levels ratios (very
difficult). This results in forecasting, ordering, styling, and shipping
based on mathematical models, which are less than dependable in a
number of industries, including retail clothing, food, and personal
hygiene and health products.
ߜ You may overlook critical non-financial information, such as recent legal
issues for a prospective acquisition, or high management turnover, or
core competency weaknesses with no development plan, all of which
could indicate a more appropriate course of action other than that suggested
by financial measures alone.
ߜ You may find you can’t even measure some critical aspects of your business,
such as successful leadership, how we treat our employees, or ethics
practices. Some companies attempt to measure these in the hopes to
improve them, which is laudable. But direct links are sketchy at best, and
any really important decisions based on such information is risky indeed.
Turning Numbers into Information
Have you ever had this happen? You’re sitting in a meeting going over all of
the business related information, and then the financial types get up and it
seems like the lights got turned out and everyone went home? And, even
though you listened intently, it seemed like they were speaking some foreign
language that nobody understood? If not, you’re fortunate. It happens more
often than many of us may like to admit. These sections give you ways to and
not to report data so everyone leaves the room with an understanding of
what you just showed them
Examining reporting pitfalls
Avoid the following pitfalls of reporting numbers and financial information, and
you’ll be well ahead of the game when trying to turn numbers into information.
ߜ Numbers are listed as just that – tabular lists of numbers – and not in
some form of graphical or visual presentation that is quickly and easily
understandable
ߜ Not varying the graphics and visualization techniques used to find the
best method to display the numbers
ߜ The numbers are presented in the language of the presenter and not in
the language of the audience they are presenting to
142 Part III: Financial Measurement — The Foundation Leg
ߜ Ineffective use of fonts and color schemes to present the number - using
too many or too few colors so that the critical information gets lost in
the background
ߜ Use of acronyms that go unexplained and assuming everyone knows what
they mean and not talking in plain language that everyone understands
ߜ Throwing in data and information that isn’t on point or that doesn’t lead
to an understanding of the point being conveyed to the audience
ߜ Not knowing what it is you’re really trying to communicate to the audience
ߜ Presenting numbers from only one viewpoint or perspective
ߜ Not using stories or analogies to try and create a better understanding of
the numbers (not always possible, but very effective if you can pull it off)
Most people are visual in nature. This means that pictures and graphs go a
lot further in gaining understanding, which leads to information and knowledge.
Long lists of numbers are hard to visualize, interpret, and then apply
critical thinking skills to gain understanding. They are hard, if not impossible,
to determine trends, issues and problems. So get visual and avoid the pitfalls
(see “Showing financial info simply”).
Showing financial info simply
The best way to show financial information is to get graphical and use good
visual presentation techniques. This will most often come down to presenting
the numbers in some form of chart. Popular software programs such as
Microsoft Excel make turning row after row of numbers into simple and compelling
charts easier than ever. The most common forms for showing financial
data are:
ߜ Line charts: Best for showing trends over time types of data
ߜ Bar charts: Best for showing comparisons (stacked bar charts, side-byside
bar charts)
ߜ Pie charts: Best for showing relative comparisons such as percentages
of total of the whole or size comparisons
The use of colors to show different graphical elements of financial information
is also a good way to show or highlight comparative information, too.
Just remember that too many colors can be just as confusing as not using any
at all. And, just as with your dashboard and scorecard color schemes of red
equals problem areas, yellow equals marginal or potential problem areas, and
green means you’re good to go, these colors can be used for the same things
in your financial reporting. Once you pick a color scheme format, stick with it.
143Chapter 8: Understanding Your Role in Financial Management
If you’re stuck in a black-and-white world, the use of different gray scale shading
or graphic textures will go a long way to helping you differentiate and
show information.
Have you ever seen a line, bar or pie chart with so much junk crammed into it
that you can’t make heads or tails of what it’s showing you? Take the lessons
from it and don’t try to shove too much information into any one chart. Your
charts have to be easy to differentiate the lines and bars at a quick glance. If
in doubt, go get someone to do the quick glance test — where you show it to
someone who hasn’t seen the chart before — and ask them to take a quick
look at the chart and then have them tell you what the chart is telling them. If
they get it wrong, you know you have some more work to do on improving
the presentation of your financial information.
Use legends where appropriate. Yeah, it seems kind of basic, but you wouldn’t
believe the number of charts that don’t’ use them. After all, people need
this sort of thing to help them remember what the various colors and visualization
schemes are supposed to mean.
Linking Financial Measurements
To Strategies, Plans And Tactics
You must always remember that a Balanced Scorecard is the bridge between
strategy, planning, and the actions of execution. This is because Balanced
Scorecards — as they define and track organization objectives, measures, targets
and periodic performance — provide for key decisions and execution of
the strategic plans. Of course, this means you should plan first, in order to
enable everyone to align their scorecards with single focus and direction in
mind. And while the scorecard will integrate all four legs, it is the financial
measures we will focus on in this section, as they are the glue that binds all
others to the strategy and the plan.
A key aspect of your role in financial measurement development is focus on the
strategic perspective of your business, no matter the level within the company.
One tool to help you in this is called the strategy map. The strategy map lays
out the step-by-step road map in plain language regarding necessary actions to
support the development and execution of your Balanced Scorecard.
The strategy map is quite simple, and introduces integrating your objectives
and measures across your scorecard, such that they tell a story related both
in context and sequence. In other words, the strategy map spells out how each
objective is related to the others, and how, through achievement of your
objectives in sequence, you will achieve your overall organizational goals.
See Chapter 2 for an example of a strategy map as well as basic info on how
to create one.
144 Part III: Financial Measurement — The Foundation Leg
Financial measurement is dependant
on strategic focus
Would you agree that, before embarking on a day-long shopping trip, it’s a
good idea to have some idea of what it is that you want to buy? Otherwise,
how will you know what kind of stores you’ll want to go to and, once you
arrive, what it is that you’ll purchase? This means you have a long-term strategy
(having food in the house so that you and your family don’t starve, for
example) which drives your decisions on what you need, where to go, how
much to buy, and even what conveyance you will need to carry your purchases.
We formulate strategies routinely in our lives, and then take action to
fulfill these plans. And of course, our financial measures are related to the
actions we take to fulfill these strategies, whether we are shopping to stock,
or for a special occasion, or for large purchases, where we also may take
interest rates into account, payment schedules, and other factors.
In business, the strategies might be different, but we develop our plans
according to whether we plan to maintain, sustain or grow our business. As
you can imagine, your business financial measures will also be dictated to a
large degree by the strategy or strategies you have, as defined by one or
more of these perspectives.
ߜ Sell and get what you can, and manage your assets. Appropriate financial
measures would include return on assets, shareholder value added, and
minimizing costs, to include some possible improvement in operations.
ߜ Milk the cash cow, with continuous improvement. Financial measures
here are more oriented to longer-term focus, enabling some integrated
value stream mapping and continuous improvement programs, especially
for long-term fixed-fee contracts.
ߜ Grow your business, revenue, and expand market share. Financial
measures center around ROI, longer term planning, technology innovation,
and market expansion opportunity, and might include capital planning,
earned value added (EVA), and value stream performance ratios.
The key is to ask where your business is going and where your focus should
lie, and to talk with your peers, your boss, and even other department heads,
before you select your financial measures, so that what you measure aligns
with what you want to ultimately achieve.
What you do depends on what you want
So, how do we know what we want? A wise man once said, “Be careful what
you reward, because chances are that’s what you will get.” We certainly see
this all the time in business. If we reward our managers for cutting costs, our
managers will cut costs. If we want to improve competency, we will train or
145Chapter 8: Understanding Your Role in Financial Management
hire more capable people. But, executed in isolation, these single points of
improvement could prove disastrous for a business.
A Balanced Scorecard approach is the only way to ensure all elements of a
business are taken into account. So, we need to define what we want from a
complete, holistic perspective. For example, a complete picture of financial
measures might include not just cost cutting, but cost cutting as a percent of
internal process improved performance, linked to customer satisfaction in
delivery and pricing. We can then define appropriate financial measures that
relate all four legs of the scorecard.
So, it’s not just about measuring financials. It is about deciding what you
want as a function of all four of the scorecard legs, and then relating the
appropriate financial measures to tell you how well you are doing, and what
might need attention, and when.
Using Failure Mode Effects Analysis
(FMEA) to assess risk
Selecting the right financial measures is certainly dependent on your strategy,
but the bottom line is all about action. Measures themselves enable good
decisions, but execution is the key to performance. Your financial measures,
therefore, must enable not only assessment and decisions, but must also lead
to action.
Risks are a key ingredient in the action stew. You assess, take, and manage
your risks based upon a multitude of factors, at varying levels:
ߜ Your strategic risks are linked to market forecast accuracy and timeliness,
product design characteristics based on assumptions of customer
desires, and acquiring technology according to our perceived future
vision of where we want to be
ߜ Your operational risks involve investments in equipment and improvement
initiatives, optimizing purchase pricing and change management
as we move toward a more lean enterprise approach
ߜ Your tactical risks center around line performance, administrative task
management, and cash collection and payment.
The best way to assess and manage risks at any level is to understand not
only the level or impact and probability of risk, but also the potential visibility
as well. A great tool to help in this assessment, and ultimately in deciding
what to do, is a Failure Mode Effects Analysis, or FMEA. Most engineers have
heard of this tool as they routinely use it to assess designs. Let’s take a look
at the tool, and what it does:
146 Part III: Financial Measurement — The Foundation Leg
Figure 8-3 is an example of a FMEA. Notice that there are three distinct evaluative
columns, listed as severity, probability, and detectable. Using this tool,
you can evaluate each risk factor in terms of these three criteria:
ߜ How severe is the risk to the company and the project? Highly severe
would rate a 10, while minimally severe or no impact would rate a 1.
ߜ How probable is the risk to occur? Highly probable would rate a 10,
while highly improbable would rate a 1, with varying degrees in-
between.
ߜ How detectable is the risk? This is the one everyone misses, as they
usually assume we will see it. Yet often something happens, and we do
not see it at all, right away. Here, the scale is reversed. Highly undetectable,
or not visible whatsoever would rate a 10, while highly
detectable would rate a 1.
The risk priority number, or RPN, represents a total risk level, and is calculated
by multiplying all three risk scores. For the most severe risks, then, we
see that the RPN can be a maximum score of
10 × 10 × 10 = 1,000
The FMEA structure is very consistent — the risks are listed, and each one is
evaluated against these three criteria. The management team looks at RPNs
to see where the highest risks are, and they plan for contingencies against
such risks, focusing each mitigating action toward reducing one of the three
factors, and thus the RPN for that particular risk.
Risk Severity
8
Increased
cost
Damage
in transit
Slump in
Sales
Building
Problems
Interrupted
Deliveries
5
10
8
9
Probability
6
3
5
8
5
Detectable
3
3
3
7
10
RPN
144
30
150
448
450
Priority
4
5
3
2
1
Impact
Reduced
Margin
Increase
Scrap,
write offs
Higher
Inventory
Inconvenient,
affect sales
Lost sales,
no inventory
Figure 8-3:
Example of
a FMEA.
147Chapter 8: Understanding Your Role in Financial Management
Here are some ways you can use this tool to help your business:
ߜ High severity can be mitigated by adding robustness to the product or
service, or by finding alternate processes that don’t rely so heavily on
this risk.
ߜ High probability can be mitigated by designing fail-safe systems, duplicate
or backup processes or systems, or planning contingencies to be
executed during implementation, as situations change.
ߜ Highly undetectable risks can be mitigated by adding visual systems,
alarm systems and processes, and making it difficult for such risks to
materialize without some pre-visibility or warning., or through contingency
planning and preventative measures.
ߜ Mitigating high RPN scores would necessitate combining key factors
as listed above, as they might work together. For example, adding
robustness to products to resolve severity may also reduce probability
of occurrence. Adding visual management systems such as alarms,
visual aids and other factors may improve delectability while at the
same time reduce probability of risk occurrence.
The bottom line is, we can use financial measures to help us mitigate risks of
our business, through applying Balanced Scorecards at all levels and in every
department and division, and in linking these measures to achieving our overall
strategies, goals and objectives.
148 Part III: Financial Measurement — The Foundation Leg
Chapter 9
BuildingtheFinancial
LegScorecard
In This Chapter
ᮣ Selecting the right measures
ᮣ Finding the best financial fit to your business model
ᮣ Leveraging opportunities revealed by scorecards
This is it. The financial measurement chapter. This is where the rubber meets
the road, as they say. We’re going to go out on a limb and take a wild guess
that you are probably looking in this chapter for one of three reasons:
ߜ Your company is doing ok, but just not making the numbers as well as
you think it should.
ߜ Your department can’t make the budget this year, and you are thinking
maybe it has something to do with the formulas, or the way things
are calculated.
ߜ Sales this year are doing great, but your margin is eroding, and you
are looking for some way to explain why this is happening.
Although this list isn’t all-inclusive, the point is, you tend to first direct your
attention to the financials when things are not working the way they should,
or when you’re not meeting your goals. Why? Because as rational, human
beings (we know we’re making a big assumption here) there must be a logical
explanation for our current performance situation. And what better way to
explain a business performance situation than numbers, right?
Well, guess what? You are in for a big surprise. Among other things, this chapter
will dispel such erroneous beliefs, because performance is really a function
of all four of the Balanced Scorecard legs, not just the financial one. We
will get into the real world of financial measures, and discuss some ways to
leverage financial measurement to be able to see across the company, and
really understand how an organization works. And, we show you not just how
to set up a scorecard, but also how to interpret what it tells you and what to
do about it.
We would be remiss if we didn’t caution about what you can and can’t discover
in this chapter:
ߜ Be ready to have many of your beliefs about financial measures shattered,
and some of your assumptions proven incorrect.
ߜ Even as we will provide many examples of financial measurements for
sound Balanced Scorecards, it is highly advisable not to take them verbatim,
but use them instead as a framework for customizing your own
scorecards and dashboards.
ߜ Sorry, but this chapter will not make you a financial expert — not for the
relatively small amount of money you paid for this book! But this book
will help you make key operational and business decisions without
focusing too much on financial performance.
Key Aspects of Financial Measures
There are a number of tips and considerations you may want to take into
account as you create financial measures for your Balanced Scorecard. Again,
lest we forget, these apply regardless of whether you are an executive, middle
manager or supervisor, and you should find them helpful in different ways,
depending on how much you know about your business and where you want
to improve.
Focusing on the right things
Remember, it is not about being the best manager, or the best team in the
office. If the Balanced Scorecard gives us anything, it is the ability to synergize
with every group, section or department member on the critical vision,
mission and goals of the organization. Financial measures for the Balanced
Scorecard can ensure we are all aligned, working in the same direction, and
sharing a common vision and focus for the company.
Some of the things we need to focus on include:
ߜ Strategic and growth goals of the company
ߜ Good environmental and community citizenship
ߜ Value added focused, for all stakeholders
ߜ Industry recognition for expertise in your industry
ߜ Providing the best value in your industry in the world
ߜ Being an ethical company
. . . and many others.
150 Part III: Financial Management — The Foundation Leg
One key aspect of focus is the need to communicate effectively. Whatever your
level and role in the organization, you will need to share and communicate
your vision, your sense of purpose and your direction for your organization
Managers as leaders can define reality by providing clear and unambiguous
messages about the strategy, vision and direction of the organization, and
reiterating and repeating this messages in every interaction we have. Through
this method, they can ensure their financial measures are based on the right
things as well, and are consistent, focused on the right things, and provide
the information we need to make good decisions.
The WIIFM (What’s in it for me?)
station everyone tunes into
One thing we always hear in organizations is the simple question, “What’s in
it for me?” In other words, what do I get if I implement financial measures for
a Balanced Scorecard? This is not uncommon for employees at all levels in
any organization, and pops up a lot when a new initiative is introduced. How
would you answer this question?
We need to first understand what the middle or upper manager sees as their
role in the organization, and what their responsibilities are in managing their
operation or department. When we ask such questions, we hear things like:
“I manage my department budget”, or “I am responsible for making the numbers.”
Most also agree that their current financial metrics lack any kind of inprocess
capability to correct or adjust before the end of the reporting period.
When pressed, they also agree that it would be good to have a way to see a
problem before it becomes a big problem, but they are not sure how to do it.
The Balanced Scorecard, and particularly, its financial measures, can provide
such real-time readings of the pulse and heartbeat of an organization. Therefore,
we only have to show that the current management systems and structures
are designed to see problems and mistakes after they happen, building in
error and waste into our business model, to help middle and upper managers
see that they need a better way. So, how do we do that?
Well, for starters, let’s take a look at how effectively we are currently managing
our business. How well do our current financial management tools and
techniques provide early detection and correction opportunities for changes
in our business, such as increases in customer fees, changes in parts or components
or shipping pricing from suppliers, or freight carrier route revisions?
If we look at the things that ‘came up’ over the last year that impacted our
sales, profitability or volume, we can see many instances where, had we
known, we might have been able to mitigate their impact on overall performance,
instead of just reacting to it once we found out.
151Chapter 9: Building the Financial Leg Scorecard
How does this benefit the middle manager? When correction can be done
quickly, and when adjustments can be made to avoid mistakes or critical failure
to meet goals, then the manager and his or her team can work toward
success through understanding their business, to the greater good of the
company. Not bad for a day’s work.
Timeliness is your competitive edge
Many financial measures also are only updated monthly, provided in monthly
reports, where we get the information after the fact. In fact, most financial
measures in traditional management provide after-the-fact information, usually
so late that there is nothing you can do but react to a trend of performance
a year old or more.
A good technique we have used in the past is to compare the update rate of
your financial information with your ability to effect change. You will notice
that, if your updates are monthly, you cannot effect change any faster than
that. If you want to be able to adjust performance faster, say on a weekly
basis, you will need to go after the financial measures that can be provided at
least weekly. Many companies balk at this, saying their financial systems
cannot report more often than on a monthly basis. We can change these
things, once they are made visible and it becomes clear how limiting they are
when it comes to needing to make timely, effective decisions based on up-to
date financial measures.
Financial Measures That Matter
Standard financial measures — including sales, expenses, costs, and profit —
have been used for millions of years to run companies,. Well, maybe thousands
of years. Whatever the case, financial measures such as these have
been the universal language of business for a long time, and do tell us some
very general, basic information about the company. You can see if your company
is healthy and making money by looking at its sales (also known as revenue)
and its profitability.
However, to make key decisions, you need a bit more information than the
simple measures mentioned above. The problem is that, for decisions, we
need information that tells us how well we are doing, indicators that tell us
things about our operations. We need to see when changes occur and why,
and be able to make real-time decisions about our operations, and then
adjust, re-balance, and exploit situations for our competitive advantage.
152 Part III: Financial Management — The Foundation Leg
Key questions help you
see what to measure
Let’s start by asking, what is it you want to do with your business? Most of us
would say (we hope), make money, of course! Fine. But for how long? One
year? Five years? 25 years? And, what about growth? Do you want your company
to stay about the same size, or double in size, or grow from 50 to 500
employees, maybe to 5,000 or more? And what about geography? Stay in one
place, have multiple locations, or franchise within California? North America?
Globally? And, lest we forget, what products or services do you want to sell
or provide, and what will give you the edge, to generate customer interest? Is
it patentable?
As we quickly see, these questions cannot be answered by just tracking revenue,
costs and profit. For most of us who are in middle management, when it
comes to performance and keeping customers satisfied, we already know
exactly what things the boss looks for.
A key advantage to utilizing Balanced Scorecards is the fact that they provide
real-time information related to all of the questions above, and more. Armed
with this information, middle and upper managers can make real-time adjustments
in initiatives, projects, staffing and performance to take advantage of
market and business opportunities which would otherwise be invisible.
So, explore some of these questions, and briefly provide some hints to help
you select the best measures to help you run our business well.
ߜ The product or service questions relate to the value your company provides
to customers. Some of the key questions might be:
• What is the product or service your business will provide? Helps
to decide how the product or service is to be measured.
• To whom would you provide your products or services? Helps
identify customer and market targets, and how to measure successful
current and future penetration.
• Why should customers select your product or service over someone
else’s? Defines what is special about your products and/or
services, and helps to determine how to measure this in terms of
financial gain and long term benefits.
• Will they have a lasting effect, or require renewal, and how often?
Can they become obsolete, and if so, how long will it take? Defines
detailed information about your products or services, what value
customers gain, and how this value can be financially measured.
153Chapter 9: Building the Financial Leg Scorecard
• Are there any regional, national, legal, or specific limiting factors I
need to know about regarding the product or service I am providing?
Defines the legitimacy of your products and/or services, how
reliable they are, and any other advantages they provide. Helps to
determine how to measure such advantage financially
ߜ Strategy questions:
• How long will you want the company to run? Will you keep it, or
sell it after five years? Ten years? Twenty? Defines the approach,
personal investment, and your ultimate long term objectives.
• What market do you want to focus on? Will it be a stable, cash cow
or risky, new product/invention kind of business? How will you balance
income with investment? Tells about your margin and profitability
expectations, and your growth intentions for the future.
• As the company matures, how will you evaluate and adjust key
strategies and actions, refine focus, and align resources? Tells how
you will manage your business or department. This is a key aspect
to selecting the right financial measurements for your scorecard.
ߜ Resource, financing and deployment questions:
• How will you finance your business, both initially and ongoing?
Public or private? For department managers, how will your budget
be decided? Defines how you are starting up, as well as the financials
regarding sustaining your business or department.
• How will you staff your company, particularly its key positions? Helps
realize specific methods to manage resource costs, allocations.
• How will you deploy the business? Local, regional, national or
global? How, how fast, and when will you decide? Financial measures
can actually help here, especially regarding speed and direction
for expansion. The answers here will frame the overall
approach for tracking deployment financially, in terms of return on
investment, and potential financial risks for certain locations.
ߜ Long-term planning questions:
• When will I need to expand to keep up with demand? How will I
know? How can I invest with confidence in a good return? What
happens if I make a mistake? Helps define the type of financial
measurement needed to track the expansion, and make good
investment decisions.
• How do I keep up with and ensure flexibility with changing market,
customer, environmental, regional conditions? Links directly with
the growth and development leg of the Balanced Scorecard. Helps
define how to detect, analyze and decide actions related to changes.
154 Part III: Financial Management — The Foundation Leg
These are just some of the key questions we need to answer, in order to select
the right indicators and measures that can help us manage our business. But,
there is another piece that has to be added before we can select our financial
measures. Even as we define our products and services and begin to understand
and exploit our potential competitive advantage, we will need to define
specific performance indicators — called Key Performance Indicators, or
KPIs — that will tell us how we are doing.
Selecting key performance
indicators (KPIs)
There are many options to selecting financial measurements, depending on
whether you are growing the business or just sustaining performance. This
means that the answers to several of the initial questions will help determine
whether you are growing or sustaining, or both.
For example, if your focus is primarily on sustaining performance, you should
focus on the measures that track cost reductions, budget compliance, product
profitability, and performance against competitors. If, however, you are
trying to grow the business, you should focus more on market share acquisition
trends, profitability of new products, revenue/sales growth trends,
investment and training percentages, and revenues proportion from new
products and services. Of course, if you are focusing on sustaining current
business while developing new markets, your measures will be some combination
of all of these.
Tips for finding key measures
Use the following tips to help you decide what measures to pursue, based on
the questions in the previous section, “Key questions help you see what to
measure “:
ߜ Answering key strategy and product or service questions about your business,
such as what value you are offering, to whom, and what advantage
they provide, will then enable you to select financial measures such as:
• Actual value created for customers, possible financial advantage over
competitors, and a comparison of your product or service value
with other alternatives. Take the customer’s metrics and how you
are impacting them for their competitive advantage, and yours.
• Percent of available market share, in terms of sales, margin, growth
opportunity, and current and future demand
155Chapter 9: Building the Financial Leg Scorecard
• Total customer product or service lifecycle costs, support systems
investments and performance as profit centers to supporting these
costs, and current margins generated.
• Measures to assess market and business environment changes, to
enable adjustments to your Balanced Scorecard financial measures
as appropriate.
ߜ Answering resourcing, financing, and deployment questions will enable
you to select financial measures to help you track and manage how you
execute your business processes, and enable you to adjust in real time
to changes in demand, supply, investment capital, and strategy.
• Estimates of the point of diminishing returns on this product/service
line, and when we can expect the follow-on line to take over.
• Financing for your business, and where it comes from, especially
current budgets for your product or service families, and investments
in new products.
• Staffing, in terms of function and key positions, and utilization as
well, not just per employee, but specifically for the different functional
specialties that define your competitive advantage (such as
design, or distribution or IT systems expertise).
• Deployment in financial performance, by organization, geography,
product family, and customer mix. Financial measures can actually
help here, regarding speed and direction for expansion. The
answers here will frame the overall approach for tracking deployment
financially, in terms of return on investment, and potential
financial risks for certain locations.
It is critical to know where the overall company is going, whether it be sustaining
or growing. Or driving straight for the ditch. The framework of your
financial measures will be determined by this, as well as other factors such as
where you will invest capital, or budget allocations within each department,
or how you will track and manage progress.
How measures differ
The financial measures of importance are a subset of all of your performance
indicators, and become the financial KPIs for your business. Of course, depending
on your position within a company, these measures will be different. Let’s
see how that might work out:
156 Part III: Financial Management — The Foundation Leg
For executives and senior managers
Strategic focus will influence you to define financial KPIs for the overall organization,
totaling revenue, costs, expenses, interest, taxes, apportionment,
depreciation, stock value, and free cash, and others as you might find on a profit
and loss statement or a balance sheet. Most of these financial measures are
results-type figures, meaning they are the end result of all of the collective
efforts of the company. At the executive levels, the financial measures are
summarized at the end of a reporting period, albeit they do form the financial
leg of the Balanced Scorecard. Consequently, they have little if any effect on the
reporting period itself, but are often used to try to influence future performance.
For middle and lower managers
Operational focus will influence you to define your financial KPIs at a much
more budget and process level. This means including those measures
described above. But there are additional KPIs at this level which can help a
department or function actually improve performance during the reporting
period. Examples of these include First Pass Yield (sometimes known as
Rolled Throughput Yield), or FPY, and cycle times of specific functions such
as product development, procurement, recruiting, and product and/or service
delivery. There is also model mix, supplier performance trends and
behavior, and asset management. There is tremendous strength in the financial
measures of the Balanced Scorecard at this level, therefore, because managers
can use the scorecard to review performance and adjust accordingly
throughout the reporting period, and especially as they support the process
(for sustaining strategies) and growth (for growth) legs of the scorecard.
For line managers
Tactical focus will influence you to look to very specific financial measures,
related to your daily/weekly/monthly goals and objectives. A sustaining strategy,
for example, will mean selecting KPIs focusing on cost reduction and
management, budget control, and employee efficiency and expense control. A
growth strategy, on the other hand, will mean selecting KPIs focusing on new
technology development, investment percentages, new product/service
development cycle time, and prototyping. Of course, a combination of these
two overall strategies would see KPIs selected which integrate and focus on
one or the other or both, depending on participation support to one or the
other. This works well for the Balanced Scorecard, in enabling the financial
measures that are pertinent to relate to the department’s focus across all
four legs, and to each leg as it support the line or task performance tracking
and adjustment.
157Chapter 9: Building the Financial Leg Scorecard
The key for middle and line managers is to select KPIs that are linked to your
overall company strategy, but that represent the participative part your
department, function or line plays in supporting this strategy.
Don’t worry too much about getting your KPIs right the first time (but if you
value your job, you’d better get it right by the second or third time!). Especially
where financial measures are concerned, it can take several attempts to get
consistent, standard financial measures, especially as they relate to the other
three legs of your Balanced Scorecard. This is because you should not take
for granted that every business entity tracks costs and other financial measures
the same way, or with the same measuring stick. In fact, as a company
gets more globally focused, it gets harder to get everyone on a consistent definition
of the KPIs to be used, and especially when different countries and
cultures are involved. The key is to work toward consistency, and closely
review all financial measures, to ensure that a standard interpretation for
basic financial measures is used.
Ensure competitive success
by revisiting measurement
Let’s say that one day you wake up to discover that your arch rival has made
a major breakthrough in product distribution, and has reduced its lead time
by half! Yikes — what a nightmare! Without a Balanced Scorecard, you can
probably figure out that this happened, but not why. However, with a scorecard
and real-time dashboard, you will be able to know specifically what the
reason was for this increase, and be able to take quick action to keep your
company competitive.
By having an active Balanced Scorecard, you will be able to detect changes in
your competitors’ behavior, understand these changes, and address them
toward actions to both:
ߜ React quickly to avoid loss in your business operations, and
ߜ Ensure that the scorecard measures are still valid.
Considering all the changes going on in business, what was key yesterday is
not necessarily key today, nor will it be tomorrow. Set up a your scorecards
so that your KPIs and financial measures are reviewed periodically, to ensure
they are still appropriate as your financial KPIs for your Balanced Scorecard.
158 Part III: Financial Management — The Foundation Leg
Creating The Financial Scorecard
Balanced scorecards can give your business a tremendous advantage, if done
right. However, if done wrong, they can create tremendous undo stress and
anxiety, which will not add value nor help you to accomplish your goals.
Which way will you choose to do them? Here’s the way to do it right.
Select either a strategic, operational,
or tactical level
It get where you want to go, you’ve got to start at the right point. In other
words, you first have to decide where you are in the organization. For example,
if you are strategic, you will be focusing on long-term planning and execution
with financial measurements centered on high-level goals and objectives
such as revenue and net income (or EBITDA, to some), cash flow, and working
capital. If you are operational, you will focus more on delivery, quality and
cost metrics, and how they affect your performance. For tactical levels, you
would focus more on first pass yield, scrap levels, manning, and maybe some
cost reduction and cash flow as well.
That’s fine and dandy. But what does it all mean, especially to a non-financial
type manager, which most of us are, anyway? Let’s take one giant step back,
and first make sure our financial measures are aligned with our organization’s
goals and objectives. To do this, we need to determine where we are in the
organization.
Strategic
At this level, financial objectives are related to long-term goals such as
improving stock price, enabling higher dividends, and generating high rates
of return on investment. Financial measurements at this level will center
around stock price fluctuation, market penetration, new technology leadership,
with of course the standard revenue, gross and net profit, and several
ratios related to performance, efficiency and profitability predictions.
Operational
At this level, financial objectives are related more to performance such as
improving yield, reducing fixed and variable costs, improving margins, and
159Chapter 9: Building the Financial Leg Scorecard
increasing revenues for various products and services. Financial measurements
at this level will center around delivery and budget vs. actual cost control,
quantity of products sold, services rendered, and staff efficiency, as well
as the same standard revenue, gross and net profit, and pertinent ratios as
related to support strategy, but for operational profit and loss (P&L) based
business units.
Tactical
At this level, financial objectives are much more specific, relating to performance
of specific product lines or service offices, and looking to improve
yield as well as first pass yield (each task done right and delivered on time
the first time), reducing specific costs, increased shipments, and department
budget vs. actual performance variation reduction. Financial measurements
at this level will center around specific product or service line delivery,
budget vs. actual cost control, shipments per day/week/month, and quality
issues and how they are solved. Where continuous improvement is successfully
implemented, there may be additional measures such as improvements,
in terms of savings or reduced working capital (or increased cash flow, it is
the same thing only the ratio is turned over) to the bottom line, and value
flow improvements as well.
In table form, the above would look like Figure 9-1. Whichever level you
selected, that level would form a framework for your financial measurement
portion of your Balanced Scorecard.
Customizing your financial measures,
and how to score them
Customizing financial measures is where the final financial measurements for
your Balanced Scorecard are established. We bring together answers to the
questions we asked in the first section with prospective KPIs from the sections
section, and add our individual business situation, level, and positional
responsibilities. The result is a set of critical, relevant financial measures
with which you can track, manage and adjust your business actions, be they
operations or administrative.
Looking at Figure 9-1 again, you see that you still need to look at your specific
industry, market, and product base, and pick and choose which financial
measures make the most sense for the particular level in which we work. A
middle manager in the mobile phone industry would have a very different
Balanced Scorecard, for example, than that of a law firm senior partner.
160 Part III: Financial Management — The Foundation Leg
Financial
Objective
Level
Strategic * LT Goals
Achievement
* Stock Price
improvement
* Higher Dividends
* Improved Rates of
Return on Investment
* Stock Price Trend
* Market Penetration
* New Technology
Recognition
* Revenue
* Gross Profit
* Net Profit
* Strategic Performance
Ratios
* Strategic Efficiency Ratios
* Business Profit
improvement Predictions
* 10% better than
previous year
* 10% each year
* 5 New Innovations
each year
* 15% growth over
last year
* 25%
* 20%
* Sales / Employee
* Cost / Employee
* Margin year/year
Operational * Yield Improvement
* Fixed / Variable Cost
Reduction
* Margin Improvement
* Product / Service
Line XX Increasing
Revenues
* For each Product Line:
= On-time delivery
= Budget vs. Actual
cost variation
= Quantity (count) sold per
day/ week/ month/
quarter
= Customer services
rendered successfully
* Division/Functional
Revenue per month/
quarter/ year
* Gross Profit
* Net Profit
* Operational Performance
Ratios
* Operational Efficiency
Ratios
* Division P&L Performance
* Product / Service Line
Backlog – future
business prediction
* 100%
* < 5%
* #
* 100%
* Sales $$
* 25%
* 20%
* Sales / Employee
* Cost / Employee
* Margin year/year
* 35% of total Revenue
Tactical * Product / Service Line
Yield Improvement
* Product / Service Line
First Pass Yield
Improvement
* Reducing specific costs
* Increased shipments
* Department/ Line
Budget vs. Actual
performance variation
* Product / Service Line
performance
* Product / Service Line
delivery
* Budget vs. Actual cost
control
* Shipments per day/
week/ month
* quality issues – number,
type, resolution
* Savings per month/ quarter
15% over last year
95%+
Variation <5%
15-20% over last year
50%
$250K/ month
Financial
Measurement
Example
Target
Figure 9-1:
Tactical
objectives.
161Chapter 9: Building the Financial Leg Scorecard
Figure 9-2 provides some insights into different financial measures as they
might correlate to different industries and different applications.
Be sure to allow flexibility as you decide on what to measure. Some people
review and revise their scorecards on a weekly basis, as they see changes in
technology, consumer buying behavior, functional expectations, and other
market and customer dynamics. You need to be consistent, of course, but be
prepared to re-evaluate your metrics and change them if you need to. And
believe us, in this fast-changing, global world of business, you will. Often.
Examining examples
One way to really see how financial measures can work for you, regardless
of your industry or the products or services you produce and deliver, is to
see examples of where different organizations have implemented Balanced
Scorecards successfully, and understand how they did it. It might not surprise
you much to learn that that’s exactly what we’re going to do next.
Retail
clothing
Cell
Phones
Jewelry
Auto Parts
Manufacturing
Auto Dealerships
Engineering
Construction
Law
Financial Planning
Function
Human Resources
Engineering
Manufacturing
Purchasing
Sales
Finance
Sales Volume
Cost Control
Reduce Churn
Increase Customers
Revenue
$$ Sold each day
$$ Spent each day
Customer Turnover
Sales per customer
Average Value per sale
Ave price per article
Budget Compliance
Customer Turnover
Phones per customer
Ave sale per item
Industry Financial
Objective
Financial
Measurement
Industry Specific
Example
Figure 9-2:
Financial
measures
correlated
to sample
different
industries.
162 Part III: Financial Management — The Foundation Leg
NOW Foods
NOW Foods is a manufacturer of vitamins, minerals, dietary supplements, and
natural and health-related food products. In order to enable transparency of
their KPIs from bottom to top, they established Balanced Scorecards at all three
levels that linked their objectives to specific activities. Prior to this, monthly
reports were the only way to find out what happened, and often they were not
complete or consistent. Their Balanced Scorecard dashboard is at Figure 9-3. In
order to see dynamic changes in demand and margin, they selected those financial
measures pertinent to food product production and control, such as sales,
profit and volume by geography, customer type and size. The dashboard, which
we will discuss in greater detail with more examples in Chapter 10, also allows
for daily status and tracking, such as volume shipped in this case. This dashboard
has been deployed down to each cost center manager, with real-time data
availability on yield, any quality issues, and shifts in delivery demand.
Vinfen
Vinfen is a not-for-profit human and health services organization, with 200
sites and a staff of over 2,000 within the greater Massachusetts area. As you
can imagine, managing such a complex structure is very difficult, and given
the added complexity of a changing in-patient need profile, and having to
juggle distributed resources, the challenge to keep up with what was going on
FL
NM
DE
MD
TX
OK
KS
NE
SD
NDMT
WY
CO
UT
ID
A Z
NV
WA
CA
OR
AK
HI
KY
ME
NY
PA
MI
VT
NH
MA
RI
CT
VA
OHINIL
NCTN
SC
ALMS
AR
LA
MO
IA
MN
WI
NJ
GA
WVWV
Sales by Region
$30M
SE
$20M
$10M
$0M
NE S W
Figure 9-3:
Manufac-
turing
dashboard.
163Chapter 9: Building the Financial Leg Scorecard
was more than they could handle. About five years ago, they embarked on a
search for better methods to manage the operations, and they created a
Balanced Scorecard. Their Balanced Scorecard dashboard is at figure 9-4.
Here too, we see a balance with financial measures focusing on those important
financial aspects of a not-for-profit business such as reducing overtime,
and budget performance. Notice the direct connection to the financial goals
of the organization as well.
Financial Perspective
F2: Increase direct-care
cost efficiency.
Bruce 1. Reduce
overtime (OT)
1. % of direct care payroll,
FTE of OT hours. (Report
from Karen Stephan)
TargetSponsor Objectives MeasurementArea
Learning & Growth Perspective
1. OT hours less
than 6.5% of
payroll
F4: Achieve financial
sustainability.
Bruce 1. Meet budgeted
growth targets
1. Revenue growth
v. budget targets
1. Budget targets
for growth
L4: Ensure organizational
learning based on data,
outcomes, and
experience
Tim 1. Increase
organizational
learning
1.Track all external
trainings and
conferences for
divisions and departments.
(Reports from VP’s and
Dept.Heads)
1. Baseline
2. Number of hits to the
Internet (report from
Gary Herchek)
2. Baseline
2. Promotion Rate 2. Will not fall
below 4%
1. Number of
clinical consults.
(Reports from
VP’s)
1. Baseline
L3: Recruit and retain a
highly skilled workforce
Tim 1. Retain best
qualified staff
1. Turnover Rate 1. Will not exceed
24% (annualized
rate)
Internal Perspective
P2: Improve business
practices and efficiencies
Bruce 1. Maintain the
physical quality
and appearance
of Vinfen’s group
homes
1. Manage the
acuity level of
clients through
increased clinical
consults and
assessments
1. Average response
time to complete
a work request.
(Report from
John Lind)
1. Improvement
from FY05
Customer Perspective
C1: Deliver services
consistent in service
and value
Gary 1. Increase
management
retention
1.Management retention/
management vacancies
for Site Managers and
up
1. Baseline
C2: Increase public
awareness and visibility
Gary 1. Increase
positive media
1.Positive media
placements. (Reports
from Christopher
Smalley)
1. Baseline
Figure 9-4:
Vinfen Not-
for-Profit
health care
provider
Balanced
Scorecard
dashboard.
164 Part III: Financial Management — The Foundation Leg
Defense Financial Accounting Services
The Defense Financial Accounting Services (DFAS) of the Department of Defense
has established Balanced Scorecards and dashboards for the last 10 years,
with remarkable results. Figures 9-5, 9-6 and 9-7 show a clear linkage from
strategy to goals to specific scorecard measures, and explain why the organization
has been so successful in establishing a direct link between its goals
and the specific actions of each of the four legs which support the achievement
of these goals. We can see that, once again, the financial measures are
selected pertinent to the critical financial performance parameters of the
organization, such as cost to client/customer, workforce/staffing ratios, and
competitive sourcing implementation and expansion.
Fully satisfy customer
requirements and
aggressively resolve
customer problems to
deliver best value
services
Goal
Objective
Customer
3 3
Financial
Internal Business
Processes
Growth & Learning
ImproveClient/Customer
Satisfaction
Use performance metrics
to drive best business
practices and achieve
high quality results
Optimize the mix of our
military, civilian, and
contractor workforce
Establish consultative
relationships with leaders
Deliver business
intelligence to drive better
decisions
Ensure everyone is
working torward the same
vision and can connect
what they are doing to
make the vision a reality
Embrace continuous
learning for our workforce
to ensure critical, high
quality skill sets
Develop the next
generation of DFAS
leadership
ReduceCostto
Client/Customer
ExpandtheUseof
CompetitiveSourcing
ImproveandLeverage
Quality
EnhanceEmployee
Competence
EncourageInnovation
DeliverSystemSolutions
IncreaseEmployee
Satisfaction
EnhanceAbilitytoRecruit
andRetainDFASTalent
DevelopaClimate
forAction
3 3 3 3
3 3 3 3 3 3
3 3 3 3 3 3
3 3 3 3
3333 3 3 3 3 3 3
3 3 3 3 3 3
3 3 3 3 3
3 3 3 3 3 3
Figure 9-5:
DFAS
strategic
matrix.
165Chapter 9: Building the Financial Leg Scorecard
A word or two (or three) about
information management
When company leaders decide to implement Balanced Scorecards, many of
them believe that it is all about having the right data management system. As
a consequence, many make the mistake of purchasing a Balanced Scorecard
dashboard software program that has more bells and whistles and attributes
DFAS Strategic Plan
Your Financial Partner @ Work
A. Objectives Linked to Goals
VISION:
Best Value to our
customers
• World-class provider of
finance and accounting
services
DFAS will measure progress toward achieving goals through
the Balanced Scorecard objectives. The goals provide linkages
from the DFAS vision to objectives, and the goals are cross-linked
to the objectives at the corporate level
Mission: Provide responsive, professional finance and accounting services for the
people who defend America
• Trusted, innovative
financial partner
• One Organization,
One identity
• Employer of choice,
providing a progressive
and professional work
environment
GOALS:
• Fully satisfy customer
requirements and aggressively
resolve problems to deliver best
value services
• Use performance metrics to
drive best business practices
and achieve high quality results
• Optimize the mix of our military,
civilian, and contractor
workforce
CUSTOMER PERSPECTIVE
• Improve client/customer
satisfaction
FINANCIAL PERSPECTIVE
• Reduce cost to the
client/customer
• Expand the use of
competitive sourcing
INTERNAL PERSPECTIVE
• Improve and leverage
quality
• Encourage innovation
• Deliver system solutions
GROWTH & LEARNING
PERSPECTIVE
• Enhance employee
competence
• Increase employee
satisfaction
• Enhance ability to recruit
and retain DFAS talent
• Develop climate for action
• Establish consultative
relationships with leaders
• Deliver business intelligence to
enable better decisions
• Ensure everyone is working
towards the same vision and
can connect what they’re doing
to make the vision a reality
• Embrace continuous learning
for our workforce to ensure
critical, high quality skill sets
• Develop the next generation of
DFAS leadership
Figure 9-6:
DFAS Link
to vision,
goals, and
measures.
166 Part III: Financial Management — The Foundation Leg
than you can imagine, with the thought that, “If I have the right information
management system in place, I should be able to manage my performance
easily and effectively.” Right?
Wrong.
PERSPECTIVE OBJECTIVE MEASURE
Customer Improve Client/Customer Satisfaction 1. Client/Customer Satisfaction
Financial Reduce Coast to Client/Customer 5. Total Costs
Internal
Business
Processes
Improve and Leverage Quality 8. Quality Index
9. Rework Identified
10. Rework Eliminated
11. Best Business Practices
Adopted
Growth &
Learning
Enhance Employee Competence 14. Employees in Developmental
Assignments
Expand the Use of Competitive
Sourcing
6. Competitive Sourcing
Performance
Encourage Innovation 12. New Products or Services
Delivered
Deliver System Solutions 13. Commitments Met –
System Milestones
Increase Employee Satisfaction 15. Employee Satisfaction
Enhance Ability to Recruit and Retain
DFAS Talent
16. Core Competency Profile
Develop a Climate for Action 17. Climate for Action
2. Commitments Met –
Performance Contracts
3. Commitments Met –
Client Executive Contacts
4. Specific Billing Rates
7. Total Workforce Ratio
DFAS Strategic Plan
Your Financial Partner @ Work
B. DFAS FY 2002 Corporate Balanced Scorecard Perspectives, Objectives & Measures
Figure 9-7:
DFAS Link to
Balanced
Scorecard
dashboard
measures.
167Chapter 9: Building the Financial Leg Scorecard
The problem is that the thinking here is backwards. The risk is that the software
program won’t meet the manager’s needs exactly. But, the software was
sold as a do-all, be-all, end-all management tool, so what ends up happening
is that the measures are adjusted to fit the tool instead of the tool being
adjusted to fit the measures.
To avoid this potential dissonance, managers need to define their measurements,
and then look to see which software enables them to manage their
measures most effectively. The software needs to:
ߜ Enable easy flexibility and adjustment to measures as market and customer
conditions change
ߜ Link objectives and measures across the four legs of the Balanced
Scorecard.
ߜ Enable a wide access capability, with customizable dashboard capability
for managers at the strategic, operational and tactical levels within the
organization, and if possible, be offered in multiple languages as well, yet
integrated at the executive levels.
Interpreting Financial Measures
for Balanced Scorecards
Having an excellent Balanced Scorecard, with effective financial measures, is
a big step forward, but is only half the story. The other half is, of course, being
able to interpret what your scorecard is telling you, as it provides real-time
critical data on your business. There is a saying that having information without
an ability to understand it or to make use of it is often worse and possibly
more dangerous than not having the information in the first place.
The basis for information provided by Balanced Scorecards and dashboards
is that it is designed to provide up to date status and data on how well a company
is accomplishing its goals and objectives. It’s now time to consider how
to use this information to help us see when changes are necessary, manage
our business, and to make decisions to improve or adjust our progress.
Understanding scorecard financial
measures, and what they tell you
Typically, financials can be pretty dry and complex things to work with, even
for those lucky (?) people who deal with them every day. Yet, there are things
that financial measures can reveal which can help on several levels with respect
168 Part III: Financial Management — The Foundation Leg
to your Balanced Scorecard and how you manage with it. In our experience,
there are only a handful of key measures you need to be familiar with.
Realize that many financial measures are not as exact as one might think.
Take sales, for example. Sales is most often recognized (recorded) at the time
a service or product is delivered. In retail, when you buy something, you give
money for merchandise, which results in sales equaling cash income.
But, for many companies, when a product or service is delivered is not necessarily
when the company gets the payment. It may wait weeks or even months
to get paid. Costs are also not necessarily recognized when they are accrued,
but instead are often spread over a year or two, a process called amortization,
so that there is less incremental impact on the business. For example, if you
buy a truck for US$45,000, it could be devastating to your small business financial
performance for the month in which it was purchased. To mitigate this
negative impact, the truck cost is amortized so that each month only a portion
of the total cost is declared.
The standard financial measures, such as revenue or sales, cost of goods
sold, gross profit, net profit, Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA), and expenses, along with current assets and liabilities,
form the basis for judging the health of an organization. These are mostly
results-type measures, however, in that they represent the effect of many other
actions taken in productivity or administration. While we certainly are interested
in these figures, we cannot manage with them. It would be like trying to
wag a dog using its tail. The dog wags the tail, not the other way around. So, we
need more business process based measures, that tell us what is going on, not
just what happened.
The key for you as a middle or upper manager is to learn your organization’s
rules of the road, and to manage your department or function within them
successfully. To do this, you will need in-process metrics, available real-time,
and capable of providing useful, critical information on a frequent — perhaps
daily — basis. Examples include:
ߜ Product value (delivered/time)
ߜ Machine up time (machine operating time value/total time)
ߜ Purchase price variance on a weekly basis (Purchase price/goal price)
ߜ Daily work-in-process inventory value levels and trends
ߜ Weekly customer issue handling costs
ߜ Product sales by model, customer, geography, industry
ߜ Budget compliance on a weekly basis, with clear reasons for actions,
and trend analysis, to enable analysis of potential chronic repeating
issues or first pass yield failure.
169Chapter 9: Building the Financial Leg Scorecard
Industry-specific financial measures can also be of use, depending on the
types and frequency of the decisions necessary to maintain a competitive
advantage. Laptop manufacturers, for example, must know daily how their
products compare to the competition in the eyes of their customers, and
where to seek an advantage. Other examples include cell phone minutes
charged (more is better), special services selected (more is better), and bundled
service contracts (more is better), to name a few.
Pointing toward additional
information and insight
Financial measures can also highlight when we do not have enough data or
critical information to make sound decisions. Knowing how much work in
process (WIP) you are maintaining on a daily basis is part of the story, but
unless you also know consumption and delivery performance, you will not be
able to impact it.
The same can be said for many of the most common scorecard financial measures.
So, you need to be sure to tailor your financial measures to not only
give you process performance information on a continual basis, but also to
indicate where you can integrate performance measures for further financial
intelligence gathering. And if they can brew your morning coffee and take out
the trash, so much the better. The key is to always consider the cause and
effect relationship of financial measures. For example:
ߜ Per service value, coupled with frequency, becomes more useful in
determining rates of performance, and adjusting as appropriate to need,
pricing and delivery factors.
ߜ Per component value, coupled with quantity per day, enables better
decisions regarding speed, availability and costs.
ߜ Per consulting service hour, coupled with value multiple for the client,
helps plan and allocate resources.
ߜ Days sales outstanding (ending AR/average revenue per day) calculated
weekly, vs. monthly, coupled with collection status and progress, can
enable strategy adjustments in billing, collecting old debt, and adjusting
for capital.
There are many other examples that can illustrate how financial measures
can help us manage our business, in many industries, and even according to
national culture. For example, Japanese subcontractors must be constantly
responsive to major industrial manufacturers, and succeed through collaboration
in financial and other measures. As Earth Tech, a engineering and construction
subsidiary of Tyco realized in the late ’90s, in Mexico, daily environmental
impact is more important to some communities than best price, and so will use
such criteria to contract with water and wastewater treatment companies.
170 Part III: Financial Management — The Foundation Leg
Structures for decision making from
scorecard financial measure
When we talk with managers about making decisions from financial measures,
we find that very often there are no clear, concise systems or structures
in place to provide guidance. If it were just about what to buy, or how
much to spend on a trip, that would be easy. But today’s budgets are increasingly
complex, and managing operations has taken a whole new meaning in
the multitude of contributing factors that influence our daily performance.
Not to mention the unplanned stuff as well!
The fact is, nothing substitutes for good training in management decision
making, where a system is employed whenever a decision is necessary based
on financial measure performance. More and more companies are finding
that, in today’s fast-paced economy, managers must be able to collect and
interpret financial information quickly. They create Balanced Scorecards for
precisely this reason.
Remember, there is a difference between skills development training and experience.
Experience is not a substitute for skills development. Just being familiar
and experienced does not an expert make. For example, if you have been
driving for say, 25 years, you should theoretically be eligible to race with a
Formula 1 team, based on the years of experience you have behind the wheel,
right? Not exactly. There are special skills required, like handling a car at very
high speeds, negotiating curves around other cars, and maneuvering for lead,
that are usually not learned nor practiced in most normal driving conditions.
At least not in our normal driving conditions. Your own mileage may vary.
Risk analysis
When a leader has to decide between options, a special technique is used
called a SWOT analysis, or Strengths, Weaknesses, Opportunities and Threats
171Chapter 9: Building the Financial Leg Scorecard
Investing in training
The same is very true for decision making and
other analysis skills. Hewlett Packard — the 2005
award winner for best business performance
management practices — has invested broadly
and with some depth in their Balanced Scorecard
initiative, and especially in the skills training
and development around financial measures.
Their Performance Measurement and Management
System (PMMS) provides transparency
as well as centralized resourcing for status,
data and progress anywhere around the globe
through a web-based interface, and they spend
many hours training leadership in its use.
analysis. As each aspect of the SWOT is considered, sometime a weighting is
assigned, in terms of high (9), medium (6), or low (3) risk to the company.
The analysis is usually done by a leadership team, with members familiar
with the different functional areas potentially impacted by the decision.
Specifically, each option is assessed in terms of these four areas, specifically:
ߜ What strengths will the option capitalize on?
ߜ What weakness can be overcome by this option?
ߜ What opportunities become possible with this option?
ߜ What threats to success and the company are likely with this option?
Once these four aspects area are considered and weighed, decisions can be
made according to risk mitigation desires, and trade offs in terms of weakness
offset by strengths, and threats offset by opportunities.
FMEA
The Failure Modes Effects Analysis (FMEA) is another risk mitigation decision
tool that assess risks of different options in terms of three different
considerations:
ߜ What is the severity of a failure? High (8–10) would mean catastrophic to
the company and the business. Medium (4–7) would be severe, but not
fatal to the organization. Low (1–3) would impact minimally or not at all.
ߜ How probable is the failure likely to occur? High would mean very probable
to inevitable, medium would mean somewhat likely, and low would
indicate an unlikely probability of occurrence.
ߜ How detectable would the failure be if it should occur? High would mean
its occurrence would be invisible to the organization. Medium would
suggest some possibility to see it, but not much, and low would indicate
there are detection systems or methods in place to alert immediate failure
occurrence.
Each option is analyzed for possible failures, and each failure is assessed via
these three considerations, with a score assigned in each, and multiplied
together to give an overall risk value, or Risk Priority Number (RPN). Then,
the option with the lowest RPN is the option with least risk.
Review structures are often used to ensure completeness, when time is available.
When a decision is made, a review of that decision is conducted one
level higher up in the organization, by a team of three or more, who would
use a checklist or critical index of key considerations to ensure the decision
took all appropriate aspects into account. This also enables a broader perspective
for consideration, where the decision maker may not have investigated
indirect aspects as well as needed, which may impact the company’s
longer term planning or other factors outside of his/her direct influence.
172 Part III: Financial Management — The Foundation Leg
Different types of organization structures also can contribute greatly to operational
success, especially where customer satisfaction is a big factor. Switching
to more program and product or service focus from traditional functional
structures enables a clear line-of-sight to the customer for every participating
department, who together share responsibility for delivery, quality and performance.
Added side benefits are greatly reduced rework loops, better handoffs,
and quicker response to problems or issues that arise from time to time.
Figure 9-8 highlights this concept.
Understanding the Essence of Accuracy
What happens when data is not what it seems, what we want, or what we
need? Part of the problem is that if the data going in is not dependable, the
data coming out will not be dependable either. But that is not the whole
story. With errors in data, you may interpret such conclusions incorrectly. In
the following section, we show you that, even if the data might be credible,
the challenges in treating input as valid is actually a no-brainer, but often gets
complicated in the day-to-day rush.
Customer define value
P
U
R
C
H
A
S
I
N
G
S
T
R
A
T
E
G
I
C
P
L
A
C
I
N
G
D
E
S
I
G
N
S
A
L
E
S
&
M
A
R
K
E
T
I
N
G
M
A
N
U
F
A
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T
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R
I
N
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S
H
I
P
P
I
N
G
&
R
E
C
Y
C
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I
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G
F
I
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A
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C
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F
O
R
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A
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O
N
T
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C
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M
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R
C
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E
S
E
A
R
C
H
D
E
V
.
CProduct/Service to the Customer
The key is to focus everyone away from their silos, on their
specific role in supporting how well we deliver to the customer,
and how to improve this above all else.
Figure 9-8:
Financial
measures
can create
transparency
to
customer
created
value.
173Chapter 9: Building the Financial Leg Scorecard
Oh no, the numbers are wrong!
The pitfall resulting from this exclamation is one of the most dangerous mistakes
a company can make. We have done the math, analyzed the dashboard,
and the results are in. The performance is bad. Put another way, the numbers
represent less than stellar performance.
The most common mistake, and the most deadly, is denying the data. A lot of
companies actually decide that the financial measures, as indicated on the dashboard,
and as linked and integrated to the four legs of the Balanced Scorecard,
must be wrong. They reason that, with the recent introduction of the Balanced
Scorecard and dashboard, and the newness of the approach to the company, it
must be the figures that are wrong, since the approach must be right.
This tendency is brought about by something called cognitive dissonance, or
CG. CG happens when we encounter something that does not fit our ‘rules of
the road’ or our cognitive map, which is a map in our minds of our hopes,
dreams, ideas, impressions, rules of normalcy, and other things related to
how we feel about things. When we come across a situation that does not
align with our cognitive map, we experience CG. Since two truths cannot exist
in the same time and space, one has to give. In this case, given that it must be
possible to meet the numbers, politically as well as personally, then the numbers
must be wrong. Very dangerous. Denial of accurate results has destroyed
many companies, and rendered many more into bankruptcy or worse. However,
there are other ways to slice a carp.
Some company leaders don’t deny the data outright. Instead, they qualify the
data, to render it safe, making the tenuous assumption that it might be true
after all. For example, we need to meet the numbers, but the sales department
projects that sales of a particular model will go down unexpectedly. So, typically
the leaders might point to the data, and indicate that it is probably true
for a specific set of circumstances, or a separate department or group, but
because there are differences in departments, it does not apply to his or her
particular department. This is equally dangerous, since it also results from
taking drastic action, in order not to lose a significant portion of the company.
The key is to ask where are you focused, talk with your peers, your boss, and
even other department heads, before you select your financial measures, so
that what you measure aligns with what you want to ultimately achieve.
The right numbers, the wrong analysis
The pitfall here is the potential to draw correlations regarding performance
that have no true link, but appear to be linked anyway. For example, we see
an improvement in margin numbers, supported by an improvement in ontime
delivery. The conclusion is that we are delivering on time, which results
174 Part III: Financial Management — The Foundation Leg
in reduced expediting costs. But we may find that the volume has reduced,
making it easier to deliver on time and avoid expediting.
A small electrical component company was tracking its volume production,
noting increases in specific current and capacitance based items, and began
to analyze these items and their use in electronic stereo sound systems.
Based on the volume increase, they revised their strategic focus, and laid
groundwork for additional capacity to support such stereo sound systems in
other ways, such as with additional components. They also established and
staffed a new marketing strategy to approach such stereo sound system producers,
in order to improve their market share. However, when they did
approach these producers, they were told that their products were actually
being phased out of their products, due to limits in capability. Surprised by
this, they tried to analyze who might be buying such components, only to discover
that hobby radio enthusiasts had found their particular products
useful in controlling bandwidth and enabling parallel processing in shortwave
communications equipment. Had they looked first at the consumer of
their components, they would have saved hundreds of thousands of dollars
in marketing to the wrong customer base and restructuring, and been able to
capitalize on the increased customer base they did not know existed at all.
To avoid this pitfall, the key is to integrate your financial measures, such as
margin and delivery with yield, takt (volume provided over available time),
along with growth measures (shift rates to new products, for example) and
internal measures as well (operational changes due to supplier or environmental
variation) in the dashboard.
This will require a comprehensive review of your financial dashboard, to
ensure its measures integrate and align with the other dashboard measures
as well, so that the right analysis can be conducted, providing the correct
decision choices for competitive advantage.
Tracking the numbers by automatic pilot
It’s not uncommon for managers to create a dashboard that tracks “standard
financial measures” in a way that reflects more of a reporting scheme than
something that actually contributes to decisions. The problem here is that,
while you set up your financial measures in order to monitor your company’s
behavior, you need to be sure to regularly check the measures as well, and
not just depend on the ‘automatic response’ system to report irregularities.
The reason for this is that, while airplanes can use an automatic pilot system
to monitor, detect, and signal an alarm when irregularities occur, they are flying
level, with most environmental and mechanical factors known. Companies,
on the other hand, ride their market waves with no warning to changes in
trends, customer buying variation, new or competitor product introductions,
175Chapter 9: Building the Financial Leg Scorecard
supplier influence to your performance, and dozens of other factors that will
have an effect on how you are doing today, and how you will do tomorrow.
Many companies are brought down thinking they had great risk reduction
programs in place, only to discover their market stolen out from under them.
The key to avoiding this pitfall is to provide for excellent risk reduction, based
on Failure Mode Effects Analysis, or FMEA. Risks are assessed on the basis
of three elements; severity of something occurring, probability of that occurrence,
and detect-ability of the possibility of occurrence, or of the occurrence
itself. As discussed in Chapter 10, this tool provides excellence risk mitigation,
management and control for a company, and can guard against the automatic
pilot tendency of financial dashboards.
To avoid these pitfalls, we need to review our rewards and recognition systems
as they relate to achieving certain financial performance, and ensure we
are not promoting any of the above behaviors. Remember: You get the performance
that you reward! Especially vulnerable are compensation-related
incentives.
However, equally strong in motivation are those factors that fuel such inappropriate
behaviors through recognition or internal competition. We have
seen where internal competition resulted in instituting cross-charging fees,
delivering late, and questionable quality performance to sister companies, in
order to gain an internal competitive advantage. The amazing thing is that
management continues to advocate internal competition, in spite of the growing
mountain of evidence of catastrophic damage caused to company, not to
mention the fact that it does not add value anyway, nor would the customer
be willing to pay for it anyway.
The bottom line is this: be aware that there may be a propensity to cheat,
and that the measures recorded and reported may need an additional review,
to ensure they are accurate and timely, so that you can indeed make the best
decisions you can for your company.
176 Part III: Financial Management — The Foundation Leg
Chapter 10
BuildingtheFinancial
LegDashboard
In This Chapter
ᮣ Leveraging the simplicity and power of dashboards
ᮣ Customizing financial dashboards to your needs
ᮣ Using your daily dashboard to help you
Afinancial dashboard is just a Balanced Scorecard you use that tells you
about your specific financial circumstance at a particular moment in
time, just like your bank account statement. This dashboard contains the
latest information — updated periodically — with enough detail to help you
make decisions. By providing the latest information to you, financial dashboards
enable you to choose appropriate actions to both avoid mistakes or
errors in judgment and to make informed decisions for better results.
In this chapter, we discuss how financial dashboards extend the Balanced
Scorecard, enable decisions, assist in assessing and decoding difficult business
choices for competitive advantage. We also explore a variety of different
examples.
The Basics of Financial Dashboards
The Balanced Scorecard provides you a vehicle by which you can make the
best decisions, and track your progress toward achieving your business goals
and objectives. It is an integrated road map (no, sorry, not a roadmap to the
South of France), guiding you and enabling you to lead your organization, using
a balanced approach focusing beyond financial performance and results.
Managing by scorecard alone, is, however, a very difficult and daunting task,
as it truly encompasses multiple measures with multiple overlapping initiatives
and activities, all managed at different levels and in different departments
throughout the company. So, now what? How can all this complexity
be turned simple?
One way executives and leaders have conquered these mountains of measures
is by developing tools to help them quickly collect key timely intelligence
data, and interpret, understand, and respond with execution actions and
adjustments. These tools are call dashboards, and those that help you understand
real-time performance of your financial measures are called financial
dashboards. Often, executives combine dashboard elements of all four of the
Balanced Scorecard legs into a single tool, with a limited set of key indicators
by which they set, steer, and adjust the course of their organization. In this
section, we will cover the basics of financial dashboards, who owns them, and
how they can help you in your leadership role as managers of your company.
Determining ownership and responsibility
of the financials
So, who is responsible for the financials of an organization? Typically, when
you ask this question, you are told that is the job of the finance officers,
directors and staff. Occasionally, you are told, “Who knows?” (Not the best
answer for those who hope to keep their jobs, by the way!) Truth be told,
there is something to be said for ensuring that a company’s financials are
accurate, timely and relevant. Often, this level of responsibility is seen as
being the “owner and operator” of the financial data.
However, accuracy and timeliness, while important, do not a decision maker
make. Ownership and responsibility will always rest with the managers and
leaders that use this information in their daily task to lead and decide what
actions are taken, what direction you go, and how you get there. This extends
to all levels of management, and applies wherever decisions are made and
actions are implemented.
The financial leg of your scorecard is different than the other three legs (customer,
internal processes, learning and growth) because financial measures and
indicators link directly to evaluated performance by the market, stockholders
and owners. Having regular, updated visibility to these indicators, therefore,
is vital for leaders to see not just how the company is doing, but also to link
the four legs and their initiatives to these measures. This is because, as you
might have guessed, you don’t want to wag the dog by making decisions from
your financial measures alone, yet you need to know how your actions are
indeed affecting these same measures. Financial dashboards can be extremely
effective because they provide a real-time window into performance measures,
enabling you to adjust actions and respond to changes, hopefully
before they become major problems.
178 Part III: Financial Measurement — The Foundation Leg
But, and this is a big but, you will need to make sure that the right people are
involved in selecting and designing your dashboard structures. Having only
finance types take on this task may skew information towards financials, and
away from key decision drivers found across all four legs. Similarly, having
only business leaders select and design your dashboard structures may
direct data toward decisions without clear financial justification. The best
approach is a team approach, involving both financial advisors and business
leaders, to ensure that the information provided in the dashboard is pertinent,
real time, and accurate.
An emphasis on real-time measurement
and response
Several years ago, a large government contractor submitted numerous bids
for several large defense weapon systems contracts. The contractor’s program
office would monitor progress of these bids with monthly status
reports and reviews, which would typically last about one day, and would
usually require every program manager to fly in and report on their program
(at no small expense, we might add!). The win rate was relatively low —
about 15 percent — with this type of bid, so the contractor wanted to know
what they could do to double the win rate to 30 percent or better. When we
looked into the review process, we immediately noticed that it did not allow
real-time feedback and adjustments to the bid process. We were in fact told
that this inflexibility was a strength of the bid process, since the company
was following strict, disciplined procedures, which discouraged and even
punished deviation. Once we mapped the bid process, we were able to
demonstrate that over 93 percent of the process added no value, and often
delayed, misdirected, and imbedded additional errors into the bid itself,
resulting in last-minute, crash timetables to meet deadlines. It took months to
get the company to untangle its process. They did, however, and within two
years the company’s win rate moved into the 25 to 27 percent levels, with
very encouraging prospects for the future.
So what is the point of that little tale? The point is that the typical financial
reporting and review structure involves monthly reports, where each department
compares actual costs and expenditures to budget levels, and explains
variations in terms of unexpected events, unforeseen circumstances, changes
in priorities, projects, focus, or customer requirements. These are usually
accompanied by plans and actions designed to rectify these situations or
compensate to get back on track.
179Chapter 10: Building the Financial Leg Dashboard
The danger with relying on these commonplace methods and structures is
that they are always reactive at best, responding to failures and unforeseen
circumstances after they already happen, not before they happen. In addition,
most of the so-called corrective actions are determined without a rigorous
root cause analysis, so they will ultimately address a symptom or resolve a
piece of the problem, without getting to the true root causes, which means
you will be solving this problem again. And again.
A Balanced Scorecard approach can dramatically improve this condition. The
financial measurement aspect of such a scorecard approach focuses on realtime
indicators to both give warning and to provide sufficient information for
business leaders to see potential issues coming before they occur, often with
enough time for a thorough root cause analysis and preventative measures to
be installed. The key is proactive, pertinent real-time information, useful in
monitoring and adjusting actions by departments and divisions toward successful
goal achievement.
Taking appropriate action:
Who, when, and how
Once you have established your dashboards, you need to be able to read
them, understand what they are telling us, and take appropriate action. For
financial measures, this means looking at trends, ratios, and key performance
indicators (KPIs), tying them to actions within the company’s operation, and
adjusting your specific actions in real time, to ensure that you stay on track.
This means moving away from traditional management practices, where financial
reviews would show a specific problem had occurred, and corrective
actions would be put in place to mitigate and correct for the next month or
quarter. These methods are reactive, focusing on what has already occurred
rather than helping you avoid the problems in the first place. Instead adopting
an approach involving Balanced Scorecards supported by financial measures —
monitored, tracked, and analyzed using dashboards — alleviate the need to
construct a review and corrective action system, by enabling real-time response
and adjustment to deviating trends in performance.
Using financial dashboards helps managers take swift and appropriate action
to prevent problems from occurring — or at least mitigate their effect on business
performance. They help determine who should be assigned to address
the pending problem, when it gets done, and how. In practice, this process
becomes almost automatic, because the elements of the Balanced Scorecard
are assigned to key members of leadership, even as all decisions are shared
180 Part III: Financial Measurement — The Foundation Leg
by the steering team. This assignment, coupled with measures of timeliness
in response, allows a smooth transition toward accomplishing key actions as
planned, without unnecessary directing, delegating, or assignment, since
responsibility and authority is already designated.
Creating Financial Dashboards
That Have Impact
Managers create financial dashboards to provide not only real-time, up-to-date
information, but also help enable informed decisions regarding contingencies,
alternatives, and risk-avoidance strategies. It is also important for the financial
measures to help managers assess and decide critical aspects across all four
legs of the Balanced Scorecard, since each is a critical part for the whole —
action in one leg usually affects others as well.
There are really only a small number of key things to remember in creating
your financial dashboard:
ߜ Your financial dashboard should contain no more than five or six key
measures of real-time characteristics, capable of being updated often
and accurately without special actions (in other words, part of the
normal process would be not just to provide and assess, but also to
update this information regularly.)
ߜ Your financial dashboard must relate to your financial needs, in terms of
what you are measuring in your business, either at the section, or
department, or division level, providing line performance data to a line
manager to help him or her make the critical daily decisions.
ߜ Given options, always opt for graphics, gauges, pictures, and illustrations
in your financial dashboard, rather than tables, spreadsheets or
raw data reports. Dials, much like on your car dashboard, provide an
excellent visual way to see immediately understand what is going on,
aiding interpretation and accelerating the decision-making process.
ߜ Make sure your dashboard links to your strategy map, such that you can
connect your financial measures directly to the scorecard. An example
of such a linkage is at Figure 10-1 below.
ߜ And, don’t forget, your financial dashboard needs to tie operational,
growth and internal process performance together.
181Chapter 10: Building the Financial Leg Dashboard
Keep it simple, complete, and effective!
The raison d’etre of the dashboard is to create a tool that is easy and quick to
interpret, not difficult to explain or share with others, and that provides the
best real-time updates. Here are some suggestions for keeping your financial
dashboard simple, complete, and effective (and not stupid!):
To ensure your dashboard is simple:
ߜ Keep your dashboard to one page, fit to your screen. Also, limit your
sub-panels to no more than four or five. And, keep the data elements on
each sub-panel to no more than five to six at most.
ߜ Use a combination of daily, weekly, and monthly financial information,
updated appropriately.
ߜ Try to make the information readily useful. A good rule is to only take a
maximum of three steps to get to clear, unambiguous data that can be
interpreted, analyzed, and indicative of a clear root cause for effect.
To ensure your dashboard is complete:
ߜ Once you have put your dashboard together, test your ability to explain
it to a colleague in another area, taking no more than one to two minutes,
Increase
Profit
Profitable
Financial
STRATEGIC
GOALS
Increase
Revenue
Increase
Market Share
Competitive
Price
Easy
Rental
Reliable
Car
Reduce
Rework
Reduce
Costs
Streamline
Rental
Car
Utilization
Staff Hire/
Training
Car
Selection
Sales
Training
Customer
Internal
Processes
Learning &
Growth
Shareholder Longevity
Price Perf.
Linked Financial
Dashboard Elements
Average Curren
R/W Cost
Cycle Time
Tech Hrs
Sales Hrs
Figure 10-1:
Car-rental
company —
financial
dashboard
linkage.
182 Part III: Financial Measurement — The Foundation Leg
and then ask for feedback. This will provide excellent information on
what is clear or unclear, what is necessary or unnecessary, and how much
detail you need. Be prepared to change your dashboard significantly.
ߜ Check your dashboard to make sure you can link each measure across
your scorecard, using your strategy map, as discussed earlier in this
section.
ߜ When it is finished, put it away for a few days, and then pull it out again,
and look at it as if another manager developed it, and ask if it covers the
necessary financial information and measurements.
To ensure your dashboard is effective:
ߜ Test pilot your dashboard, before you publicize it, to make sure the data
is relevant, accurate, and necessary to manage your group effectively.
ߜ Show your dashboard to peers and colleagues, and ask specific questions
regarding simplicity, completeness, and effectiveness, as well as
overall design, and whether it is easy to explain to others. Ask for any
suggestions, or additions in case you might have forgotten something.
ߜ Build into your dashboard ways to evaluate the measures for effectiveness,
and to change them immediately when necessary.
The key here is to create a visually attractive yet pertinent, informative
window that frequently updates to help you determine how well your group
or department or production line is doing, and provides what you need to
know to make it run better and improve every day. That’s not too much to
ask for, right?
Types of dashboards
These days, you have all manner of dashboards, from hand drawn (for example,
the primary visual displays common to production teams in lean manufacturing
environments) to spreadsheet-based Microsoft Office designs (such
as those in Excel or Lotus Notes), to those higher-level programs designed by
professional organizations to enable managers to tailor their dashboards
according to their specific needs. Let’s take a look at each type, and see what
the advantages and disadvantages are for each.
Manual dashboards
Hand-drawn and maintained manual dashboards are commonly used by teams
and cells at the process levels of the organization, such as production (line or
manufacturing cell teams), purchasing (commodity or buying teams), finance
(receivables, payables or invoice teams), administration (travel or recruiting
teams), or engineering (design or research teams). These dashboards are
updated and reviewed daily, and are located where the teams work. They
include key daily and weekly financial metrics indicative of performance to
183Chapter 10: Building the Financial Leg Dashboard
the Balanced Scorecard, such as output, rates of performance, and cost and
defects rates as well.
Some advantages to manual dashboards are:
ߜ That they are extremely current and usually accurate
ߜ They are owned and operated by the teams themselves
ߜ They provide any information regarding issues or concerns
ߜ They enable customization to the specific group or department financial
measurement needs, such as accounts receivable or assembly line
performance.
ߜ They usually link directly to higher-level key financial performance
measures
ߜ They provide real-time information to management, without need for
translation, interpretation, or summary reporting.
Some disadvantages might be:
ߜ It can be difficult to integrate multiple dashboards for trend analysis and
other uses. This is usually handled by supervisors, who capture the data
and share it with each other and other lines.
ߜ Hand-updated dashboards are by nature not linked to financial data systems,
so there may be a need to record such financial data electronically.
Here again, supervisors who record the information from these dashboards
share it, and also record it for financial analysis and reporting.
ߜ There is very real potential for differences in visual display dashboards,
making comparison to targets difficult. While creativity is encouraged
within teams, standardization is important as well.
Spreadsheet-based financial dashboards
Spreadsheet-based financial dashboards provide certain systems and integration
advantages over manual dashboards, by enabling teams and middle
management common, easy-to-use tools to track and manage the financial
measures of the Balanced Scorecard.
Some advantages to such spreadsheet-based dashboards include:
ߜ Ease of use in format and data integration, since most people who
manage are familiar with spreadsheets of some type or another
ߜ Customized design, enabling implementation of exactly what you want
in financial measures for your dashboard
ߜ Some degree of brevity, due to high cost of customization, to include
only what is required, enabling simplicity and efficiency
184 Part III: Financial Measurement — The Foundation Leg
ߜ Quick analysis of key measures, for trends and decision support
ߜ Graphics which are usually enabled with spreadsheets, enhancing simplicity
and visual measurement tools and techniques, such as graphical
gauges or dials.
Disadvantages to this type of dashboard might include:
ߜ Because they are usually custom made, they cost much in time, money,
and trial-and-error testing before they become useful.
ߜ They usually do not provide flexibility for rapid changes and revisions.
When changes are necessary, they usually involve re-coding, re-testing
and piloting before use.
ߜ They cannot handle complex, highly integrated business systems such
as those found in computer, software, and usually provide only limited
integration to financial systems
ߜ There are inherent difficulties in standardizing across continents, and with
different companies in different industries, given spreadsheet differences.
Higher-level programs and software-based financial dashboards
Higher-level programs and software-based financial dashboards comprise the
third key type of dashboard, and they provide enhanced programming capability
as well as visual and numeric data tracking.
Some advantages to program-based dashboards include:
ߜ Flexibility in design, enabling not only the ability to create your financial
dashboard, but also to provide for real-time evaluation, revision and
testing of your dashboard.
ߜ Integration across business segments, and flexible integration with most
major financial systems
ߜ Ease of financial measures selection and assignment
ߜ Best visual management systems of all three types of dashboards, and
able to create Sect. 508 compliant (visually impaired) graphs, charts,
and pictures
ߜ Automatic assessment and adjustment opportunity, to enable the best
use of this dashboard for any management level
ߜ Ease of creating images compatible with different media, such as PDF,
JPEG, PNG, SVG, Flash, EPS and others
Disadvantages to this type of dashboard might include:
ߜ High cost to implement, requiring high priority of the company, and buyin
at all levels to be useful and provide maximum competitive advantage
185Chapter 10: Building the Financial Leg Dashboard
ߜ More complex to implement, requiring some training, development and
systematic implementation.
ߜ Unfamiliar formatting and programming requires special training and
setup.
Some examples of dashboards that work!
Not all dashboards are created equal. Consider these examples of dashboards
that work. They can provide you with some ideas for how you might
select and format your own financial dashboards.
Figure 10-2, courtesy of Corda Technologies, depicts a four-panel financial
dashboard from VisualCalc, showing performance against target, performance
by segment, by teams, and background information (populations) for analysis.
Note how easy it is to use, with the use of a meter or gauge to indicate level
of performance, and varying bar heights and thicknesses for greater detail.
The pie charts depict information per regions, and make it easy to see what
the pieces are relative to the whole. This dashboard can show a manager —
on a daily basis — performance, where problems are, and relativity of the
problems to their customer population, for better prioritization.
Computer Sales Company Example
Overall
Daily
Performance
$10M
Product
Series
1233
2476
3388
1010
Central
$8M
$6M
$4M
$2M
No Go
Go Line
South East
Weekly Product Sales Mix
West
J F M A M J J A S
Sales Department Sections Budget to Actual - Variation
Monthly Trend (18 months)Central
O N D J F M A M J
South
East
West
Figure 10-2:
VisualCalc
financial
dashboard.
186 Part III: Financial Measurement — The Foundation Leg
Figure 10-3 was sketched from a very sophisticated software-program-based
financial dashboard for a large oil refinery company — with locations in
Texas — that manages its scorecards by state for maximum effect. Note that
there are multiple indicators, all updated daily, regarding current status of
each location, as well as other charts depicting different customers (A–G)
and their contribution to profitability. Given certain changes in performance
at key sites, the manager can mitigate risk by diverting levels for refinement,
depending on OEE readings, all while avoiding serious equipment problems.
Figure 10-4 is an example of a dashboard that a pizza delivery vendor uses.
The data is updated after each delivery, in order to monitor profitability based
on six indicators, all calculated and part of the excel program they developed,
providing the manager exactly what he needs to adjust, in terms of risk, margin
for error (level of wrong deliveries tolerable before financial impact, for example),
and overall sales-to-cost rate of return for capital investments. Actions to
adjust might include increasing deliveries, or switching delivery carriers, or initiating
certain menu options that require special handling.
Del Var. Supplier Var. Div. Var.
FPY Cost IRR Status (G/Y/R)
Figure 10-4:
Pizza
delivery
financial
dashboard.
KEY
Good
Fair
Poor
OEE Var IRR
A B C D E F G
Figure 10-3:
Oil refinery
financial
dashboard.
187Chapter 10: Building the Financial Leg Dashboard
Figure 10-5, courtesy of Corda Technologies, depicts a customer care center
financial dashboard, at a corporate level. The dashboard uses a combination of
bar charts and color coded indicators to help management immediately see
where problems are, with different customer groups by region, and how current
performance compares to historical performance. This particular dashboard
can also enable flexibility in realigning customer care resources, no
matter where they are in the world, in order to quickly recover from any difficulty
in any region. By using this dashboard, and acting quickly to specific customer
and financial data effects, significant negative impact can be avoided.
Figure 10-6, is an excellent example of depicting multiple kinds of financial
information to get the whole picture. In this example, you see the use of a
tachometer, fuel gauge, and speedometer graphic to show multiple pieces of
financial information, in order to get a better understanding of the entire
financial and operational picture of the company. You can see that just looking
at the dollar trends and levels per quarter might suggest good performance,
but compared to ROA on the left, and calculating dollar trends as a
ratio against ROA, there is an exponential spiral downward as early as a year
earlier. Not only can such comparisons provide a more complete picture of
the health of an organization, it can provide insights into what to do to
recover should a trend become apparent.
100
A B C
Central USA
Key Region
(Geography)
Current [This Week] History [Last 14 Weeks]
80
60
40
20
0
South America
Europe – Western
Europe – Eastern
Asia – Japan, Korea, China
Asia – Egypt, Saudi Arabia
A/P – All Else
0
A
0
0
0
X
1
1
0
B
0
0
0
0
1
1
0
C
0
X
0
X
1
0
X
D
Key Performance Indicators
1
0
0
0
1
X
0
E
0
X
0
1
1
1
1
F
0
0
1
X
X
1
0
G
X
0
0
1
1
1
Figure 10-5:
Customer
care
division
financial
dashboard.
188 Part III: Financial Measurement — The Foundation Leg
Enabling response and adjustment
agility and flexibility
To avert significant loss or damage to assets of the company (and, potentially
to your job!), your financial dashboard needs to enable quick response,. Here
are some ways to ensure you are able to respond quickly and with the right
answers when things start to go really bad in a big way:
ߜ For your electronic dashboard, think through what might be excellent
early-warning signals, and design a way to detect movement in the
wrong direction, such as trend tracking to show crossing bands of everincreasing
risk thresholds, accompanied by changes in intensity, and
perhaps increases in voluble warning systems.
ߜ Develop if-then contingency planning decision paths, and incorporate
them into your dashboard, so that it will be standard operating procedure
FILE NEW
COMPANY XYZ
DOLLAR TRENDS
0.0
KPI
0.2
CVI
PERIOD
ASSET TURNOVER (S/A)
CCD Group Sales
Oct NovDec Jan Feb Mar AprMayJun Jul AugSep
RATE CASH TREND
USER GUIDE
CORPORATE
Q1 98
OCF
AND
NETA
Q2 98 Q3 98 Q4 98 Q2 99 Q3 99 Q4 99Q1 99
CURRENT FREEZE REPORTS
R
O
S
Q1 98
R
O
A
FINANCIALS
OPERATIONS
SCORECARD
Q2 98
Q3 98
Q4 98
Q1 99
Q1 98
Q1 99
Q2 99
Q3 99
–25
–20
–15
–10
–5
0
5
10
15
20
25
Q4 99
Figure 10-6:
Financial
dashboard
example
showing
multiple
information
formats.
189Chapter 10: Building the Financial Leg Dashboard
(SOP) for your organization to follow the contingencies laid out, with
options for detecting variation in expected response and added suggestions
for variations in adjustments as well.
ߜ Develop a series of decision maps covering impossible reasons for certain
trends, to eliminate them from the logic and thus create a higher
level of agility to get to the core issues and adjust for it.
ߜ Enable point-and-click capability wherever possible, to allow users to drill
down on a measure to see contributors to the calculation and their trends
as well. This is particularly useful when multiple causes for getting off
course present themselves, because it allows selective investigation and
analysis of each factor and combined factors, to fully understand what
happened, and what you can then do to adjust and get back on track.
Avoiding Pitfalls While
Designing Dashboards
Here’s a surprise: Financial dashboards need to be designed right to work
right. When they are not designed right, errors are often made — resulting in
data that is consistent and dependable, but not much help or use in managing
a company because it is not what needs to be measured. Here are a few
common problems:
Selecting the wrong measures
To avoid this pitfall, you need to select a balance of strategic, operational,
and tactical financial measures for your dashboard:
ߜ The strategic measures need to link to your overall strategy, yet also
provide useful information, in terms of how well you are achieving your
long-term goals and pursuing your strategic plan.
ߜ The operational and tactical measures, sometimes called Key Performance
Indicators or KPIs, are often the first financial measures selected, and while
much easier to relate to actual delivery of products and services to your
customers, they must work in concert with your strategic financial measures
to give you the complete story. A good example of this is when you
are comparing revenue to delivery performance, without taking special
customer requirements into account. (This happened with a client who
did not realize their customer needed delivery declared every Friday,
190 Part III: Financial Measurement — The Foundation Leg
regardless of actual delivery, for specific accounting reasons in their particular
country. This caused some inconsistencies, which affected cash
flow as well, and became a real issue for several months.) When these
measures are not aligned, you can see where you might make operational
adjustments which could compromise your strategic plan, or vice-versa.
Organizing goals and objectives poorly
Be careful here, because the tendency is to orient the goals specifically to that
particular business or organizational entity, yet forget to ensure linkage to the
overall strategy of the company. An example of this might be when shared services
measures its collections performance, not realizing the strategic benefits
of delaying long-term collections from some Asian and Far Eastern countries,
where rates and other factors make short-term collections unfavorable, or
investments in these areas are contingent upon special terms initially.
Having the wrong number
of financial measures
If you have too many or too few, once again you will not get the correct picture
from which to make your key strategic and operational decisions. A
great rule is to have five to eight financial measures, combining strategy with
operational perspective, and linked to some degree to the operational,
growth and customer dashboards as well, so as to provide the best, most up
to date and complete information.
Thinking in the short-term thinking
A frequent pitfall is when a company sets up its financial dashboard to focus
on short-term performance only, and does not allow for long-term assessment.
Some sure signs that you’ve got this problem are:
ߜ Having financial measures that are strongly linked to compensation, bonus
or privileges. This may result in focus on those aspects of performance
that will only result in such compensation rewards, regardless of their longterm
impact on the company. An example of this would be increasing revenue,
without looking to the need to ensure successful delivery.
ߜ Lack of solid linkage between financial and growth dashboards and
scorecards, such that there is a balance, focusing on both short term
191Chapter 10: Building the Financial Leg Dashboard
and allowing for long term achievement of key measures. An example of
this would be where certain products with higher margins are pursued, yet
do not align with the long term goals and target markets of the company.
A tire manufacturer focused on larger tire products because of their profitability,
even while customers were designing vehicles for greater efficiency,
which is linked directly to smaller tire size and other design aspects. The
result was a contradiction in measures, and ultimately a market opportunity
for newer vehicles.
Even if strategic planning is incorporated into financial measures, you need
to make sure that there is sufficient flexibility in your dashboard to enable
adjustment, and allow visibility to key indicators linked to your financial measures
even as they might change as planned. For example, when new products
are planned that require changes or variations in operational financial
measures, how will you enable such adjustment without missing a beat in
performance? The key is to create flexibility in your collection and formatting
system, so that when things change, variations are selectable easily, so that
long term planning can always be incorporated into actual decisions.
Understanding Your Financial Dashboard
Practitioners who use financial dashboards to track real-time performance
against their Balanced Scorecards have learned over the years that they need
to understand what their dashboards can and cannot provide. They have
refined ways to continuously improve these dashboards, which enabled them
to achieve ever greater levels of understanding and response to their customer
and business needs. Not too shabby, if you ask us.
The financial dashboard needs to eventually become part of your day-to-day
work routine. A professional golfer relies on his drivers — in the way they
handle and respond to his swing, how they feels when they impact the ball,
and on his follow-through — to judge his resulting success in placing the ball
near the cup. You should be relying on your financial dashboard in the same
way, judging how well your group, department or organization performs
based on significant real-time indicators you can see with your dashboard,
and their expected impact on performance.
In this section, we explore what it means to understand your financial dashboard,
how to make it work for you, and how you use it, appropriate to your
business. We will also discuss what to do with the information provided from
your dashboard, and talk briefly about follow through.
192 Part III: Financial Measurement — The Foundation Leg
Make it part of your daily work
This is harder than you might think. Really. Making a financial dashboard part
of what you use daily to manage and steer your business, division or department
requires a fundamental change in the way you look at financial data.
This is because:
ߜ Non-financial managers view financial reports and information as generally
unconnected to real life, fragmented, and therefore not easy to link
in any kind of cause-and-effect relationship.
ߜ The key financial ratios or comparisons are typically not even used in
most financial reports, making it difficult to actually use the data in any
meaningful way for line and department managers.
ߜ Usual financial information is provided on a current versus past basis,
and does not show trends, nor does it provide actual vs. budget data
historical comparisons, again making it hard to know what to look for or
interpret for corrective action.
ߜ Most operational or department managers don’t get foundational training
in financial measures. Even worse, their perspective or knowledge is
not often taken or considered as relevant in forming financial measures.
Instead such measures are typically developed in finance groups or by
the CFO, extending the gap between finance and people who manage
systems that actually provide products and services to customers.
Given these historic obstacles and hindrances, it is a wonder anyone can get
financial dashboards going at all! When you can integrate your financial measures
into everyday business life, you can also begin to see how to use them,
not just to monitor progress, but to really see where opportunities present
themselves for a competitive advantage, or just to adjust specific activities or
to reprioritize to maintain performance when things change or the unexpected
happens. Here are some helpful ideas:
ߜ Lean Daily Management System, courtesy of Dr. E.W. Lareau in his book
Office Kaizen, talks about using a combination of short daily team meetings
— about five minutes long — and visual management boards, to
keep track of key metrics for a department or function that are updated
daily by hand, and reflect the team’s or group’s important performance
indicators. These indicators are then used by the team or group to
adjust actions to correct, or to capitalize on any competitive advantage.
ߜ If you work on a computer routinely, set up the dashboard to be the first
thing you see in the morning. PowerSteering software, a program that
tracks improvement projects for a company, provides for this capability,
193Chapter 10: Building the Financial Leg Dashboard
and enables executives, when they start their day, to see which projects
are on track, off track, closed, achieved specific milestones, and can
immediately know where the health of the continuous improvement program
is at any moment in time.
ߜ Proactively schedule a daily block on your calendar, maybe half an hour,
within the first two or three hours of the day, to get together with your
management team and discuss key financial measures, and work with
them to understand what is happening
ߜ Format your financial dashboard to one-page, and keep it simple. Also,
organize it so that you show performance information from all four legs
as linked to your financial measures, to overcome any perceived reality
disconnect.
ߜ Freely use graphics, such as the tachometers, speedometers, gauges,
light indicators, and other examples shown in this chapter. Visuals are
very powerful to show trends and key information. Stay away from complicated
looking tables and exhaustive spreadsheets.
ߜ You will need to discontinue current practices that do not help connect
your financial measures to daily activities. This is important, since the
first time there is any problem, there will be a tendency for you and your
team will be to go back to what is familiar, even if not useful or even
destructive to your purposes. Make it impossible to go back.
ߜ Have patience, and make indoctrination of the financial measures something
you will recognize and reward in your management and team members.
Also, coach incorporation into daily reviews, conversations and
planning meetings as a routinely included topic.
It is important to make it impossible to go back to the old way of working.
Remember, the explorer Cortez, when landing at the New World, burned all
the ships and navigation equipment, which helped his crew decide whether
they wanted to stay or not. Once retreat is no longer an option, you and your
team will also find it easier to discover other ways to incorporate financial
measures into your daily routines, and to change your routines to accommodate
the need for this information more frequently.
So what does it mean, and how
will I know what to do next?
You may not be a financial wizard, but we’ll bet you are clever and have figured
out how to operate, perform, and deliver fairly well in your current job.
you are managers because you got things done in the past, and will continue
to do so in the future. Yet, if you can understand and take appropriate actions
based on financial measures from a dashboard, you will be even more effective
managers, and be able to avert some problems you otherwise probably
might not even see until it was too late.
194 Part III: Financial Measurement — The Foundation Leg
What we are talking about here is taking your financial dashboard and using
it to tell you things about the health of your organization, how well you are
doing, and if you are headed for disaster. Thankfully, interpreting financial
measures from a Balanced Scorecard is not rocket science, and yet can
prove invaluable regarding risk mitigation and speed to take advantage of
opportunities.
There are ample software tools available today that actually enable managers
to manipulate specific financial measures, once they have entered appropriate
information into their models, such that they can see how specific actions
can impact the three big financial measures for a company: return on assets
(ROA, a reflection of the balance sheet), net profit (reflects profit and loss,
related to the income statement), and operating cash flow (reflecting the
cash flow statement). This is very useful, not just to understand the causeand-effect
relationships of actions and their impact on financial performance,
but also as an effective model for management development.
So, what are these relationships, and how can they help you decide future
actions? It is really about recognizing relationships and patterns in financial
measures that indicate trends and suggest outcomes given current actions.
Here are some basic relationships of financial measures to help you along:
ߜ Looking at monthly rates of receivables (what you are owed) with revenues
(what you sold) can help you see trends in cash flow, critical to
whether you will have the capital you need at the right moment. If this is
trending down, you may find you will be cash strapped, which makes it
harder to invest, or fund improvement programs.
ߜ Seeing market and industry changes in revenue or margins, or even in
the key players and their position, for example, can provide key intelligence
to be able to capitalize on opportunities for competitive or price
advantage, at the right moment.
ߜ Always look over the financial measures, and compare them to the current
strategy. Any anomalies will send a red flag up the pole, and may
provide for early warning regarding necessary changes in priority, especially
if the strategy has changed or if priorities for the whole company
have changed.
ߜ Tracking trend operational measures, such as on-time delivery, cost
against budget and rework levels can provide early warning of likely
financial performance issues, if they are increasing, that can enable management
to review and seek out unknown or unplanned changes in
processes and take corrective actions.
ߜ Continuous improvement programs need to be connected to financial
measures and performance, at least indirectly through delivery, cost
and quality, but the more direct link the better, since you want your
resources, time and initiatives focused on supporting your Balanced
Scorecard, and can see this best through your financial dashboard.
195Chapter 10: Building the Financial Leg Dashboard
Follow through — it’s what’s for breakfast
This thought is probably one of the most important. Follow through involves
staying the course, using the dashboard for more than a check-the-box activity,
and leading the charge for incorporating financial dashboards in your
work. Some ideas to ensure follow through include:
ߜ Remember, you are a leader, as well as a manager, so your actions, and
reactions are out there for everyone to see, every minute, every day.
Make them count to your advantage, and consider how you respond to
your subordinates’ questions and concerns in your coaching them to
their decisions.
ߜ Lend focus every way you can, regarding financial measures. Define
for your department what is important, and stick to it, don’t change it
every week.
ߜ When you are starting out, many things will go wrong or just not work
too well. At the worst of times, you will need to be persistent, stay the
course, and be patient. At the same time, demand consistent use of
financial dashboards, ask how well things are going across all four legs
of the Balanced Scorecard, as they link to these financial measures.
ߜ Ensure there are structures and systems in place based on your
Balanced Scorecard, and the use of financial dashboards and measures.
Recognize those who are using it, or even trying, and provide coaching
by asking questions, let them come to their measures that they need, so
that they own and operate them routinely.
ߜ Highlight excellence in development, use and adjustment of financial
dashboards, and encourage sharing of ideas among your teams, other
managers, your executive team and others, and ask for ideas, thoughts,
concepts. Also, don’t be afraid to try something new, or incorporate
someone else’s dashboard, if it can work for you.
ߜ Periodically review progress toward cultural incorporation of financial
dashboards, and allow for intelligent, studied revision as appropriate to
the needs of the group or department.
The bottom line is, financial dashboards are one of the most powerful tools for
today’s manager to use in making the right decisions, based on the Balanced
Scorecard indicators of overall performance and opportunities for tomorrow.
Use ’em, or lose ’em!
196 Part III: Financial Measurement — The Foundation Leg
Part IV
Internal Business
Processes – The
Value-Creation Leg
In this part . . .
Understanding how value is created within your
business processes is critical to satisfying your
customers. In this part, you discover the role you play
and how to identify the critical few measures you need
for your balanced scorecards and dashboards. You then
see how to build your balanced scorecards for internal
business processes, how to make process decisions that
give you a competitive edge, and the pitfalls to avoid.
Chapter 11
UnderstandingYourRolein
InternalBusinessProcesses
In This Chapter
ᮣ Getting to know your role in internal business processes
ᮣ Solidifying your role in value creation and value streams
ᮣ Ensuring you play a role in continuous improvement
ᮣ Tying together your process strategies, plans, and tactics
As a manager, you know you play a very important role in your internal
business processes. Making sure that things are running smoothly is
just another day at the office for you and your fellow leaders. Sometimes,
though, with all the fires to fight and problems to handle (again, just another
day in the office), it becomes a little difficult to focus your efforts, doesn’t it?
And focus is what the Balanced Scorecard is all about.
Well, there’s good news! This chapter is all about helping you focus your
efforts on your role when it comes to the internal process leg of your
Balanced Scorecards.
First, we’ll take a look at five key things you should know about your internal
processes. Then, we’ll explore your role in understanding and measuring how
your processes create value for your customers and continuous improvement.
Lastly, we’ll dive into your role in creating and translating your strategies into
your plans and tactics that will knock the socks off your competition. And if
you haven’t seen your competitors without their socks on lately, have we got
a treat for you!
Five Things You Must Know about
Internal Business Processes
When it comes to your internal processes, there are five things that we have
identified time and time again — in businesses of all sizes in all sorts of different
industries — that many managers know, but tend to not focus on. They are:
ߜ Your processes are full of waste
ߜ Many of your process measures don’t link to customer defined measures
of their needs and expectations
ߜ Unless you’ve done a measurement system analysis, your measurement
system is most likely broken, giving you misleading information upon
which you are making important, but potentially flawed, decisions
ߜ Process workers are often under-utilized and unappreciated by
management
ߜ There is often an over-reliance on technologies to try and solve process
issues, leading to even more waste, disconnected process measures,
broken measurement systems and under-utilization and lack of appreciation
for process workers
Why are these five things important for you to focus on when doing your
internal process scorecards? Because, if you don’t pay attention to them, you
will be frustrated and have serious issues when using your scorecards. And
when we say “serious issues,” that’s just for starters. It’s as simple as that!
Waste abounds in your processes
Did you know that in many companies, only about 10 to 20 percent of their
processes actually add value? Would you believe that the remaining 80 to 90
percent are non-value added parts of the processes — they burn huge quantities
of both time and money without making a contribution to the building or
delivery of your products or services. This is waste!
Still not clear what we’re talking about? Waste is things like inspection, auditing
and monitoring, generating reports (unless that’s what you get paid to
deliver to your customers) — and yes, even management — are all considered
waste. They do not transform your product or service in any way. There
are actually seven commonly accepted forms of waste — what we call the
Seven Deadly Wastes:
ߜ Overproduction: making things that are not going to be used
immediately — just in case you might need them some time in the
future
200 Part IV: Internal Business Processes — The Value-Creation Leg
ߜ Waiting: idle time with people sitting or standing around with nothing to
do, because they don’t have what they need when they need it, or
because of mistakes in scheduling
ߜ Transportation: moving things around more than they need to be, often
due to poor layout of the workplace and storage locations
ߜ Over-processing: doing more things to your product or service than
need to be done to satisfy the customer need
ߜ Inventory: excess incoming materials, work in progress, and finished
goods
ߜ Motion: going on scavenger hunts to find the things that should be where
the work is done, excessive bending, twisting or motions by workers
ߜ Defects: not getting things done right the first time, causing rework and
scrap and all the interruptions that they cause to normal workflow
A simple way to identify waste in a process is to ask this basic question: does
whatever you are doing add value that the customer is willing to pay for?
When we look at it from this point of view, you can see that your processes
and systems are full of waste. But that doesn’t mean you can go on a wastecutting
extravaganza and slash and cut your way through the organization.
Many have tried that approach, with the best of intentions, to their own
demise.
Talk about the best of intentions leading to the demise of a company’s relationship
with their customer, this story really makes the point! We had a
client that, prior to our working with them, had a manager who went on an
inventory cutting spree to cut costs and decrease waste. He slashed his way
through the warehouses and cut over $26 million in inventories. What a
tremendous benefit to the bottom line — or so they thought. He was hailed
by his superiors as a hero — and he even got promoted as a result. But then,
the problems really started. The company started having problems delivering
products to its customers. Why? Because of stock outs — they couldn’t
deliver what their customers wanted, when they wanted it. Not only did this
company have workers standing around — waiting for their materials to
show up so that they could do their work — so too were workers at their customer’s
factories. This made the customer late in deliveries to its customers.
You can see how the results of this well-intentioned manager’s efficiency campaign
flowed downstream. In the end, the end users — the ultimate customers
who paid everyone’s bills — were the ones left empty handed, not
getting what they needed, when they needed it. It was a lose-lose situation all
around. So be careful when you start to identify and eliminate the waste in
your operations. Consider the full impact of your cuts before you make them.
Did you know that one of the most waste-filled areas — and the ones most
often ignored — are the ones we call the transactional processes? These are
the office processes that are found in the offices and cubicles where people
are dealing with setting up and repairing computers and computer networks,
handling paperwork, and the like. Very often, they are processes that are not
201Chapter 11: Understanding Your Role in Internal Business Processes
core to your business and may have some potential for outsourcing to some
company that does make money doing it and are a lot more efficient at it (and
end up costing you and your company a lot less, too). When you go looking
for waste, don’t forget to look at these processes, for they can be a gold mine
in waste reduction.
Many process measures don’t
link to the customer
Another thing you need to realize — or maybe you already do — is that many
processes measures don’t link to your customers. We often walk into a business
and find measures that we wonder why they are being measured at all
since they don’t relate to things that directly impact the company’s customers.
In your Balanced Scorecards for internal processes, you should always try to
link your measures to your customers, starting with your external customers
and working your way back through your processes and your internal customers
and suppliers, back to your external suppliers.
Now, we’re not saying that all of the measures for your scorecard need to be
directly linked to your customers. But, if they don’t, you had better be asking
questions about why they don’t and if they are really necessary. After all, we
spend a lot of time and effort measuring and tracking things with our scorecards.
Let’s make sure we’re measuring the right things and not creating
another form of waste — the waste of excessive and useless measurement!
When linking your customer needs to your process measures, always start
with your customer’s requirements and then work back through your
processes to determine in what ways you and your process workers satisfy
and measure how that need is met. These are then translated into process
measures for your Balanced Scorecards and into the policies and standard
operating procedure you use to make it happen.
Your measurement system
is probably broken
Well, we’ll put it very bluntly: most measurement systems we come across
are broken, and they can’t get up! Sure, they can measure things, but the
answers they provide are located much closer to Fantasyland than reality.
The reason is that no one has taken the time and effort to truly assess their
measurement systems. Sure, you can get answers from any measurement, but
what if the answers you get are the wrong ones? And when you make decisions
based upon a broken measurement system, what kind of decisions do
you think are made as a result? It’s the old garbage in, garbage out scenario.
202 Part IV: Internal Business Processes — The Value-Creation Leg
And decisions made from bad data and information will send you down the
wrong path quicker than a drunken partygoer giving you directions to the
bathroom.
Now, we’re not going to get into the elements necessary to have a good measurement
system. Heck, that would be a book in and of itself. We just want —
more like need — you to be aware that the essence of Balanced Scorecards is
measurement. So you’d better make sure that your measurement system is
healthy and that it gives you good data and information so that you can make
good decisions.
Here are just a few key areas that you will need to consider when looking at
your measurement system:
ߜ If your measurements are from subjective measures — people making
judgment calls about how good your processes are — will different
people make the same judgment call or will they come up with different
answers?
ߜ Will the same person, looking at the same thing over and over again,
make the same judgment call?
ߜ With your objective process measures — things measured by some measurement
device like a scale, calipers, a micrometer and the like — will it
really measure what you think it is?
ߜ Is it accurate and in calibration — is there some error in the measurement
device that you don’t know about?
ߜ Will different people using the same gage get the same readings time
after time?
ߜ If using multiple devices to measure the same process characteristic,
will they consistently get the same measurement or will they be
different?
If you don’t know if your measurement system is working for you the way you
need it to be, you should assume that the answer is a resounding no! Get
online, get a book, or do whatever you need to do to better understand what
is called measurement system analysis (MSA) or gage repeatability and reproducibility
(gage r & r). Get your measurement system healthy before you
start your Balanced Scorecards for internal processes.
Process workers are under-utilized
and unappreciated
As a manager, one of your most important roles is to fully utilize and appreciate
your people. And one of your key roles as a manager using the Balanced
203Chapter 11: Understanding Your Role in Internal Business Processes
Scorecard is to get your people involved and using their knowledge and abilities
to the greatest extent possible. Actually, some companies — like Rolls
Royce — identify the under-utilization of their workers as an eighth form of
waste.
Your role is one of getting your employees involved in helping to develop the
process measures, reporting and tracking their own processes, using the tactical
level scorecards as a daily management system, and ensuring their
involvement in improving their processes on a continual basis. Without their
help, you will be very limited in your ability to fully leverage the power of the
Balanced Scorecard approach, especially for internal processes.
You also play a key role in showing that your process workers are appreciated
for what they do. Sure, we all know that nothing gets done without them,
but how often do you let them know it? Do you find yourself looking more for
people doing things wrong and punishing them for it, or do you look for
people doing things right and telling them they’ve done a good job? When
was the last time you said thank you and really meant it?
You see, in the end, your role as a manager who is using the Balanced Scorecard
for internal processes is to be a cheerleader, teacher, mentor and coach for your
people. Yes, it takes some time and a little bit of effort, but it is well worth it.
Technology isn’t always the right answer
Technology is great! Some might even call it sexy. Not us, but some. Technology
has an allure all of its own. Things done automatically, giving us capabilities
that were undreamed of just a few years ago. And the pace of new technological
development just seems to be getting faster and faster. And as a manager,
your role is to sometimes identify new technologies and to implement them.
All we can say is, caveat emptor — let the buyer beware!
Consider, for a moment, the example of the latest-and-greatest personal
computer — with more memory than ever before, a faster processor, and the
biggest hard drive this side of Bangalore. You buy the latest thing on the market
and before you can get it out of its box, it is made obsolete by the next generation
of computers that is, coincidentally, being released to the public next
week. They’re faster and more capable, and often less expensive than the previous
generation but, here’s the downside: they’re also more complex and
more difficult to use.
And then there’s the whole learning curve thing. Software that you are comfortable
with no longer works on your new system, so you’re forced to buy
the latest software offering, too. So, people have to go to classes or learn on
their own and fumble their way through the new technological whatever that
204 Part IV: Internal Business Processes — The Value-Creation Leg
was going to increase your productivity and make life easier for everyone. On
top of that, in our experience, few software packages are utilized at more
than 25 percent of their full capabilities.
Do you see where all this is headed? That latest-and-greatest software package
that is supposed to do all of your resource planning — and put gobs of
cash back into the bank for you — may not be the big benefit that you think it
will be. That new robot to save you all that money may end up costing you
more than it’s worth and be more of a headache than the old system it
replaced.
When it comes to technology solutions and Balanced Scorecards for your
internal processes, your job is to do the homework and make sound business
decisions about which technologies to use. Explore your options fully and
don’t get sucked into the latest gadgets with all the bells and whistles
attached before you have a chance to fully analyze their potential impacts on
your organization — both good and bad. Often, solutions of the low- or notech
type are just what the doctor ordered.
Creating Value
In a perfect world, your processes would be nothing but value adding: creating
value for your customers at every step, with no waste, no problems, and
no need for the firefights and chaos that so often are a part of a manager’s
daily life at work. Unfortunately, that isn’t the real world, is it?
When it comes to value creation, your role is one of knowing what currently
exists — what we call the current state — and then working on a continual
basis to improve it by working with your people to improve things — what
we call the future state. In this section, we’ll take a look at your role when
working on your current and future state of your value streams.
Looking at your value
streams’ current state
As a manager, one of your roles is to understand your value streams and
where you and your employees fit into the big picture. And, you guessed it,
this is another key area for you to understand when looking at your Balanced
Scorecards for internal processes.
But first, it would be a good idea to define what a value stream is.
205Chapter 11: Understanding Your Role in Internal Business Processes
Simply put, a value stream is all of the steps required to bring a product or
service from its raw state to the customer. It includes all of the information
and data necessary to run and track the processes.
When looking at your value streams, you will identify things like work in
progress (WIP), inventory levels, cycle times, customer demand rates for
your processes (a thing called TAKT time), lead times, defect rates, value
added and non-value added work content, along with important information.
Once you’ve got your value stream current state mapped, you will have a
very good picture of where your bottlenecks are located and where you have
the most waste within the value streams and their processes.
You will also have a very good systems view of the entire picture: how your
part of the value stream connects to other parts and functions within the
stream. And in the end, it will help you to determine where you need to apply
the resources and effort to improve the system, so that you can remove the
waste and increase the value adding work and value creation within your
processes.
For more information on Value Stream Mapping, we highly recommend the
book, Learning to See by Mike Rother and John Shook.
When getting into your value streams, remember that it is your role as a manager
to actually map them out and understand them. Do not fall into the trap
of delegating the mapping of the value stream to others. If you do, you will
lose the most important aspect of the value stream: gaining knowledge and a
systems view, rather than a limited-process view.
Where you want to be when:
The future state
Once you’ve identified the current state of your value streams, the next shoe
to fall is that you have to get busy working on the future state. What are you
going to do to remove the waste and improve the value stream so it maximizes
value creation?
In moving to the future state, you have to let go of the reins and trust your
workers to know what needs to be done to make the improvements. Yes, we’re
talking about your role as a cheerleader, teacher, mentor and coach for your
people. If you want your employees to create a better future for your company,
you’ve got to set the example for them by championing the improvements
and the teams that are sweating bullets to get them in place. You are the one
who must empower your people and give them the authority, autonomy, and
resources they need so that they — and you — can be successful with their
improvement projects.
206 Part IV: Internal Business Processes — The Value-Creation Leg
You’d better believe that you play a critical role in the future state of your value
streams. And you’d better be tracking your projects for the future state on your
Balanced Scorecard for internal processes. It’s all a part of your efforts with
continuous process improvement, and an important job for every successful
manager.
You Get What You Reward
What does rewards and recognition have to do with the internal process
Balanced Scorecard? In short: everything! Oh, but that’s a human resources
or management thing, right? Remember: human resources and management
are internal business processes. And nothing has more negative impacts on
your ability to lead, manage and get your internal business processes working
the way you need them to than your rewards and recognition processes.
Your rewards and recognition processes have to be well thought out and
planned. You have to make sure that you aren’t sending mixed messages,
such as asking for new behaviors yet rewarding the old behaviors. And you
have to understand that money isn’t always the big incentive that you might
think it is. Everyone’s different and, while some may respond to cash, others
might respond to a simple “thank you.”
Sending mixed messages
Remember: people will hear what you say, then watch what you do. Any differences
will quickly be noted and all those good words that came out of your
mouth will be nothing more than cheap talk. And we don’t want that, do we?
Of course not. But it does happen.
Are you sending mixed messages, asking for one kind of behavior, then
rewarding your employees for doing something different? Consider the following
examples:
ߜ Saying you want teamwork, but then fostering internal competition
between individuals, teams, groups, functions, organizations: looking for
win-lose scenarios, rather than win-win
ߜ Saying that you believe in teamwork and cooperation, but management
is at each others’ throats with backstabbing and infighting amongst
themselves
ߜ Political agendas and pet projects and solutions that are not supported
by the management team or data and information
207Chapter 11: Understanding Your Role in Internal Business Processes
ߜ Agreeing to a set course of action, then saying negative things or disagreeing
with it in private or while having water cooler discussions with others
ߜ Not empowering your teams to make decisions about their work
ߜ Saying you have empowered the team to make decisions, but then disempowering
the team when they do make a decision by telling them to
do this or that — and the this or that is usually a hidden agenda or pet
project or solution
If you find any of these things happening with your people — or if you are
doing them yourself — make sure you put a stop to it immediately! Your
Balanced Scorecard for internal business processes will be much the better
for your efforts. After all, everyone has to be on the same page, working
together and pulling in the same direction for your scorecards to really work
the way you want them to.
If it weren’t so sad, we would have actually gotten a good laugh out of this
one. Once, while mentoring a Six Sigma Black Belt in his training and project
completion, the student told us — when asked how his team was doing —
“Oh they are a very good team! They do everything I tell them to.” When we
asked the team members how they felt the project was going, they said, “It’s
no different than before — we are just told what to do and nobody cares what
we think.” It wasn’t any surprise that team morale was very low and their performance
was, shall we say, less than stellar. Needless to say, we coached the
Six Sigma Black Belt on how to run and lead teams and we got the situation
turned around in a hurry. Later on, the team members presented their solutions
to the problems they had identified with their processes and the Six
Sigma student got to teach them some new tools and ways of analyzing their
data along the way.
Old rewards do not create new behaviors
Has this ever happened to you, at work or in your personal life? Someone
says they want you to do something in a new and different way, but then you
were still rewarded for acting in the same old way? And did you walk away
thinking that there was just something a little bit wrong? Well, it happens all
the time. It may even be happening in your own organization and your people
may be thinking the same thing: there’s something just a little bit wrong with
the picture. And you better believe it, they are right!
Here’s an example: We tell our salespeople that we want them to cooperate
with one another — to work as a team — but we single out individual salespeople
for recognition when they achieve their sales goals for the month.
And then we’re surprised when these same employees decide that it makes
more sense to do whatever it takes to achieve their individual goals, even if it
means cheating other members of their sales team out of potential clients or
sales opportunities.
208 Part IV: Internal Business Processes — The Value-Creation Leg
Rewarding old behavior and expecting new actions or different behavior just
doesn’t make sense. Yet, just like with all of the other pitfalls we’ve talked
about, it happens all the time. Why? Well, we don’t think it’s a malicious or
intended thing. Often, we find that the long-term results of the actions they
take are not well thought out. They didn’t take time to consider what kinds of
behavior they were really rewarding.
So, the remedy for this one is really quite simple. If you are asking for new
behaviors, then take a close look at what you are rewarding. If the old rewards
don’t make sense — and will instead continue to motivate people to act in old
ways — then change them. Now.
Rewards that matter
We want rewards and recognition to motivate people, right? So the question
then becomes: motivate them to do what? When you really get down to it
and take a good hard look at many well-intentioned rewards and recognition
systems, they actually de-motivate people. A poorly designed and executed
rewards and recognition system can actually do more harm to an organization
than good — destroying internal business processes and making scorecards
miss target after target, and goal after goal.
Let’s take a look at some of the things you need to think about with your
rewards and recognition systems and processes so that you’re not left
scratching your head and wondering why your scorecards aren’t getting you
where you want to go:
ߜ Remember that those whom you are going to reward should be part of
the process to create meaningful rewards and recognition systems
ߜ Money rarely changes behavior and increases performance — it rarely
motivates people to do a consistently better job, but it does often demotivate
people to not care
ߜ When using monetary rewards, tie them to the overall performance of
the company, such as gain-sharing, so that everyone sinks or swims
together and keeps them working together to win
ߜ A simple “thank you” for a job well done often has as much or more
motivational value than a big cash reward, putting someone’s picture on
the wall, or giving them the special parking spot for the employee of the
month
ߜ Showing you really care about your employees every day has more
meaning to them than a special (but rarely given) reward
ߜ Learn how to celebrate your successes and trumpet them for all to hear
ߜ Be careful not to leave anyone out of the picture: we’ve often seen where
someone got their feelings hurt when they were left out (like the people
209Chapter 11: Understanding Your Role in Internal Business Processes
who took on someone else’s normal job duties so that they could be on
the team that ended up being recognized)
ߜ Be clear about what will be rewarded, by whom and how
ߜ Make sure that you reward day-to-day performance along with
improvements
ߜ Be very careful about rewards tied to suggestion programs: most suggestion
programs are so broken, they are a running joke in many organizations,
and ideas on how to improve one’s work should be a natural part
of their job anyway
ߜ Don’t keep your rewards and recognition static (never changing), rather,
keep them a dynamic system that changes with time (the one thing that
should never change is that you care about your people, how they feel,
and that they are extremely important to you and the success of your
organization)
ߜ Make sure you have rewards and recognition for individuals, teams,
organizations and the company as a whole
ߜ When communicating your successes and recognizing people, make sure
it is about them and not you (you should be like the proud parent beaming
about the accomplishments of your children — it’s all about them)
ߜ Everyone appreciates a free lunch or dinner and they are a great way for
you to not only reward teams and your organization, but they are also a
great way to get some teambuilding into place
ߜ Family fun days or open houses are a great way for your employees to
show off their workplace and let the family know what they do — and to
let their sense of pride in their work and the company shine
Finally, just remember that you need to always pay attention to your people
and how they are rewarded and recognized. It should become second nature
to you and your organization. It should be ongoing and real-time. And a simple
thank you, with a smile and a handshake, doesn’t cost you a thing, but may
be priceless for your employees!
Building-In Continuous Improvement
Most things we do in business, and in life, are processes. Good processes
deliver consistent, quality outputs in a timely, efficient and effective manner.
The outputs are only a result of the activities in the process (what we do) and
the inputs (the information, materials and services we use). Variation in the
output — usually measured as cost, quality, or time — is the total variation of
all of the elements of your processes’ activities.
210 Part IV: Internal Business Processes — The Value-Creation Leg
Therefore, continuous improvement concentrates on understanding the relationships
between the process inputs, the activities performed within your
processes, and the process outputs. By doing so, you can make the improvement
necessary to deliver what your customers want, when they want it, and
at the price they are willing to pay for it.
Variation is the enemy of continuous improvement and it is your role to lead
the efforts to remove the variation: get rid of the defects, shorten the lead
and cycle times, and reduce the overall costs of your goods and services sold
to the customer. And while you’re at it, you should use your internal process
scorecards to measure these improvements. Remember: If you’re not measuring,
your only practicing. Let your competition practice and play at it, while
you get serious about your continual improvement efforts!
Process improvement in a nutshell
Understanding what customers really care about is fundamental to continuous
process improvement. Ultimately, you want your processes to perform at
a consistent and measurable level that meets and exceeds the customer’s
needs and expectations. These customer expectations and requirements
need to be translated into some kind of a measurable output.
When our processes fail to give customers what they expect in a consistent
manner, we have those nasty things that we call defects or errors. Your
improvement projects are supposed to resolve these nasty little problems.
How? By reducing the variation, eliminating the defects, reducing the waste,
and reducing the cycle and lead times within your processes. That’s how.
Your continuous improvement projects improve your process performance
by getting to the root causes and getting rid of them — forever — rather than
just applying some quick fixes that often only take care of the symptoms. At
the end of the day, your projects must deliver real improvements for your
customer and to the bottom line of your organization.
Determining, what, when,
and where to measure
Performance measures are an important part of any continuous improvement
effort. As a manager, you direct the efforts of your organization and have
responsibility for knowing what, when, and where to initiate changes. These
changes cannot be implemented without an in-depth knowledge and understanding
of the appropriate information upon which your continuous improvements
are based. To do so, they need to have an effective measurement system.
211Chapter 11: Understanding Your Role in Internal Business Processes
As part of an effective measurement system, we’ve already talked about the
need for doing a measurement system analysis as one of the five things you
must know, so let’s take a dive into the what, when and where to measure.
When looking at your organization, there are many processes and functions
that are required to deliver your products or services, with each one probably
needing some kind of performance measure. In figuring out what to measure,
you have to first consider their business impacts and select those areas
that are most important to your organization and to your customers, both
internal and external, in order to satisfy their requirements. You will also
need to consider those processes with issues and problems that have been
identified by management or the process workers. These then become those
critical activities that you need to measure.
Critical activities at the tactical level are those that significantly impact your
total process efficiencies, your effectiveness, product and service quality,
timeliness, and productivity. At the operational and strategic levels, critical
activities are those that impact your management priorities, organizational
goals, and external customer goals.
In identifying what to measure, ask the following questions:
ߜ Does it relate, directly or indirectly, to the ultimate goal of customer satisfaction?
Every critical activity should. For example, on-time delivery is
directly related to customer satisfaction. Use quality tools such as the
Pareto chart, brainstorming, or examining data to help prioritize your
critical activities and measures.
ߜ Does everyone concerned agree that this activity needs to be watched
closely and acted upon if its performance is not what you need it to be?
ߜ Is it something that should be continuously improved? (Hint: if it hasn’t
been fixed lately, it is probably broken and in need of some improvement!)
ߜ Does the benefit exceed the cost of taking the measurement?
If you answer “no” to any of these questions, take another look at the measurement
and decide if it is really critical for you to measure it at all.
Figuring out when to measure depends upon the process and your needs for
timely data and information. If you’re going to make a mistake on how often
to measure, it is generally better to err on the side of more often. You can
easily back off and adjust if you find that you are measuring more often than
you need, but we find that it can be difficult to ramp up to a more frequent
measurement scheme.
Measurement often occurs at process inputs and outputs, or as a major step
or activity within a process is completed. The measurement should be taken
and tracked by those who do the work and not by some outside group or
function, like inspectors or quality control. In this way, you get the most
timely information and you can react much faster to problems than if you
212 Part IV: Internal Business Processes — The Value-Creation Leg
have to wait for someone to get around to taking the measure, reporting it,
and then having some committee meeting to decide what to do. Employees
empowered to measure and take action are truly a wonderful thing! Go give
them a raise!
How to measure your performance
Learning to ask the right questions is an essential skill in the art and science
of effective data collection. Accurate, precise data collected through an elaborately
designed statistical sampling plan is useless if it does not clearly
address a question that someone cares about. It is crucial to be able to state
precisely what it is you want to know about the activity you are going to measure.
Without this knowledge, there is no basis for making measurements.
To generate useful information, how you measure is extremely important.
Here are some questions you need to ask about how you will measure your
internal process performance:
ߜ What question do we need to answer?
ߜ How will we recognize and communicate data and information gained
from the measures?
ߜ What data-analysis tools do we envision using (Pareto charts, histograms,
bar or line charts, control charts, etc.)?
ߜ What types of data will our selected data analysis tools require?
ߜ Where in the process can we get these data?
ߜ Who in the process can give us the data?
ߜ How can we collect the data with minimum effort and chance of error?
ߜ What additional information do we need to capture for future analysis?
Acceptance and ownership means
getting everyone involved
By now, you should be saying to yourself that you need to have your people
involved in this. They’ve got real jobs to do, right? Not only can you not do it
all by yourself, however, but when you get your folks involved, we can guarantee
that the outcome of your continuous improvement projects will be far
better and more likely to succeed. It’s that simple.
According to a study on project success by VitalSmarts, 82 percent of employees
surveyed said there are significant organization-wide initiatives underway
in their workplace that they believe are likely to fail. And 78 percent said they
213Chapter 11: Understanding Your Role in Internal Business Processes
were personally working on a project that was doomed to fail at the time of
the study. In fact, over 90 percent of the men and women surveyed said they
know early on when projects were likely to fall short, and 77 percent compared
their failing projects to a slow-motion train wreck.
They also said that, basically, when it came to telling higher-ups about their
misgivings, they didn’t feel like anyone wanted to hear it. Eighty-one percent
said that approaching a key decision-maker about it is almost impossible.
There is a tendency for people to be quiet about important issues because
they expect the conversation will go badly. It sure doesn’t sound like there’s
much acceptance and involvement on their part, now does it?
Now, you’re probably wondering how this can happen. What in the world is
going on? In a word: fear. As the world famous guru of continual improvement,
Dr. W. Edwards Deming, said in point 8 (of 14) in his influential book, Out of
the Crisis (MIT Press): “Drive out fear, so that everyone may work effectively
for the company.”
Fear? You bet! If people are afraid to have those frank discussions about projects,
what does that say about the environment in which they have to work?
Do you know who controls that environment? Quick — go to the mirror and
take a look. Surprise! It’s you, the manager.
Here’s another revelation for you. If employees work in an environment of
fear — fear of reporting, of taking risks, of making a mistake, or even of saying
what they honestly believe — how much ownership and acceptance do you
think they will take for things like process improvements, team projects, the
recording of data and the like? That’s right — zero! Sure, you can form your
teams and they will meet, but little will get done. They will participate, but
they won’t be involved and they most certainly won’t accept any responsibility
for the success or failure of the efforts of the team.
So, when you want your people to have high levels of acceptance and involvement
in your continuous improvement initiatives and internal process scorecards,
make sure that your work environment is one without fear, where the
messengers are rewarded for their bravery, not shot. One where people are
comfortable communicating with you, no matter what the news might be, good
or bad. The kind of workplace where the old joke of “the beatings will continue
until the morale improves” is just that — a joke. You can (and should)
create an environment and organizational culture where your people can take
ownership and are involved in its success.
Ready to do a quick check of your organizational environment? Here’s a little
exercise we often use as consultants to gauge our clients. You can use it, too.
Take a leisurely stroll through your work areas and pay attention to how people
act when you’re walking through. Are they smiling and engaged — greeting
you enthusiastically? Or are their heads down, hoping not to be noticed? Do
they ask how your weekend was, or do they try their best to look busy for the
boss? When people pass one another in the hallways, do they greet one another
214 Part IV: Internal Business Processes — The Value-Creation Leg
and have a bounce in their step, with their heads held high and their shoulders
back? Or are they hunched over, walking slowly, looking like they have the
weight of the world on their backs? When you pay attention to how your people
are interacting, it doesn’t take a rocket scientist to figure out what kind of organizational
culture you have. If your people are walking around like a bunch of
dazed zombies (like in The Day of the Dead), you’d better get to work on your
organizational culture, and do it fast, because you have some serious problems
that will devastate your continuous improvements and Balanced Scorecards.
Pitfalls to Continuous Improvement
Without a focus on the continuous improvement of your processes and people,
you are leaving a lot of opportunity on the table and giving your competitors
a major weapon to use against you. Continuous improvement is a necessary
part of your internal business process scorecard.
Many organizations have some form of continuous improvement, whether it
is total quality management (TQM), Six Sigma, Lean Manufacturing, Toyota
Production System (TPS) or Theory of Constraints. Today, many have some
combination of two or more of them, such as Lean Six Sigma. In fact, you
would do well to learn as many different approaches to continuous improvement
as you can because you will find, if you haven’t already, that no one
toolset or methodology is the end-all, be-all for improvement. Like any toolbox,
you use what you need when you need it. Some tools are used often.
Other tools are used not so often, but when you need them, it’s kind of nice
to have them around and know how to use them.
What we often see with continuous improvement efforts is a lack of focus on
core processes, well defined procedures for who does what and when, and an
over reliance on technology. In this section, we will explore the pitfalls that
lead to these problems so that you and your organization won’t have to suffer
the pain and anguish that so many others experience. Learning from pain is,
well, it’s downright painful. So read on, avoid the pain, and enjoy the gain.
Implementing continuous improvement
Just a word about the pitfalls you’ll find in implementing continuous improvement.
All the pitfalls we’ve already mentioned apply to your improvement
efforts, including:
ߜ You need to integrate your strategies, plans and tactics for improvement.
ߜ You have to take a systems view of your business and processes.
ߜ You have to lead your people and manage your business.
215Chapter 11: Understanding Your Role in Internal Business Processes
In addition to what we’ve already talked about, there are some other pitfalls
you’ll want to keep in mind.
ߜ Implementing continuous improvement is everyone’s job: not just for
those in quality control, or a special group of specially trained people
(like six sigma black belts or what have you), or special teams that are
come to help out.
ߜ Process workers need to be trained and educated — and have
experience — in using the basic improvement tools, like flowcharting,
Pareto analysis, cause and effect diagrams, and control charting
and SPC.
ߜ Process workers need to be involved in creating the standard operating
procedures for their processes so that they are not only understood, but
will also be followed.
ߜ Continuous improvement needs to be managed, but it should not be
micro-managed: micro-management will kill team-based process
improvements faster than you can say “our competition is killing us.”
ߜ New knowledge on methods and tools only comes from the outside, and
only by invitation: don’t be afraid to find the help you need from consultants,
but don’t make them the owners of continuous improvement.
ߜ Management needs to be educated in the tools and methods, too: the
quicky one or two day overview courses and seminars don’t get you
there — you have to know these tools as well (or better) than your
people do.
ߜ As mangers, you need to not only talk continuous improvement, you
have to do the walk, too: you have thousands of opportunities everyday
to show what you really mean, and believe us, your people are watching
and all it takes is one misstep and they will know you are not serious
about it.
We want to leave you with a little story before moving on. We call this nonfiction
short story The Man from Saturn. No, we’re not talking about some
space alien who has come to visit us from the outer reaches of the solar
system. We’re talking about a fellow named Skip Lafauve, the first president
of the Saturn division of General Motors. He was the guy that got the whole
thing started. You see, Skip was an interesting guy. He really believed in
making a quality car. And, maybe more importantly, he knew what had to be
done to make it all happen. He understood that if he wanted to build quality
cars and have a customer-focused organization, he had to do everything possible
to make sure that his people had what they needed, when they needed
it. If mistakes were made in the interest of quality, like shutting down the production
line because someone honestly thought there might be a problem
when there maybe wasn’t, that was not only okay, it was the right thing to do.
216 Part IV: Internal Business Processes — The Value-Creation Leg
He viewed his job as one of being a servant to his people. And he really loved
his people, and let it show in so many different ways. And, wouldn’t you know
it, he would drop into classes on how to improve processes and measure
process performance and sometimes teach the class. It was not uncommon
for factory workers to learn how to construct and analyze control charts
from the president of the company. So, when you go looking for examples and
role models of what is needed out there when we talk about leading people
and managing your business, pay close attention to The Man from Saturn:
Skip Lafauve. Trust us, there are few, if any, that are better to model yourself
after.
Identifying core processes and outsourcing
When it comes to identifying things that are considered wasteful — those
things you do that don’t add any value to your products or services — we
often find that we are doing things that have nothing to do with our core
processes, that is, the activities that produce the results we want. In the end,
spending time on non-core processes is a waste of your time, money, and
effort. Not only that, but we find that most companies are really quite lousy
at doing them. Many have therefore found it to their benefit to outsource
many of these non-core processes. All we can say is, be very careful when
outsourcing!
We once had an interesting revelation while working at General Dynamics
Convair Division in San Diego, California. The company’s core processes
were to build the aircraft body for the McDonnell Douglas MD-11 (a widebody
fuselage). That’s what we got paid to do. As part of the manufacturing
process, we needed a lot of perishable tools such as drill bits, sandpaper,
tape, countersinks, and much more. We would order tons of the stuff on a
regular basis. After all, we would drill well over one million holes in each fuselage
assembly during the course of production. Now, that’s a lot of holes! Of
course, we had to have a place to store this stock of tools, and we needed
systems and processes to manage it. We had to have people to stock it, track
it, and distribute it to the people building the product. All of which cost a lot
of money. When we looked at the overall system, we realized that managing
the stock of perishable tools was not a core process for us — it was not an
activity that directly led to finished aircraft bodies — and it was something
that we could outsource to a local company whose business was to do all of
those things and make money doing it. This was their core business. And you
know what? They were a lot more efficient and better at doing it than we ever
could hope to be because managing perishable tools was their core process,
and they could make money doing it. In the end, we found that we could
order our perishable tools and supplies and have them delivered to where
they were needed within less than 24 hours on 98 percent of the things
we needed. We had better fulfillment of our needs for a lot less money. We
217Chapter 11: Understanding Your Role in Internal Business Processes
also found that we had opened up many thousand square feet of floor space
for manufacturing when we got rid of the warehousing of the tools and supplies
— space that we needed in the worst possible way. What happened to the
people that no longer managed that perishable tooling and supply system?
They went to work adding value to the product, working on our core
processes! They started making money for the company, rather than being
nothing more than an expense.
Ask ten managers or executives within an organization what their business’s
core processes are and you will probably get ten different answers. If you’re
going to use the internal business process scorecard (of course you are or
you wouldn’t be reading this book), you should have a good understanding
and agreement on what your core processes are so you can effectively measure
and track them.
ߜ Don’t be afraid to challenge what you do and ask if you really need to be
doing it: Can someone else do it better, faster and cheaper than you can?
ߜ Understand that there are risks associated with outsourcing, so be very
careful and do your homework: Make sure of what you need and that
those you partner with are capable of satisfying your needs.
ߜ Don’t make your decision to outsource based on price alone: The path to
outsourcing ruin is filled with this type of decision, where contracts are
put up for bid every year and awards are made on lowest price, alone.
ߜ Don’t be afraid to share information with those you partner with — they
need just as much information as if they were your people — after all,
they are in a way.
ߜ Bring those you partner with into your teams: Have them become knowledgeable
about where their products and services are used, how they
are used, and that they become well known to your people — make them
true team members and let them have a say in any decisions that affect
the products and services they supply to you and how they are used.
ߜ Make sure you measure and track your outsourced processes just as you
do your own: You should have scorecards for your suppliers and anything
that is outsourced.
Technology isn’t always the answer
Did you ever notice that technology often creates more problems than it
solves? Have you ever heard — or even thought yourself — why did we ever
buy that fancy new gee whiz thingamabob? Have you ever wondered why
new technologies fail to live up to the wonderful promises made by the guys
218 Part IV: Internal Business Processes — The Value-Creation Leg
and gals who sold them to you? Well, all we can say is, you’re not alone and
welcome to the club. And yet, so often we see that there is this almost obsessive
need by companies to rely upon technologies to solve their problems
and go into that downward spiral into the technology black hole, never to be
seen or heard from again. Go ahead and do a web search on the topic if you
doubt what we’re saying. You’ll find the stories all over the place.
So, you ask, why does this happen over and over again? Well, we’re here to tell
you. New technologies are cool! They can be fascinating — almost hypnotic —
to watch. Have you ever watched a robot doing its thing? Pretty cool, isn’t it?
Software with tons of capability at your fingertips tracking this and that, spitting
out tons of data and reports (notice, we didn’t say information — someone
actually has to look at it and analyze it to become information and so often
that never happens). Conveyors moving tons of parts and assemblies all over
the place, and hardly a human being in sight.
Not only do a lot of technology solutions not work as we intended them to,
they also often create and hide a lot of waste. In fact, many of them just
manage our waste a little more efficiently, but they do nothing to remove the
waste itself. Things like automated inventory and warehousing come to mind.
These systems will actually increase your costs of waste! And what happens
when they break down? Your operations come to a screeching halt, or you go
back to the good old fashioned way of doing things.
When looking to technology solutions to your problems, be very careful. Make
sure they are not just optimizing ways of doing wasteful things. Remove the
waste, instead. Also, make sure that your people are involved in the planning
and introduction of the new technologies. You know, they may just surprise you
and find a better, less costly way of doing it themselves. And always remember:
New technologies usually have major price tags and, along with those
major price tags, major risks associated with them. Make sure you fully understand
the entire cost picture and the risks associated with your solution.
The Weakest Links in Internal
Business Processes
You’ve heard it before: Your business is only as strong as its weakest link. We
all know that once identified, we need to strengthen those weak links so that
the chain becomes stronger, yet we see time and again that they are ignored
and nothing gets improved, especially with internal business scorecards and
the processes they track. Nothing is sadder to us than the myriad of process
issues we’ve seen where everyone knew they had problems, yet nothing was
219Chapter 11: Understanding Your Role in Internal Business Processes
done to correct them. And when the business is brought to its knees by the
weak links, everyone asks how the heck it happened. Everyone knew it was a
problem, right?
So, why didn’t those weak links get fixed? Maybe the people in charge didn’t
think it was that big of a problem, or they were too busy fighting the day-to-day
fires and other issues that invariably arise. Maybe they didn’t have a good
understanding of what the problem really was to begin with. Or maybe they
were overwhelmed by the magnitude of the problem and just hoped it would
go away all by itself. The list of “maybe’s” is long and varied.
The problem with integrating
strategies, plans, and tactics
Within many organizations, strategic planning is often looked upon as a necessary
evil. Companies do it as a once-a-year (or even less frequent) exercise,
and then the resulting strategic plan gets put on a shelf to collect dust, or
thrown in a drawer to be forgotten. Then, at the end of the year, the plans get
dusted off and everyone wonders why they didn’t achieve any of the goals
and objectives that they wrote down the year before.
The Balanced Scorecard is intended to help keep this from happening, but
you have to avoid the many pitfalls that plague the process of tying your
strategies to your plans and tactics for achieving them. This list of potential
pitfalls will give you and your organization the information you need to make
sure your strategies, plans, and tactics actually get done.
ߜ No formal (and accepted) vision and mission
ߜ Not communicating the vision and mission throughout the organization
ߜ Not setting long-term (at least three to five year) and short-term goals
ߜ Not establishing measurable goals for the various business functions
and their objectives (profit and growth, market share, sales or production
volumes)
ߜ Not setting stretch goals: goals that are challenging but achievable
ߜ Not having a system for measuring actual performance versus goals
(that’s why we do the Balanced Scorecard!)
ߜ Not involving the right people in the planning process
ߜ Top executives not taking a formal role and responsibility for the planning
process: delegating the process to lower level executives, staff
workers, or consulting firms
220 Part IV: Internal Business Processes — The Value-Creation Leg
ߜ Not making the strategic planning process a top priority for the
organization
ߜ Not providing resources for the planning process: not providing time,
money, or people for the planning process
ߜ Not having documented formal procedures and policies for planning
ߜ Not getting all of the organizations, departments, etc. involved in the
planning process
ߜ Not doing SWOT analysis (Strengths, Weaknesses. Opportunities and
Threats)
ߜ Not comparing your analysis to your competition
ߜ Not looking outside the box: not looking at new entrants into your markets,
new technologies, methods, concepts
ߜ Not looking at your own business objectively: being overly optimistic or
having a sense that you’re really not that bad
ߜ Not including a deep dive into financial issues: cost of capital, investment
strategies, taxes and all of that financial related stuff
ߜ Not looking at your customers and strategies related to their needs and
expectations for service, pricing, quality
ߜ Not looking at your people and the human resources
ߜ Not looking at information systems and technologies and their ease of use
ߜ Not basing plans on risk versus return and feasibility
ߜ Not basing plans and tactics on the strategic analysis and research
ߜ Not assigning responsibilities and accountability for the execution of the
plans and tactics
ߜ Not allocating the necessary resources for making the plans and tactics
happen
ߜ Not having a formal system of review and tracking the strategies, plans
and tactics — in other words, not using the Balanced Scorecard approach
to managing the business
ߜ Not having a regular review process — and by regular, we mean at least
once a month and more frequently if necessary
ߜ Not being flexible in your plans and tactics
ߜ Not having a system for rewards and recognition for achieving and exceeding
the goals and objectives (and make very sure that no one is left out —
we like gain sharing where everyone has some skin in the game, and the
executives have the most to lose if things don’t get done!)
221Chapter 11: Understanding Your Role in Internal Business Processes
So, what can you do when you encounter one or more of these potential pitfalls
in your organization? You can take action to fix them! Begin with the
ones that will have the greatest leverage, that is, the biggest bang for the
least amount of effort. Of course, don’t forget to delegate responsibility for
fixing pitfalls as widely as you can — you can’t do this all by yourself after all.
When everyone gets in the act, they are much more likely to become invested
in the outcome — and in the ultimate success of your organization.
Systems thinking and internal
business processes
No organization’s processes work in isolation, yet we see time and again
where they are managed by the company’s leaders as if they do. Silos and
barriers between functions and processes are built up and enforced as if they
can operate on their own, with massive issues of bureaucracy that can kill
the company and its ability to be flexible and deliver the elements of quality,
speed and cost necessary to stay competitive.
When looking at your strategies, plans and tactics, you really have to take a
systems view of your organization and its processes. And every system must
have an aim — a reason for being. And by their very nature, systems must be
well integrated or they will fail. We often see systems that do not integrate
well with the organization in which they are supposed to smoothly function
and add value. In many cases, the system drives the organization, rather than
the organization driving the system — sort of like the tail wagging the dog.
We particularly see this happen with material resource planning (MRP) and
enterprise resource planning (ERP) software systems.
The following list of pitfalls will help keep you in the mindset of systems thinking
with your internal business processes and keep your scorecards doing what
they are intended to do — keep you ahead of the competition — and keep your
Balanced Scorecard for internal business processes humming along smoothly.
ߜ Forcing the organization to conform to system rather than having systems
that conform and meet the needs of the organization (this is especially
true with software solutions)
ߜ Maintaining a functional (silo) view of the organization: focusing on the
optimization of functions at the expense of the company as a whole: suboptimizing
the whole for the sake of one part of the organization
ߜ Focusing on turf battles rather than on collaboration
222 Part IV: Internal Business Processes — The Value-Creation Leg
ߜ Pursuing hidden agendas and pet projects or solutions
ߜ Making decisions that affect others without including them in the decision
making process
ߜ Failure to build consensus on decisions when appropriate (caution: consensus
is not always the best decision making approach — when the
building is on fire, that’s not the time to have a team meeting on the best
way to exit the building!)
ߜ Withholding information or viewing information as a source of power
ߜ Making decisions from gut feel and intuition when hard data and facts
are available or can be gotten
ߜ Allowing people to be surprised by not communicating (often seen in
meetings when tasks are due to be completed and the big surprise is it
wasn’t done and no one was told ahead of time)
ߜ Not following through on commitments
ߜ Looking for win-lose rather than win-win solutions
ߜ A sense of competition between groups or other managers
ߜ Not having a map of the system — only focusing on mapping your own
processes
ߜ Not understanding the nature and importance of your internal customer/
supplier needs and relationships
ߜ Over-reliance on the big home run or giant breakthrough solutions
rather than on incremental improvements
ߜ Micro-managing everything by requiring personal approval before
moving forward
ߜ Not educating and empowering direct report employees
ߜ Not sharing corporate goals and objectives
ߜ Taking a “that’s not our problem” view to issues and concerns
We’re sure that you can add some things of your own to this list, but this
covers the main issues we often see when working with our clients. Taking a
systems view isn’t always easy, but then, most things that have tremendous
payoffs usually aren’t easy. So, belly up to the bar, take a systems view of
your functions and the organization as a whole, and reap the benefits for you
and your company. Believe us: if you can successfully resolve even half the
things on the above list, you’ll be far ahead of your competition!
223Chapter 11: Understanding Your Role in Internal Business Processes
It’s a people thing
It sure is tough these days, knowing when to get involved and when to leave
things well enough alone. As the famous leadership guru, Peter Drucker, once
said: “Managers are more concerned with doing things right, while leaders
are more concerned with doing the right things.” We couldn’t agree more. In
fact, we would take Mr. Drucker’s thought one step forward, by saying that
you need to do the right things right.
For you to succeed with your internal business process scorecards, you need
to be both a manager and a leader. You lead your folks, but you must manage
your business processes. It is a delicate balance that the modern manager
must find and maintain. Unfortunately, we see far too many managers and far
too few leaders.
What this means to you is that the days of micro-managing your people, looking
over their shoulder, tampering and meddling with them on a constant
basis as they perform their work, are long gone, especially if you want to be a
good leader. When it comes to your processes, translating your needs and
expectations into those things that you can measure and track in your internal
process scorecards along with all the other internal business processes
and measures needed to run your business, you have to be both a leader and
a manager. You have to lead your people, but manage your business.
So, as you’ve probably guessed, there are many pitfalls you need to avoid
when getting your people involved with your internal business process scorecards.
Here’s a list of major pitfalls we have often encountered with our many
clients.
ߜ Not being situational in one’s management and leadership style: fitting
the style to the needs of the individual
ߜ Not having a clearly defined, articulated and communicated vision and
mission for the organization that your people can identify with
ߜ Not communicating your strategies and tactics for achieving your goals
and objectives
ߜ Not setting clear expectations for your teams’ performance and results
ߜ Not letting your teams know why they are a team
ߜ Not setting the groundwork for having team members committed to the
team and its performance
ߜ Not getting the right team members on the team — not having the crossfunctional
team members on the team when projects and issues cross
organizational boundaries
224 Part IV: Internal Business Processes — The Value-Creation Leg
ߜ Not having a team charter that clearly defines the mission and objectives
for the team, what they are to achieve, how it will be measured,
what defines their success and the timeframe for results
ߜ Not giving the team the empowerment they need to get things done —
micromanaging the team, forcing them to work towards your pet solutions
or hidden agendas
ߜ Not providing effective team facilitation to get them through the tough
times so that they can become a high performing team
ߜ Not having a communication system in place for feedback to and from
the teams
ߜ Not valuing ideas from the team members: not allowing team members
to be creative and to think out of the box or to seek innovative
approaches to problems
ߜ Not providing the teams with the resources of budget, time, materials,
space and support that they need to get things done
ߜ Allowing the scope of the team to creep and grow beyond its original
intent without a clear and compelling need for it to do so
ߜ Not having clearly defined rewards and recognition for the team
ߜ Being too hands-off with your people: not being a coach, mentor and head
cheerleader for them as they tackle problems and make recommendations
ߜ Blaming the team when things go wrong: pointing the finger and trying
to divert responsibility for it to the team (on this one, you’d better be
looking in the mirror, not at the team or team members)
ߜ Shooting the messenger: not wanting to hear the bad news and punishing
the one who tells you by claiming they are not a team player
ߜ Linked with shooting the messenger is maintaining an atmosphere of
fear: fear of reporting, taking risks and making mistakes because the
guilty ones will pay through reprimand, gossip, or worse
ߜ Not having an effective employee suggestion program: by effective we
mean making the suggestion go through so many hoops and hurdles to
get approved that few ever are approved, and even if they are, it takes so
long that the employee gets no sense of satisfaction from it anyway
There’s one more thing that can be a real problem for anyone who has been
assigned the job to manage a group of people: Not seeing your job to be a
servant for your employees and truly caring about their needs in a loving
way. If you want your employees to care about you, your company, and your
customers, then you’ve got to first care about them. Leadership is a two-way
street. Trust us, if you take care of them and really care about them, they will
always take care of you.
225Chapter 11: Understanding Your Role in Internal Business Processes
Tying Internal Processes to Your
Strategies, Plans, and Tactics
Just like with the other legs of the Balanced Scorecard, you have the center
stage role in developing your internal business process leg scorecards. In this
section, the first thing we’ll do is describe something called catchball (and,
no, it’s not something you played in school when you were a kid). We’ll then
get into how to develop your process strategies, plans and tactics.
Playing catchball: The art and
science of deployment
When formulating and deploying your strategies, plans, and tactics, it’s
extremely important that communication be two-way, and not one-way. This
helps to ensure understanding and buy-in by everyone that is involved and
affected by these new strategies, plans, and tactics. As it turns out, the catchball
technique is very useful for achieving wide-scale deployment of your
goals and objectives for your strategies, plans, and tactics.
Catchball is a give-and-take dialogue within the organization. It is a means to
keep the dialogue going until everyone understands and agrees to the
desired focus of the organization. Each level of the organization should, in
turn, develop goals, objectives and action plans to support the overall goals.
They will also need functional plans while monitoring and tracking their
processes and product and service indicators to ensure quality consistently
meets customer requirements and performance goals.
What ball game are you playing? The opposite of catchball is what we call
dodge ball. This is where it seems like everyone is trying to escape the process,
not work with other departments, executives and managers in the process,
and do the minimal amount of effort to get things going. Make sure that when
you play ball, you’re playing catchball and not dodge ball, shall we?
Why do we say that catchball is both art and science? Because it is a process,
and as such there is a method to it, just as with any science. But it is also an
art because you will have to use your interpersonal skills of negotiation, compromise,
and consensus throughout the process. You will even have to use
some salesmanship skills as you try to get people on-board with your ideas
that they are maybe, shall we say, a little bit resistant to and they may set up
their barriers and defenses. And yes, you may even run into those who are
226 Part IV: Internal Business Processes — The Value-Creation Leg
trying to play the dodge ball game. So sharpen up your people skills when
you get into the game of catchball.
Developing your process strategies,
plans, and tactics
As you develop your strategies, plans, and tactics for your internal business
process scorecards, you will find that your role is one of making it happen
and getting it done. Along with the people skills and understanding the
process of playing catchball, you also need to know what you have to accomplish
during the catchball process. There are a variety of steps you should
follow in this process:
1. Establish the purpose of the process strategy, plan or tactic.
2. Define the goals of the strategy, plan or tactic.
3. Develop the scope and boundaries of the strategy, plan or tactic.
4. State your criteria for success.
5. Understand the barriers, constraints and risks and how they will be
mitigated.
6. Determine who is to be involved in their development and execution.
7. Define who is to do what.
8. Determine how you will track performance and progress.
9. Establish how it will be measured.
10. Decide what methods are to be used.
11. Scope out any training or education that will need to take place.
12. Develop the schedule for getting it done.
13. Define the resources you will need to make it happen.
Now, that wasn’t so hard, was it? When you’re done with this process, you
should also be able to answer the following questions for each of your
process strategies, plans and tactics.
ߜ How much will your tactics contribute to achieving the annual operating
plans and long-term strategic goals and by when?
ߜ Who will be responsible for the various strategies, plans and tactics?
227Chapter 11: Understanding Your Role in Internal Business Processes
ߜ How will those responsible for their execution be held accountable for
getting them done, and how will you know when they are done?
ߜ Who needs to be informed and how will you communicate them?
ߜ When will you get them done?
ߜ What are your contingency plans when things don’t go as they are
planned?
ߜ Have you maintained enough flexibility to do the dance when things
don’t go as planned?
Yeah, there’s a lot to get done, but you can do it! And never forget to have
some fun along the way. All work and no fun makes for a very dull manager,
indeed. And while you’re at it, try to make it fun for your people, too. Get them
out of the office every once in a while for some team building. Treat them to
lunch at a favorite restaurant or meet up after work for some casual fun. Get
to know your people on a personal level. Find out what makes their hearts
sing and gets them excited. You may just find out that you have a lot more in
common with them than where you work and what you do. And they just might
find out that you’re a real human being who really does care about them.
228 Part IV: Internal Business Processes — The Value-Creation Leg
Chapter 12
BuildingtheInternalBusiness
ProcessScorecard
In This Chapter
ᮣ Getting to the right measures
ᮣ Building your internal process scorecards
ᮣ Decision making that hits the right mark
ᮣ Common mistakes made with internal business scorecards
Ask a bunch of different people what they value in life, and chances are
you will get a bunch of different answers. Ask your customers what they
value in your products or services, and you will probably also get a bunch of
different answers. When you boil it all down, however, these answers will
pretty much come down to the same basic issues that make a difference for
the effectiveness of any business: quality, cost, and time.
When using the Balanced Scorecard to improve the effectiveness of your own
business, it is your job to understand your processes and how they create value
in the eyes of your customers. After all, it all starts with customers — no customers,
no business. Unless your primary business is monkey business. Let’s
take a look at what might be some of the things that customers truly value,
how they impact your processes, and how you can use scorecards to measure
value creation.
In this chapter, we explore how to get in touch with the measures that are
most important to your customers. We will also look at ways to focus on the
issue of process variation, then build the Balanced Scorecard for internal
processes and take a look at how to analyze it. Ready? Set. Go!
Finding the Right Measures for
Internal Business Processes
There are as many measures for business processes as there are stars in the
sky. Well, almost as many. The trouble is, we often make the mistake of focusing
on things that really don’t matter to the customer. Do you think, for example,
that your customers really care about how many times your cashiers
have been late to work this month? Or the percentage downtime of your janitor’s
vacuum cleaners? Does that mean we shouldn’t measure them? No! But
it does mean that we need to understand the difference between those measures
that matter and those that don’t.
Unfortunately, many companies focus on the measures that don’t matter to
customers, and only give lip service to the ones that do matter to them. The
basic question that you have to answer is this: What do your customers really
value? Once you answer that question, the next question you must answer is:
How do your processes fulfill what customers truly want and value?
Identifying the critical few measures
First, let’s take a quick look at some of the more common measures for internal
business process scorecards. These are the kinds of things that have the
greatest leverage on your organization’s effectiveness, and many of them (for
example, on-time delivery, customer response time, and warranty returns)
are also measures that your customers really care about. Remember, we said
that most measures involve elements of speed, quality, and cost, but there
are a number of other useful measures we should look at, too.
Measures of speed:
ߜ On-time delivery
ߜ Lead time
ߜ Process cycle time
ߜ Machine or process downtime
ߜ New product and process development time
ߜ Time to market of products and services
ߜ Customer response time
ߜ Breakeven time
230 Part IV: Internal Business Processes — The Value-Creation Leg
Measures of quality:
ߜ Continual improvement
ߜ Warranty returns
ߜ Sales returns
ߜ Field service representative calls and visits
ߜ Defect rate: rework, repair and scrap (defects per unit, percent defective)
ߜ Process capability
ߜ Sigma level
ߜ First pass yield
ߜ Rolled throughput yield
Measures of cost:
ߜ Costs of waste
ߜ Cost per transaction
ߜ Research and development cost
ߜ Labor costs
ߜ Costs or rework, repair and scrap
ߜ Breakeven cost
ߜ Appraisal costs (inspection, compliance)
ߜ Environmental compliance costs
ߜ Inventory and work in progress costs
ߜ Cost of marketing and advertising
Other useful measures:
ߜ Floor space utilization
ߜ Inventory turnover rate
ߜ Aged materials and finished stock
ߜ Material stock-outs and shortages
ߜ Forecasting and planning accuracy
As we said at the beginning of this section, these are just some of the more
common measures for your internal business process scorecard. We are sure
231Chapter 12: Building the Internal Business Process Scorecard
that you probably have several of your own that you can (and should!) add to
the list, but these lists will give you a good start. What items are on your list?
Why not tap one out on your computer right now?
Don’t make the mistake of putting measures into your scorecard just because
you can. Select only those measures that matter to your customers and to
your business. This will take some thought and it also means that you will
make changes over time. Stay on top of your scorecards and those critical
few things that really matter!
The Input-Process-Output diagram:
Your best friend
How do you select those critical few that really matter? Don’t tell anyone, but
here’s our own personal secret: Take a look at your customer scorecard and
tie together those things that you’ve identified as important to customers and
to your internal business process scorecard. A simple tool will help you do just
that — a tool that we call the Input-Process-Output diagram (see Figure 12-1).
When using the Input-Process-Output diagram, always start with the Output
requirements, first. This is the end closest to your customer and the requirements
are the ones defined by your customers. These customer requirements
are usually translated on the input side of the diagram as your specifications.
As we’ve said several times before in this chapter, these will usually involve
measures of quality, speed, or cost.
How about an example, focused on some element of quality — doing things
right the first time? By focusing on quality, you can also improve (reduce) the
elements of cost and speed. It kind of makes sense, doesn’t it? If you improve
your quality, you don’t waste the time, money, and effort to do things over and
over again to get them right. By focusing on quality improvement, you not
only improve quality, but you also reduce the cost and time it takes to complete
the process. The result? Happier customers and a healthier bottom line.
Now you’re getting the full power of the Balanced Scorecard working for you!
CALL
CENTER
SERVICE
PEOPLE
EQUIPMENT
METHODS
MATERIAL
POLICIES
NO WAIT TIME
RESOLVED QUICKLY
FRIENDLY SERVICE
FEEL VALUED
PROCEDURES
INPUT OUTPUTPROCESS
Figure 12-1:
Input-
Process-
Output
diagram.
232 Part IV: Internal Business Processes — The Value-Creation Leg
The IPO gives us a pretty high-level view of a process. It doesn’t give us a lot
of detail (like a process flow or values stream map would), but it does tie
together the inputs required to achieve our desired outputs. Typically we
have numerous processes joined together in a stream, each doing specific
things and building one upon another in order to deliver the final products or
services to the ultimate end user — the customer who pays the bills and
keeps our lights on. We call these wonderful people our external customers.
As we use the IPO to get in touch with our external customer requirements,
we also need to identify the internal customer requirements: those things that
each process requires from their inputs (or suppliers) in order to meet their
internal process requirements.
And, while we’re at it, we’re also able to define those external supplier
requirements for the things that we get from our outside vendors in order to
do what we do. So, what we will end up with are the definition of our end user
customer requirements, what we need to do in our processes to satisfy them,
and the things that our suppliers must do to keep us happy, as well. It all
flows from the end user back through our processes, tying our suppliers,
processes and what they produce to our customers.
So the IPO answers the question: What do your customers really value? And
this includes both the internal and external customers. The next question
that needs to be answered is: How do your processes fulfill what customers
truly want and value?
Waste, scrap, and other bad things
It’s one thing to understand what your customers value, and it’s another
thing altogether to understand if your company’s processes are designed to
deliver what your customers value. When you get into processes for the production
and delivery of your products or services, you will find out that most
of what you do is what we call waste: things that take up time, money, and
effort but that add absolutely no value to the resulting product or service.
Some examples of waste include:
ߜ Scrap and rework (things not done right the first time)
ߜ Multiple approvals (you know, bureaucracy and red tape)
ߜ Excessive reviews (again, more bureaucracy and red tape)
ߜ Excess inventories (why not try just-in-time?)
Beware of waste in your business processes! These things — and many
others — waste our precious resources and they add zero — zilch — nada —
to the value of your products or services. And this presents us with the problem
of finding out those things that we do that the customer is willing to pay
for and getting rid of those things that are considered waste. For more on
waste, visit Chapter 11.
233Chapter 12: Building the Internal Business Process Scorecard
Where’s the variation?
No two things in life — or in business — are ever exactly alike, even though they
may look the same on casual glance. Those little (and sometimes big) differences
are what we call variation. In business processes, variation can kill your
ability to deliver consistent products and services to your customers. And in
looking at your Balanced Scorecards for your internal business processes,
you want to look at those things that cause variation. Like a summer vacationer
getting ready to swat a mosquito, you want to track them and eliminate
them when and wherever they occur.
Okay, but how do you identify variation and where it exists? One of the best
methods we know is to use two simple tools. The Cause and Effect Diagram,
and a method called The Five Whys.
The Cause and Effect Diagram (see Figure 12-2) is a tool to be used by — you
guessed it — teams. Can you do it by yourself? Well, you could, but going it
by yourself may not give you the powerful results that you seek. Often, teams
will start with the six basic legs as shown in the diagram:
ߜ People
ߜ Machine
ߜ Material
ߜ Method
ߜ Measurement
ߜ Environment
PEOPLE
EQUIPMENT
METHODS
MEASUREMENT
MATERIAL
PROBLEM
OR
ISSUE
TO BE
SOLVED
ENVIRONMENT
Figure 12-2:
The Cause
and Effect
Diagram.
234 Part IV: Internal Business Processes — The Value-Creation Leg
What you’re trying to do with this tool is to identify the issues and problems
that cause the problem shown in the box to the right of the diagram. Get your
team(s) to brainstorm ideas and put them onto the appropriate leg. Using the
Five Whys technique, you’ll ask the question “Why does this happen?”
Here’s a simple example for you. Let’s say you’re having an ongoing and persistent
problem with employees making mistakes that cause defects in your products.
These defects in turn increase your costs and decrease your profit. And
when every once in a while, a product with defects gets into the hands of your
customers, well, you know — they aren’t very happy about that. The oldfashioned
way of dealing with this issue might be to punish the employee, give
them a warning or maybe even firing them. However, by using the Five Whys,
you might first ask “Why did the employee make a mistake?” Lo and behold, by
asking that question first, you might discover that your standard operating procedures
are ineffective or missing, or perhaps the employee was hired and
placed into the job without proper training . Can you see where this is headed?
Asking “why” enough times helps you to get beyond the superficial reasons
and to the root causes for variation. And once you find those root causes, you
can fix them so can’t negatively impact your business or your employees again.
Remember, variation is the enemy, not your people.
Building Scorecards for Internal
Business Processes
Okay, so now you’ve identified those critical few things that really matter to
your business and your customers. You’ve taken a look at the sources of variation
and the things that can (and will) go wrong in your processes. And
believe us — there are things that will go wrong in any business. You’ve done
all of the hard work, so let’s have some fun and create some scorecards for
the internal business process.
Strategic level scorecards
What are your plans for your business systems and processes for the next
three, five, ten years? What do they need to look like and achieve to stay
ahead of the game? Looking at your scorecards for the customer and financial
legs, what is it about your long-term business processes that they will
need to do to help you attain the goals you have in those scorecards? Strategic
level scorecards give you the long view of your business — beyond the oneyear
view of the operational level scorecard.
235Chapter 12: Building the Internal Business Process Scorecard
So, when you’re building you scorecards for internal business process, pull
out your other scorecards and make sure you have them handy — you’re
going to need them! When you and your folks develop the goals, objectives
and measures for the internal business processes leg of your scorecard, make
sure that they tie together with your other scorecards (see an example of a
strategic scorecard in Figure 12-3). You see, these scorecards do not work in
isolation from the others. They are integrated and they work very closely
together. If they aren’t integrated, you’re missing the real power of the
Balanced Scorecard approach. Each leg has power, but — together — the
sum of the whole is much greater than the separate parts.
Operational level scorecards
Looking at your operational level, what are the things you need to achieve,
measure and monitor over the next year? What are the annual operational
plans and goals and how will you make sure you’re on track? The operational
level scorecard tracks the things that you must do this year to achieve your
strategic (long-term) goals and objectives.
Figure 12-4 shows you an example of an operational level internal business
processes scorecard.
Tactical level scorecards
This is the scorecard that makes the rubber meet the road, as we business
improvement consultants like to say. The tactical level scorecard is your
Increase Product Quality 75%
Three Year
Strategic Goal
Reduce Cost of Processes 25%
Reduce Process Cycle Times 15%
Reduce Process Lead Times 10%
Internal Business Process Leg Scorecard with Strategic Measures
Figure 12-3:
Example of
a strategic
scorecard.
236 Part IV: Internal Business Processes — The Value-Creation Leg
day-to-day measurement and tracking scorecard (Figure 12-5 shows you an
example). It is used on at least a daily basis, and perhaps even hour by hour
and minute by minute. Everyone in your organization needs to be familiar
with this scorecard and check it at least once a day to see how they are doing.
This is a key management tool, used for gathering data and information and
making sound business decisions by the right people in the right place. It is
your job as a manager to make sure tactical level scorecards are being used
effectively and that they always contain the most current data and information
available. Ignore this, and you lose the power of this scorecard!
While working for one of our employers a few years back, we found a neat
little trick that really helped us out. We called it the “Four Panel Chart,” and
we used it for our reviews with senior management. It was a great way to summarize
what we were doing and where we were at in achieving our goals and
objectives. At first, we tried to manage our business with them but, as part of
our learning process, we soon realized that they were much better tools for
communicating overall progress and status at the monthly reviews with our
division management than for actually helping to run the business. As we put
the charts into effect — and used them to brief upper management — the big
bosses began to notice that we were hitting our targets consistently and we
didn’t have to produce recovery plans and initiatives to get our businesses
back on track. Talk about feeling good when you go to meet with the top
people in the company! Believe it or not, we actually started looking forward
to those business review meetings! The moral to the story is that you can’t
manage your day-to-day business at the strategic and operational levels. That
can only be done at the tactical level. Figure 12-6 gives you an idea of what a
four panel chart looks like.
Increase Product Quality 75%
Three Year
Strategic Goal
40%
Annual
Operational Goal
Reduce Cost of Processes 25% 10%
Reduce Process Cycle Times 15% 8%
Reduce Process Lead Times 25% 10%
Internal Business Process Leg Scorecard with Operational Measures
Figure 12-4:
Operational
level
scorecard.
237Chapter 12: Building the Internal Business Process Scorecard
3 YEAR STRATEGIC GOALS
IMPROVE TOTAL PRODUCT QUALITY BY 35%
IMPROVE PRODUCT LINE 1 BY 45%
IMPROVE PRODUCT LINE 2 BY 25%
BEST IN THE WORLD MANUFACTURING COMPANY
ANNUAL OPERATIONAL GOAL
IMPROVE TOTAL PRODUCT QUALITY BY 15%
IMPROVE PRODUCT LINE 1 BY 20%
Means: Implement Lean Six Sigma to reduce
defects in the machining and
assembly cells
IMPROVE PRODUCT LINE 2 BY 10%
Means: Implement Lean Six Sigma to reduce
defects in the subassembly cell
MONTHLY PERFORMANCE AS OF APRIL
STATUS
PRODUCT LINE 1
GREEN: NO ISSUES – ON TARGET TO
MEET GOALS
PRODUCT LINE 2
GREEN: NO ISSUES – ON TARGET TO
MEET GOALS
35
30
25
20
15
10
5
1 32 4 5 6 7 8 9 10 11 12
Product Line 2
Product Line 1
Figure 12-6:
Four-panel
chart.
Increase Product Quality
Product Line 1
Product Line 2
75%
Three Year
Strategic Goal
40%
Annual
Operational Goal
25%
15%
35%
First Quarter
Tactical Goal
12%
8%
4%
YELLOW
GREEN
RED
Reduce Cost of Processes
Product Line 1
Product Line 2
25% 10% 4%
2%
6%
2%
–1%
3%
YELLOW
RED
GREEN
Reduce Process Cycle Times
Product Line 1
Product Line 2
15% 8%
6%
10%
3%
2%
4%
2%
1%
3%
GREEN
GREEN
GREEN
Reduce Process Lead Times
Product Line 1
Product Line 2
25% 10%
40%
40%
5%
3%
7%
2%
1%
3%
GREEN
GREEN
GREEN
January Q1
Performance Trend
Internal Business Process Leg Scorecard with Tactical Measures, Performance and Trends
Figure 12-5:
Tactical
level
scorecard.
238 Part IV: Internal Business Processes — The Value-Creation Leg
Making Process Decisions That
Give Competitive Advantage
Making decisions and managing your business — that’s what the Balanced
Scorecard is all about. And managing your processes and making decisions
about them should give you a competitive advantage whatever marketplace
it is that your business does its thing. If they don’t, you may not be around
for the long haul. And that’s not what any of us want, is it?
When making your decisions and using the Balanced Scorecard, you have to
involve your people in the process. You and your employees need to have
some basic tools in your toolkit, and you need to understand some of the
most common mistakes that are made so that you don’t make them — let
your competition make them and learn the hard way. We don’t want you to.
That’s why we wrote this book (and, we hope, why you bought it).
Involving the right people
in process decisions
Who are the right people that need to be involved in making decisions? How
do you know that they’re the right people? In the “good old days,” almost all
important decisions were made by management. Well, let us tell you that
those days weren’t all that good and what we did back then often didn’t really
work out all that well, either. Many managers forgot that their workers not
only had huge quantities of experience with their processes and the jobs they
did, but — would you believe it — they had brains, too. The days of “we just
need your bodies and leave your brains at the door” are long gone. And thank
goodness for that!
If you’re going to be effective using the Balanced Scorecard for you internal
business processes, you’re going to need to push decision making to the
right levels and people within your organization. This often means front-line
workers and their supervisors. You can’t — and shouldn’t — do it all by yourself.
You need to involve the process workers in decision making, especially if
you want to analyze and improve the processes and systems they use to do
their work.
Of course, to make good decisions, your workers will need to have good data
and information. Hey, here’s an idea: Why not involve them in actually gathering
that data and information — you know, let them “own” it? After all, they
need to track their process performance and know how they are doing, don’t
239Chapter 12: Building the Internal Business Process Scorecard
they? They will need to see and use the Balanced Scorecards at the tactical
level, see how they tie to the operational and strategic level scorecards. And
they will have to be taught some simple tools that enable them to look at their
work and also be empowered by you to make the decisions necessary to hit
the targets that are set for your Balanced Scorecards. Six Sigma For Dummies
is an excellent resource for your team-based data gathering and decisionmaking
tools and methods. Check it out and help your people help you.
But one thing: Give your people the time they need to get this done. When we
work with clients, one of the big problems we encounter time and time again
is that they talk a good story about teamwork and employee empowerment,
but trying to get the teams the time they need to gather and analyze data and
information and to discuss problems and solutions is like pulling a wisdom
tooth. And almost as painful, too. You have to give your people the time to do
this critical part of their job. If you don’t, you will have huge problems down
the road in using and staying on top of your Balanced Scorecards for your
internal business processes. Don’t make the mistake! Give them the time they
need. Trust us — you’ll be glad you did.
Staying ahead of the competition:
Tools that help
We’ve already talked about some of the tools that can help you stay ahead of
the competition, such as the IPO Diagram. Here, we’ll add a few more tools to
your toolbox. Don’t worry, we won’t get too detailed. If you need to learn
more about them, check out our Web site (www.psiassociates.com) and
you will find detailed definitions, descriptions, and examples that will help
get you going.
ߜ Quality Function Deployment: A very structured approach to taking
what the customer says they want and then translating that into measurable
things that you do so you know you’re hitting the mark (much more
detailed and exhaustive than the IPO Diagram). This tool has also been
used for deploying strategic goals and objectives down through the
operational and tactical levels.
ߜ Design for Six Sigma: Methods and tools for designing high performance
processes and systems from the very beginning (in the design phase)
ߜ TRIZ (pronounced TREEZ): A Russian acronym for inventive problem
solving that is an established science, methodology, and tool set for
stimulating and generating ideas and solutions for problem solving
based upon knowledge gained from prior inventions and innovations,
usually in industries and applications other than your own (example:
240 Part IV: Internal Business Processes — The Value-Creation Leg
using a process for cutting diamonds that was first used to split sunflower
seeds)
ߜ Maturity Models: Tools and methods that present best practices and
steps for what to do based upon where you find yourself (there are
Capability Maturity Models, Product Maturity Models, Project
Management Maturity Models and many others)
ߜ Six Sigma: A comprehensive set of tools and methods for achieving continual
improvement in systems and processes and improvements to the
bottom line financial results
ߜ Value Stream Mapping: A tool used to identify where waste exists
and for designing more efficient systems and processes with the focus
of minimizing or eliminating sources of waste and maximizing value
creation
ߜ Lean Manufacturing (also known as the Toyota Production System): A
set of tools and methods for identifying and removing the Seven Deadly
Wastes
ߜ Theory of Constraints: A way to identify and remove bottlenecks and
constraints to achieving optimal flow of products and services and aid
in eliminating waste
Common mistakes made with internal
business process scorecards
Here’s a list of the more common mistakes made with the internal business
process scorecards. We’ve already mentioned a few of them, so if we repeat
ourselves here, that just means that they are really, really important! So,
don’t make them and you will come out way ahead of those that do — like
your competition maybe?
ߜ Losing focus and trying to track things that really don’t matter
ߜ Trying to do it all by yourself - not involving or empowering the right
people at the right levels to gather data and make decisions about their
processes
ߜ Not giving people the time they need to gather and analyze data
ߜ Not sharing or communicating information with process workers
ߜ Declaring victory too early
ߜ Not having the discipline to stick with your scorecard, regardless of
what it says
241Chapter 12: Building the Internal Business Process Scorecard
ߜ Not having systems and structures in place to support your Balanced
Scorecards and dashboards in terms of response, review and decision
support
ߜ Resolving variation of steps without first deciding what steps can be
removed or modified
ߜ Not working on the important issues
ߜ Cherry picking the easy things to tackle and avoiding the tough issues
because they are hard to solve
ߜ Having systems or processes that are “untouchable”
ߜ Having preconceived solutions to problems or pet solutions driven by
powerful managers
ߜ Looking at systems and processes in silos — not getting cross-functional
in your approaches and teams
242 Part IV: Internal Business Processes — The Value-Creation Leg
Chapter 13
BuildingDashboardsforInternal
BusinessProcesses
In This Chapter
ᮣ Gaining an understanding of internal business dashboards
ᮣ Creating dashboards for internal processes
ᮣ Analyzing the internal process dashboard
Would you believe that not everyone is tickled to death about Balanced
Scorecards and dashboards? It’s true. In fact, many who use dashboards
are not thrilled with the results. But how can this be?
The reason often comes down to the same old thing: the results aren’t what
people expected. Who knows, maybe the expectation level was set too high.
Or maybe the effort was more than it was thought to be. Maybe, interest was
lost after awhile, like the new car that slowly — but surely — becomes a used
car, and more trouble than it’s worth. Or maybe, as happens in many cases,
the design and use of the dashboards were flawed from the get-go.
Whatever the reasons, failures and false starts do occur with scorecards and
dashboards. In this chapter you will get some good tips on how to avoid the
dashboard graveyard. You’ll learn the what’s and why’s of the internal
process dashboard and how they help in getting to real-time data and information.
You’ll find out that dashboards are very effective for drilling down
from high-level key process indicators so you can figure out where problems
are coming from. Finally, you’ll see how to create your dashboards for internal
business processes and what they’re telling you.
And if all that doesn’t make for some thrilling dashboards, we don’t know
what will!
Understanding Internal Business
Process Dashboards
Why do you want to use a dashboard? Well, it’s quite simple, really. Just like
you use a dashboard in your car to continuously monitor and display the performance
of your car’s functions and systems (in simple and easy-to-read and
understand formats), you use a dashboard for your business to continuously
monitor the performance of your business and its processes.
Can you imagine driving your car without a dashboard? Sure, you can get
from point A to point B with no trouble, until you start to run out of gas, your
engine starts to overheat, or your oil level gets low. Without your car’s dashboard,
you’re totally clueless, just driving along as happy as a horse running
through the tall hay. Unfortunately — unknown to you - you’re headed for big
trouble, and you won’t have a clue until the engine overheats and you have
major problems, some that are sometimes downright costly. Heck, you may
even end up having to shoot the horse and get a new one, if you can afford it.
It’s the same thing with your business dashboards. You use dashboards to
tell you that critical need-to-know information not only so that you can monitor
your business performance, but so that you can take the appropriate
action when it’s needed. In the end, dashboards make it easier to drive your
business in the right direction and then keep running smoothly as you’re hitting
your strategic goals by staying on track with your operational and tactical
goals and measures.
The what and why of internal
process dashboards
The dashboards you use for your internal business processes and scorecards
will use graphic displays that are tied to your various sources of data and
their databases. You can either do them manually, or you can have them
updated automatically. Either way, they require attention and regular updates
to make them effective. Done properly, one click of the computer mouse will
allow you to see the underlying data that is driving your dashboard gauge.
The one marriage that does seem to be made in heaven, so to speak, is the
one made between Balanced Scorecards and dashboards. They just seem to
go hand-in-hand with one another, like a couple of high school sweethearts.
So, one of the obvious reasons to use dashboards is the decision you’ve
made to use the Balanced Scorecard strategy.
244 Part IV: Internal Business Processes — The Value-Creation Leg
Another reason to use dashboards is that once they are set up and running,
they are — or should be — relatively quick and easy to use. It doesn’t take a
rocket scientist to read and understand them, providing you with valuable
information at a quick glance. You can quickly figure out what’s going on
within your operations and processes because you can view your key
process indicators at a single glance. Answers to how your business and
processes are running are literally at your fingertips.
Dashboards give you drill-down capability. When one of your key process
indicators isn’t quite measuring up, you can quickly get down in the dirt, find
the culprit that is causing you the pain, and take some corrective actions.
And, unless you’re a little bit masochistic and like pain, that’s a wonderful
thing, indeed.
The real key to having effective dashboards and not becoming one of those
people who think they are just another prom date that’s all dressed up with
nowhere to go, is that you need to make them as simple as you can: (see
Figure 13-1)
ߜ Focus on the fewest number of key process measures that you can,
while still getting the value that you need from them.
ߜ Keep them to a single page, if at all possible.
ߜ Select those really critical four or five things to put into your dashboards.
Another key is that you want to keep your dashboards without a lot of clutter.
You don’t want them looking like a college student’s dorm room, with
garbage all over the place, making it hard to find what you want when you
want it. In the end, you want it to be nice and neat, with a place for everything,
and everything in its place.
STRATEGIC LEVEL
DASHBOARD MEASURES
DRILLING
DOWN
TO GET
THE GOLD
CORPORATE and DIVISIONAL MEASURES
Executives
Mid-level
Managers
DRILLING
UP TO
SUPPORT
HIGHER
LEVEL
MEASURES
OPERATIONAL LEVEL
DASHBOARD MEASURES
ANNUAL PLAN FUNCTIONAL MEASURES
Mid-level
Managers
Front-Line
Supervisors
Front-Line
Supervisors
Process
Workers
TACTICAL LEVEL
DASHBOARD MEASURES
PROJECT and PROCESS MEASURES
Figure 13-1:
Simple
business
dashboard.
245Chapter 13: Building Dashboards for Internal Business Processes
Variety is also good. Vary the types of charts you use. Don’t fall in love with
just one type of display, like only using bar charts, pie chart or line charts.
Put some thought into the types of data you’re looking at and how it will display
data in the best possible way.
And finally, you want your dashboards to give you that sometimes elusive
real-time (or as near real-time) information as possible. The real value of
effective dashboards isn’t just in providing you with the information you
need It’s their ability to give you that information quickly, so that you can
take care of your problems before they explode in your face like a firecracker
with a short fuse. In a nutshell, they prevent those unpleasant and often
bloody surprises that make your job as a manager a lot more interesting than
you want it to be.
Getting to real-time data and information
Timeliness of data, and the information you draw from it, is a beautiful thing.
It gives you power. Power over your processes and over your competitors.
Getting to it — well, that’s the tough nut you have to crack. In cracking that
nut, you have some things you need to do.
One of the first things you’ll need to do is to go get some help from your information
technology (IT) folks. Since you most likely will be using computers
and display terminals to set up your dashboards, you’d better get the people
who are the keepers of the keys to those things on-board, right up front.
Another reason is that they know what you already have with regard to your
current sources and the types of data and information. They can get madder
than a wet hen if you leave them out of the loop, and rightfully so. Go ahead
and pay a visit to your IT people — we’ll wait while you go get them.
Now, that wasn’t so bad, was it? They’re really nice people, aren’t they?
You’ll also want to get the business users into the game. These are folks like
the business managers and supervisors that may report to you and who will
be looking at the dashboards throughout the day to see how things are going
so that they can keep you off their backs. These people will help you identify
your dashboard requirements and the operational and tactical level data you’ll
need in order to satisfy the strategic needs of your dashboards. They will help
you identify the pulse points for the data within their areas of responsibility.
You’ll need some other folks to help you set up your dashboards so you can
get to the real-time goodies — these folks are the people who work in the
processes. Those guys and gals who do the office work and make the widgets.
That’s where most — if not all — of your real-time information will come
246 Part IV: Internal Business Processes — The Value-Creation Leg
from. It’s where the work you’ll need to measure is located. And who better
to help identify what needs to be measured than those guys and gals who are
doing the work? After all, they are the ones who are nose-down in the cactus
with the processes and who know the details of the work that gets done each
and everyday. Since you’re busy flying at the 10,000-foot level, you’d better
get the process workers involved when you want to get that up-close and personal
view of your data for those times when things hit the fan.
When getting to the earliest possible indicators of process performance for
your dashboards and scorecards, your ability to do your data and information
drill-down is essential. Well, then, let’s find out what dashboard drilldown
is all about.
Drilling down to get the gold
Drilling down isn’t about getting your electric drill out and drilling holes in
your computer when it malfunctions (though you may have been tempted to
do so, at times). Getting to the meat of your business processes and projects,
and those things that are causing you trouble and pain, is the purpose of data
drill-down. And the key to data drill-down is linkage. Finding those things that
aren’t going according to plan, that are causing defects and errors within your
processes or finding trends, and then being able to drill down to the root causes
so that you can make some good decisions based upon that information. That is
what dashboards are all about — that’s where the gold is found. Without some
good drill-down capability within your dashboards, you will never find the gold.
Now — quick — go to your computer and do a web search for dashboard
software companies. It’ll only take a minute or two.
Did you find that trying to identify all of the dashboard software providers
out there is like trying to count the number of sand pebbles on the beach?
There are zillions of them, aren’t there? Unless you plan on growing your own
dashboards from scratch, you will have to take a look at the providers and
figure out which one best fits the bill for you. And, here again, you’d better
get with your IT people and get them into the game. The earlier, the better.
Yeah, the IT folks are going to become your newest and best buddies as you
set up your dashboards.
The reason we bring up the issue of software and the IT types at this point is
because most dashboard software will have drill-down capability. You will
certainly want yours to have it. And the dashboard software you use will
need to be compatible with your existing software and computer systems. So
you need to give it some thought and planning before selecting a software
package and provider.
247Chapter 13: Building Dashboards for Internal Business Processes
Drilling down means being able to go from higher-level key process indicators
and measures and finding the underlying data and information that lets you
know what is causing certain trends or problems. Drill-down is like zooming
in on your data and information with a microscope to pinpoint what you need
to know. It let’s you know the what, where, and why of your key process drivers.
It enables your knowledge and understanding of your business
processes. And it will ensure that you consistently hit your strategic goals
and objectives
Understanding the drill down process is also important because you and
your folks will have to be actively involved in setting it up and deploying it.
You’ll need to figure out what to put in them, how they will be linked, what
they will be linked to, and how they will display the data and information that
you want on your dashboard.
Creating Your Internal Business
Process Dashboards
The process of creating your internal business process leg dashboards is just
like the process of creating the other Balanced Scorecard leg dashboards.
They take some good up-front planning and thought. And, just like the other
dashboards, they need to have the right people involved and a good dose of
critical thinking.
In this section, you’ll find out who needs to be involved in creating your internal
process dashboards and in what ways they should be involved. You’ll
then take a look at how your dashboards are created and ten common mistakes
that are made with internal business dashboards.
Who should be involved with
your dashboards and how
Not too many years ago, only top level executives and their direct report
employees got involved in setting up and using dashboards. Today, dashboards
are used throughout the organization, from the board room to the
shop floor, and all sorts of employees at all levels are involved in setting up
and maintaining them.
248 Part IV: Internal Business Processes — The Value-Creation Leg
So, in answering the question of who should be involved with your dashboards
and how, it comes down to pretty much everyone, in one way or another. Your
people will be involved in helping you to create them, providing the data and
information to maintain them, and using the information from them.
Maybe the best way to approach this is to go down the list of who should
be involved and how. We’ll start off with the strategic level dashboard, then
hit the operational level, and then finish up with a look at the tactical level
dashboard.
When developing the strategic level dashboards, you will be dealing with the
highest level of measures. Things like overall company-wide key measures for
performance and progress towards strategic objectives. In essence, they help
to align the organization to its strategies. Strategic dashboards are typically
highly summarized information, highly graphical, less frequently updated
than the operational and tactical dashboards (weekly, bi-weekly or monthly),
and include global, external, trend, and growth types of measures.
Strategic dashboards
To achieve your strategic alignment for your internal process dashboards,
the senior executives, people with titles like Chief Executive Officer, Chief
Information Officer, Chief this or that . . . well, you get the idea — will need
to work with the people that report to them. Director or Managers are the
people at the operational levels who will need to report upwards to the
strategic level, ensuring that the operational initiatives are achieving the
strategies set by senior management.
When the executives look at their dashboards and find issues and concerns
that are highlighted, they will drill down to the operational level measures
that are driving their strategic level measures. In this way, they can pinpoint
the problem areas and take corrective actions.
Operational dashboards
In creating the operational level dashboards, Directors and Managers will
need to work with the people who report to them. These people will be frontline
supervisors and leads. Operational dashboards involve the annual operating
plan measures and their drivers. These dashboards will typically report
on key projects, initiatives and functional business operations that drive the
strategic dashboard measures.
When the strategic level dashboards are drilled down to find the underlying
data and information that drive them, executives will find the operational
249Chapter 13: Building Dashboards for Internal Business Processes
level dashboards and what they measure. The measures for the operational
level dashboard will be at a more detailed level than the strategic level dashboard
measures. They will be measuring things like project performance,
ongoing business measures for the various organizational functions and those
types of measures. When you drill down from the operational level dashboards,
you will find tactical level projects, initiatives and process measures.
Tactical dashboards
Finally, at the tactical level, the supervisors and leads will get to the very
lowest level of detail for their dashboards. In setting them up, they will work
with their bosses at the operational level, and with their direct report
employees — the process workers. These dashboards will be reporting on
the detailed projects, initiatives and process performance measures that are
established to achieve the operational annual plan goals and objectives.
In addition to the functional structure that was just detailed for setting up
your dashboards, you’ll need to get other staff functions involved, too.
People from departments with names like Information Technologies, Finance,
and Supply Chain Management, to name a few. And you most certainly want
to include any vendors and consultants that you buy software from that will
support your dashboard construction and implementation. You will need to
involve anyone that will have input into the measures being tracked or that
will aid in setting up the dashboards.
The key to the whole process of setting up your dashboards is that you need
to take a collaborative approach. Consider who owns the various types of
information you will need, where it resides, and how best to get at it. Then
get the people you need involved early in the process.
Making sure you’re hitting
the right targets
Making sure you’re hitting the right targets really comes down to following
the thread among your strategic, operational and tactical scorecards and
their dashboards. If you’re not hitting your strategic goals and objectives and
you can’t drill down to find the culprits at the operational and tactical levels
that are causing you to miss them, you’ve missed something very important.
By the same token, if you’re having problems that are highlighted within your
operational and tactical scorecards and dashboards and they are not showing
up as issues in your strategic level dashboards and scorecards, you’ve
probably missed a key strategy. If, in the final analysis, you find these kinds of
issues with your dashboards, and you can honestly say they really don’t
matter one way or the other, then you have to question why you’re measuring
them in the first place.
250 Part IV: Internal Business Processes — The Value-Creation Leg
The whole point to hitting the right targets is one of linkage. You have to
make sure that everything at the operational and tactical levels ties to your
strategies. If they don’t link, you’ve got problems and you need to get them
fixed, so get with your people and work the issues until they do link and that
you can drill up and down through the dashboards
Ten common mistakes with business
process dashboards
Here are ten of the common mistakes made when setting up and creating
your dashboards for the internal business process leg:
ߜ Not taking the time to plan for your dashboards and measuring the
wrong key performance indicators
ߜ Not including the right people in creating your dashboard
ߜ Trying to grow your own dashboards when you don’t have a clue what
you’re doing
ߜ Going high tech when you don’t need to — getting dashboard software
with more bells and whistles than you need or will ever use
ߜ Not integrating your dashboard with your IT systems, databases and
sources of data and information
ߜ Not providing effective drill-down capability within your dashboards
ߜ Not using effective graphics and visualization techniques
ߜ Cramming too much data and information into individual dashboards
ߜ Trying to measure too many things and having too many dashboards
ߜ Taking too long to get through the process of creating your dashboards —
making it into a science project and trying to make them perfect on the
first effort
What Your Internal Business Process
Dashboard is Telling You
Okay. The party’s over. It’s time to put on your thinking cap and for you to
apply your critical thinking skills. Now that you have your dashboards all set
up and running for you, you have to ask questions and understand what
they’re telling you. This is where you’ll be analyzing how well you’re doing in
your projects, initiatives and process performance.
251Chapter 13: Building Dashboards for Internal Business Processes
In this section, we’ll explore how to analyze your dashboards to figure out
what they’re telling you. You’ll then get into what to do if your dashboards
aren’t getting you where you need to go, and then take a quick dive into the
five most common mistakes made in dashboard analysis.
Analyzing your dashboards
The first question you should always ask when you start doing your analysis
is this: Do you have the right measures identified for your dashboards at the
strategic, operational, and tactical levels? You also need to ask if they are
properly linked for effective drilling up and down through the dashboards.
Obviously, you’ll want to do a drill-down on anything that shows up as a red
(not performing as desired) on your dashboard. Quite simply, it just isn’t
measuring up and meeting your needs. You may even want to get ahead of
the game by taking a look at things that show as yellow, or that are performing
in a marginal way.
This is a good place to apply the Five Why’s. By asking “why” several times,
you get from symptoms of the problem down to the root causes. Perhaps you
won’t be surprised to find out that your issues will often have to deal with
those familiar elements of quality, cost, and speed.
Remember, asking “why” five times isn’t a magic number, and it’s not fixed in
stone (or concrete, or plaster, or anything else for that matter). It may take
three or four “why’s” to get to the root cause, or it may take six, seven, or
more. The thing you must get to is the root cause of the problem or issue
you’re trying to uncover. Keep asking “why” until you get there.
You’ll also want to look at your dashboards for trends — both good and bad.
Take a look at your data in the line and bar charts and see what’s going on
with your data over time. You may also want to pull out your handy-dandy
copy of Six Sigma For Dummies and do some analysis using some stats tools.
Look for statistically significant changes in the data, take a look at your data
in the form of control charts, and see what your confidence intervals are.
Yeah, we know, stats may not be the most thrilling thing in the world, but it’s
the only way you can really get behind the numbers and discover that need
to know information that tells you what’s going on and where you’re headed.
Also, you’ll want to look for emerging opportunities, and the things that are
going really well for you. There is a lot of good information in the things that
show as green (acceptable) on your dashboards and with which you have no
252 Part IV: Internal Business Processes — The Value-Creation Leg
worries about. Again, ask the five whys. You may find that the team is doing
something that you want other teams to benchmark. You may find some
processes, methods or approaches that no one else in the organization is
using that would really help others within the organization.
There’s an old saying in the military that goes something like this: The generals
have their plans, but they are usually changed once the first round is fired
in battle. In other words, you’ll also want to do some contingency planning
based upon what if scenario analysis. It’s nice to have a plan for what you
think will happen, but you’d better be prepared for those things that don’t go
according to plan. With a good set of contingency plans in your hip pocket,
you will be prepared to do the dance when things don’t go as expected.
And speaking of contingency planning, this is the story that drives the point
home. When Chuck was working for a senior vice president at a company that
for now shall remain nameless, he was asked a series of very hard, and —
what at appeared to be at first glance — negative questions about his plan for
a set of process improvements. Chuck was proudly presenting his scorecards
and dashboards to the assembled group, and the senior vice president asked,
“What if this doesn’t go according to your plan?” and “What if this happens?”
The VP called his approach Negative Objection Analysis. It didn’t take long
for Chuck to realize the wisdom of what the wise VP was doing. He was looking
for the contingency plans — the what-if scenario analysis for the plan
Chuck was presenting. Well, Chuck got the hint. He went back and did the
planning and, don’t you know it, shortly after implementation of the plan, one
of those contingencies occurred and he was able to keep on going without
skipping a beat. It was a very valuable lesson learned indeed.
What to do if you’re not getting there
Don’t expect to get it perfect the first time. There will most assuredly be
things you need to tweak and problems with your dashboards that you’ll
need to solve. The real question is this: How will you deal with it? Sorry,
“Give up” is never the right answer.
The right answer is that you need to regroup and go at it again. Get with the
right people, get them together and tear it apart and put it back together
again. Find out what the issues are, why you’re having problems, and fix
them. It may take a few tries — maybe more — to get it right. Not to worry.
The effort will be well worth your while.
The key is to be persistent and never, ever give up.
253Chapter 13: Building Dashboards for Internal Business Processes
Five common mistakes made in business
process dashboard analysis
Here are five common mistakes made when analyzing your dashboards for
the internal business process leg:
ߜ Not taking the time to analyze your dashboards.
ߜ Not including the right people in analyzing your dashboards.
ߜ Not using analytical tools, such as the Six Sigma tool set, to do some statistical
analysis of your data and information — making assumptions or
going on gut feel instead of making decisions based upon data and facts.
ߜ Using the wrong analytical tools to analyze your data.
When we do our consulting and Six Sigma project mentoring and coaching
with Six Sigma Black Belts, this is one of the more common mistakes
we find: the improper application of statistical tools to analyze data.
This is a point where you want and need seasoned professionals, not
recent graduates and novices. Sure, the novice can be a part of the team,
but you’d better have an old data analysis war-horse on the team to
keep things running smoothly and to get you the right answers from the
right tools.
ߜ Not doing “what-if” scenario analysis with your data and information:
asking “what would happen if this scenario were to occur.”
254 Part IV: Internal Business Processes — The Value-Creation Leg
Part V
Knowledge,
Education, and
Growth — The
Learning Leg
In this part . . .
Acompany must look beyond financial performance for
growth and development, implementing the knowledge,
education and growth leg of the balanced scorecard.
This fourth leg, the learning leg of the balanced scorecard,
is presented in this part, starting with understanding the
manager’s roles and responsibilities, then discussing how
to create an appropriate scorecard and dashboard and how
they work together, and concluding with key information
regarding pitfalls to avoid when implementing the growth
and development leg of your scorecard.
Chapter 14
UnderstandingYourRole
inLearningandGrowth
In This Chapter
ᮣ Recognizing the power in your employees’ knowledge, skills, and ability
ᮣ Evaluating the knowledge, skills, and abilities in your company
ᮣ Achieving growth at the strategic, operational, and tactical levels
From enhancing employee productivity to ensuring the long-term growth
of an organization, the importance of training and development has
never been clearer in the business world. The pace you must maintain to just
keep up with ever-changing customer demands, coupled with recent technology
breakthroughs, has produced the most exciting business environment
since the industrial revolution. Innovations are making it to market in record
time. Customer-focused value is the mantra of every company yearning to
make it to the top, and to get there, you must acquire and develop new skills
and capabilities to meet and lead market-performance demands for the future.
This chapter focuses on the role you as a manager play in growth and development
for your company. In this chapter, you discover how to identify
where you want your organization to go; how to design the systems, staff
structures, and acquire the technology necessary to get there; and how to
sustain a leadership role. You must focus on your current financial performance,
but your organization wont’ survive if you don’t also have an eye out
for the future and for competitive opportunities hiding around the next
corner. For managers and supervisors, it is in the growth and development
arena where an organization determines its destiny.
Getting Schooled on Knowledge,
Education, and Growth
Defining your company’s knowledge and skill requirements is a slippery
slope, at best, because as your organization acquires knowledge, you almost
immediately send up flares across your industry. The same is true for acquiring
skills and abilities. In today’s fast-paced business world, when new and
innovative products enter the marketplace or companies develop new technology
or acquire new knowledge, it isn’t long before the products/knowledge
move from unique to common, from niche to commodity.
Managers today need a deliberate, well-planned system to support their
interests in new products and services; to satisfy and even delight customers
with next-generation capabilities and new ways of doing things; and to push
the ever-competitive envelope. You can focus on specific areas of interest to
put your company on the right path, but you need to understand these areas
at a fundamental level. The following sections explore five things you must
know about knowledge, education, and growth for your company.
Putting your finger on the
elements of productivity
Today, leading companies see their employees’ productivity tied directly to
their bottom lines and their long-term strategies. As a manager, your criteria
for productivity elevates to the balanced-scorecard approach; where you
must look beyond just productivity to other contributing factors such as
teamwork, leadership, innovation, problem detection (along with problem
analyzing and solving), and performance improvement. The following list presents
some examples of how managers are measuring these contributing factors
in today’s business environment:
ߜ Teamwork: Management and companies are drawing upon the military
as an excellent resource to evaluate and develop teamwork. Such things
as working with and relating well with others, developing trust and loyalty,
allowing others to shine, providing support proactively, and helping
team members learn from each other are some of the traits being measured
and developed today.
ߜ Leadership: Different than the “answer man” of old, leader traits today
revolve around natural leadership, regardless of rank or status, and
include how well leaders are followed and respected, as well as their
abilities to focus, energize and motivate the team, and how they are seen
to be able to get things done.
258 Part V: Knowledge, Education, and Growth — The Learning Leg
ߜ Innovation: Creativity is certainly something we have not looked for in
the past, as far as employees go. Today, though, creativity and innovation
are seen, especially in knowledge-based companies (such as software,
gaming, communications, and the medical fields), as critical to
developing a continual competitive edge in their industry. 3M is known
to allocate 15 percent of its researchers’ workdays to creativity and
innovation time, and Disney coined the word imagineering when talking
about its cast members sharing new ideas and using their imaginations
in every aspect of their jobs.
ߜ Problem detection: Talk to the customer of any employee. Talking to the
customer makes it easy to determine how happy or satisfied a customer
is and what could make him or her happier. Try to link their needs to the
capabilities of your products or services, if you can. Talk with customers,
both internally and externally, to find out how you may be able to improve
customer satisfaction. You may also find you can improve process flow,
and reduce complexity as well within your business processes.
ߜ Process understanding: The time it takes you to deliver products and
services may be more important than how you actually deliver them to
some customers. This time, called cycle time, is an indication of your
competitive flexibility and certainly bears scrutiny. You want to measure
cycle times to look for opportunities to build in better response and
adjustment systems.
ߜ Analyzing and discovering: Looking at where your employees spend
their time may be the most important — and most ignored — area of
opportunity to measure and improve productivity. Value-added flow
analyses are great ways to see what happens to the products and services
your employees provide. You want to see where you actually add
value versus where you just move, count, inspect, log, stock, copy, and
inventory products/services. This applies to every aspect of your business,
wherever work is performed, delivering products, paper, reports,
purchase orders, forms, white papers and various services. The productivity
question here is how you can get more productive and less wasteful,
which involves a look at your whole value stream. (For more
information on this invaluable method, check out Part IV.)
ߜ Analyzing and solving: Yield or volume is a major factor and can be
measured daily or even hourly (as a rate for high-volume production).
The key in a Balanced Scorecard approach is to measure yield or volume
immediately; look for lost-time or lost-yield opportunities and for potential
quick improvements.
ߜ Analyzing and improving: After you determine the deliverables for a
group on a regular basis — be it widgets, reports, purchase orders,
invoices, or legal briefs — you can develop a standard rate (so many
deliverables per day) to measure daily output. You can use the rate to
determine how well a group or cell is doing and if you need any analysis
to improve.
259Chapter 14: Understanding Your Role in Learning and Growth
ߜ Performance improvement: Certainly, you don’t want your employees
chasing information, reports, parts, and people to get their jobs done.
To improve your employees’ performance, look at various inputs to their
processes to see if they’re getting what they need — how and when they
need it — or if you need to send some help.
You can use dozens of methods to measure productivity, including some we
don’t mention here. Just make sure that when measuring productivity, you
follow this sequence:
1. Decide what you want to see (in other words, what would define productive
in your eyes?).
2. Develop a balanced-scorecard approach to measuring and improvement.
Understanding how information flows
If you’ve been a manager for a while, you know that a company features an
official communication chain and an unofficial chain (where the real information
flow happens). You also know that the distinction varies, depending on
the type of information being communicated. Formal notifications are likely
to flow through formal channels. But informal information, irregular information
(like weekly newsletters), or unapproved information still has a way of
spreading throughout an organization — sometimes much faster than
through the formal or public channels.
We also know that it is in the informal communication channels where opinions,
ideas, prejudices, fears, concerns and beliefs are formed, in the hundreds
of daily interactions and conversations happening all around an
organization. Therefore, it is most probably in these channels and conversations
where people are swayed to either support or oppose key initiatives
such as the Balanced Scorecard.
As a manager, you can use the informal channels to get people on board with
Balanced Scorecards and other changes you want to make in the company.
One key way is to get everyone involved in setting up, measuring, and managing
their scorecards — at least in their local areas of interest. Most changes
succeed because people believe in and support them, not just because they’re
great ideas. You need to worry less about convincing people about scorecards
and more about getting them involved on an individual and team level so they
can see scorecards at work and internalize the concept for themselves.
So, where to look for these different information chains? Here are some information
and communication paths — both formal and informal — to look for.
260 Part V: Knowledge, Education, and Growth — The Learning Leg
ߜ Employee bulletin boards — whether established by the company or informal
boards used to advertise items for sale or birthday announcements —
are great for sending out information.
ߜ Certain people in your organization may be known as great resources for
information. Get to know these people and who they talk with. But be
careful; these sources, although often entertaining, may not be reliable
or accurate.
ߜ Company newsletters, Web sites, and notices are very useful. The
powers that be always sanction and approve these avenues, so they’re
usually reliable.
ߜ Organizational chains are good for announcements and sharing key company
information.
ߜ Groups of people who share specialties or hobbies usually socialize in
some way, and they often share a lot of information — such as ideas,
innovations, or variations on current practices — that can help you and
your company in many ways.
Examining leadership style and culture
When it comes to growth and development, you need to know your company’s
leadership style in order to incorporate the best program for training and
growth and to have the best chance for success in implementing Balanced
Scorecards in these areas. You need to understand the culture of your organization
as well as the leadership style of your CEO, president, and even local
managers. You also need to understand the relationship between leadership
style and culture and how they influence a company’s growth and development.
Your company’s leadership style will set the environment for cultural influences
to either flourish or struggle. For example:
ߜ When you use an autocratic, directive style of leadership, you can be
sure that your decisions are centrally controlled. In this culture, you
expect everyone to do exactly what they’re told. This style will stifle
independent growth, innovation and development. When this style must
be used, you need to narrowly bound its application and watch for longterm
damage (such as increasing turnover, hesitancy, and frustration
among your team).
ߜ When you use a democratic style of leadership, you accomplish things
in a highly collaborative way. You involve multiple groups and levels,
and many channels of information flow and dialogue take place. This
style creates more teamwork and develops the culture toward a better
261Chapter 14: Understanding Your Role in Learning and Growth
working environment. When you are using this style, be aware that there
still needs to be some leadership, with key players focusing on the larger
picture and developing overarching strategies for the company.
ߜ When you delegate decisions as appropriate, you see much more
involvement in the key aspects of managing as well as executing the
business in a collaborative way. You involve people while also ensuring
that you clearly define roles and responsibilities. This style develops
your employees in teamwork, leadership and the other key aspects of a
successful business culture. When you are using this style, work to
develop your teams to delegate even further, sharing responsibility and
authority, such that you are fully developing a knowledge and learning
culture for the company.
Identifying and filling competency needs
Knowledge and experience together provide the competitive advantage to
both recognize when change comes about and to learn new ways to embrace
and use it to your organization’s benefit. World-class companies see changes
coming and embrace them immediately; they shift their focus and adjust for
the changes in their strategies and actions. They do this by using a critical
link between their competency needs (knowledge about the products and
processes) and the best methods to fill those needs (experience in working
these processes over time). The key is to establish this critical link or connection,
and to build it into your Balanced Scorecard for growth and development
for the future.
To establish this critical link/connection, you must first understand what
knowledge and skills your company needs so it can perform to customer expectations.
You then turn your attention to how your company intends to develop
such capabilities within your existing workforce (in other words, how your
employees can learn and your company can grow). Follow this general
process when deciding on competency needs and how to fill those needs:
1. Determine the competency requirements for new skills and abilities.
2. Pinpoint the best way to satisfy competency requirements through
one of two ways:
• Internal growth: Design and implement the training necessary to
develop the competencies in your existing workforce. With this
method, you’ll have a more dedicated, involved workforce.
• Skills acquisition: Acquire the skills from external sources to fill
your needs. External resources can have an immediate impact on
performance.
262 Part V: Knowledge, Education, and Growth — The Learning Leg
Different places use different methods to fill competency needs. In North
America, companies tend to train their own people or hire training companies
to customize and conduct in-house programs. In Europe, companies
tend to team up with universities and technical schools to collaborate on
designing and conducting the required training and development. In Latin
America, the tendency is to turn over the education, training, and even certification
completely to local colleges and universities rather than invest in
developing capabilities in-house. You should use the method that works best
for your company, given the geographical, environmental, and cultural
aspects where you are working. For global companies, this could of course
vary throughout the company, and will therefore manifest itself in the resulting
different approaches to your scorecard as well.
Aligning your employees organization
An important thing you need to know about growth and development is how
well your organizational goals and strategies align with the aspirations, goals,
and objectives of your workforce. Let us guess: You think that your employees
will always look out for the best interests of your company, right?
263Chapter 14: Understanding Your Role in Learning and Growth
Secrets, shiftiness, and sabotage
In a large North American automotive manufacturing
company some years ago, a plant
manager set up a competition between lines
and shifts to try to boost performance. At the
time, the plant couldn’t keep up with demand,
and employees were working overtime during
the week and on weekends. The idea was
simple: Whoever produced the most for their
line and shift got a free pizza party at the end
of the month, special recognition, and a paid
day off.
The competition produced disastrous results.
Handoff failures occurred between shifts;
people developed secret ways to improve performance
and didn’t share them; and selective
incidents of sabotage took place between
shifts. Not only did production go down, but
also dissention increased, fights broke out, and
personnel incidents increased. After two
weeks, some supervisors went to the plant
manager and pleaded with her to stop the competition.
They explained that it was inhibiting
collaboration rather than enhancing it and that
they couldn’t meet the month’s production goals
if the competition continued.
The plant manager was surprised, but after the
discussion, she immediately discontinued the
competition. In its place, she stated that if the
entire plant met its goal for the month, everyone
would enjoy a 24-hour pizza party; general
recognition by corporate headquarters; and —
especially if overtime was reduced — the possibility
of a free day off. The subversive and
destructive behaviors ceased immediately, and
the lines and shifts began to work together to
accomplish the goals of the plant.
Not so fast. Managers know, for the most part, what their companies want to
accomplish in growth and development for the future, but where their
employees fit into the picture often isn’t so well-defined. In order to fully
embrace your company’s ideas for the future, your employees need to know
that they’re significant parts of the roadmap to get there. They need to
believe that the goals of the company are aligned with their goals, aspirations,
and needs. And as your company achieves its goals and objectives, you
meet the personal goals and objectives of your workforce as well.
So why wouldn’t these goals and needs be aligned? One reason may be due to
a possible difference in perception regarding what’s important to employees
versus what managers feel is important to their employees. When differences
exist, problems develop. You must recognize when a disparity in perceptions
exists and work to better align the two belief systems, because real problems
could occur otherwise.
Of course, the first step is to talk to your employees to get a sense of what
their needs actually are. Be sure to also identify your organization’s needs. To
marry the two harmoniously, try these approaches:
ߜ The key to avoiding such destructive behavior is to ensure that the
needs of your employees are aligned with the needs of the organization,
so that as company goals and objectives are achieved, so are employees’
personal goals and objectives.
ߜ Get employee feedback on how things are going on a regular basis, kind
of like a reality check on the fulfillment of both sets of needs within the
current work environment.
ߜ It also helps to have an outside agency come in once in a while to do an
external assessment of the organization, to see how well aligned your
workforce is (or isn’t, maybe) to your overall mission and operational
direction. Many companies have discovered the root source of a key
issue only after an outside firm pointed out some of the fundamental
indicators, which are often not visible to the managing team (like where
we can’t see the forest because of the trees in our way...)
ߜ Always use your scorecard and dashboards as guides to whatever decisions
you make, and always check your decisions with your team prior
to implementation. You can use several techniques to ensure a thorough
needs assessment is done, such as a force-field analysis, brainstorming,
or setting different perspectives for each team member to consider.
Have a Clear Direction for the Future
The most common answer we get from managers when we them to tell us
about their company’s vision and mission is usually something along the
264 Part V: Knowledge, Education, and Growth — The Learning Leg
lines of “We are dedicated to achieving such-and-such lofty goal,” or “We are
committed to becoming the best in this or the greatest in that.” Lofty goals
they are, but most often without clear direction and focus. Indeed, such language
is worth little when it comes to bringing an organization along. To be
useful, a company’s mission and vision must be articulated in terms of a clear
direction for the organization to go, one which answers the what, why, when,
who, and where questions easily and simply, so that everyone understands.
Clearly, then, when we are building the learning and growth leg of our organization’s
Balanced Scorecard, we need to consider not just the mission and
vision, but also the direction necessary to achieve them. So what do we mean
by “clear direction?” In this section, we will spend some time exploring this,
and discussing how to avoid some of the more serious pitfalls previously
encountered by companies that failed to clearly articulate a clear direction
toward their mission.
Growing means changing: the
concern of complacency
Guess what? The old rule, “If it isn’t broken, don’t fix it,” no longer works. In
today’s fast-moving, ever-changing business environment, the new rule is “If
it hasn’t been fixed lately, it probably is broken!”
While this might sound just a bit trite, we really do need to take this to heart in
looking at all aspects of our business, and especially when planning for growth
and development. This is because new ideas and innovation will rarely originate
near the center of an organization, but almost always occur at the fringes —
in the outskirts, at the edge. It is only at the edge of a business — out on the
front lines, or where the real action is — that we can see the real potential for
new ideas, concepts and possible growth opportunities.
You can take advantage of this phenomenon in your business
ߜ By ensuring that you have an effective business growth opportunity idea
collection structure or system that permeates your entire organization.
ߜ By ensuring that anyone anywhere can identify potential growth opportunities
and have them considered by management within hours or even
minutes.
Examples of how some very successful, big businesses are becoming more
nimble and leveraging the brainpower of their workers’ ideas are 3M’s
process of encouraging employees to generate new ideas every day, Toyota’s
standard expectation of 2-4 suggestions for improvement per employee each
week — which generates millions of suggestions every year — and Chrysler’s
new product development team involvement method.
265Chapter 14: Understanding Your Role in Learning and Growth
Getting clarity from learning
and growth chaos
We know we need people with new capabilities, knowledge and abilities to
enable desired growth in our competitive marketplace. So, to get this, we
either train key people in new techniques and tools, we hire folks with these
new skills, or we buy a company with the desired capabilities already embedded.
In a combination of any or all of these scenarios, the tie back to our
growth goals is difficult at best, since it is the practical application of knowledge,
skills and abilities that provides the changes to processes and procedures,
and reframes the new reality for your company. This connection can
seem pretty loose at times — even chaotic — especially when we may be in
the process of re-evaluating our growth strategies. If they change, so too
must our approach to getting there.
So, how to avoid this tendency? The key is getting and maintaining clarity
from this chaos, and driving it home throughout the organization. Another
word for this is focus, but the meaning is the same. Let’s see what this means
for managers:
ߜ First, you have to understand the current skills and capabilities within
your department or function, and within your market and industry.
ߜ Next, you have to understand your company’s growth and development
goals. Having a clear grasp of where you want to go — and what you will
need to get there — forms the basis for developing your roadmap, and
provides the clarity you need to focus your energies on doing the right
things, in the right order. Planning is key, and determining the focus,
sequence of actions, systems and structures needed, resources required
and level of discipline are some of the key actions.
ߜ Finally, you will need to communicate effectively with those who will be
involved, those necessary to support and advocate these actions, and
those outside support groups you will need to depend on as you implement
the plan and track and adjust as thing progress.
A critical point here, and one that ties well with your growth and development
leg of the Balanced Scorecard, is to establish and maintain the key metrics
that will tell you how well you are doing toward achieving growth and
learning goals, for your group as well as for the overall organization. These
key metrics include such things as:
For strategic interests
ߜ Relevance and alignment of strategic initiatives, and decisions to
pursue, hold or cancel — and why
ߜ Alignment & achievement of strategy, and key strategic objectives
266 Part V: Knowledge, Education, and Growth — The Learning Leg
ߜ Variation in strategy and direction, with reasons and analysis — especially
in the formulation and review stages of business development
ߜ Specific initiatives performance related to growth and development
ߜ Board changes and revisions
For operational interests
ߜ Employee survey results and improvement opportunities
ߜ Key strategic knowledge, skills and training critical to growth goal
achievement, including cross training and key competence levels
ߜ Measurement against industry benchmarks regarding operational performance,
stock performance
ߜ Internal and external assessments against standards, such the Malcolm
Baldrige National Quality Award or QS 9000.
ߜ Volatility associated with changes in industry, and impact on performance
For tactical interests
ߜ Use of the Balanced Scorecard, level of success, impact on performance
ߜ Some standard human resource metrics, such as diversity, personal goal
achievement, systems deployment, knowledge management and training
hours per employee
The key is to measure relevant indicators to the business while selecting metrics
that will tell you when things change — whether market, industry, personnel,
or technology related — on which you can focus and react quickly
and effectively. It is also very important to enable flexibility and some degree
of adjustment here too, so that as market, customer and industry conditions
change (as they often do), your metrics will be able to alert you to this fact,
and you will be able to adjust. Again, this enables you to gain clarity in a
moving, convoluted world that sometimes can be very challenging to understand
and embrace.
Having a plan for growth and development
This is where most organizations get it wrong. Financial, customer, and process
metrics are put into place, with strategies clearly laid out to achieve them.
Then, almost as an after-thought, someone thinks about employee skills and
knowledge development. Oops! In fact, employee skills development and knowledge
growth are essential to every business because they enable the other
three legs of the Balanced Scorecard to work. We can understand this when
we realize that our workforce must be skilled to perform our business processes
to the high standards of performance demanded by financial metrics, and to
deliver the products and services that our customers want to buy.
267Chapter 14: Understanding Your Role in Learning and Growth
To achieve success in this area, you must have a plan. This means more than
just a training plan. You have to envision how you will be delighting customers,
running your business and achieving financial success. You then
must consider how your employees will obtain the necessary knowledge,
skills, and abilities to achieve these accomplishments, and how they will
acquire them within the planned timeframe. There are different aspects to
planning growth and development:
ߜ To develop your workforce means first assessing your process and business
needs, assessing your current workforce, and putting training and
development programs into place to close the gaps.
ߜ To grow, you may need different employees with different skill sets and
knowledge. So you will need to be able to acquire them, and quickly! At
the same time, you will want to always consider using current employees,
and providing them extra training if necessary. In this way, they
acquire the added knowledge and skills needed to do the job in the new
way, or do simply do the job better, faster, cheaper.
Above all, your plan must be flexible. Why? Because you may encounter
changes in your assumptions about the market (such as a new type of metal,
or a new process to inject plastic, or anything impacting your products or
services), or changing financial conditions (changes in investment capital
available, for example) which could impact your growth strategy. Always
remember that the goal of the growth and development leg is to charter a
path to new opportunities, and to do this, you have to plan well, execute well,
and adjust when you need to. The following figure can help in tying your
growth and development plan with some ideas for metrics, as they relate to
the different considerations.
You should never assume that other managers in your organization lend the
same level of importance to each leg of the Balanced Scorecard that you do.
In fact, as you develop your plans, you should be checking with key leaders
to get their feedback on what you are doing, and where you are going with
your scorecard. Why, you ask? Because, at the end of the day, it will be a
shared success or failure regarding how effective the scorecard is, in not just
reporting status, but providing key insights into helping to manage the business
and determine decision criteria and direction.
Your colleagues, superiors and executives will feel differently about the
importance and applicability of the growth and development leg to achieving
organizational goals. Some may believe in a balanced approach across all
four legs of the scorecard, to successful management of the business. Others
may feel (quite strongly, by the way) that the financial aspect is the only one
that really counts, and the others are just window dressing for the boss. Still
others may feel that customer focus is everything, and they just have to satisfy
whatever the customer wants at the time.
268 Part V: Knowledge, Education, and Growth — The Learning Leg
These differences in belief will impact behaviors, and in turn, actions taken to
achieve results. Remember: Different strokes for different folks! For the growth
and development aspect of the Balanced Scorecard to work properly, you
must involve employees often and repeatedly in its planning, design and
implementation. Any concerns, needs and observations must be addressed
right away, both to gain credibility with these particular employees, and with
the organization as a whole. Getting and responding to their feedback, as well
as getting them involved, will increase their commitment and buy-in to the
scorecards, as well as add value to the overall approach of the entire scorecard.
This will also help to get commitment and buy-in, and even dedicated
use of the necessary dashboards to indicate if and when the growth and
development activities deviate from the plan, since they will own the plan,
and actions needed to see its fruition.
Knowing and Understanding Liabilities
As managers and leaders, we have all heard of, seen, or been involved with
the development of a SWOT (strengths, weaknesses, opportunities, threats)
business risk analysis at some point in our careers. When we get to the
growth and development leg of the Balanced Scorecard, we naturally gravitate
to talking about our strengths and opportunities, as they quite naturally
form the basis from which we see potential in setting and achieving our
growth goals and objectives. Certainly, you need to know what you are good
at, as well as where new product and service opportunities exist, in order to
be able to grow and develop your organization in pursuit of a competitive
advantage and greater market share.
What we often overlook, for a variety of mysterious reasons, are those considerations
regarding possible liabilities and weaknesses, and even potential
threats. In a case of acute myopia, many companies develop growth and
development plans based only on the their strengths. We have seen detailed
plans in this regard, sometimes extending five years or more, reflecting optimistic
scenarios based on furthering key strengths and capabilities, with
glowing expectations and promising high yields. Unfortunately, without
taking the complete picture into account, two failure modes often occur:
ߜ First, a company is caught unaware by factors that were not considered
in the planning stages, perhaps reflecting some market limitation, or more
likely, indicating a lack of a critical capability essential to the growth
plan’s success, but which was assumed as accessible or easy to achieve.
The results of this can be anything from mild disarray or some delay in
implementation, if it is caught in time, up to total devastation and bankruptcy,
especially if these factors have patent implications (technology
related, for example) or legal or governmental aspects not considered
269Chapter 14: Understanding Your Role in Learning and Growth
(needing higher levels of clearance, for example, is critical to working
with some governmental agency or departments, such as defense).
ߜ Second, without taking weaknesses or liabilities into consideration, a
company does not give itself a fighting chance to develop the flexibility
necessary for rapid response to ever-present changes, caused by customers,
market trends, politics, economics, or a hundred other reasons
that happen when we least expect it. Thus, a company will always be
playing catch-up, with potential growth opportunities constantly eluding
you and your leadership team, due to response time and limited flexibility
and intelligence about your market and industry.
In this section, we will explore the potential pitfalls of considering only half of
the total business risk equation, and see how we might be able to not only
avoid these pitfalls, but even turn them to our advantage.
Turning liabilities into assets,
weaknesses into strengths
As we mentioned in the beginning of this section (you do remember, right?),
the pitfall many companies get into is when they consider only strengths and
assets in planning for growth, but ignore potential weaknesses and threats.
So, first, we need to make sure we also take our limitations, our liabilities and
our weaknesses into account as we map out our strategies for the future.
One tried-and-true approach is to use the “2 up, 2 down” method that is used
often in lessons-learned exercises. This approaches growth from a complete
perspective by looking at business risk from all four sides: strengths, opportunities,
weaknesses, and threats, or SWOT analysis. This method takes the
perspective that everyone in the room must list at least two positive or
strength-based aspects of how the organization can support the growth strategy
and goals, and two negative or limiting aspects of what might impede
such progress as well. This works great in planning or decision sessions, to
flush out all perspectives and points of view, in the hopes that we can then
better plan and consider our limitations and weaknesses.
So, once you have fully considered all aspects of the business risk, you might
next ask: “How exactly do I capitalize on my liabilities and weaknesses?” Let’s
take a look at these, not from a ‘what are my limits’ perspective, but rather,
‘where are my opportunities for competitive advantage?’ instead. We do this
through integrating customer and growth needs, as they both relate from a
business development and expansion understanding. Here are several examples
to illustrate this approach:
270 Part V: Knowledge, Education, and Growth — The Learning Leg
ߜ You are in the retail dry cleaning business. While most of your competitors
own their own equipment, you lease yours, because frankly you
don’t have the investment capital available to buy your equipment.
While this initially looks like a weakness, it can actually be an advantage
because you’re better able to adopt newer technology or more modern
equipment — with less risk of equipment failure as well.
ߜ Your restaurant has great cooks, but has some limitations in space,
which could restrict your clientele. You could turn this to your advantage
by redesigning the seating area, going to the more modern ‘group at
the bar’ design, or try other ways to redefine how people dine.
ߜ You provide hardware to a manufacturer of automobile parts, but are
somewhat limited in capacity. Rather than be slave to the limits of your
production systems, you embrace lean concepts, coupled with other
innovative ways to get parts to your customers, which gives you an edge
for growth without investment risk.
As you can see, the idea is to reframe the market and/or redefine the consumer
behavior or use of your product or service in a way that gives you an
advantage. There are many examples of this:
ߜ iPod, a part of Apple and a virtual unknown in the music industry, redefined
music entertainment by rendering CDs no longer necessary, and
creating the possibility to have many thousands of songs electronically
available for play at the touch of a finger, in a very comfortable, easy-touse
platform. If you don’t yet have an iPod, chances are you will in the
not-too-distant future.
ߜ Blackberry, also a prior unknown in the communications industry, redefined
mobile data and communication management, combining phone
with email and text-mail capability, available virtually around the world,
in a device with full keyboard and data retrieval and interface features.
ߜ Apple — with less than 3 percent of the total computer market — redefined
consumer desktop publishing and reframed the PC marketplace for
all time with its iconic Macintosh personal computer.
ߜ Sinter Metals, a novice in scrap metal reuse, revolutionized the metal
parts industry several decades ago, by introducing powder metallurgy,
which reduced raw material and processing costs by at least 1/3 of conventional
parts manufacturers, and today has been able to retain almost
100 percent of the powder metallurgy business worldwide.
There are literally hundreds of additional examples in the components (ITT),
Defense (Northrop, Lockheed Martin), Hotel (Hilton), and many other industries
where — recognizing their own limitations — managers were able to
capitalize on apparent weaknesses by redefining and reframing the market.
271Chapter 14: Understanding Your Role in Learning and Growth
Sounds easier said than done, right? Right. But the best way to do this is to
work hard to understand the true nature of what your customers want, what
they desire, and what they value, and think about providing that value in a
unique way. This will give you a decided advantage while capitalizing on current
limitations or weaknesses that, when they are successfully reframed, are
no longer relevant to the market equation. Believe us — it works!
The dangers of shortcutting
training for growth
It is hard for a company to see value in much of the training conducted today,
just to achieve levels of competency necessary to attain or keep knowledge,
skills and/or abilities in current key technology or business process positions.
This is partially due to the difficulty in measuring value added through skills
and knowledge enhancement or training, and partially due to overwhelming
focus on standards of performance used to determine employee effectiveness,
regardless of any special or additional skills practiced. In many companies,
when budgets get tight, training is one of the first things to go.
But keeping up with current competencies isn’t all there is to consider — you
need to consider future competencies as well. But future competencies are often
even more difficult to justify, as there generally is no current return. Most of this
training can be viewed as an investment of sorts in the future rather than as
adding value to current operations. And that’s the rub: How would you then be
able to justify conducting or investing in the critical training you need, to enable
competencies in the technology of tomorrow for your products and services?
When it comes to it, there are several ways you can use to justify, plan, conduct
and measure such training.
ߜ Future potential, such as return on investment (ROI), as a basis for
expected market share and resulting added revenue and margin can be
used to calculate expected return on training to be conducted. This can
then be monitored, as a part of the growth Balanced Scorecard as well.
ߜ Redefining the context, or the relationship of the criticality of knowledge,
skill and ability for the future process can also provide a basis for
justification, which can be measured for determining forecast accuracy.
ߜ Some of the same metrics that apply to lean, with respect to value added
tasks, can apply to future training as well, such as cycle time, Return on
training hours, first pass yield for competency, and integrating the timing
of the training to coincide with the need for the additional competency or
skills.
ߜ Using a skills matrix, such as the one below, can help in defining what
skills are key, and establishing a training timetable to meet the need as
efficiently as possible.
272 Part V: Knowledge, Education, and Growth — The Learning Leg
Some managers fall into the trap of treating training for growth as an allencompassing,
comprehensive program. This is a mistake, and can cost millions.
The thing to remember is to focus on the elements of knowledge, skill,
and ability that are tied to the real, core competency you need to have with
your growth products and services. This means that the other things you
may want to train need to be assessed against this criteria, and if they are not
linked to value and the core competencies you need to have, they need to be
taken care of in other ways, to minimize the amount of resources they need,
and even reduce or eliminate them from your scorecard. This is a very important
point, so important that whole companies that had great growth plans
failed because of the potential for distraction by mundane, non-value related
tasks which were not related to the core competencies the company needed
to design, develop and support to define their future.
Inventorying Knowledge,
Skills, and Abilities
You need to know three things in order to get anything done:
ߜ Where you are at the moment
ߜ Where you want to be
ߜ How to get there
In other words, you need to assess your knowledge, skills, and abilities
(KSAs). They help you evaluate where you are now and how you can get to
where you want to be. It’s no different in business, but the rules may vary,
because
ߜ Where you are sometimes changes
ߜ Where you want to be definitely changes
ߜ How to get there is never the same way twice
But, even with the presence of this moving platform, you still need to know
your KSAs well enough.
Knowing your skill and ability levels (and what you need to acquire) can be a
tremendous advantage — not only to help you balance your scorecard for
process performance and growth/development, but also to determine exactly
how that growth and development needs to happen. Companies with this
knowledge can develop an exceptional agility in responding to changes in the
market or in customer behaviors. They also have a flexible resource base
from which to staff and manage such adaptation.
273Chapter 14: Understanding Your Role in Learning and Growth
Your company’s wish list:
Defining what you need
Companies that continually break through with new products and always
seem to sell well in the marketplace have done their homework. They’ve
developed ways to understand what their customers want — both now and
in the near future — and have created flexibility in their workforce management
systems that allows them to retrain quickly and effectively in order to
answer changes in demand. In other words, they can effectively define what
they need based on customer demand and value.
You need to deliberately design the flexibility you need to be able to respond
to changes in customer needs. You should take several key steps to define
what you need:
1. Research your customers’ needs and how they use your products.
The chapters of Part II on customers show you the way and help you
develop your scorecards and dashboards around this information. Our
advice in that part of the book also enables you to predict when things
will change and shows you some early warning signs of changes in customer
demand or need. Use the chart in Figure 14-1 as a guide.
2. Put together a simple plan to determine the basic skills required for
your current jobs and for any new competencies that may develop
with new product and service requirements.
You need to talk with your employees about this plan. Ask them what
they think they should know regarding how to maintain peak performance
as their jobs change.
Product Function Fit, Form Add’l Rqmts. Technology
Toaster Toast Bread
just the way
I like it
Size, Color, Shape,
Useful, Fits with
other appliances
Ease of cleaning
maintenance
Power, Electrical
heat, metal bending,
mechanical,
assembly
Can
Opener
Open Can,
Lid easily,
cleanly
Size, Color, Height,
how lid is removed
Ease of cleaning,
reliability
Power, Plastic
injection, motors,
metals, assembly
Coffee
Maker
Makes Great
coffee
Size, Color, Style,
Clearance, Ease
of use
How easy to
make coffee,
auto water
hookup, ease of
maintenance
Power, Plastic
injection, assembly,
electrical heat,
water systems,
filtering
Figure 14-1:
Customer
need and
use chart.
274 Part V: Knowledge, Education, and Growth — The Learning Leg
3. Expand the plan to consider the skills you want your employees to
have but that aren’t specific to their jobs.
These skills may include good leadership, good communication, understanding
of business, team membership, and good problem solving skills.
Again, you should talk with your employees and their supervisors to get
their inputs and ideas also.
4. Share the results (your plan) with your human resources department
to get input and guidance on how you should set up your structures to
compare skills with your desired competencies and competency
levels.
You can see a good example of a plan in Figure 14-2.
5. Finalize a desired competency list, both specific and general to the
skills and jobs you’ve identified.
6. Define the levels of competency you desire in each skill or job category.
Entry-level engineers will have different skills than 10-year veterans, so
you must analyze on a case by case basis.
Figure 14-3 shows what the finished product may look like.
Now you’re ready to move to the next phase, conducting assessments, so you
can understand your workforce — what they do well and where they may
need some development.
Step away from the office! Getting
to know your people
You need to get to know your people. You’d be amazed at the number of managers
who have no idea what kind of people they have working for them.
Power
Technology Components, Shaping Assembly Operation, Inspection
X
Plastic Injection X X
Motors X X X
Metals X
Assembly X X
Figure 14-2:
Skills and
competencies
plan.
275Chapter 14: Understanding Your Role in Learning and Growth
They may know their employees’ names, but that isn’t the same as knowing
who they are. The funny thing is, these same managers feel like they know
their employees well enough to decide their career moves and give them
advice regarding their futures.
This all-business approach is actually encouraged in North America, because
if you have to lay off or reprimand employees, it’s better not to get too close
to them. However, in South and Central America, managers are encouraged to
meet their employees’ families and even get involved to some degree.
So, how well do you know your employees — even just professionally? If you
don’t know their professional competencies and capabilities, how can you
determine where you want to develop them, expand their capabilities, and
enable them to work in new products and services for the future? You really
can’t. It’s clear that you need to have a way to assess your workers to determine
their strengths and where they could use further development.
Entry level
Certified
Experienced
Master
Competency
Levels
Level Motor Assembly Operation, Inspection
1
3
5
7
– Identify/inventory parts
– Inspect parts for flaws
– Understand instructions
– Assemble w/o error
– Use proper tools safely
– Use safety equipment
– Pass motor assembly test
– No safety incidents
– Min. 3 Mo. in this job.
– Min. 1 year in this job.
– Consistent safety record
– Consistent excellence in
motor assembly
– Teaching new employees
– Coord w/ Inspection
– Min 3 years in this job
– Recognized expert in
motor assembly
– Coord with motor vendor
on assembly issues,
improvement
– Additional education in
motor assembly and work
– Certified motor inspector
– Understand motor assembly
– Understand inspection tasks
– Use proper tools safely
– Use safety equipment
– Can discriminate good
from bad motor assembly
– Understand corrective
action
– Works w/ Motor Assembly
line
– Pass motor inspection test
– No safety incidents
– Min. 3 Mo in this job.
– Min. 1 year in this job.
– Consistent safety record
– Contributes to corrective
action team, reducing failure
– Teaching new inspectors
– Coord w/ Motor Assembly
– Min 3 yrs in this position
– Recognized expert in motor
inspection and problems
with motors
– Coord w/ design, vendors,
and assembly on root cause
and improvement projects
– Support design teams to
improve motor design
Parts Buyer
– Read and understand
purchase orders
– Can buy motor parts
– Understands parts tracking,
receipt and inspection
– Understand part use in
themotor
– Pass Buyer test
– No safety incidents
– Min.1yr in this job.
– Min 3 yrs in this job
– Consistent safety record
– Contributes to reduced
purchase price of motor
parts
– Teaches new buyers
– Coord w/ Receiving, Motor
Inspectors
– Min 5 yrs in this position
– Purchasing Agent Certified
– Recognized expert in motor
parts purchasing
– Coor w/ design, vendors
and assembly on
improvements to motor,
reducing costs
– Participant on commodity
team for motor
components
Figure 14-3:
Different
skills and
competencies
levels
example.
276 Part V: Knowledge, Education, and Growth — The Learning Leg
The Italian automaker Fiat has done exceptional work in the area of employee
assessment. The company’s employee competency and development program
first assesses each employee against target knowledge, skills, and abilities
to determine any gaps (the work in this section) and then sets up
development programs over the next two to three years to close the gaps
(see the following section). Fiat boasts that it can correlate skill competency
with performance with a high degree of reliability.
How do you get to know your people so you can prepare to close any gaps in
knowledge, skills, and abilities? Follow these simple steps:
1. With your assessment criteria and competency desires defined (see
the previous section), develop an assessment model that asks employees
to evaluate their capabilities with regard to the knowledge, skills,
and abilities related to their jobs and to the company.
Figure14-4 gives an example of what an assessment model could look
like. Note: You should develop the types of knowledge, skills, abilities
with input from employees, supervisors, and managers so that no one
feels surprised or threatened during the assessments.
2. Have workers in the human resources department evaluate the assessment
model and provide feedback and guidance.
You need to use the right language and send the right message in the
assessment process. Convey your desire to help employees determine
their strengths and opportunities for improvement.
3. Begin the assessments.
Be sure to do the assessments in stages, with different parts of the company
completing the form each month or quarter. Perhaps you can
group different specialties such as finance, engineering, or manufacturing
each month.
Take extra care to emphasize that the assessment process isn’t a competition
or a selection process for layoffs. You want employees to assess
themselves first and then provide feedback to their supervisors so they
can talk about and agree to any recommended changes. Also, you may
want to stress that lower initial scores are better because they provide
room for improvement. Giving this score advice should diffuse employee
fears about looking unqualified or weak in specific areas and will further
show that the assessment is a development program.
Mind the gaps: Determining knowledge
and skill gaps and filling them
After you’ve conducted the assessments (see the previous section), you’re
ready to analyze the information and determine where you have strengths
277Chapter 14: Understanding Your Role in Learning and Growth
and where you can take advantage of opportunities for improvement. Here,
too, you want to separate your current needs from potential future needs in
terms of importance and priority. You should meet current needs first, but
you should have a balance with respect to the knowledge and skills that
you’ll need on the horizon; you should begin to prepare for future development
as well.
Determining gaps in knowledge, skills, and abilities actually isn’t that hard;
figuring out which gap to close first is much harder. In this section, you start
to see how Balanced Scorecard integrates the different aspects of business
into a focused, aligned approach to develop the right resources at the right
time to meet your competitive needs. You need to know how well your
processes are doing (by using the key activities outlined in the chapters of
Part IV). With this information — combined with customer satisfaction
understanding — you can begin to prioritize your knowledge and skills development
to align with your customer value creation and delivery priorities.
The following list presents the actions you need to take to identify your gaps
in knowledge, skill, and ability and fill them to your needs:
Skill/Competency Detailed Task Level [1, 3, 5, 7] Expectation
Name:
John Smith
Position: Motor
Assembly Operator
Level:
Entry Level
Time in position:
Less than 2 mo.
Inventory Assembly
Assemble Motor
Identify each part
Inspect each part
Lay out Assembly
Assemble Inner Coil
Assemble Outer Coil
Assemble Electronic
Switch
Attach Power Line
Assemble Components
Check for Power
1
1
0
3
1
3
1
3
1
3
3
3
3
3
3
3
3
3
GAP
–2
–2
–3
0
–2
0
–2
0
2
Figure 14-4:
Skills and
competency
assessment
form.
278 Part V: Knowledge, Education, and Growth — The Learning Leg
1. Compare the assessments you conducted (see the previous section)
with the needs you’ve identified (see the section “Your company’s
wish list: Defining what you need”).
The result should be a basic understanding of where your strengths lie
and where you need to develop knowledge skills, and abilities to a
higher level in order to meet specific needs. Figure 14-5 shows an example
of such a result.
2. Examine the performance of your company by taking the measures
from your internal business process scorecards and dashboards, and
analyze this performance from a cause-and-effect standpoint with
regard to competency in skills and work performance.
A good measure to use is rework (extra work done due to mistakes or
errors specific to workmanship or skill-related deficiencies). Don’t confuse
errors or mistakes with material-quality issues or other external
influences not specifically related to skills or abilities. From this analysis,
you can determine where your workforce needs further development
in order to improve company performance. Figure 14-6 shows an
example of this type of performance analysis.
3. Look to upcoming customer needs — by evaluating your customer
scorecards and dashboard measures. In doing so, you can determine
new and additional skills and abilities you’ll need to bring in to your
company so you can add value and improve performance.
Tom Johnson
Welder
Bill McKenzie
Machinist
Operate Torch
Set up Operation
Prepare Materials
Weld
Clean Up Product
Inspect Product
Clean Up Area
Use Safety Equipment
Operate Machine
Set up Operations
Prepare Materials
Program Machine
Clean Up Product
Inspect Product
3
3
5
5
3
5
3
7
3
5
5
7
5
7
5
5
5
5
5
5
5
5
5
5
5
5
5
5
Name
Skill/Competency
Task Assessment Need
–2
–2
0
0
–2
0
–2
+2
–2
0
0
+2
0
+2
GAP
Figure 14-5:
Skills and
competency
need
comparison.
279Chapter 14: Understanding Your Role in Learning and Growth
This is the last piece to help you prioritize which gaps to fill. This final
step should show you what skills and abilities you need to develop in
your workforce, and even when, so that you can plan an appropriate integration
with your current skills assessment and development program.
You need to track and adjust the execution of the development programs
for your workforce as your business environment changes. For
this, you’ll turn to your growth and development Balanced Scorecard;
the dashboards will tell you how well your program is going and where
you need to make adjustments as you change and improve the skills and
abilities needed to create and sustain your competitive advantage.
Linking Your Strategies, Operations, and
Tactics for Learning and Growth
In terms of your managerial duties, planning for strategic growth without
defined specific operational actions and detailed, well-planned initiatives to
achieve such growth is like planning on building an entire restaurant chain
based on your one great stew recipe. Even if the recipe is world class, it
doesn’t help you navigate the many steps involved to get a restaurant to
chain status — the how, when, where, and who to get it all done. Linking
your planning steps and objectives ensures that
ߜ You have a good plan.
ߜ You can communicate your plan to everyone involved.
ߜ You can make adjustments during execution to give your company the
best possible chance for success.
Rework
On-time Delivery
Errors in Delivery
Ramp up on
new products
85%
90%
5%
6 Mo.
25%
95%
0%
4 Mo.
–2
–4
–1
–2
Performance
Measure
Current Goal
Welding
Packaging
Packaging/Shipping
Assy Sys.
Design Testing
Skill /
Competency
Need
2
1
4
1
GAP
2
1
4
1
Priority
Training next Qtr
Process Team Assigned
Insection in Shipping
New Product
Development
project team assigned
Action
Figure 14-6:
Competency
to perfor-
mance
analysis
example.
280 Part V: Knowledge, Education, and Growth — The Learning Leg
Balancing at the strategic level for
organizational knowledge and growth
Balancing your business at the strategic levels as a manager depends on
weighting different factors for both growth and development and carefully
aligning your initiatives with strategic goals. However, you must also ensure
that you have leadership coalition overseeing and adjusting progress toward
your objectives.
What happens if the boss doesn’t care about something? Chances are, none
of the workers will either, right? Whatever managers want, watch, or ask
about becomes the talk of the day, and everyone has an interest. Given also
that executives and senior leaders can best articulate the strategic direction,
vision and intent of an organization, it makes sense for our Balanced
Scorecard approach to align to their concepts and ideas as well, to help
emphasize the scorecard’s importance to the organization.
Executives should pay close attention to present performance while also
focusing on the future. The future becomes the present tomorrow, so you
always have to be looking to the future to sustain and grow. It is this fundamental
fact that requires executive advocacy and support when implementing
Balanced Scorecards for growth and development.
But advocacy isn’t the only thing that companies need from their executives/managers;
they also need their visions for long-term growth, how they
plan to achieve the growth, and, most importantly, how they plan to assess,
adjust, and ensure the success of the company’s strategic growth and development
process. You have to have a balance between the speed of your company’s
growth and development and how much change your company can
pursue. You also must have an in-depth understanding of what you want to
accomplish. For example, do you want 40 percent or 90 percent market
share? One is a significant player, but the other dominates. Do you want
financial reporting or financial information? One formats, but the other provides
insights for clients into performance.
The following list presents some examples of where the type of industry and
strategic desires play a significant part in strategic-planning decisions:
ߜ Leaders of electronic component producers push for growth and new
products several times a year.
ߜ Construction leaders focus on building innovation into their construction
processes and project completion cycle times.
281Chapter 14: Understanding Your Role in Learning and Growth
ߜ Leaders in the medical products and services field focus on a combination
of new technology with patient care. They’re also interested in new
and breakthrough products at least once a year.
ߜ Retail clothing leaders depend heavily on public taste in clothing — by
geography, social class, community standing, profession, and even religion
and family background. These tastes change almost with the seasons.
Having an operational focus for the future
The roles and responsibilities at the operational management level for growth
and development are the most crucial of all three (above strategic and tactical).
The operational level is where the rubber meets the road when it comes
to planning and establishing the systems and structures needed to ensure
your organization’s growth for the future. Vision for the future is certainly
key, but without support for the vision and sustained leadership toward
accomplishing the vision, your efforts are hopeless. The middle managers
should be there to provide the support and sustained leadership.
Here are some things for managers at the operational level to consider:
ߜ Collaboration among managers is key. Managers have to work together
and share their experiences in trying different ways to measure and
manage growth and development. What worked, what didn’t work, and
what were some insights you gained?
ߜ Collaboration within functions is just as necessary. Traditionally, functional
managers on a leadership team make decisions within their respective
functions. One way operational managers can make collaboration
work is to have their teams make all key decisions regarding each area,
with coaching being the main responsibility of the functional manager. In
this format, decisions are made collaboratively. This forces all interests
to come together, because a team has to prioritize what the business
unit will do as a whole.
ߜ Managers need to link operational. Linking operational means providing
a bridge between strategic vision, concepts, and long-term goals and
current/future initiatives and actions being worked on and planned.
Managers provide this bridge by aligning initiatives, measuring them for
medium-term performance trends (over 24 months, for instance), and
adjusting initiatives and plans that focus on achieving long-term goals
without appreciable risk to current performance.
ߜ Above all, managers must measure and adjust, measure and adjust.
The operational level must constantly review performance, plans and
actions, and cross-functional team progress in key long-term initiatives.
The operational level is where scorecards are kept balanced through the
use of dashboards and leadership collaboration.
282 Part V: Knowledge, Education, and Growth — The Learning Leg
Acting tactically for growth, capability
improvement, and retention
The front line — the tactical level, where plan meets reality — is where good
planning bears out. Many companies lose it at the tactical level, because even
if they plan well and link planning to specific actions, they don’t successfully
execute or sustain the efforts necessary to secure their growth and development
goals and objectives for the long term. Executing and sustaining these
efforts isn’t easy to do. Balancing your efforts toward current performance
with fulfilling developmental needs requires a shift in priorities and in the
way you manage and support your team.
Traditionally, supervisors gave direction to their teams and then made sure
their directions were carried out — observing the results and making adjustments
along the way. Today, managers talk about a different approach, where
supervisors hand over authority, process-performance responsibility, and
even attendance and skill development to their teams; managers focus
instead on coaching and removing obstacles that impede improvement.
Managers are beginning to understand that their employees know what to do,
how to do it, and what needs improvement. In addition, the work teams
should be aware of how well they are doing, with respect to their immediate
customers, and should be working with them to provide even better products
and services in their department.
Linking tactical actions becomes something real for every employee at this
point. The idea is to link growth initiatives to tangible benefits to the company
and to track and adjust to maximize these benefits through various
dashboards. Every employee should take an interest in knowing the overall
ground rules, the strategy, and the operational focus. Each work team should
come together to devise their dashboard that they’ll use to track and manage
their growth and development. The team will work on tasks such as the
following:
ߜ Tracking multiple skills capabilities by all team members and designing
development programs for each team member to improve his or her
weak areas.
ߜ Completing section or group process-balancing requirements in order to
better meet the needs of growth and development in their area.
ߜ Organizing external training as appropriate.
ߜ Devising measures that link performance to development (such as
improved first pass yield, greater consistency after a technical course,
or certification achievement in a professional area).
283Chapter 14: Understanding Your Role in Learning and Growth
284 Part V: Knowledge, Education, and Growth — The Learning Leg
Chapter 15
CreatingtheKnowledge,
Education,and
GrowthScorecard
In This Chapter
ᮣ Learning how to pick the right measures to grow
ᮣ Putting together a scorecard for growth and learning
ᮣ Adjusting for development opportunities
The growth and development of any company is fueled by a desire to
improve performance (with a better skilled, knowledgeable and educated
workforce) combined with a vision for long-term success (with new and
improved performance, coupled with new products and greater market
share). The challenge is to determine how to meld these two for mutual
advantage. The way to do this is through the Balanced Scorecard.
When all four legs or perspectives are balanced — with dashboards indicating
any changes of significance — you can see the current performance providing
the necessary financial, delivery and quality success. At the same
time, you also see ahead to the future, enabling change as it becomes necessary
and appropriate to the coming changes in your customers and markets.
In this chapter, we will look at how measures are selected, to be sure that
you’ve got the best ones with which to build your scorecard. We will also talk
about what these measures tell you, and how to capitalize on the indicators
for your growth and development.
Finding The Right Measures
For Knowledge, Education
And Growth
As you might imagine, the measures for this leg of the Balanced Scorecard are
different than the other three legs. Growth and development doesn’t focus
necessarily on financials, process performance, or customer desires. In this
perspective, it is a whole new ballgame. Here you try to define your key competencies,
both in people and processes, and determine what you need for
your long term competitive advantage in the marketplace.
To tie your key growth goals to their related specific actions in any sort of
orderly way, it is necessary to start with the overall strategic intent, branch
to operational considerations, and then finish with key actions and initiatives
designed to support the company’s growth objectives.
Determine key growth goals for the future
It’s not very hard to see where you want to go with your company, department,
or group. Everyone has ideas about what they want to do, where they
want to go, or where they want to take a company. The trick is to translate
your vision and your ideas into goals and objectives that:
ߜ Can be achieved in a reasonable time period
ߜ Can motivate and create passion
ߜ Can be realistically used to manage the planning and execution of the
changes you have in mind
To begin, you’ll need to review the basic steps that brought you to this point.
Hopefully you have already become knowledgeable about your current state,
either through mapping your value stream, or by using value flow analysis, or
possibly as a result of accessing key steps in your processes at your level. If
not, please refer to our discussion on this topic in Chapter 11. Next, you
should have articulated your future state, or where you want to go. Finally,
you will have envisioned the steps you will need to take to get there.
Are you with us so far? Good.
Now, think about what key growth goals and objectives you can put in place, to
track and follow your progress toward your goals and objectives for growth and
development. Then, as you plan and execute every task, action and initiative to
be conducted. For example, if you want to expand your current market ownership,
then your measure would be market share, with additional measures
286 Part V: Knowledge, Education, and Growth — The Learning Leg
specific to the method you choose to achieve your objective, such as acquisition,
capacity increase, or technology innovation. As you get further into the
details key to achieving your objective, so will the measures and indicators
you use to show you how you are doing, and what you need to do to adjust
as you go.
Insufficient technology development, for example, can be countered by changing
the resource mix, or adding academic influence. Internal capacity improvements
that do not deliver can be assessed with detailed process analysis, Cpk
and correlation indicators would tell you where in the process it is not working,
and other continuous improvement tools can be brought to bear, to
enable the appropriate adjustments.
Bottom line, once you have determined your key strategic growth goals and
objectives, you can determine what key measures you want to use, and once
aligned with the other measures of your scorecard, they can help you determine
your course of action and adjustments to assure success.
Identifying operational goals,
measurements for growth
The operational level is where planning is done, and — depending on how
well this planning is done — it determines the relative ease of difficulty of
achieving objectives at the tactical/action level. In other words, planning
determines success. Otherwise, it is probably just luck. However, in great
companies, “lucky” accidents are most often the direct result of people creating
and working their plans.
Once your strategy and strategic goals and objectives have been formulated,
the next step is to plan out the details of your strategy for each group, department,
or division. This exercise includes the what, why, when, where, how, and
with whom components of your overall strategic actions, and the Balanced
Scorecard attributes, measures, and indicators that will show how well they
are being accomplished. The challenges of planning at this level are threefold:
ߜ Linking up to the strategic goals, direction, and scorecard measures is
critical to ensure you are fully aligned at the operational level, with all
actions, resources, priorities appropriately selected and supported. Failure
in this regard can result in misallocated resources, selecting the wrong or
unimportant projects for improvement, and may even confuse your workforce,
all of which would be catastrophic to your business, almost guaranteeing
failure to achieve objectives for growth and development.
ߜ Linking down to the tactical actions selected and implemented, and their
corresponding scorecards and dashboard measures and indicators is
equally critical, so that people can immediately see they are directly
involved with important improvement initiatives for the company.
287Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
Failure in this will produce projects and initiatives in a hundred different
directions, consuming precious resources, and focused on multiple, individual
objectives unrelated to overall company performance — virtually
guaranteeing failure to achieve growth objectives.
ߜ Linking across to other departments or groups is also very important to
your scorecard for growth, leading to improved performance. Growth
(increased revenue) and development (improved competencies and
capabilities) feed the other three legs continually. Failure to do this will
certainly result in sub-optimized improvements for specific areas, while
causing significant damage to the overall performance of the company.
A good example of this comes from a former company’s assembly division
which was buying raw material and components from competitors, because
they could avoid the surcharge that their sister company was charging them.
An operational scorecard would have detected and revealed this issue immediately
for the damage it was causing, and given this level of visibility, management
would be hard pressed to continue the ridiculous surcharge practice.
Some considerations regarding operational scorecard measures:
ߜ Seriously consider the linkage, both up to the strategic and down to the
tactical and action levels, of your measures and your scorecards, to ensure
alignment, successful fulfillment and achievement of your objectives.
ߜ Select measures at this level that indicate how well your company-wide
systems and structures are working to support your performance, and
deliver products and services to your customers.
ߜ Evaluate your measures for consistency and possible complacency.
Many companies miss this very important consideration, and therefore
see damage too late to correct, such as when data always looks the
same, or doesn’t vary much. Be critical of performance that looks too
good, it probably is, especially early on.
ߜ Be sure to measure for each detailed area within the denoted strategy.
For example, if a strategy is higher yield, and the contributing factors
are supplied materials, customer inputs, company and workforce capability
and sustainability at key levels of performance. The operational
measures must related to each factor directly, as they impact and influence
performance within each factor at the tactical level.
Indicators at the action level
When you get trained, pass a test, or certify in a technical competency, that is
at the action or tactical level. You are also tactical when performance improves
due to a reduction in scrap or rework. The tactical, or action level, is really
“where the action is.” Products are conceived, designed, produced, assembled,
delivered, maintained, and replaced at the tactical level. Services are
288 Part V: Knowledge, Education, and Growth — The Learning Leg
rendered, reports are completed and delivered, and components are purchased,
delivered and consumed at the tactical level as well.
Key growth and development indicators at this level show you the fruits of
your labor. Up to this point, growth and development have been strategic and
planned out. At the tactical level, the strategies and plans are carried out,
tracked, monitored, and adjusted as appropriate. The key indicators at this
level are specific to the kinds of actions related to growth and development.
Some of the indicators we have seen used at the action level are:
For development interests (people concerns)
These are measures and indicators relating to employee attitudes about
themselves, their jobs, their companies, and how this relates to their
performance.
ߜ Planned against actual trained employees, in specific fields, to passing
and certifying on specific equipment or machinery
ߜ Key performance improvements tracked and verified over several
months after key training for select employees.
ߜ Patents files and issued, per R&D engineer or scientist
ߜ New technology achievements, recognition
ߜ Retention and morale
For growth interests (company concerns)
These are measures and indicators related more to the organizational needs,
to grow and develop within the company systems, structures, environment
and corporate culture.
ߜ Key initiatives achieving milestones to gain market share, such as initiating
customer management systems, or Specific product deployment to
select markets.
ߜ Proven increased product use in expanded markets
ߜ Overall patents submitted vs. issued, in specific areas or specialties
ߜ Achievements in new technology project developments
ߜ Specific skill or knowledge acquisition per strategic technology acquisition
planned
ߜ How available front-line information is to your front line leaders, regarding
speed, accuracy, and reliability
Many companies will start at different places, with respect to what causes
what. While this may suggest a chicken-and-egg situation, it all depends on
what the company wants to do. For example, some companies focus only on
289Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
profitability, so they start with financials, and try to work through the scorecard
legs in order to understand what balance has to be in place, and where.
Many excellent companies are realizing they can’t start with the financials,
but that the financial results are a result of other factors, not the cause.
A good example of such a Balanced Scorecard approach is Sears. The company’s
management quickly realized that they needed to dig deep down, and
explore true cause-and-effect relationships in the four legs of the scorecard,
to ensure balance and a true strategic map. As a result of this analysis, they
decided to start with the knowledge and growth leg, declaring that how employees
felt about their job and their company set the pace for their performance,
participation in process improvements and relationship to customers. They set
up their strategic map in this way, and established measures accordingly.
Figure 15-1 shows this relationship in a tabulated format, one of the many
formats that are used for Balanced Scorecards today.
Knowledge
and Growth
Internal
Business
Process
Customer
Focused
Financials
Employee feelings
about work
Employee feelings
about qualifications
Employee feelings
about the future
Service oriented
Helpful to Customers
Value Merchandise
Customer ideas and
recommendations
Customer
impressions
Customer Retention
New Customers
Investment return
Profit
Sales
Growth
Employee complaints
Employee suggestions
Employee turnover
Training and
Development
Movement within
Sears
Handling situations
Movement of
merchandise
Ease of processes
Number of ideas
from customers
suggested and
implemented
Customer surveys
% Return customers
% Increased
customers
ROA
Operating Margin
Gross Revenue
Revenue Growth
over last year
0
10% more each year
<5%
25% per year
15% per year
>95%
>5 per year
10% better each year
>300 per year
>10%
>$5M each division
>10% each year
>10% each year
$XXXX
YY%
$$MMMM
ZZ%
Scorecard
Leg
Indicator Measure
Complaints
Ideas suggested
and implemented
Turnover
T&D numbers
Growth Successions
First Pass Yield
Inventory levels/
Turnover
Cycle Time
Number, type
% Implemented
$ Saved/Improved
Percent, by
demographics
Percent, by
demographics
$$
Percent
$$ Sales
Percent
Units Target
Figure 15-1:
Tabulated
format.
290 Part V: Knowledge, Education, and Growth — The Learning Leg
Constructing The Knowledge
Management Growth Scorecard
The growth and knowledge perspective really focuses on two distinct areas:
The growth of the company, and the development and education of the
workforce. And, as we mentioned before, this leg of your scorecard needs
to address not just your growth and development measures, but it also has
to support the key indicators and success factors of the other three legs
as well.
The actions and measures of your growth and development scorecard will
talk to key elements of training and development that support both the current
capability of the company, and fulfilling the future technology and customer
requirements as well. In addition, these measures need to also address
the strategic growth initiatives, which might be anything from new acquisitions
to redefining the R&D and design process, to redefining market entry
strategies, in current and possibly new markets.
The bottom line is, the construction of your growth and development scorecard
starts with your strategy, developing measures that align to that strategy,
and designing the scorecard to be flexible and provide good coverage
across the strategic, operational and tactical levels. Let’s look at each of
these in turn.
Aligning key growth measurements,
for strategies and their impact
The key to designing your plan is to first decide where you want to be, and
then determine where to begin. While not so hard, this is very important for
designing your roadmap or strategic plan.
Let’s take an example. Suppose your company sells greeting cards, and you
want more market share, increased sales, and higher profit margins on select
products. (Okay, we know, who wouldn’t want all that anyway?) What do you
pick for growth strategies and tactics? Maybe you design a niche card style,
unique and different. Or, you find a way to slash 30 percent of your manufacturing
costs, and you go for volume increases. Or, you expand your business
to include cards that can be transmitted using a variety of media, including
cell phones, televisions, and more. Whatever you decide to do to achieve
your strategic objectives, you will need to determine how you intend to measure
your achievement, and what to do if you see changes you don’t like, or if
you want to make adjustments on the way. This is what we mean by aligning
your measures with your growth strategies.
291Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
You can practice this. Think of your personal long term goals, where you
want to be in, say, 20 years?
ߜ On a beach
ߜ At home, retired
ߜ President of a corporation
ߜ President of the world
Whatever it is, focus on it for a minute.
Now, how would one get there? Based on where you are, maybe you need further
education, more experience, or to get into politics soon. Perhaps you
might want to start saving, or investing, or start a business. The key is to
determine what key strategic actions you need to take to achieve your goal.
Then, you measure your progress in planning and executing these actions,
and adjust as appropriate, to ensure success. Or, you reevaluate your strategic
objectives, adjust, and recalibrate your actions accordingly. In this case,
you might define a road to get the requisite college education, or take the
steps needed to open that franchise, or affiliate ourselves with the right
party, and get involved with local politics first.
For your business, it is no different. Figure out your strategic objectives first
(or find out what they are, if they already exist), determine your roadmap to
achieve them — given you know where you are today — and measure your
progress to assure success. The key is to start with the strategy.
Determining the right measures
for today and tomorrow
Most of you don’t suffer from too few measures and too much time. Actually,
if you are not careful, you might make a career out of measuring anything and
everything. Some managers have done exactly that, and they sometimes fail
as a result. The point to keep in mind is that the goal is not the measurement,
but the performance you seek.
You can indeed design your measures for growth and development. A couple
of key factors are worth considering as you determine your measures for this
leg of the Balanced Scorecard.
ߜ Measures for today’s growth and development should focus on those
things that affect short-term change, such as new skills and knowledge
utilization, better equipment operation, and improvements in processes
due to implementing learned lean tools and techniques.
292 Part V: Knowledge, Education, and Growth — The Learning Leg
ߜ Measures for tomorrow’s growth and development can focus on longerterm
changes, such as new technology advances imbedded in new products,
redefined advertising effects, integrated and improved product
communications capabilities, or improved customer service system
performance.
Again, remember that these measures cannot be implemented in a vacuum.
The link between growth and development and the other legs is crucial to the
overall success of your scorecard. This is primarily because growth and
development are more the enablers of actions rather than actually delivering
products or services. You will see this throughout the book, within each
detailed discussion of the legs of the scorecard, and it makes sense, given
Sears and others in their understanding of the cause and effect relationship
between growth and overall performance for the future.
Always reassess and adjust,
per market changes as well
So, everything is going great, your scorecard is in place — balanced well with
the other legs — and it’s tracked and managed through select dashboards
deployed throughout the company. Then, something changes. Someone
invents an iPod, or comes out with a new cell phone that, who knows, also
becomes a laser pointer, wireless dog leash, and starts your car. All at once.
The question is, are you ready for changes in your market, changes in your
assumptions, and shifts in customer behavior that you did not consider?
There is an old saying in the Army, that is still very true today: All the best
laid plans last about one minute into the battle, and then it comes down to
contingencies and alternatives. How well you have planned for these alternatives
will determine whether you and your company are still there a year
from now. If you are not sure about this, take a look at whenever things
shifted, and see who shifted with them, and who did not. Remember blackand-white
television? How about the way you communicate? While letters,
stamps, and envelopes — commonly referred to as “snail mail” — delivered
by the post office have not yet gone the way of the dodo bird, email and
mobile phone messaging has definitely put a big dent in their business. How
about portable entertainment? Do you see any cassette tape players around
anymore? Who does not have an MP3 player or an iPod by now?
The key is to design your scorecard and dashboards not just to detect
changes in customer and market behavior, but to be flexible and adjustable
as well, so that you can change your scorecard as the situation necessitates.
Here are some suggestions:
293Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
ߜ List all of your assumptions, and devise measures to test them, in the
event that they change
ߜ Characterize the important aspects of your strategy, your customers,
and the important markets in which you currently participate. Then,
devise measures and indicators that can tell you when they change
ߜ Convene a growth and development steering team, which will review
and make recommendations on possible changes to your scorecard from
this perspective, as your actions and initiatives progress, and as other
conditions change as well, to include staffing, support and funding
ߜ Remember the new take on an old adage: instead of “if it isn’t broken,
don’t fix it” consider instead “if it hasn’t been fixed lately, it is probably
broken!” In other words, look to keep things always in some state of
change, continually improving and revising for better and more accurate
measures.
ߜ Share changes made to your growth and development scorecard and
dashboards immediately with your peers and your teams, so that there
are no surprises. At the same time, solicit any ideas from your peers and
teams regarding your scorecards as well, to benefit from other’s perspectives
and vantage points.
ߜ Keep track of your progress, and of any changes and their impact on the
scorecard, and the measures as well.
Some examples of growth and
development scorecards
The following examples are from different sources, and show how growth
and development Balanced Scorecards can be and have been approached,
both in industry and government agencies. There are many hundreds more,
and many of the industry samples we wanted to include were confidential or
sensitive. However, these particular examples show the key elements of the
scorecard, and how to approach setting yours up as well, for growth and
development.
Figure 15-2 shows an example of a Balanced Scorecard interrelationship diagram,
one of the planning tools to better understand how each leg of the
Balanced Scorecard relates and supports the others. Note the objectives/
initiatives of the growth and development leg. The next figure, Figure 15-3,
goes into depth on this leg, defining the key measures and targets for each
one, and is an excellent example of the growth and development aspect of
a Balanced Scorecard.
294 Part V: Knowledge, Education, and Growth — The Learning Leg
Figure 15-4 is an example of a strategy map, listing the objectives for the organization
and the corresponding measures for each of the four legs of the
Balanced Scorecard. As you can see, the objectives and measures for growth
and development concentrate on those aspects related to skills, abilities and
knowledge to be able to perform to the requirements of the other three legs.
The strategy map is a key tool to ensure all objectives are integrated.
Figure 15-5 takes this relationship to the next level, where specific objectives
are matrixed to specific goals and measures under each of the four legs of the
Balanced Scorecard. you can see, with respect to growth and development,
how specific objectives link to key goals by the checkmarks in the appropriate
boxes. This sets up the detailed goal allocation and measurement for
each strategy, as is depicted in Figure 15-6.
CUSTOMER
MISSION
VISION
STRATEGY
BALANCED SCORECARD
PERSPECTIVES AND OBJECTIVES
• Customer Satisfaction
• Effective Service/Partnership
CUSTOMER
• Optimum Cost Efficiency of
Purchasing Operations
LEARNING
AND
GROWTH
• Access to Strategic Information
• Employee Satisfaction
• Organization Structured
for Continuous Improvement
• Quality Workforce
INTERNAL BUSINESS
PROCESSES
• Acquisition Excellence
• Most Effective Use of
Contracting Approaches
• Use of Electronic Commerce
• Performance-Based Service
Contracts
• Use of Competition
• Streamlined Processes
• Reduction in Overage
Instruments
• On-Time Delivery
• Supplier Satisfaction
• Socioeconomics
Figure 15-2:
Interre-
lationship
diagram.
295Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
Learning and Growth Perspective
DOE Fed Procurement Systems – 2003
Objective Measure
Access to Strategic Information:
Data Source: Manager's self-assessment
survey (data collection)
Data Generation: Accomplished by using
standardized survey instrucment.
Individual survey responses are
entered into Excel data reduction
program which calculates results.
Data Verification: Procurement directors
are responsible for accuracy of data
and retention of excel program reports
in accordance with records
management requirements. Reports
will be made available for compliance
and/or HQ reviews.
Employee Satisfaction:
Data Source: Employee Survey
Data Generation: Accomplished by using
standardized survey instrument.
Data Verification: Procurement Directors
as indicated above.
Organization Structured for Continuous
Improvement:
Data Source: Managers' Self-assessment
survey (Mission Goals Data
Generation: Accomplished by using
standardized survey instrument.
Data Verification: Procurement Directors
as indicated above
Quality Workforce:
Data Source: Career Development
Data Generation: Data is tabulated from
the listed data systems.
Data Verification: Procurement Directors
are responsible for accurately reporting
results and retention of records in
accordance with records management
requirements. Submitted results will
be compared with data maintained by
the Departmental Career Development
Coordinators.
The extent wo which reliable
procurement management
information systems are in place.
Assessment of the level of
continuous improvement
including existence of an
effective quality culture,
extent of benchmarking and
other improvement initiatives,
and strategic planning actions.
Measure
Strategic
information
System that is 100%
accurate, timely
and efficient.
81%
Percent of all acquisition
personnel meeting the
qualification standards of the
Acquisition Career
Development (ACD) Program.
Percent of certified acquisition
personnel meeting the ACD
Continuous Learning Requirements.
Percent of all financial assistance
personnel meeting the
qualification standards of the
Financial Assistance Career
Development Program.
90% (exception:
Individuals
receiving a written
waiver from HQ)
90%
90%
Superior Executive Leadership:
Employee's perception of the
organization's professionalism,
culture, values and empowerment.
Quality Work Environment:
Employee's degree of satisfaction
with tools available to perform
job, with mechanisms in place to
ensure effective communication
to accomplish job requirements,
and with current benefits and job
security.
84%
85%
Figure 15-3:
Key
measures
for each
relationship.
296 Part V: Knowledge, Education, and Growth — The Learning Leg
Figure 15-6 is an excellent example of a growth and development Balanced
Scorecard. The measures and actions are each linked to the objectives, and
ultimately to the organizational strategies. It is this linkage that enables managers
to use the scorecard to best assess alignment with key actions to the
overall strategies, and to make adjustments as appropriate to ensure alignment
as tasks and initiatives are executed.
PERSPECTIVE OBJECTIVE MEASURE
Customer Improve Client/Customer Satisfaction 1. Client/Customer Satisfaction
Financial Reduce Coast to Client/Customer 5. Total Costs
Internal
Business
Processes
Improve and Leverage Quality 8. Quality Index
9. Rework Identified
10. Rework Eliminated
11. Best Business Practices
Adopted
Growth &
Learning
Enhance Employee Competence 14. Employees in Developmental
Assignments
Expand the Use of Competitive
Sourcing
6. Competitive Sourcing
Performance
Encourage Innovation 12. New Products or Services
Delivered
Deliver System Solutions 13. Commitments Met –
System Milestones
Increase Employee Satisfaction 15. Employee Satisfaction
Enhance Ability to Recruit and Retain
DFAS Talent
16. Core Competency Profile
Develop a Climate for Action 17. Climate for Action
2. Commitments Met –
Performance Contracts
3. Commitments Met –
Client Executive Contacts
4. Specific Billing Rates
7. Total Workforce Ratio
DFAS Strategic Plan
Your Financial Partner @ Work
B. DFAS FY 2002 Corporate Balanced Scorecard Perspectives, Objectives & Measures
Figure 15-4:
Strategy
map.
297Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
Figure 15-7 is an example of a specific dashboard, related to the growth and
development scorecard for L.L. Bean, regarding a particular product line. L.L.
Bean, being in retail clothing, is real-time focused on its growth opportunities
for new clothing designs, and aggressively pursues the use of dashboards
and scorecards to be able to lead the industry in defining and changing styles
for the future, and tying this to performance and financial return.
Figure 15-8, a potential application for a large software giant such as Microsoft,
shows how it is vital for an organization to understand its strategy and the
appropriate measures to ensure successful achievement of that strategy. The
Fully satisfy customer
requirements and
aggressively resolve
customer problems to
deliver best value
services
Goal
Objective
Customer
3 3
Financial
Internal Business
Processes
Growth & Learning
ImproveClient/Customer
Satisfaction
Use performance metrics
to drive best business
practices and achieve
high quality results
Optimize the mix of our
military, civilian, and
contractor workforce
Establish consultative
relationships with leaders
Deliver business
intelligence to drive better
decisions
Ensure everyone is
working torward the same
vision and can connect
what they are doing to
make the vision a reality
Embrace continuous
learning for our workforce
to ensure critical, high
quality skill sets
Develop the next
generation of DFAS
leadership
ReduceCostto
Client/Customer
ExpandtheUseof
CompetitiveSourcing
ImproveandLeverage
Quality
EnhanceEmployee
Competence
EncourageInnovation
DeliverSystemSolutions
IncreaseEmployee
Satisfaction
EnhanceAbilitytoRecruit
andRetainDFASTalent
DevelopaClimate
forAction
3 3 3 3
3 3 3 3 3 3
3 3 3 3 3 3
3 3 3 3
3333 3 3 3 3 3 3
3 3 3 3 3 3
3 3 3 3 3
3 3 3 3 3 3
Figure 15-5:
Matrix of
goals and
measures.
298 Part V: Knowledge, Education, and Growth — The Learning Leg
level depicted, while strategic, is a good example of recognizing that, due to
different divisional strategies, there will be different measures appropriate to
the strategy of each division. This is key, in that you should refrain from
trying to always paint every department and group with the same color
brush. Certainly, there may very well be some overlap, but be careful trying
to fit the business to the measure, this usually leads to disappointment.
Rather, define your particular business, group or department strategy or
objectives, and design the measures to fit your needs.
• Develop workforce strategies that
will guide the Logistics Center to
identify and train to competencies:
acquire technical certifications;
recruit, develop, retrain; develop
leadership and plan for succession
• Integrate an automated warehouse
management system
• Strategic Workforce Action Plan
• Managenat 380 degree
assessment
• Percentage of current competency
inventories completed and training
and development completed
• Numberofcertifications
• Percent of increase in indvidual
• Development Pans (IDP)
• Implementation of automation
• 100% implementation of
Strategic Workforce Action Plan
by end of FY05
• Leadership Development Program
and Succession Planning
Programs are implemented by
end of FY04
• Competency inventory based on
future state of the Logistics Center
and training matrix by the end of
FY03.
• Certifications for selected series
achieved by the end of FY04
• Increase IDPs by 10% per year
• Automation implementation by the
end of FY03
STRATEGIC OBJECTIVE
THE LEARNING AND INNOVATION PERSPECTIVE
Strategy 1: Grow the Logistics Center as the provider of choice for aviation-related equipment through re-engineering,
repair, and supply chain management of future and legacy systems.
MEASURE TARGET
• Increase number of annual
technology or tool renovations
• Improve format sales/CSR skills of
sales and production teams
• Number of innovations; scale of
innovations
• Number of formal training courses
completed annually per team
member
• Minimum of one major innovation
per year and (2) minor innovations
to achieve $50M in additional
acquisition volume per year
• 2 relevant courses per team
member per year
STRATEGIC OBJECTIVE
Strategy 2: Enable our customer to address fast-paced needs by generating and marketing innovation solutions such
as the Logistics Center “Results” vehicle.
MEASURE TARGET
• Increase project management and
consulting capability.
(performance, schedule, cost)
• Number of certified project
managers and engineer
• 85% of project management and
consulting workforce certified
by end of FY07
STRATEGIC OBJECTIVE
Strategy 3: Provide project management and consulting solutions to expedite NAS facility modernization.
MEASURE TARGET
Figure 15-6:
Growth and
development
Balanced
Scorecard.
299Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
Determining What Your Scorecard
Is Telling You
When you have designed and implemented your Balanced Scorecard for
growth and development, and the key indicators and measures are in place to
help establish, track and adjust actions, you should next focus on determining
what the scorecard is telling you. This has to do with interpreting these
indicators and measures, and making decisions regarding the business on
that basis, also taking into account the other three legs of your Balanced
Scorecard.
Platform Products and
Services Division
Business Division
Entertainment and
Devices Division
Client, Server & Tools,
and Online Services
Groups
Information Worker,
MS Business Solutions
and Unified
Communication Groups
Home & Entertainment
and Mobile &
Embedded Devices
Groups
Real-Time response,
design and support
worldwide
Provide solutions
to any business
situation worldwide
Lead the
entertainment
and devices market
worldwide
Response
# and Type of
Customers
Customer Feedback
Client Business
Performance
RONA
% Long Term Clients
Market share
Innovation
Client new applications
Division Groups Strategies Measures
Figure 15-8:
Applying the
scorecard.
Strategy
Sales 15% increase
X Market expansion
6 New Products
Operational
30 % Fewer Sites
25% labor reduction
75% SCM Reduced
Skills up 25%
Tactical
New ERP Installed
30% More DE
25% Mgmt Reduced
45% Outsourced
Region A 18 6 33 - 98 17 Green
Region B 6 13 27 - 77 15 Red
Region C 12 9 45 - 93 21 Green
GreenRegion D 15 11 63 - 95 11
Product XX
Growth and Development
Q4, FY 2006
Figure 15-7:
Dashboard.
300 Part V: Knowledge, Education, and Growth — The Learning Leg
So, we will introduce some ways to see where you are going for the long term,
how you are doing, and how to avoid making mistakes or misinterpreting the
information from the scorecard, so that the right decisions are made for the
right reasons.
How to read your future
No, it’s not a crystal ball, nor tea leaves, palm reading, or tarot cards. However,
with the right scorecard and dashboards, it might look a little like magic when
it comes to seeing what is going on, and the possible future opportunities.
What we are talking about is designing your scorecard in a way that the measures
and overall balance can better indicate how well you are moving
toward your long-term growth and employee-development goals. By setting
up the right measures, and balancing through other drivers in all three of the
other legs of the Balanced Scorecard, you can understand how different factors
can influence growth and development success, and also influence the
rate of success as well.
Here are a few things you can do to see and be able to interpret the key
attributes and indicators for growth and development
ߜ Trends are a good indication regarding progress or lack thereof toward
achieving certain goals or objectives.
ߜ Look to take a different perspective, focusing on enablers for growth,
rather than pure performance improvement. For example, yield is production
based, but yield related to increased sales or customers can
indicate growth levels. Another example is where reduced costs are
related to performance, yet costs related to employee levels, increased
or added capacity, or per development product family can show a trend,
either up or down, with respect to growth and development.
ߜ Benchmark other industries, and look to see how their growth and
development planning is measured. Be careful here, though, it is not so
much the measure and the way and means used to measure, and its reliability
and accuracy.
Many companies look to the operational level to measure how specific components
of a strategy are doing across the organization. Their measures roll
up tactical and action-based measures, and at the same time relate directly to
overall strategic objectives. Remember to be specific here, and make your
measures link both ways to ensure complete coverage and alignment.
301Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
Adjusting when it’s not what you want
This is always a hard question. What if you have set up your scorecard correctly,
balanced it appropriately to the four different perspectives, and you
begin to realize that things are not going the way you wanted them to, given
current plans and actions for growth and development? What do you do then?
In the mid-’90s, a large semiconductor company headquartered in Germany
embarked on a new technology to revolutionize the television (TV) industry.
Very little was known about this new technology at the time, so the company’s
R&D group was way out in front, cutting the path and redefining TV.
Every indicator pointed to this new technology as the wave of the future, so
the company proceeded to pull out all the stops, and go where no one had
gone before. The technology? High Definition TV, or HDTV. The edge? .08 Mu
size technology, smaller than anyone had ever achieved. And they were doing
it! There was only one problem. Did you hear about this new technology
sweeping the TV industry in the early ’90s? Nope. And, while their marketing
and sales groups predicted huge sales and orders for the future, based on
their growth and development strategy, the public remained at a distance.
Why was that? And why was there a significant difference between what was
predicted and what actually happened?
No one understood it. Nor did anyone envision such a monumental impact on
the TV industry. Consequently, there was no major impact, and in fact, the
HDTV technology stayed relatively obscure until the early 2000s, where you
finally started to see it emerge, as liquid crystal diode screens came of age,
at about the same time. It turns out, it was the combination of both that
enabled HDTV technology to really take off. Fortunately for this semiconductor
designer and producer, the management team recognized early on that
something was wrong, and that they were not getting the interest necessary
to generate sales. Through a courageous shift in activities in packaging the
microprocessors, coupled with an equally significant shift in screen technology
through several partnerships, this company was able to redefine its
roadmap, in order to take advantage of a parallel technological innovation,
and couple it with their own discoveries in HDTV and wide-screen applications,
to help define big screen LED based HDTV products. These products
are selling like hotcakes today, and are predicted to do so well into the next
decade.
The reason for telling you this story is to help illustrate that it is never too
late to realize an adjustment is necessary, and to make the adjustment so that
you keep or gain momentum in the marketplace for growth and development.
302 Part V: Knowledge, Education, and Growth — The Learning Leg
Some mistakes to avoid in interpretation
While you might be doing the right things when it comes to putting together
your scorecard, and making it work, it’s possible to run into problems when
you finally get around to interpreting what your scorecard is telling you. Here
are some mistakes to avoid.
Managing too close to the data
The biggest mistake companies make is to see one change in the overall
scheme of things, and to make adjustments to compensate for it. Then, to see
another change, and adjust again. This is called “meddling,” and will almost
always result in failure or, at best, marginal results.
The reason this happens is due primarily to the lack of patience at the top.
When you think of growth and development, you have to think of it like a
very large ship traversing an ocean. Small waves usually will not affect it, and
if the captain corrected for every wave, he would not only be unnecessarily
making corrections every few minutes, he might even miss the important
turns when they are due, because of all the distractions.
The key is to try to avoid being distracted by the “small” waves, and to be
totally focused on those things that are important to your overall growth and
development strategy. Again, we can’t emphasize enough that the actions and
initiatives stem directly from this strategy.
Misinterpreting the trends
Another big mistake many companies make is to take the indications from
scorecards and dashboards, and derive the wrong conclusions, and then take
the wrong actions to correct. This especially happens when there are multiple
objectives, and the possibility for confusion is high, such as when a company
drives for higher sales and market share, and also cuts back on
production, and talks about expanding product lines, while cutting back on
engineering and new product development.
When this happens, managers will draw different conclusions, based on their
background and work experience. Engineering managers might believe possible
acquisitions are on the horizon, given no development budgets. Buyers
will reduce purchases, to be in line with reduced production predictions, yet
may anticipate new suppliers, in order to support sales.
The way to avoid this problem is to ensure your communications systems are
as effective as possible, to get a consistent, clear, and repetitive message out
to all regarding the strategies and goals of the company, and the part everyone
plays in supporting them. You also want to check frequently, through
talking with your employees all over the place, to make sure the message is
indeed that which you intend.
303Chapter 15: Creating the Knowledge, Education, and Growth Scorecard
Be mindful of the children’s game called “telephone” (remember it?) where a
message is handed off to one person in a circle, where it is whispered from
person to person, until it makes it back to the original sender. Much to everyone’s
surprise, the final message rarely bears little resemblance to the original
one. The fewer interpretations enabled, the less likely your message will
be garbled or altered.
Misunderstanding due to lack of experience
This often happens when a manager is in a position where has to understand
when certain shifts in measures take place, correctly interpret what they
mean, and take appropriate action. But, sometimes the manager is not
trained, or doesn’t have the background or business acumen to fully understand
what is going on, and will therefore miss the opportunity for action or
adjustment.
This is very serious, and can impact a company’s ability to achieve its long
term growth and development goals. And, depending on how active and open
your learning environment is, this may be difficult to see. Some of the indications
to look for are:
ߜ Key measures for growth and development shift, or indicate a trend, yet
those directly responsible do not take appropriate actions, or don’t even
notice the changes.
ߜ Decisions made by certain supervisors or managers that are clearly contrary
to stated policy, strategy or long-term focus
ߜ Actions taken by managers are inconsistent with the company’s goals
and objectives, and result in things getting worse rather than better
ߜ Managers are hesitant to take any action, not knowing if it will help or
hurt their department
ߜ Conflicts arise in steering or management teams regarding actions to
take in response to key measures for growth and development. Initially,
conflicts can be good, but they also can indicate when there is a lack of
understanding.
Again, this is serious, and must be recognized and corrected early. The way
to correct this is to be open about having both strengths and weaknesses, or
opportunities for improvement, and that we should all look forward to personal
and professional development, that it is a good thing and will be recognized
and rewarded. Also, you might do some personal one-on-one coaching
with specific individuals, help them set up their development program, and
review progress with them often, so they can see it is not threatening to
admit the need to improve and grow, and to not always have all the answers.
304 Part V: Knowledge, Education, and Growth — The Learning Leg
Chapter 16
CreatingTheKnowledge,
Education,andGrowth
Dashboard
In This Chapter
ᮣ Using dashboards to execute your scorecard
ᮣ Setting up this dashboard for long-term success
ᮣ Developing a better growth planning technique from your dashboard
Of the four different types of dashboards available to business managers,
dashboards to help manage the company growth and development are
the least commonly used. Yet, you can see where such dashboards can have
great utility, such as for tracking strategic initiatives and their effect on capturing
additional market share, increasing sales, or even increasing product
and service demand.
Any time a company invests in growth or development initiatives, there
needs to be a way to assess and adjust such initiatives based on performance
against expectations, or at least based on progress made. The growth goals
and objectives are usually far-reaching, yet with specific actions and initiatives
that form tasks to be accomplished, some of which can be fairly short
term — within the first 12 months — and can subsequently be measured and
assessed for progress and adjusted as necessary to ensure the goals are
achieved.
In this chapter, we explore how to design and create your dashboard for
knowledge, education and growth, and the best ways to implement such
a dashboard to capitalize on your long-term strategies for the future.
Requirements For Knowledge, Education,
and Growth Dashboards
Your dashboard can do many things to help you track and manage your department
or group. In order to design the best dashboard you can, however, it must
align with the Balanced Scorecard and the goals and objectives of the company.
The essential elements for a successful dashboard involve translating the goals
from your scorecard into pertinent daily measures and implementing them in
the design of your dashboard. It is also important to do a “sanity” check, to
ensure the measures respond to your needs, and to the needs of the company.
You will need to get this right, before you can actually design your dashboard.
Keep in mind that your dashboard will have to be able to link to any
other dashboards that you might need in the future.
Translating growth goals into
meaningful daily measures
Growth goals, by definition, represent some desired future performance,
capability, or business or market standing. Some examples include:
ߜ Increase market share, from 10 percent (current share) to 15 percent
(future share, usually higher), to be accomplished in a specific number
of years, or by the end of a specific year.
ߜ Recognized technology leader in a particular field, within a specific
industry, also to be accomplished in a specific number of years, or by
the end of a specific year.
ߜ To be the number one or two recognized leader in a particular industry
or industries, either in sales, profit, innovations, patents, sheer size in
the market, new and/or retained customers, or technology.
ߜ To be the number one or two recognized leader in a particular geographic
or organizational region, in the same areas as mentioned above.
ߜ Successful turnaround of a company, from poor performance to profitability,
in a specific number of years, or by the end of a specific year.
This is usually specified in ratios such as ROA/NA (return on assets/net
assets), ROI (return on investment), and other performance indicators,
usually financial.
Be careful taking these goals directly for measures of progress. Most of the
time, growth goals are results-type goals and objectives, and so they do not
reflect how a company achieves them.
306 Part V: Knowledge, Education, and Growth — The Learning Leg
In order to achieve these goals, you will need to have a plan which will
clearly outline what specific initiatives and actions need to be accomplished.
These initiatives might include acquiring several companies to increase
market share in a certain industry, or developing a new variation of a mainline
product at a lower price point to appeal to a different demographic.
All of these initiatives — and any others you might develop — can be measured,
in terms of progress and performance. And, as you measure them, you
can see their impact on progress toward achieving your overall growth goals.
You can then make adjustments to specific actions as necessary, based on
this information.
Table 16-1 is a table which suggests possible dashboard measures to help
you achieve strategic growth and development goals and objectives.
Table 16-1 How Strategies and Growth Goals
Link to Dashboard Measures
Strategy Scorecard Growth Goal Dashboard Measure
Market From 35% to 55% Monthly, quarterly market share, by
leadership market share business group, attempted vs.
achieved, and trend last 10 periods
Technology Association Recognition Identify and implement association
leader criteria, and measure progress against
criteria each month
Leader for the ISO 14000 Certification Certification achievement; contracts
Environment and trainer in the to train ISO 14000 each quarter/year
industry
Number 1 Greater than 35% Monthly, quarterly market share, by
or 2 in core market share business group, attempted vs.
product family achieved, and trend last 10 periods.
Selecting key short- and
long-term measures
For growth and development, there are both short- and long-term goals and
objectives. These goals will be inter-linked in a way that accomplishing shortterm
goals will assure achievement of longer-term goals as well. Increased
market share is achieved, for example, through a combination of specific
entry into new markets with competitive pricing and technical innovation to
create a better, more reliable product than the competitor’s product.
307Chapter 16: Creating The Knowledge, Education, and Growth Dashboard
So, how to select the short and long term dashboard measures that can work
best for you? The key is to make sure that the combined achievement of
short-term goals assures long-term goal accomplishment. This means listing
your long-term goals first, and then identifying the short-term actions necessary
to support and achieve them.
Keep in mind that short-term actions and objectives focus on specific tasks,
related yet independent of each other. Also, remember that accomplishing
one short-term goal does not guarantee that others will be achieved, so each
goal must have a plan, with timing, milestones, key achievements, resources,
and follow specific systems and processes in order to best assure their successful
accomplishment.
Here are some additional considerations which can help in developing shortand
long-term measures:
ߜ After you have set up your short term goals and actions, go back and
ask, if you were to accomplish all of them successfully, would you in fact
have accomplished your long term goal or objective? If not, you probably
forgot something, that is critical to complete success, that you will
need to add in.
ߜ When you have set up all of your short-term actions and goals, and
verified their importance, check to see if there might be a sequence
to them, that would work to your advantage in getting them done with
the highest degree of success, and the lowest risk factor.
ߜ When setting up your short-term goals, think about it from all four of the
scorecard legs, to make sure you are looking at every angle related to
growth, and its effect on the company’s financial, internal business
process and customer satisfaction performance as well.
ߜ A good yardstick to use for “short term” is less than one year, with most
shorter than six to nine months. Longer than one year can be considered
“long term,” with most long-term goals planned for three to five years.
ߜ You should also consider and plan on some short term goals and actions
overlapping others, as they collectively achieve your long-term goals.
Wait! It’s time to do a sanity check!
Doing a sanity check may drive some people crazy, but, it is a necessary step —
and one that many people miss. The thought is, you have picked your goals,
linked them to your strategies, separated the short- and long-term goals, and
you are now ready to measure progress against them. But this is where you
need to check three key things:
308 Part V: Knowledge, Education, and Growth — The Learning Leg
ߜ Go over your overall strategy and direction one more time, and compare
your short term plans and actions, just to ensure they are linked.
ߜ Check your assumptions in case you might have misjudged a risk or
based a fact on bad information.
ߜ Share your short- and long-term measures with your peers and your
boss to get additional perspectives, and to see how your plan fits into
your boss’s plans, or if there are key assumptions he or she is making
that you have yet to consider or work into your specific plans.
One excellent way to check the sanity of your plan is to exchange it with a
colleague’s plan, from a different department, and each of you analyze the
other’s plan from a critical perspective, asking questions as to who, what,
when, where, how and — of course — why you would do each action to
achieve each short-term goal or objective. In the end, make sure the sum
of the actions accomplishes the long-term goals and objectives.
This is also a good place to do a check for what is reasonable and realistic.
Far too often, lofty goals and objectives have been made with the best of
intentions, only to fall into the abyss of not being able to get there, for any
number of reasons. Maybe the resources aren’t available, or the wrong
assumptions were made. Whatever the reasons, you have to be on guard
against setting goals and objectives that are too aggressive with no way to
achieve them. Sure, you want to set stretch goals and not go for the easy way
out, but make sure that there is a real chance for achievement and success!
Creating Dashboards That Increase
Knowledge Management
The design of your growth dashboard has to reflect where you want to go
with your company — the products and services you intend to offer and
deliver in the future, along with how your organization will look and function.
You can design your dashboard to help you not only achieve your vision for
the future, but it can provide critical knowledge and information regarding
how well your transformation is going toward achieving your growth and
development goals and objectives.
Formulating the structure of your
growth dashboard for action
Figure 16-1 represents a structured dashboard approach formulated by a
medical services company to track key short-term measures as they worked
to achieve their long-term growth and development goals. Each of the four
309Chapter 16: Creating The Knowledge, Education, and Growth Dashboard
charts shows a specific measure of growth, yet together they represent
progress in implementing ideas, experiencing innovation and developing
competencies necessary to future growth and development.
This specific combination was designed to focus on development. To achieve
their growth goal, such as increasing customers, they would set up charts
measuring customer treatment increasing trends in total and by department,
treatment, and maybe age and demographics as well, complaint resolution,
and perhaps even specific trends in feedback.
Notice how the measures for this dashboard are closely related to customer satisfaction
and performance as well as internal process tracking and performance.
To set up your dashboard, you first establish the different types of measures
and information you will be tracking, and formulate a sequence of events. For
example, in the above figure, the sequence starts with employee innovation
time, and goes clockwise to patents (which are a result of innovation), then
ideas submitted, and then finally to employee competency. Each of these
measures are tracked daily, with the intent that, as they improve, the overall
long term development goals will be achieved as well, which will also impact
increased market share and potentially improve internal processes to higher
performance levels.
Innovation Time % of Daily Work
15%
2003 2004 2005 2006
Percent
10%
5%
0%
Employee Competency Scores
Patents Filed and Granted
Number
0
200
400
600
2003 2004 2005 2006
Year
Filed Granted
1
2
3
4
2003 2004 2005 2006
AvgScore
Engineers
Buyers
Line Supv.
Fin. Control
Plant Mgrs
0
1000
2000
3000
4000
5000
2003 2004 2005 2006
0%
5%
10%
15%
20%
Ideas
Submitted
Ideas
Implemented
Percent
Implemented
Ideas Submitted and Implemented
Figure 16-1:
Structured
dashboard
approach.
310 Part V: Knowledge, Education, and Growth — The Learning Leg
This is easier than you might think. Just identify the overall objectives you
are going for, by type, and set up your format to include the short-term goals
and actions in an appropriate sequence to your decision needs. Your dashboard
should show short-term performance, in ways that can help you understand
not just what happens, but the reasons as well, to help you make better
decisions and adjust ongoing actions to assure success.
Setting up feedback systems
When we talk about feedback systems, we are referring to ways that you can
assess how well your dashboard is working for you. This is especially important
for your growth and development dashboard, since you use it mostly to
track progress in developing new products, markets or customer accounts,
or the needed competencies and capacity for greater competitive position.
Some companies integrate their feedback process into their dashboards. This
is the best way, as you can immediately see how reliable the information is. A
good example of this can be found in clothing retailers such as J.C. Penney
Company or Kohl’s, which employ extensive dashboards to help them
manage new product trends to help them with product selection and sales.
The measures involve tracking volume and movement by model and product
type, and show trends with different models, styles.
These measures are also able to relate certain characteristics or traits
associated with clothing and their sales patterns, such as certain style traits,
colors, patterns, or certain cuts. When styles would go in or out of fashion,
the measures could be adjusted to enable some degree of visibility to shifts
in product yield (reduction or increase in sales, for example), and could be
regionally applied as well.
By building in reliability factors, the dashboard measures can be adjusted to
account for variations and changes in the industry where they impact a company’s
competitive current status.
Using the dashboard to achieve
greater potential
Your dashboard should do more than just tell you what’s going on in your
organization on a regular basis. Your dashboard should also enable you to
make decisions regarding changes in company initiatives and actions across
all four legs of your Balanced Scorecard that can improve growth and development
progress toward long-term strategic goals and objectives.
311Chapter 16: Creating The Knowledge, Education, and Growth Dashboard
Combining the proper formatting with feedback can create a formidable
dashboard. One that can help you accurately track your key measures for
growth and at the same time help you continuously improve the dashboard
and your decisions as things change.
Always remember to review your assumptions about your market, products
and services, customers, and especially the core competencies, knowledge,
skills and abilities that are critical to developing and maintaining your competitive
edge.
No one knows this more than those companies in the computer and communications
industry, where change happens almost daily, and new product families
and designs are introduced monthly. When you look at the growth and
development dashboards of companies like Motorola, Compaq, Microsoft and
Sony, you’ll see similarities in technology measures that are not just product
specific, but also relate characteristics and traits of these products as well.
These measures change as consumer desires and expectations change.
In this way, these companies can see when certain traits go in or out of fashion,
when new traits emerge, and how they can work them into the new
models and service programs, in order to stay ahead of their competitors,
at least for a little while.
The rapidity of such change has made Balanced Scorecards and their daily
dashboards a standing part of life in these kinds of companies, and probably
has saved them more than once in their ability to help shape decisions with
appropriate information at the critical time needed to make the right changes
in strategy, or to better time a new product launch, or better shape a new
product design.
Analyzing Your Knowledge, Education
And Growth Dashboard
As with the other elements of your scorecard and dashboards, you have to
assess your dashboard regularly, in order to ensure continued alignment with
your growth and knowledge goals, and to continue to support the other legs
of your Balanced Scorecard as well, within a business environment that is
experiencing change and growth at an exponential rate.
In addition, you want to be able to use progress measures in growth and
development to tie to the performance of the other legs of your Balanced
Scorecard, and to even try to make adjustments to the other legs as a basis
of how successful you are at achieving your growth goals. This also applies
should you need to make adjustments to your strategy in order to best satisfy
the entire scorecard and each leg therein.
312 Part V: Knowledge, Education, and Growth — The Learning Leg
How to use the growth dashboard to make
adjustments to scorecard balance
The power of the growth dashboard can help you make adjustments across
all four legs of your Balanced Scorecard, when product or service deployment
performance indicates potential market strengths or possible weaknesses.
For example, let’s say you make electrical components for the automotive
industry, and you have several new, innovative connector systems for lighting
and power control. Your growth and development dashboard can indicate
measures related to trends in increasing yield, rates of design changes, and
incorporation into different automotive products and models.
At the same time, these trends can indicate the entire maturity of a product’s
potential financial performance, given certain experience in product cycles,
customer demand curves and other factors. In addition, depending on rates
of increase in demand and supply, internal production and distribution
process capability can be assessed and adjusted, and even customer behavior
can be measured and tracked to detect changes and respond accordingly.
Another example presents itself in the medical services industry, where competition
is heating up with respect to what facilities provide in health enhancing
and maintenance services. This industry is growing by leaps and bounds,
with the leaders only just barely ahead, enabled through real-time performance
and development measures.
In fact, because of the level of growth in this market, hospitals and medical
service organizations are redefining the way they provide services and in
overall patient treatment, with emphasis moving from traditional systems
to structures that focus on the total health of their customers and patients.
One large, Midwestern medical hospital services provider has actually designed
their Balanced Scorecard around the growth and development trends, instead of
the more traditional financial measurement and performance perspective. They
fully integrate their growth dashboard measures and indicators into decisions
related to internal business process performance as it relates to customer satisfaction,
which eventually results in financial performance.
This particular hospital designed their dashboard to show all four legs on
one screen, interlinking the four dashboard elements as related to their
scorecard legs, so that their managers can see when any measurement moves
in a particular direction, and can immediately see the effect on the other
dashboards’ measures as well, and make adjustments in services, take specific
action, shift resources, or re-prioritize key initiatives in order to keep
up with changes in demand or need.
313Chapter 16: Creating The Knowledge, Education, and Growth Dashboard
The thing to remember and consider is to ask not only what growth measures
can give you up to date information for real-time decisions, but also what
these measures might be able to indicate with respect to your other scorecard
legs, related to your market and product demand trend.
What your dashboard is telling you as you
work toward achieving your future
What your dashboard tells you has a lot to do with what you are trying to
do. This is pretty much common sense. Yet, what you want to do with your
company will determine the steps you take, and the measurements of your
Balanced Scorecard and your dashboards you will use to assess and adjust
your progress. So, what is it all about anyway?
You use your growth and development dashboard to see if the decisions your
company or group makes improves your growth position, and enables development
toward improved competencies and capacities. How well things go
depends on many things, but after all, it is very exciting to be able to grow
and develop an organization.
As a manager and leader, you use dashboards to help you make important
decisions, such as whether to pursue new technologies, reframe product families,
and redefine customer approach and management strategies. There are
some basic things to be on the lookout for, so that you take maximum advantage
of the information, and make the best decisions you can. Here’s how:
ߜ Occasionally compare your dashboard data with outside information,
not linked to your data collection or analysis process. Independent verification
can ensure you are taking the right steps, and have not misinterpreted
your growth data.
ߜ Compare your steps and progress with those of your competition.
Similar and different aspects of your strategy will bear out in this way,
and can confirm the positive or negative impact of what you do and why.
ߜ Refrain from making overly quick decisions or executing many changes
as a reaction to variation in your measures. You need to realize that
some variation will occur, so you want to focus on general trends, not
specific points, when making decisions. You should allow for at least 10
to 15 points indicating a particular trend before you act on it.
ߜ Require peer oversight in interpretation and resulting decisions,
changes, or adjustments you want to make. Having someone else look at
what you are thinking and what you want to do provides a good check
system, just to ensure the right actions make sense given certain performance
indicators in growth and development.
314 Part V: Knowledge, Education, and Growth — The Learning Leg
ߜ Have some fun in interpreting your data and adjusting your programs
and actions to enhance growth and employee development. As you work
with your dashboard, you will learn which actions and variables can be
manipulated to get the maximum benefit from your training and development
programs, and other actions as well, to support strategic growth.
The importance — and the
risks — of being truthful
Being truthful sometimes has its risks, especially in organizations where bad
news is not well received or where admitting that you don’t have the knowledge
to perform a particular task or project will bring disfavor to the management
team. The fear of reporting information that may not be well received
will often force numbers and information to be fudged in ways that can permanently
hurt a company and the people who work for it. This is why you
must encourage and atmosphere of dealing with the truth.
Remove the fear, and if mistakes are made, find out what went wrong and
take steps to learn from your mistakes. Shooting the messengers and hanging
the guilty are the fastest way known to man (dogs and cats, too) to getting
what you want to hear, not what is really going on and what you need to hear.
After all, making mistakes is part of the learning and growth process. Just
make sure you don’t repeat them!
Another key factor that contributes to unrealistic assessments of what can
be achieved is overconfidence on the part of the management team. A feeling
that they are invincible and can do anything. Recent surveys have shown this
to be a key factor in why some companies have failed miserably in achieving
their strategies.
With growth and employee knowledge and skills development, it is more
important than ever to realistically understand and interpret your dashboard
and measures. The risks are greater here, not necessarily for the short term,
but definitely for the longer term effects. Errors in interpretation can result in
subsequent missteps in planning and executing key strategic initiatives, or
even selecting the wrong actions, focusing your organization away from
where it needs to go, or allocating resources in the wrong way or not at all.
Often, what happens as different strategies are attempted, is that the data
can sometimes indicate that specific actions are incorrect, or you might be
taking the wrong steps, or that steps are being taken in the wrong order. The
key here is to honestly evaluate and adjust, and not worry about whether this
might appear badly to your boss or others in the organization.
315Chapter 16: Creating The Knowledge, Education, and Growth Dashboard
Of all of the legs of the Balanced Scorecard, growth and development are
most dependant on looking to the future and determining what you need and
when, and what to do to ensure your future initiatives can be successfully
planned and executed. In other words, this is the least certain of the four
legs, because it talks about the future, and developing capabilities you do
not currently have.
World-class companies will assess the risks of this, and ensure that
ߜ The data and alternatives are thoroughly examined and understood,
including executing a good FMEA (Failure Mode Effects Analysis) to
determine and prioritize their risks and impacts, to minimize distractions
in decisions and possible actions resulting from incorrect risk
assessments.
ߜ Analysis methods are used which ensure objectivity in the collection
and interpretation of the growth and development dashboard measures,
to guard against perceptions and beliefs not based on fact.
ߜ Often, an organization will have considered contingencies with respect
to potential alternatives as shown in the data and measures of the
growth and development dashboard. By having these alternatives taken
into account, this helps managers overcome possible risks in going
down the wrong path by having the different paths clearly defined. In
this way, the decisions can be based on specific situational indicators,
and the risks can be assessed more accurately against achieving critical
strategic goals and objectives.
The decisions made using growth and development data can have far-reaching
effects, and influence future initiatives, endeavors, and even key acquisitions
or strategic development in new technologies. Because of this risk, it is imperative
that managers double check decisions which affect the long-term growth
initiatives, as well as key knowledge development and deployment actions.
While you know that the growth dashboard can give you a window into your
future potential, it is also directly linked to your current performance in internal
business processes and the resulting financial performance, and ultimately
customer satisfaction. Yet, in the end, the growth and development
dashboard provides the best way to see where you are going, and how to get
there, in a way that still enables your competitive advantage — now and in
the future.
Understanding the Pitfalls of Analysis
These days, it seems like everyone is referring to benchmarking for a variety
of things, to include comparing to best practices, baselining (which is actually
not benchmarking but rather defining current state or baseline), and
316 Part V: Knowledge, Education, and Growth — The Learning Leg
results in decisions and changes in organization which most of the hurt more
than help a company. Most managers think they understand what benchmarking
is all about, but few actually get benefits from the concept, and most
just get frustrated. There should be, one would think, a certain usefulness
one can gain from looking at how others are able to perform key business
processes better than anyone else, to see how they do it, and what you might
be able to learn from them. Yet we see time and time again, where this is
done badly, and where more damage is done to the group than was ever
expected, all in the name of benchmarking.
So, we need to understand the pitfalls of analysis, and avoid them in our
desire to capitalize on examples of key processes in our industry that clearly
demonstrate excellence in performance and results. This section will explore
some of the key reasons why most companies don’t get it right, and provide
some suggestions on how to get to the good stuff of benchmarking business
processes and performance.
Performance results alone do
not a benchmark make
Benchmarking consists of three key tasks, and they must be performed in
order for the overall effect to be successful for an organization:
ߜ First, you have to select which business processes you want to benchmark.
For example, you might want to improve your month-end closure.
Whatever you select, you then, as a second part of this first step, need
to thoroughly understand your own business process in this area, to a
fairly detailed level, in terms of who does what, when, and what specifically
is handed off through the process, and to whom. You also need to
know the level of first pass yield at each step in the business process,
as well as the cumulative first pass yield. So, what does this mean? It
means, at each step, how well (defect free) the task is performed, and
the deliverable provided to the next step.
ߜ Second, after you have internally mapped and measured the area you
want to benchmark, you then go out and identify world-class examples
of where this is being done, and gather further intelligence about these
examples, perhaps set up a visit, ask for any information they would be
willing to share, and do research as well. The key here is to gain sufficient
process information about the benchmark best practice example
to be able to compare process elements, internal to external, to see
where you can change things internally, and which changes would
impact or cause the appropriate improvement you are seeking.
317Chapter 16: Creating The Knowledge, Education, and Growth Dashboard
ߜ Once you have compared and extracted appropriate elements for incorporation
into your business process, you will need to put together a
transition plan, to implement the changes necessary within your internal
business process to see the improvements and be able to measure
a positive impact on the business as desired. Then, of course, you execute,
monitor and adjust your transition plan activities to their successful
completion.
The problem is, many companies see the results of world-class benchmark
business processes, and invoke or dictate that their own business needs
to achieve the same level of performance within a specific time period.
However, they have no idea how the benchmarked example company
achieves its performance levels, and just expects that, since they did it, it
must be possible for us to do it too. So, we see the pitfall to avoid is when
we only set parameters and performance metrics objectives, based on the
industry best practices, without fully understanding the process level relationships
that are fundamental to this performance. We have to make sure we
can actually improve to best practice levels, and without actually analyzing
the process steps, we cannot know whether our systems are even compatible
or can even perform to the best practice levels, given possibilities for different
systems and structures supporting the benchmark. So, you see why we
have to break it down, to then know how to implement those compatible
practices in the benchmark organization.
Comparing apples and elephants:
best practices where?
As the title implies, another pitfall to watch out for is comparing two
processes that are clearly unrelated or that represent markets or industries
that are so vastly different that it would be clearly impractical to compare
or measure one against the other. Let’s look at some examples where this
might apply:
ߜ Being interested in improving customer service, a manufacturing company
researched best practices and contacted the Minneapolis City
Police Department, which had been cited with exceptional customer service
awards for several years. It became obvious that, whatever customer
service attributes were highly regarded at the police department
were probably not going to relate to customer satisfaction of clients
receiving high quality parts on time.
318 Part V: Knowledge, Education, and Growth — The Learning Leg
ߜ There was a big push for software companies to improve the design
and development process performance (mostly cycle time and reducing
rework), in order to reduce costs. Several companies went out to seek
benchmarks on design cycle time and cost reduction, and set their
sights on Chrysler’s design office in Michigan. As it turned out, unfortunately,
the characteristics of software design and development did
not lend sufficient alignment in core design elements to be able to be
compared to any other design process. The process used to design
Chrysler’s new models was based on CAD and CATIA, which is solid 3-D
modeling with some intelligence built-in regarding solid clearance, stress
and other physical factors. For software, it is about testing software
commands, loops, and detecting electronic impulses in system operability
and fault isolation tests (SOTs and FITs).
ߜ Financial management processes are sure to be common in all companies,
so one would think. However, a bank recently tried to benchmark
a stock broker’s financial management processes, but without any
success. The reason was that the way the broker was organized and
operated, with the open policies, enabled multi-skilled financial management
group, and U.S.-specific policies and procedures did not work
when applied (or attempted to apply, thank goodness). The way which
the bank closed the office and the safe each month, as well as other
processes, confidential and for customer’s eyes only, contrasted starkly
with the openness of a broker, where all information is common knowledge,
and that everyone works fairly close together.
These are just several of the hundreds of examples where we are trying to
compare pepper shakers with mayonnaise. As you are looking for commonality,
always be sure to check the validity of any comparisons, and if they do
check out, we should support them as well.
Beware of cookbook approaches
and case studies
Another way to benchmark best practices is to go to an official, recognized
publication, and extract best practices based on highlighted articles, touting
them as the holy grail of performance. The pitfall with this is that sometimes
management teams will have a belief that they can take a business example
from a quality or operations or engineering periodical, and make copies, pass
them around the operations or engineering group with instructions to read
and adopt within 60 to 90 days, and report back when completed and the new
processes are working up to expectations. Again, this is taking the assumption
that there is a standard or cookbook approach to implementing benchmarking
practices, which results in inappropriate applications, caused by senior leaders
who want to apply a peanut butter approach to improvement programs.
319Chapter 16: Creating The Knowledge, Education, and Growth Dashboard
Put another way, each company is different, which means that they manufacture
and deliver products, of course, but also that there are a lot of processes
that could be done better, but have not been mapped or understood to the
appropriate detailed level. As a result, when management doesn’t have the
maps or deliberate roadmap to improvement, they still mandate change on
behalf of continuous improvement, even if they do not know what they are
changing. So, we have to watch for this, and not allow rank and armor to
redefine benchmarking just because they want it a certain way. There are
ways to do this, but all in all, it is about working together through underlying
assumptions, and getting to answers.
320 Part V: Knowledge, Education, and Growth — The Learning Leg
Part VI
The Part of Tens
In this part . . .
Here are a few quick reference chapters bursting
with insights gained from our combined experience
implementing balanced scorecards in industries, from
hotels and banks to electronics and automotive, from
retail to wholesale, in both private industry and public
service and government organizations. We cover tips for
balanced scorecard success, scorecard mistakes to avoid,
and tips for overcoming barriers.
Chapter 17
TenTipsforBalanced
ScorecardSuccess
In This Chapter
ᮣ Keeping your focus where it counts
ᮣ Zeroing in on leadership and accountability
ᮣ Planning and implementing strategies to meet your goals
Even as you get your Balanced Scorecards going, and everyone starts to
see the benefits, your job isn’t over. You’re going to need to continuously
sell the Balanced Scorecard idea and help your co-workers pull together
to get the most benefit from this powerful tool. If you stick with it, your
Balanced Scorecards can help you succeed in adapting quickly to changes
in performance, market demands, and new product or service introductions.
Not bad, if we say so ourselves! In this chapter, you can find ten of our
favorite tips to help you ensure Balanced Scorecard success.
Establish (and Remember) Where
Your Company is Headed
Fundamental to the success of any endeavor (big or small) is to first know
the direction in which you want to go. Balancing the scoring of a business is
no different than arranging a vacation: You have to decide what you want to
do, how you will finance it, how you will get there, and how much fun and
exciting the process will be.
Like planning a vacation, a business also has to have an idea of what it wants
to do, how it will finance and accomplish what it wants to do, and what it will
look like in the end. From these key elements, the Balanced Scorecard is
formed. In order to keep your company going in the right direction, you need
to make sure you have the following:
ߜ Mission: In the form of a statement, the mission is what gives the
organization its purpose and its link to the customer.
ߜ Vision: The vision sets the future state in mind, and it forms the growth
direction. In other words, the vision answers the question, “Where do
we want to go?”
ߜ Strategies: The strategies are those overarching intentions and initiatives
which will, when pursued, ensure accomplishment of the mission
and enable the vision. Examples include commanding a specific market
share in a specific industry or market sector, providing a competitive
return on new product investments to stockholders, entering new and
emerging markets successfully, growing margin on key products or in
key regions, or expanding a customer base in a particular technologybased
product family.
ߜ Guiding principles: These are the principles by which we conduct ourselves
(some examples might be agility, competitiveness, and putting
our people first), how we treat each other and our customers and suppliers
(examples here might be honesty, trust, respect and teamwork),
and the guidelines and ethical rules that govern our business decisions.
Be sure that you have all four of these pillars in place to ensure your own
Balanced Scorecard success.
Understand and Stay Current with
What Your Customers Want
Knowing your customers and constantly being in tune with their needs and
how to satisfy them is fundamental in order to make Balanced Scorecard
strategy work. The leading company in any industry is one that is constantly
updating customer knowledge, including how the customer is thinking about
its products and services, and where customers could be better served
tomorrow.
L.L. Bean cornered the retail market by getting right next to its customers
and relentlessly pursuing ways to meet and exceed their needs. Southwest
Airlines turned vital customer desires into a competitive advantage in the
way they approached air travel services. Through the use of Balanced
Scorecards and a customer dashboard, these and other companies aggressively
went after the needs of their customers, and constantly measured and
adjusted their performance to achieve their goals. (See Chapter 5 for more
details on working with your customers.)
324 Part VI: The Part of Tens
Define Your Scorecard and Dashboard
Roles and Responsibilities
As you can imagine, simply installing scorecards will not a successful dashboard
make! You have to have an understanding of who is responsible for
doing what, when specific actions and adjustments are to be made, and by
whom. You should always have agreement on who supports the Balanced
Scorecard — and in what capacity — before you put one in place, not after.
For example, even as your finance team may track performance, the leadership
team together owns the responsibility to achieve goals and expectations.
It is crucial that the leadership team roles and responsibilities be clear,
unambiguous, and complimentary regarding the establishment and monitoring
of the Balanced Scorecard and key overall dashboard performance.
Charter Effective Steering Committees
The leadership steering a company’s decisions about what to pursue and support
toward continuous improvement and lean performance are profoundly
linked to the Balanced Scorecard, the direction of the enterprise, and how
performance is targeted and achieved. You need to ensure your leadership
teams work together on key decisions and take an active role in coaching and
leading critical initiatives affecting your scorecard. One way to do this is by
establishing a steering committee comprised of a company’s leaders, to take
responsibility for these tasks and ensure that the Balanced Scorecards are
instrumental in helping to achieve the goals of the organization.
There are a variety of different ways to establish a steering committee,
depending on the size and complexity of your organization. The following
are some suggestions:
ߜ For simpler organizations, the leaders at the top should come together
and form a steering committee, to integrate and share their actions and
key decisions regarding business prospects, operational performance
improvement, and any strategic direction changes. Priorities are set as
a team, and leads are selected and assigned through this committee as
well,. The Balanced Scorecard is brought into alignment and integrated
with these priorities. .Key leaders can then take an active role to champion
those critical initiatives — such as supply chain, retention improvements,
or reducing working capital, because they are directly related to
their appropriate scorecard legs.
325Chapter 17: Ten Tips for Balanced Scorecard Success
ߜ For more complex organizations, this type of structure is based on
delegation, with leadership teams at the top as well as at the divisional
and departmental (functional) levels. The framework is similar to that
described above, except that there would need to be an executive steering
committee responsible for strategy alignment and directional focus.
For divisions and departments, additional steering committees are
needed. These committees focus more on the actual initiatives and
activities to support the overall goals and objectives, and set the scorecards
in place as aligned with the strategic approach and complimenting
and integrating with each other as well. Each division and department
steering committee would take on the responsibilities for their particular
organization or function, and would be of the simpler type as
described above.
Establish and Maintain Accountability
You may have heard a saying from the southern part of the United States
regarding participation versus commitment:
In an American bacon-and-eggs breakfast, the chicken participates, but
the pig is committed.
The same is true when scoring business. Accountability means holding
yourself responsible and staying committed to achieving certain goals and
expectations — “owning” the scores and adjusting for them to meet your
goals. All leaders are accountable to each other and to the company for
performance against the Balanced Scorecard and for carrying out necessary
adjustments to maintain balance and achieve, and even exceed, expectations.
Be sure that you establish and maintain accountability in your organization
throughout the Balanced Scorecard process.
Link Your Scorecards and Dashboards to
Your Strategies, Goals, and Objectives
When you drive, you rely on your dashboard to see how fast you’re going,
how far you’ve gone, how much gas is left and how well your engine is performing.
This information is critical to see whether you can get where you’re
going. Leading a business is a lot like this, in that you look to your scorecards
and dashboards as indicators to tell you how far you’ve gone, where you’re
heading, and how you can get there.
326 Part VI: The Part of Tens
Build links between your scorecards and dashboards as well as your objectives
and strategies. These links enable your organization to respond quickly
to changes in customer demand, capabilities, and markets. While this advice
may seem like common sense, the key here is to have a solid, unambiguous
connection, so that every action and every task can have a direct impact in
some way to your overall mission.
There is a story from 3M some years back where everyone, even the janitor,
could explain clearly how doing his job to keep 3M cleaner contributes
directly to the company’s ability to achieve its margins and remain competitive.
The connection from actions to measures to monitoring to goal achievement
is the secret many companies miss, but by linking every component of
your company, you can ensure that you not only meet your strategic goals,
but also outpace and outmaneuver your competitors.
Communicate Your Personalized
Four-Legs Approach to Everyone
In sports, each team member needs to know his role as well as how the play
comes together in order for the team as a whole to be successful. For example,
the center fullback in soccer has to be able to absorb the stopper role to
key in on the opponent’s dangerous striker, to be able to anticipate the other
team’s movement of the ball. If the center fullback didn’t do his job, his team
pays the price.
In business, success likewise depends on how well everyone understands the
overall mission and direction of the company as well as how each person’s
role is impacted. Each person, whether management or employee, needs to
understand her part and how they can best support the four legs approach
to make Balanced Scorecard a success. You can accomplish this by discussing
it over and over, constantly reinforcing the basic principles, and
ensuring that everyone is personally involved in the process.
Use Feedback and Feed-Forward Loops
Just like you would tell someone if something were wrong that required
action on his part to correct, you should expect to be told as well. For the
Balanced Scorecard to work well, you need to understand that feedback
status and performance into the system as well as the feed-forward status
and performance is important.
327Chapter 17: Ten Tips for Balanced Scorecard Success
In other words, you need to hear feedback on how you’re doing and where
you need to make course corrections during the year. You also need to take
prior information and knowledge and — coupled with other predictive
factors — feed forward key information regarding trends in sales, costs,
markets, consumer behavior, and the supply chain, to be able to adjust
actions prior to experiencing significant losses to the business. In this way,
you make adjustments from both factors.
As Dell developed in its early days as a computer hardware- and softwarecustomizing
company, it used data from both past performance as well as
predictive programs to go after the next customer desire or idea. The Dell
company capitalized on this approach to leap over its competition.
Plan and Execute Your Balanced
Scorecards Relentlessly
Leading companies make their Balanced Scorecards (and their dashboards)
part of their daily management and leadership practices. They ensure that
both existing and newly appointed managers are trained in their Balanced
Scorecards and the roles and responsibilities they have.
To make Balanced Scorecard work for your business, you not only have to
create an effective plan, but you also have to follow through with that plan.
The following are some guidelines for planning and implementing your
Balanced Scorecards:
ߜ Make sure that your plan integrates the evaluative elements with key
performance indicators (KPIs) as well as regular reviews and follow-up
to keep on track, and adjust when getting off-track.
ߜ Execute the plan in line with other foundational initiatives by having
each initiative and task laid out in a structured road-map — measurable
and with clear roles and responsibilities.
ߜ Make sure that the leader follows the road-map closely, with check and
balances in place both to detect and correct side tracks.
Leaders must work closely with their champions or sponsors to remove
barriers and to enable real-time adjustment when priorities shift, as they
sometimes do.
ߜ Constantly evaluate your scorecards — planning, executing, and adjusting
your scorecards and your performance as the market, industry, and
customers’ requirements change.
This approach can maintain balance between the four legs of the Balanced
Scorecard and assure market leadership or a significant competitive advantage.
328 Part VI: The Part of Tens
Synergize Your Scorecards for
Competitive Advantage and
New-Market Entrance
Your scorecards help you achieve a competitive advantage and key business
performance. By constantly reassessing the overall goal and by stepping out
of your area once in a while, you can use your scorecard to see the broader
picture of which you’re a part and see whether things could be done even
better. You look for continuous improvement, not just locally to your own
scorecard, but as part of a larger business focus, where you may be able to
see greater opportunities. Sometimes we refer to this as: ‘the whole is greater
than the sum of its parts.’ In other words, when everything works in a collaborative
and coordinated effort, you will be able to see greater opportunities
than would be typically visible just to accomplish your local goals and objectives.
Maybe, for example, there is a way to revise your product development
approach, because of the unique manufacturing processes you have
designed, or because of the peculiar customer relationship you might have,
such as greater sharing in technology, or closer links to the value stream.
In addition, your scorecards should help you seek out and define potential
new markets and opportunities for your business, through a balance between
customers and operations and between financial performance and new
growth opportunities. For example, in the early ’90s, Chrysler developed its
integrated design organization to reduce time to market and enable faster
design capability as well as a smooth transition to manufacturing. However,
as it experienced these and other benefits, the Chrysler company saw customer
opportunities through better and faster survey data, coupled with
more up-to-date operations information, to create additional growth through
its new Concorde family, which took off immediately and was a serious threat
to Ford’s Taurus and GM’s Oldsmobile leadership.
As your scorecard becomes more and more a part of your business, you will
see increases in flexibility, response time, and other traits, making you more
competitive. You must be prepared to shed old, outdated processes that at
one time may have seemed cutting edge, but could prove obsolete with new
production techniques, better customer feedback, and technological
advances enabling higher performance and achieving greater market share.
329Chapter 17: Ten Tips for Balanced Scorecard Success
330 Part VI: The Part of Tens
Chapter 18
TenBiggestScorecard
MistakestoAvoid
In This Chapter
ᮣ Keeping your focus on what’s important
ᮣ Recognizing common pitfalls — and how to steer clear
The use of Balanced Scorecards can enable a company to achieve a clear
competitive advantage through integration and synergy in an overall,
four-leg view of its business opportunities and challenges. However, several
mistakes can be made along the way. Your job is to avoid these mistakes
whenever possible, and our job is to point them out. In this chapter, you can
explore ten of the most damaging mistakes that you can make with Balanced
Scorecards, and how to avoid making them.
Cherry Picking
Implementing Balanced Scorecards is an all-or-nothing kind of thing for a
company. One quick way to destroy any possibility for success is to apply the
scorecards only in special cases or circumstances, outside the normal function
of the company. When you reserve the use of scorecards only for special
cases, you lose a lot of their benefit. We saw this in one company where the
financial performance aspects of a company were tracked well, but little
attention was paid to the internal processes. This resulted in focusing on
reducing costs (a good thing for sure), but without process understanding
with respect to these costs, which ultimately resulted in workforce reductions
and cutting in travel and expenses. As this company happened to be in
the entertainment business, where everything is customer focus, impeccable
performance in all processes, and a realization that service levels define cost
levels (not the other way around, as in production, for example), this company
was quickly forced to sell off about 45 percent, and close the rest within
a matter of months.
By picking and choosing where you implement balanced scorecard, you risk
different levels of visibility and reaction to failures or challenges when it
comes to key aspects of the performance of the company. This can result in
haphazardly allocating key resources, putting too much emphasis in one or
two areas, and under-resourcing critical elements of the other legs of the
Balanced Scorecard.
An organization’s priorities and business focus must be in alignment across
the company, to help decide what is important and to ensure limited
resources are focused and applied accordingly. And, how do you do this?
Simple: Use the scorecard in a consistent, uniform way. Balanced scorecards
aren’t just for breakfast anymore.
Following Case Studies Too Closely
You may see the success of other companies and want to know what made it
that way, so you can apply that knowledge to your own business. But while
you want to study successes (and failures, by the way), you also need to consider
that your company is unique — it isn’t GE, or Toyota, or Harley
Davidson. Instead of getting hung up on case studies of successful companies,
focus on your own business, and remember the rules for successful
benchmarking:
ߜ Identify the best practices you want to model.
ߜ Map your own processes and practices to a detailed level, specific to
these best-practice areas.
ߜ Go and look at the company with best practices and capture the
detailed-process characteristics.
ߜ Compare process characteristics to determine portability and transferability
of the process steps, actions, and resulting performance.
ߜ Develop, plan, and execute a step-by-step activity that transitions your
organization to the new best practice.
ߜ Develop excellent tracking and adjustment processes to this transition
plan, so that as things develop, you can fine-tune the approach and the
systems or structures to support the change.
332 Part VI: The Part of Tens
Delegating Responsibility
without Authority
Have you ever been given responsibility for doing a job, but your boss didn’t
give you the authority you needed to carry it out? Not a very fun (or successful)
position to be put in, was it? Unfortunately, this happens all the time,
in all kinds of businesses. Putting people in a position where they’re held
responsible yet don’t have the requisite authority to enable them to carry
out crucial actions to support that responsibility results in frustration (at
a minimum) and undermines the systems and support structures by which
Balanced Scorecards are defined. Plus, you can get a big headache.
At its worst, when responsibility is delegated without authority, projects and
indeed whole companies become disjointed, disconnected, and distrusting,
because suspicions arise about hidden agendas — and people start getting
paranoid about being set up for failure. The sad part is that none of this adds
value to the products or services you work so hard to provide to your customers.
In fact, it creates inefficiencies that increase costs and decrease quality.
When you delegate responsibility for performance of key aspects of the
Balanced Scorecard, you must trust and enable your managers and leaders
to be personally and professionally responsible for performance to the scorecard.
Consider, as you assign tasks, what responsibility and authority you
would need to successfully complete the task. Then, work with other leaders
to make sure that the assigned individuals have the tools to succeed in carrying
out critical activities. Of course, you must coach and mentor those
assigned individuals as they follow the appropriate processes as well.
Ignoring the Soft Stuff
Putting your Balanced Scorecard into practice is more than just installing a
series of measures, setting expectations, and monitoring results. A lot more.
To capitalize on your company’s strengths and synergies, you must integrate
the four legs of your scorecard with your organization’s leadership style —
that is, the “soft stuff.” This is especially the case in communication within
the organization and the coordination of different functions and departments
toward providing products and services to your customers.
333Chapter 18: Ten Biggest Scorecard Mistakes to Avoid
We have seen numerous industry examples where mergers or acquisitions
have failed miserably, and where companies have failed to capture market
leadership, due to imbalances in leadership and employee motivation. When
we take a closer look, we see this imbalance stems from the way individual
performance is separately evaluated and rewarded, and how managers are
promoted based on their individual achievement, with no regard for teamwork
or shared responsibility for the overall performance of the company.
Don’t let your company make the same mistake. You need to make sure
you’re integrating what you do with how you do it, by taking the “soft” skills
into account in your quest for competitive superiority. Ready to get soft?
Here are a few things you can do keep an emphasis on leadership and motivation
within the company:
ߜ Set up and enforce steering team behavior, where key engineering, operations,
staffing, supply chain, and financial decisions are made through a
leadership team approach, in which every member of the management
team participates — not mandated by one functional manager alone.
ߜ Require employee involvement in every aspect — including financial —
of any project that improves a process, and ensure a management team
member is championing each project, providing coaching, and mentoring
the project leader and team throughout.
ߜ Expect employee work groups to develop their own visual display
boards to manage their daily work; require each group to meet daily at
this board for about five minutes, to discuss work, handoffs, and issues
that have arisen or may arise.
ߜ Require supervisors to also meet daily to discuss their work cells, daily
work, issues, and any barriers needing leadership support and removal.
ߜ Establish regular leadership reviews, perhaps weekly, for the management
team to visit all the employee work group visual display boards to
see what they’re working on, what they’re improving, and their current
issues, so that staff members can better support the needs of the
employee teams.
ߜ Create rewards that focus on competition with external competitors, not
internal organizations, with appropriate recognition for achieving greater
market share as well as sharing best practices within the company.
ߜ Establish multiple review processes for performance management,
incorporating team-based metrics, leadership traits with concrete examples,
and motivating a shared leader environment.
Above all, remember that you also need to actively participative as you bring
the organization to the future state.
334 Part VI: The Part of Tens
Focusing Too Much on the Tools
Many companies focus so much on the tools and techniques that they forget
that a framework that enables and focuses these practices is just as important
for success. Just applying the methodology without a concept, idea, or
sense of direction, coupled with focus and a sense of discipline, results in
blind practices with a hit-or-miss mentality. This way of thinking doesn’t work
in an increasingly competitive environment, where one slip-up puts you at
the back of the pack playing catch-up.
This framework is more important than you may initially think. Without a
sound strategic and overall business framework within which your business
employs the Balanced Scorecard tools and techniques, you run a great risk
of misalignment in department goals and objectives, which could result in
optimizing scorecard performance in one aspect at the expense of another,
causing loss and potential reduction in market share.
For a company, Balanced Scorecard means achieving balance in the way it
approaches the challenge of providing products and services to its customers
in a continuous learning and improving environment. The way to
ensure balance is to develop such a framework for planning and executing
your scorecard, ideally with the steering committee, and definitely with key
leaders of the business. For more information on the development of such a
framework, see Chapters 3 and 4.
Overanalyzing
While you may safely subscribe to the old adage that “what gets measured
gets done,” you also need to be careful not to measure everything to a point
where you have so much information that you can’t determine what to do.
Paralysis by analysis is one sure way to help your business get nowhere fast.
In setting up and sustaining Balanced Scorecards, you focus on establishing
critical measures around the four legs (customers, finance performance,
process performance, and growth potential), so that you can assess the organization’s
overall health in performance and then adjust emphasis and priorities
as appropriate to maintain the balance for sustained competitive
advantage. After the scorecard is constructed and working, more information
can clutter the data and make it difficult to see how you’re doing.
Examples of how too much info can hurt the decision-making process abound
in the cell-phone and electronic-entertainment industries, where companies
were late in launching key innovations (and upstaged by their competitors)
when they decided to gather more information instead of taking quick action.
335Chapter 18: Ten Biggest Scorecard Mistakes to Avoid
The bottom line is this: Always ask yourself whether additional or more
detailed information would be critical to taking certain actions aligned with
performance of one of the four legs. If not, don’t waste time collecting or analyzing
the information — unless you’re planning to look for a new job as your
competitors leave you in the dust.
Not Dealing with Key Detractors
Thinking that if you establish the four legs of the Balanced Scorecard and
communicate effectively, then everything will work out great all by itself and
your business should see remarkable results in a few months is a dangerous
tendency. Oh, and that cows will grow wings and start flying, and you will
stub your toe on a buried treasure chest on the way to work tomorrow. But
back to the real world. . .
You face plenty of barriers to Balanced Scorecard success, including those
key detractors which can undermine everything you do with respect to
Balanced Scorecards. While you shouldn’t be deterred by negative feedback,
you need to be cognizant of the following common key detractors that can
derail scorecards:
ߜ Lack of critical information: Such as, failing to measure key process
indicators or failing to analyze data in a timely manner
ߜ Lack of a structure to support scoring to the necessary level: This one
works two ways, both up and down the organizational structure by; not
delegating the responsibility and authority for scorecard to the lowest
appropriate levels; and by not getting scorecard information properly
fed upwards through the management levels of the organization.
ߜ Limitations on sharing best practices: For example, when offices or
plants are in direct competition with one another
As long as you reward and encourage internal competition, you can’t be successful
in utilizing Balanced Scorecards. Why not? Because employees aren’t
inclined to help each other achieve the best performance for your customers
when they are rewarded for their own performance and ranked against other
employees and departments doing the same work.
These and other types of detractors must be recognized and dealt with
quickly, by establishing detection and intercept policies and procedures,
and making the elimination of such detractors a high priority in deploying
Balanced Scorecards for everyone involved.
336 Part VI: The Part of Tens
Sending Mixed Messages
How well the company is doing and where it may want to invest next is
clearly a business decision. However, the direction, vision, and focus must
also be clear, unambiguous, and in sync with the actions the company is
taking; otherwise, you’re sending mixed messages. For example, a company
stresses in its vision continuous improvement in processes, yet layoffs
abound as the company struggles to meet quarterly sales and EBIT (earnings
before interest and tax) targets.
When a company sends mixed messages about what is important, the
Balanced Scorecards are directly impacted — how they’re managed and used
and whether they help or hinder the company’s performance. A company’s
vision, direction, expectation, and measurements all have to be aligned and
communicated in a clear way for the scorecard to be used effectively. To
accomplish this, here are a few helpful hints:
ߜ Centralize your communication messages, so that only one interpretation
is published and discussed among your management team.
ߜ Frequently discuss the messages you and your leaders need to convey,
and ensure you have alignment and a coalition among leadership.
ߜ Have your leaders check frequently with different employees and
groups, to see whether the message is understood or whether issues
have come up. Work to resolve issues in real time.
ߜ Make use of communication professionals to get the different messages
developed and communicated effectively. Working with these professionals
to put together and execute a comprehensive communications
plan with checks and balances can help your company ensure that
mixed messages are avoided and when they do occur, to make sure
they’re detected and eliminated immediately.
Exaggerating the Returns
Anytime returns or results are exaggerated, you detract from the potential
success and true contribution of the Balanced Scorecards to your business.
Anytime you exaggerate performance, you do a disservice to the company
and to yourself, by damaging the credibility of the data systems and the decision
process you chose to accept. The impact of this loss could potentially
close a company, depending on how deep the effect on performance, especially
when the customer is aware of the exaggeration.
Exaggerating returns never works, and seldom gets the desired results from a
performance and customer satisfaction perspective. Be straight with your
results — good or bad — and you can sleep a lot better at night.
337Chapter 18: Ten Biggest Scorecard Mistakes to Avoid
Ignoring the Customer
You may not think it is possible to ignore the customer. Yet, more often than
not, we see organizations that feel they understand their customers so well
that they don’t really need to check every once in a while to see whether
they’re right. This tendency is especially prevalent when a company has a large
sales presence, and feels that sales knows what the customer wants anyway.
With customer demands changing more than ever before, and technology
and innovation constantly paving the way for new products and services,
going back often and checking in with your customers is more important
than ever. You need to ask your organization, and especially your managers,
the following questions:
ߜ Are you meeting your customers’ needs well and completely?
ߜ Are customers looking to partner with you and your company as they
see new opportunities?
ߜ Do customers see your company as highly responsive and quick to
support change?
One of the foundational principles of Balanced Scorecards is the concept
that everyone in your organization, from the CEO to the guard at the gate
and everyone in between feels they are contributing to the success of the
company by tying their performance and activities to one or more of the four
legs of the scorecard. The customer’s interests must also tie to all four legs,
so that everyone sees his role as supporting the customer’s needs — thus
enhancing the company’s health and continued success. (And maybe even
getting you that promotion you’ve been hoping for.)
338 Part VI: The Part of Tens
Chapter 19
TenTipsforOvercomingBarriers
In This Chapter
ᮣ Harnessing the power of influence
ᮣ Celebrating success
ᮣ Taking advantage of open communication
ᮣ Establishing a positive structure for Balanced Scorecard
Successful companies have to work hard, over several years, to sew
Balanced Scorecards into the DNA of everyday company life. Many
obstacles and barriers have to be overcome, and a number of folks need
to be convinced. Your organization can benefit from the lessons learned by
the many organizations that have successfully and unsuccessfully developed
and implemented Balanced Scorecards and dashboards. In this chapter, we
review ten key tips for overcoming barriers when implementing Balanced
Scorecards, based on these lessons learned.
Empower Your Employees
Employees are the process experts for their jobs, so they have the best
insight as to how to do the jobs better, faster, and cheaper. However, many
companies limit their employees’ roles in planning and improving the work
processes in which they perform. You can spot these companies if you look
way behind organizations that empower employees to take an active role in
such improvements.
We’re taking a wild guess here that you want to be the surpasser and not
the surpassee, so, follow these guidelines to empower your employees in
the job-improvement process:
ߜ Get your employees’ input on what could be done better. Do this not
through suggestion programs that just offer ideas, but through involvement.
Have your work team select, prioritize, test, prove, and optimize
the ideas.
ߜ Allow your employee work teams to share in the tracking and management
of their performance. This is already practiced in many leading
companies, such as GE, Varian, Saturn, GKN, Sara Lee, and others, and
is a foundational concept to lean enterprise theory. Rather than waiting
for the ‘boss’ to decide what is going well, and what to do different,
companies all over the world are embracing the idea that the work team
itself can best decide what works, and how best to improve performance,
given that the members are working in the process daily. This is fundamental
to both implementing and sustaining your scorecards, since
employee work teams will be using them to both track and improve performance.
They will also be responsible for generating any data analysis
from their work stream, which is done by imbedding the reporting
process into the daily activities, rather than put together by exception.
ߜ Structure improvement initiatives to enable real-time corrective
actions. The key aspect here is real-time, where, when a work team sees
an improvement opportunity, there is a simple, quick, and effective
means to initiate, assess and formalize the improvement, and build it
into the daily tracking method and local scorecard.
ߜ Train your supervisors in the art of coaching their employees to
assess, understand, and improve their performance. Supervisors in
leading companies spend less time supervising and more time coaching
and working with their work teams on performance and improvement.
Following this example will help your scorecard’s success also, because
supervisors will have more time to look at the overall performance perspective
of the operation or function. Additionally, supervisors will be
able to tie-in the legs that much better, since they will be relying on the
team members more for the detailed work, and collaborating and working
together to achieve the team’s performance goals and objectives.
ߜ Establish a deliberate employee-involvement program. Getting
employees involved in understanding, assessing, and improving the
performance of their work team is critical to your scorecard’s success,
for many reasons, but primarily because employees are the most
knowledgeable about what can be improved and how. An employeeimprovement
program can involve simply getting together daily to
discuss events, issues, performance, who is missing, and any new
developments within the workplace. Some teams create boards or
other media (for example, this could be a white board, or an electronic
one-page activity register) to track daily performance; hold daily meetings
to share ideas, status, and current workload; and provide team and
continuous-improvement training.
ߜ Get actively involved as a leader. Provide resource support — both
internally and externally when needed — to assure success and demonstrate
your commitment to employee involvement and empowerment.
340 Part VI: The Part of Tens
Be Flexible
To implement Balanced Scorecards throughout your organization, you must
have a good, strong plan in place. But you must realize that flexibility adds to
the ease of implementing changes and lends real strength to your plan.
For a company to quickly respond to changes, several things must be in place:
ߜ You must have a system that can detect changes quickly and feed information
to those who need it right away.
ߜ Your employees must understand the importance of flexibility in both
the creation and the delivery of your products and services — especially
as demand and order behavior shifts.
ߜ Your company’s leadership team has to be closely involved. Provide
continuous energy to the system, and work with employees to make
changes to your tactics and activities — changes required by today’s
fast-changing business environment.
Apply Psychology
Change can be both exciting and terrifying to your employees — especially
when the change will undeniably impact them in some way, even if they don’t
know how. So, take some time to understand what motivates your employees,
and see if you can align their work needs and desires with those of the organization.
If you tie company performance to personal and organizational
achievements, you can overcome some of the basic barriers to change
through involvement and recognition.
For your Balanced Scorecard applications, you can sync personal and organization
goals by doing the following:
ߜ Align measures of recognition, good leadership, employee involvement,
fair treatment, and competitive wages with the appropriate scorecard
legs, and make sure these are the focus of the organization’s management
practices.
ߜ Continually assess how well or how poorly these measures are aligned,
checking the alignment of these measures regularly, and correcting the
alignment when they get off course or revert _k to motivating purely by
financial means
ߜ Establish the external competitor as the focus and target for any and all
competitive activities within the organization, and discourage any type
of internal competition wherever possible. In this way, you will be harnessing
the competitive spirit of your workforce in the right direction.
341Chapter 19: Ten Tips for Overcoming Barriers
Identify and Use Influential People
Get the people on your side who always seem to know who to talk to; where to
get needed resources; how to get tasks accomplished; and who they can rely
on to always get things done. These people can help you overcome resistance
within your company — either as advocates themselves or as champions who
solicit others to buy-in to the scorecard methods, even if it is for their own
purposes. For instance, operations managers will want to support a Balanced
Scorecard if it positively reflects their performance across the four legs.
Limit the Use of Force
Your natural tendency may be to force your employees to implement scorecards
and then let them discover the attributes of scorecards afterwards. In
some limited situations, this can work — for instance, in pilot changes where
you want to try something to see what happens. By forcing a behavior, you
run the risk of the people in the process disassociating themselves with that
very process. If they aren’t confident or don’t believe the process will work,
they’ll disassociate themselves with the process even more.
We recommend that, even when you need to implement a controversial set of
behaviors, you provide the members involved with a way to give input and
assessments and to participate in the review and adjustments of the scorecard
changes. In this way — even as certain processes feel “forced” — the
people involved can retain levels of authority in determining how best to
fit their styles and performance into the new processes. (See the section
“Empower Your Employees” and the following section for more topics related
to this.)
Don’t Shoot the Messenger; Make
Everyone the Messenger
When you first start developing and implementing Balanced Scorecards, be
prepared to find out how bad some processes really are in your organization!
Balanced scorecards reveal performance at a more detailed level than you may
have measured in the past; as a result, you may get some surprises in the form
of problems that were covered up before. What you must remember is that this
is actually a good thing. You need to make sure you don’t assign blame for
these discoveries and for anything that may seem a little questionable.
342 Part VI: The Part of Tens
Ask your employees to get involved — to become messengers of change, in
other words. As they realize that they can raise issues about anything —
even things previously “owned” by management — your employees will bring
up other issues that impact performance. Through this, you may discover
that you have policies that need revising or eliminating, and employees may
eliminate chronic issues you thought you could never get resolved. Just by
not placing blame you can create more change.
Implement Stage-Gate Reviews
Stage-gate review systems give companies a regular review process that
allows them to find out how they’re doing when it comes to performance.
With these reviews, you can periodically revisit your strategy, actions, and
performance and adjust as appropriate.
As stage-gate reviews become more and more a part of the normal operations
of your organization, Balanced Scorecards become commonplace and reflect
the ever-increasing awareness of the business and its key performance indicators.
The reviews also help your organization overcome a lot of the resistance
people experience. Your employees realize that Balanced Scorecards aren’t
just the latest fad; they’re a cornerstone of the way you run your business.
Reward, Recognize, and
Celebrate Success
One of the most effective ways to motivate people and break down barriers
to change is to show them how using scorecards and dashboards can benefit
them. Of course, anything new is a risk, so when a team succeeds in improving
performance and demonstrates the improvement via a scorecard, you
need to recognize the team for its work and success and share the news with
as many people and organizations as possible and appropriate.
When a team receives recognition for its success, the team members will talk
about the experience and what they achieved in positive ways. This positivity
will spark additional interest from people who may otherwise hesitate to
try something new on the job. They may become excited to explore options,
given the possibility for success and further recognition.
You can hold periodic celebrations to recognize members of the organization
who have participated in, supported, or championed improvements based on
scorecards in order to avoid appearing selective in who you reward and how.
You don’t want to foster an internally competitive atmosphere; instead, you
want to focus scorecards and dashboards on the metrics that focus your
energy and resources on defeating your external competitors.
343Chapter 19: Ten Tips for Overcoming Barriers
Communicate, Communicate,
Communicate (And Don’t
Forget to Talk)
You need to communicate to your organization continuously and constantly
about what a Balanced Scorecard is, what it does internally for a company,
how it creates a competitive edge, and how it improves performance in creating
and delivering value for the customer.
By sharing your thoughts about scorecards, establishing two-way, interactive
discussion opportunities, sharing the concepts, vision, and intent of Balanced
Scorecards, you can overcome the fear, uncertainty, and misunderstanding
common in organizational transformations.
Be aware, though: Haphazard, unstructured communication can do more
damage than no communication at all.
Provide Structure for Coaching,
Mentoring, and Learning
from Mistakes
A well-known and equally well-practiced motto from the United States Marine
Corps is “improvise, adapt, and overcome.” In business, living by this motto
is just as important due to the fast-changing, highly complex environments.
In order to survive, global companies have adapted formal structures to
enable rapid learning, understanding, and quick turnaround from mistakes.
They also provide real-time coaching and mentoring from leaders as situations
develop.
The structures you create must mirror your organizational structures to be
effective. In other words, if your organization is set up with a corporate headquarters
and several divisions, your support structure must involve players
from both the corporate and division functions. It also has to include levels of
management to ensure alignment and consistency with the goals and objectives
of your organization, as they relate to the four legs of the Balanced Scorecard.
344 Part VI: The Part of Tens
• Numerics •
3M
communication with employees, 327
innovation, 259
worker’s ideas, 265
6-Hat Thinking methodologies, 57
9/11 attacks, 45
• A •
abilities
assessing, 275–277
defining needs, 274–275
developing, 171
filling gaps, 277–280
inventorying, 273
accountability, 326
accounting laws and regulations, 134
accuracy of financial measures
achieving, 129
common mistakes, 173–174
finding the right people to do the
measuring, 140
importance of, 128
variation in financial measures, 139
acquisition of customers, 85
adapting to changes in markets, 43, 156
adjusting
knowledge, education, and growth
scorecards, 301–302
scorecard balance, 313
administrative support and supplies, 34
advocates, 342
aligning
employees to organization’s goals and
needs, 263–264
organization to strategies, 36
analyzing
customer dashboards, 120–122
customer scorecards, 107–110
financial dashboards, 192–195
financial measures, 168–169, 172–173
internal business process dashboards,
251–254
knowledge, education, and growth
dashboards, 259, 312–316
knowledge, education, and growth
scorecards, 300–303
overanalyzing, 335–336
risk, 171–172
Strengths, Weaknesses, Opportunities,
and Threats, 40, 171, 269–272
anticipating future state of your
business, 20
Apple, 271
Army, 57
assessing
competency of employees, 275, 277
performance, 340
risk, 146
assets, 169
authority, 333
autocratic, directive style of
leadership, 261
• B •
The Balanced Scorecard (Kaplan and
Norton), 85
Balanced Scorecards
adjusting scorecard balance, 313
collaboration, 51
communicating about, 66–67
competitive advantage, 329
creators, 10
Index
Balanced Scorecards (continued)
defined, 10
developing, 33
displaying, 34
executing, 328
feed-forward loops, 327–328
feedback, 327–328
flexibility, 55–56
foundation, 53–59
framework, 50
implementation, 50, 54–55
key performance indicators (KPIs), 59
launching, 61–66
measures, 50
personalizing, 327
pilot, 61–62
planning, 49–50, 328
priorities, 51
promoting, 63–65
resources, 51–52
roles and responsibilities, 325
self-assessment, 50
strategic planning, 63
strategies, 50
support for, 50, 52–53
sustaining, 62–63
tracking, 50
triggers, 58
bar chart (pareto) diagram, 133
barriers
flexibility, 341
key detractors, 336
overcoming, 339–344
baselining, 316–317
benchmarking, 316–318
best practices, 318–319
Blackberry, 271
budget compliance, 169
budgeting resources, 34
buggy whip manufacturers, 13
business environment changes, 156
business process dashboards
analyzing, 251–254
common mistakes, 251, 254
contingency planning, 253
creating, 248–249
drill-down capability, 245, 247–248
operational dashboards, 249–250
persistence, 253
real-time information, 246–247
strategic dashboards, 249
tactical dashboards, 250
targets, 250–251
updating, 244
what-if scenarios, 253–254
business process scorecards
Cause and Effect Diagram, 233–234
common mistakes, 241–242
Five Whys technique, 234
Input-Process-Output diagram, 232–233
measures, 230–232
operational-level scorecards, 236
strategic-level scorecards, 235–236
tactical-level scorecards, 236–238
business processes
anticipating future state, 20
catchball, 226–227
continuous improvement, 210–217
core processes, 217–218
customers, 200–202
cycle times, 19
decision making, 239–240
defined, 10–12
delay time, 19
empowering employees, 339–340
influences, 46
Input-Process-Output diagram, 232
lead times, 19
leadership, 224–225
measures, 200, 202–203, 211–213
process time, 19
process workers, 200, 203–204
quality assurance, 18–19
recognitions, 207–210
rewards, 207–210
strategic planning, 220–222, 227
systems thinking, 222–223
tactical planning, 227–228
Takt Time, 19
technology, 200, 204–205, 218–219
346 Balanced Scorecard Strategy For Dummies
tracking, 19–21
transactional processes, 201–202
value streams, 205–207
variation, 210–211, 234–235
waste, 200–202, 233
weakest links, 219–222
• C •
cascading financial measures, 131
case studies, 319–320, 332
catchball, 226–227
Cause and Effect Diagram, 234–235
cause and effect relationships of financial
measures, 170
celebrating successes, 343
champions, 342
chartering steering committees, 325–326
cherry picking, 331–332
Chrysler, 329
clarity from knowledge, education, and
growth, 266–267
coaching, 344
collaboration, 51
commitment, 70
common mistakes
cherry picking, 331–332
communication, 70–71
customer measures, 95–96
delegating responsibility without
authority, 333
exaggerating the returns, 337
financial dashboards, 190–192
financial measures, 141–142
financial scorecards, 173–176
focus groups, 97–98
focusing too much on the tools, 335
following case studies too closely, 332
ignoring customers, 338
ignoring key detractors, 336
ignoring “soft stuff,” 333–334
internal business process dashboards,
251, 254
internal business processes scorecards,
241–242
knowledge, education, and growth
scorecards, 302–304
overanalyzing, 335–336
sending mixed messages, 337
communication
common mistakes, 70–71
customer dashboards, 121–122
customers, 102–103
front lines, 69–70
importance of, 66–67, 344
knowledge sharing, 68
middle managers, 68–69
mixed messages, 337
senior executives, 67–68
communication chains, 260–261
Compaq, 312
competency levels, 275–277
competency needs, 262–263
competition and financial measures, 158
competitive advantage, 329
complacency, 265
compliance, budgetary, 169
conferences, 82
consistency of financial measures, 141
consultants, 83
contingency planning
devil’s advocate role playing, 57
Failure Mode and Effects Analysis
(FMEA), 58
force-field analysis, 57
if-then contingency planning decision
paths, 189–190, 253
methods, 57–58
Military Decision Making Process
(MDMP), 57–58
Negative Objection Analysis, 253
6-Hat Thinking methodologies, 57
triggers, 58
continuous improvement
acceptance of, 213–214
building in, 210–217
implementing, 215–217
ownership of, 213–214
performance measures, 211–213
variation, 211
347Index
Convair Division of General Dynamics, 217
cookbook approaches, 319–320
Corda Technologies, 186
core competencies, 23–24
core financial measures, 141
core processes, 217–218
cost measures
cost of goods sold, 169
internal business processes, 231
managing finances, 156
total cost, 139
creating
customer dashboards, 112–113, 115–119
customer scorecards, 103
financial dashboards, 181–186
financial scorecards, 159
internal business process dashboards,
248–249
knowledge, education, and growth
dashboards, 309–311
knowledge, education, and growth
scorecards, 291–294
creativity, 259
culture and leadership styles, 261–262,
333–334
current state of value streams, 205–206
customer acquisition, 85
customer dashboards
analyzing, 120–122
communication, 121–122
creating, 112–113, 115–119
decision making, 114
drill-down capability, 123–124
measures, 112
Microsoft Excel, 115
ownership of, 113–114
tracking, 120–122
updating, 122–123
customer measures
common mistakes, 95–96
customer satisfaction, 84–87
data charts, 99–100
dependable data, 96
examples, 95
focus groups, 97–98
gathering information about customers, 94
interpreting data, 100–101
loyalty, 77, 92–94, 139
questionnaires, 98–99
selecting, 90–92
surveys, 98–99
customer retention, 85
customer returns, 81
customer satisfaction
gathering information about, 80–82
keeping a high level of, 85
measures, 84–87
problem detection, 259
customer scorecards
analyzing, 107–110
creating, 103
markets, 104
operational-level, 105–106
strategic-level, 103–105
tactical-level, 106–107
customer service, 78–80
customers
actual value created for customers, 155
communication, 102–103
customer plans, 86
defined, 10–14
external customers, 233
focus groups, 82–83
following up with, 87–88
future customers, 13–14
gathering information about, 80–82, 94
ignoring, 338
influences, 43–45
Input-Process-Output diagram, 232
internal business processes, 200–202
internal customers, 14, 233
leading indicators, 120
levels of, 76–77
listening to, 84
lost customers, 77–78
loyalty, 77, 92–94, 139
needs and wants, 82–83, 324
profitability, 85
promise-delivery, 79
pull system, 17
push system, 17
repeat customers, 77
348 Balanced Scorecard Strategy For Dummies
reputation with, 83
sending personal letters to, 88
strategies, 85
surveying, 82
tactics, 86
tracking losses, 77–78
treatment of, 77
customizing financial measures, 160–162
cycle time, 19, 259
• D •
dashboards
defined, 25–26
developing, 33
displaying, 34
environmental impact, 27
examples, 26–27
IT integration, 34
just-in-time, 119–120
lagging indicators, 119–120
leading indicators, 119–120
manual dashboards, 183–184
market, 27
roles and responsibilities, 325
software-based dashboards, 185–186
spreadsheet-based dashboards, 184–185
technology, 28
dashboards for customers
analyzing, 120–122
communication, 121–122
creating, 112–113, 115–119
decision making, 114
drill-down capability, 123–124
measures, 112
Microsoft Excel, 115
ownership of, 113–114
tracking, 120–122
updating, 122–123
dashboards for financials
analyzing, 192–195
common mistakes, 190–192
contingency planning, 189–190
creating, 181–186
decision making, 180–181, 196
drill-down capability, 190
examples, 186–189
flexibility, 189
performance, 191–192
real-time information, 179–180
short-term versus long-term
performance, 191–192
warning signals, 189
dashboards for internal business
processes
analyzing, 251–254
common mistakes, 251, 254
contingency planning, 253
creating, 248–249
drill-down capability, 245, 247–248
operational dashboards, 249–250
persistence, 253
real-time information, 246–247
strategic dashboards, 249
tactical dashboards, 250
targets, 250–251
updating, 244
what-if scenarios, 253–254
dashboards for knowledge, education,
and growth
adjusting scorecard balance, 313
analyzing, 259, 312–316
creating, 309–311
feedback, 311–312
growth goals, 306–309
potential, 311–312
truth, 315–316
decision making
customer dashboards, 114
delegating, 262
financial dashboards, 180–181, 196
financial measures, 137–139, 145–146, 171
internal business processes, 239–240
defects, 201
Defense Financial Accounting Services
(DFAS), 165–167
defining
needs for knowledge, skills, and abilities,
274–275
roles and responsibilities, 262
delay time, 19
349Index
delegating
decision making, 262
responsibility without authority, 333
Delphi analysis, 40
Deming Cycle, 41–42
Deming, W. Edwards
Out of the Crisis, 214
Shewhart Cycle, 41–42
democratic style of leadership, 261–262
Department of Defense, 165–166
dependability of financial measures, 141
deployment, 156
Design for Six Sigma, 240
detecting problems with customers, 259
detractors, 336
developing
Balanced Scorecards, 33
dashboards, 33
goals, 33
strategies, 33
strategy map, 33, 38–40
devil’s advocate role playing, 57
DFAS (Defense Financial Accounting
Services), 165–167
diagrams
Cause and Effect Diagram, 234–235
Input-Process-Output diagram, 232–233
interrelationship diagrams, 295–296
pareto (bar chart), 133
differences in financial measures, 156–158
direction and focus of goals, 264–265
directive style of leadership, 261
Disney, 259
displaying dashboards and scorecards, 34
drill-down capability
customer dashboards, 123–124
dashboards for internal business
processes, 245, 247–248
financial dashboards, 190
Drucker, Peter (leadership guru), 224
• E •
early warning signals, 47, 189
Earnings Before Interest, Taxes,
Depreciation and Amortization
(EBITDA), 169
Earth Tech (subsidiary of Tyco), 170
Ed deBono’s 6-Hat Thinking
methodologies, 57
education and growth
clarity, 266–267
communication chains, 260–261
competency needs, 262–263
complacency, 265
core competencies, 23
creativity, 259
defined, 10–11
importance of, 21–22
influences, 46
innovation, 259, 265
leadership, 258, 261–262
liabilities, 269–271
linkages, 280–283
measures, 23–24, 272–273, 286–289,
306–308
monitoring, 25
operations, 282
planning, 267–269
problem detection, 259
process understanding, 259
productivity, 258
strategies, 281, 307
tactics, 283
education and growth dashboards
adjusting scorecard balance, 313
analyzing, 259, 312–316
creating, 309–311
feedback, 311–312
growth goals, 306–309
potential, 311–312
truth, 315–316
education and growth scorecards
adjusting, 302
analyzing, 300–303
common mistakes, 302–304
creating, 291–294
examples, 294–300
education (for employees), 34
employee-involvement program, 340
employees
aligning employees to organization’s
goals and needs, 263–264
assessing competency of, 275–277
competency levels, 275–277
customer service, 78–79
education, 34
350 Balanced Scorecard Strategy For Dummies
empowering, 339–340
force, 342
getting to know, 276–277
messengers, 342–343
motion, 201
motivating, 334, 341
performance improvement, 260
process workers, 69, 200, 203–204
productivity, 258, 260
roles and responsibilities, 262
training, 34
empowering employees, 339
entering new markets, 329
environment changes, 156
environmental impact, 27
ERP (enterprise resource planning)
software, 222
establishing accountability, 326
exaggerating the returns, 337
Excel (Microsoft), 115
executing Balanced Scorecards, 328
expenses, 169
experience, 171
external customers, 233
external influences, 43–45
• F •
failure, 172
Failure Mode Effects Analysis (FMEA)
contingency planning, 58
risk assessment, 146–148, 172, 316
feedback
customers, 79
knowledge, education, and growth
dashboards, 311–312
scorecards, 327–328
feed-forward loops, 327–328
Few, Stephen (Information Dashboard
Design: The Effective Visual
Communication of Data), 118
Fiat, 277
filling knowledge, skills, and abilities gaps,
277–280
financial dashboards
analyzing, 192–195
common mistakes, 190–192
contingency planning, 189–190
creating, 181–186
decision making, 180–181, 196
drill-down capability, 190
examples, 186–189
flexibility, 189
performance, 191–192
real-time information, 179–180
short-term versus long-term
performance, 191–192
warning signals, 189
financial measures
accuracy, 128–129, 139–140, 173–174
actual value created for customers, 155
analyzing, 168–169, 172–173
assets, 169
budget compliance, 169
business environment changes, 156
cascading, 131
cause and effect relationships, 170
common mistakes, 141–142
competition, 158
consistency of, 141
core, 141
cost of goods sold, 169
costs, 156
customizing, 160–162
data, 132–133, 135–138
decision making, 137–139, 145–146, 171
Defense Financial Accounting Services
(DFAS), 165–167
dependability of, 141
deployment, 156
differences, 156–158
Earnings Before Interest, Taxes,
Depreciation and Amortization
(EBITDA), 169
ease of use, 132–134
examples, 162–167
expenses, 169
financing, 156
FMEA (Failure Mode Effects Analysis),
146–148, 172, 316
focusing on the right things, 150–151
gross profit, 169
industry-specific, 170
liabilities, 169
machine up time, 169
market changes, 156
351Index
financial measures (continued)
market share, 155
net profit, 169
NOW Foods, 163
planning, 144
product sales, 169
product value, 169
profit, 169
purchase price variance, 169
real-time information, 151–152
regulatory and tax laws, 134
resourcing, 156
responsibilities for, 140–141
return on investment (ROI), 136–137
selecting, 15–16, 152–156
strategies, 144–145
supporting, 141
tactics, 144
updating, 152
value streams, 129–130
Vinfen, 163–164
financial scorecards
common mistakes, 173–176
creating, 159
operational-level, 159–160
strategic-level, 159
tactical-level, 160–161
financials
accounting laws and regulations, 134
accuracy of financial information, 139–140
data, 135–137
decision making, 137–139
defined, 10–11, 14–16
generally accepted accounting principles
(GAAP), 134
influences, 45
key performance indicators (KPIs),
155, 158
ownership, 178
presenting financial information, 142–144
responsibilities, 178
short-term versus long-term gains, 17
strategies, 15
sub-optimization, 17
total cost, 139
financing, 156
Five Whys technique, 235
flexibility
Balanced Scorecards, 55–56
barriers, 341
financial dashboards, 189
FMEA (Failure Mode Effects Analysis)
contingency planning, 58
risk assessment, 146–148, 172, 316
focus and direction of goals, 264–265
focus groups, 82–83, 97–98
following case studies too closely, 332
following up with customers, 87–88
force, 342
force-field analysis, 57
Ford, 329
foundation for Balanced Scorecards
building blocks, 53–55
contingency planning, 57–58
employee support, 54
final touches, 58–59
flexibility, 55–56
results/analysis systems and
structures, 55
four panel chart, 237–238
framework for Balanced Scorecards, 50
Frank Allen and Associates, 139
front lines, 69–70
future customers, 13–14
future state of value streams, 206–207
futurists, 82
• G •
GAAP (generally accepted accounting
principles), 134
gage repeatability and reproducibility
(gage r & r), 203
gaps in core competencies, 23
gaps in knowledge, skills, and abilities,
277–280
gathering information about customers,
80–82, 94
GE, 340
General Dynamics Convair Division, 217
General Motors, 216–217, 329, 340
generally accepted accounting principles
(GAAP), 134
getting to know employees, 276–277
352 Balanced Scorecard Strategy For Dummies
GKN, 340
goals
aligning employees to organization’s
goals and needs, 263–264
developing, 33
direction and focus, 264–265
growth goals, 286, 306–309
linkages, 326–327
matrix of goals and measures, 298
organization goals, 341
personal goals, 341
stretch goals, 9
types of goals to set, 9
gross profit, 169
growth
clarity, 266–267
communication chains, 260–261
competency needs, 262–263
complacency, 265
core competencies, 23
creativity, 259
defined, 10–11
importance of, 21–22
influences, 46
innovation, 259, 265
leadership, 258, 261–262
liabilities, 269–271
linkages, 280–283
measures, 23–24, 272–273, 286–289,
306–308
monitoring, 25
operations, 282
planning, 267–269
problem detection, 259
process understanding, 259
productivity, 258
strategies, 281, 307
tactics, 283
growth dashboards
adjusting scorecard balance, 313
analyzing, 259, 312–316
creating, 309–311
feedback, 311–312
growth goals, 306–309
potential, 311–312
truth, 315–316
growth goals, 286, 306–309
growth scorecards
adjusting, 302
analyzing, 300–303
common mistakes, 302–304
creating, 291–294
examples, 294–300
guiding principles, 32, 324
• H •
Harvard Business School, 10
Hewlett Packard, 171
Hilton, 271
• I •
idle time, 201
if-then contingency planning decision
paths, 189–190
ignoring
customers, 338
key detractors, 336
“soft stuff,” 333–334
imagineering, 259
implementing
Balanced Scorecards, 50, 54–55
continuous improvement, 215–217
improvements
performance, 340
real-time corrective actions, 340
indicators (leading and lagging), 119–120
industry experts, 83
industry-specific financial measures, 170
influences
customers, 43–45
external influences, 43–45
financials, 45
internal business processes, 46
knowledge, education, and growth, 46
information chains, 260–261
Information Dashboard Design: The
Effective Visual Communication of Data
(Few), 118
information management system, 166–168
innovation, 259, 265
Input-Process-Output diagram, 232–233
353Index
internal business process dashboards
analyzing, 251–254
common mistakes, 251, 254
contingency planning, 253
creating, 248–249
drill-down capability, 245, 247–248
operational dashboards, 249–250
persistence, 253
real-time information, 246–247
strategic dashboards, 249
tactical dashboards, 250
targets, 250–251
updating, 244
what-if scenarios, 253–254
internal business process scorecards
Cause and Effect Diagram, 233–234
common mistakes, 241–242
Five Whys technique, 234
Input-Process-Output diagram, 232–233
measures, 230–232
operational-level scorecards, 236
strategic-level scorecards, 235–236
tactical-level scorecards, 236–238
internal business processes
anticipating future state, 20
catchball, 226–227
continuous improvement, 210–217
core processes, 217–218
customers, 200–202
cycle times, 19
decision making, 239–240
defined, 10–12
delay time, 19
empowering employees, 339–340
influences, 46
Input-Process-Output diagram, 232
lead times, 19
leadership, 224–225
measures, 200, 202–203, 211–213
process time, 19
process workers, 200, 203–204
quality assurance, 18–19
recognitions, 207–210
rewards, 207–210
strategic planning, 220–222, 227
systems thinking, 222–223
tactical planning, 227–228
Takt Time, 19
technology, 200, 204–205, 218–219
tracking, 19–21
transactional processes, 201–202
value streams, 205–207
variation, 210–211, 234–235
waste, 200–202, 233
weakest links, 219–222
internal customers, 14, 233
interpreting data, 100–101
interrelationship diagrams, 294–295
inventory, 201
inventorying knowledge, skills, and
abilities, 273
involvement of leadership, 340
iPod, 271
IT integration with scorecards and
dashboards, 34
ITT, 271
• J •
J.C. Penney Company, 311
just-in-time dashboards, 119–120
• K •
Kanban, 17
Kano Model, 44–45
Kaplan, Robert
The Balanced Scorecard, 85
creation of Balanced Scorecard idea, 10, 34
keeping a high level of customer
satisfaction, 85
key detractors, 336
key performance indicators (KPIs)
financials, 155, 158
importance of, 59
knowledge, education, and growth
clarity, 266–267
communication chains, 260–261
competency needs, 262–263
complacency, 265
core competencies, 23
creativity, 259
defined, 10–11
importance of, 21–22
influences, 46
innovation, 259, 265
354 Balanced Scorecard Strategy For Dummies
leadership, 258, 261–262
liabilities, 269–271
linkages, 280–283
measures, 23–24, 272–273, 286–289,
306–308
monitoring, 25
operations, 282
planning, 267–269
problem detection, 259
process understanding, 259
productivity, 258
strategies, 281, 307
tactics, 283
knowledge, education, and growth
dashboards
adjusting scorecard balance, 313
analyzing, 259, 312–316
creating, 309–311
feedback, 311–312
growth goals, 306–309
potential, 311–312
truth, 315–316
knowledge, education, and growth
scorecards
adjusting, 302
analyzing, 300–303
common mistakes, 302–304
creating, 291–294
examples, 294–300
knowledge sharing, 68
knowledge, skills, and abilities
assessing, 275–277
defining needs, 274–275
developing, 171
filling gaps, 277–280
inventorying, 273
Kohl’s, 311
KPIs (key performance indicators)
financials, 155, 158
importance of, 59
• L •
L.L. Bean, 298, 324
Lafauve, Skip (president of Saturn division
of General Motors), 216–217
lagging indicators, 119–120
Lareau, Dr. E.W. (Office Kaizen), 193
launching scorecards
deciding when to launch, 61, 66
pilot, 61–62
promoting the concept, 63–65
sustaining, 62–63
laws, 134
lead times, 19
leadership
internal business processes, 224–225
involvement, 340
knowledge, education, and growth, 258,
261–262
natural leadership, 258
steering committees, 325–326
strategic leadership team, 29
styles and culture, 261–262, 333–334
leading indicators, 119–120
Lean Daily Management System, 193
lean enterprise theory, 340
Lean Manufacturing, 19, 215, 241
Lean Six Sigma, 215
learning and growth. See knowledge,
education, and growth
learning from mistakes, 66, 344
Learning to See (Rother and Shook), 206
levels of customers, 76–77
liabilities, 169, 269–272
line managers, 157–158
linkages
defined, 28–29
goals, 326–327
importance of, 326
knowledge, education, and growth,
280–283
objectives, 326–327
strategies, 326–327
listening to customers, 84
Lockheed Martin, 271
lost customers, 77–78
lower managers, 157
loyalty of customers, 77, 92–94, 139
• M •
machine up time, 169
maintaining accountability, 326
making strategies everyone’s daily job, 36
managing performance, 340
355Index
manual dashboards, 183–184
mapping
strategies, 297
value streams, 206, 241
Marines, 344
markets
adapting to changes in, 43, 156
customer scorecards, 104
market performance characteristics, 27
market share, 85, 155
market studies, 83
new-market entrance, 329
reframing, 271
material resource planning (MRP)
software, 222
Maturity Models, 241
MDMP (Military Decision Making Process),
57–58
measurement system analysis (MSA), 203
measures
Balanced Scorecards, 50
customer dashboards, 112
internal business processes, 200,
202–203, 211–213, 230–233
key performance indicators (KPIs), 59
matrix of goals and measures, 298
productivity, 260
quality, 18–20
tactical level, 47
measures (customers)
common mistakes, 95–96
customer satisfaction, 84–87
data charts, 99–100
dependable data, 96
examples, 95
focus groups, 97–98
gathering information about customers, 94
interpreting data, 100–101
loyalty, 77, 92–94, 139
questionnaires, 98–99
selecting, 90–92
surveys, 98–99
measures (financial)
accuracy, 128–129, 139–140, 173–174
actual value created for customers, 155
analyzing, 168–169, 172–173
assets, 169
budget compliance, 169
business environment changes, 156
cascading, 131
cause and effect relationships, 170
common mistakes, 141–142
competition, 158
consistency of, 141
core, 141
cost of goods sold, 169
costs, 156
customizing, 160–162
data, 132–133, 135–138
decision making, 137–139, 145–146, 171
Defense Financial Accounting Services
(DFAS), 165–167
dependability of, 141
deployment, 156
differences, 156–158
Earnings Before Interest, Taxes,
Depreciation and Amortization
(EBITDA), 169
ease of use, 132–134
examples, 162–167
expenses, 169
financing, 156
FMEA (Failure Mode Effects Analysis),
146–148
focusing on the right things, 150–151
gross profit, 169
industry-specific, 170
liabilities, 169
machine up time, 169
market changes, 156
market share, 155
net profit, 169
NOW Foods, 163
planning, 144
product sales, 169
product value, 169
profit, 169
purchase price variance, 169
real-time information, 151–152
regulatory and tax laws, 134
resourcing, 156
responsibilities for, 140–141
return on investment (ROI), 136–137
selecting, 15–16, 152–156
356 Balanced Scorecard Strategy For Dummies
strategies, 144–145
supporting, 141
tactics, 144
updating, 152
value streams, 129–130
Vinfen, 163–164
measures (knowledge, education, and
growth)
action-level indicators, 288–290
core competencies, 23–24
gaps in core competencies, 23
growth goals, 286–287, 306–308
long-term, 307–308
operational goals, 287–288
short-term, 307–308
training, 272–273
mentoring, 344
messengers, 342–343
methods of contingency planning, 57–58
Microsoft, 298–299, 312
Microsoft Excel, 115
middle managers, 68–69, 157–158
Military Decision Making Process (MDMP),
57–58
misinterpreting trends, 303
mission, 32, 324
mistakes
cherry picking, 331–332
communication, 70–71
customer measures, 95–96
delegating responsibility without
authority, 333
exaggerating the returns, 337
financial dashboards, 190–192
financial measures, 141–142
financial scorecards, 173–176
focus groups, 97–98
focusing too much on the tools, 335
following case studies too closely, 332
ignoring customers, 338
ignoring key detractors, 336
ignoring “soft stuff,” 333–334
internal business process dashboards,
251, 254
internal business processes scorecards,
241–242
knowledge, education, and growth
scorecards, 302–304
learning from, 66, 344
overanalyzing, 335–336
sending mixed messages, 337
mixed messages, 337
money, 34. See also financials
monitoring knowledge, education, and
growth, 25
motion (by employees), 201
motivating employees, 334, 341
Motorola, 312
MRP (material resource planning)
software, 222
MSA (measurement system analysis), 203
• N •
NASA, 9
natural leadership, 258
Negative Objection Analysis, 253
net profit, 169
new-market entrance, 329
9/11 attacks, 45
Northrop, 271
Norton, David
The Balanced Scorecard, 85
creation of the Balanced Scorecard idea,
10, 34
NOW Foods, 163
• O •
objectives
analysis and planning, 33
linkages, 326–327
Office Kaizen (Lareau), 193
official communication chains, 260–261
operational plans, 33
operational-level dashboards for internal
business processes, 249–250
operational-level scorecards
for customers, 105–106
for financials, 159–160
for internal business processes, 236
operational-level team, 29
357Index
operations and knowledge, education, and
growth, 282
organization goals, 341
Out of the Crisis (Deming), 214
outsourcing
core processes, 217
transactional processes, 202
overanalyzing, 335–336
overcoming barriers, 339–341, 343–344
over-processing, 201
overproduction, 200
ownership
continuous improvement, 213–214
customer dashboards, 113–114
financials, 178
• P •
pareto (bar chart) diagram, 133
PDCA (Plan, Do, Check, Act) Cycle, 41–42
PDSA (Plan, Do, Study, Act) Cycle, 41–42
performance
assessing, 340
financial dashboards, 191–192
improvements, 340
key performance indicators (KPIs), 59,
155, 158
lagging indicators, 119–120
leading indicators, 119
managing, 340
stage-gate review systems, 343
tracking, 340
performance improvement, 260
Performance Measurement and
Management System (PMMS), 171
persistence, 253
personal goals, 341
personal letters to customers, 88
personalizing Balanced Scorecards, 327
pilot (for scorecards), 61–62
Plan, Do, Check, Act (PDCA) Cycle, 41–42
Plan, Do, Study, Act (PDSA) Cycle, 41–42
planning
Balanced Scorecards, 49–50, 328
contingency planning, 57–58, 253
customer plans, 86
financial measures, 144
knowledge, education, and growth,
267–269
operational planning, 33
strategic planning, 63, 220–222, 227
tactical planning, 33
PMMS (Performance Measurement and
Management System), 171
policies and procedures, 80
potential, 311–312
PowerSteering software, 193
presenting financial information, 142–144
principles, 324
priorities, 51
problem detection, 259
process dashboards
analyzing, 251–254
common mistakes, 251, 254
contingency planning, 253
creating, 248–249
drill-down capability, 245, 247–248
operational dashboards, 249–250
persistence, 253
real-time information, 246–247
strategic dashboards, 249
tactical dashboards, 250
targets, 250–251
updating, 244
what-if scenarios, 253–254
process scorecards
Cause and Effect Diagram, 233–234
common mistakes, 241–242
Five Whys technique, 234
Input-Process-Output diagram, 232–233
measures, 230–232
operational-level scorecards, 236
strategic-level scorecards, 235–236
tactical-level scorecards, 236–238
process time, 19
process understanding, 259
process workers, 69, 200, 203–204
processes
anticipating future state, 20
catchball, 226–227
continuous improvement, 210–217
core processes, 217–218
customers, 200–202
cycle times, 19
decision making, 239–240
defined, 10–12
delay time, 19
empowering employees, 339–340
358 Balanced Scorecard Strategy For Dummies
influences, 46
Input-Process-Output diagram, 232
lead times, 19
leadership, 224–225
measures, 200, 202–203, 211–213
process time, 19
process workers, 69, 200, 203–204
quality assurance, 18–19
recognitions, 207–210
rewards, 207–210
strategic planning, 220–222, 227
systems thinking, 222–223
tactical planning, 227–228
Takt Time, 19
technology, 200, 204–205, 218–219
tracking, 19–21
transactional processes, 201–202
value streams, 205–207
variation, 210–211, 234–235
waste, 200–202, 233
weakest links, 219–222
product value, 169
productivity, 258, 260
profit, 169
profitability, 85
promise-delivery to customers, 79
promoting scorecards, 63–65
pull system (for customers), 17
purchase price variance, 169
push system (for customers), 17
• Q •
Quality Control For Dummies (Webber and
Wallace), 19
Quality Function Deployment, 240
quality measures, 18–20, 231
questionnaires for customers, 98–99
• R •
real-time corrective actions, 340
real-time information
financial dashboards, 179–180
financial measures, 151–152
internal business process dashboards,
246–247
recognitions, 207–210, 343
reframing the market, 271
regulations, 134
repeat customers, 77
reputation with customers, 83
resources
administrative support and supplies, 34
Balanced Scorecards, 51–52
budgeting, 34
education for employees, 34
money, 34
space, 34
time, 34
training for employees, 34
resourcing, 156
responsibilities
dashboards, 325
delegating without authority, 333
financial measures, 140–141
financials, 178
scorecards, 325
retention of customers, 85
return on investment (ROI), 136–137
reviewing strategy map, 41–42
reviews in stage-gate review systems, 343
rewards, 207–210, 343
risk
analyzing, 171–172
assessing, 146
Failure Mode Effects Analysis (FMEA),
146–148, 172, 316
managing, 57, 146
ROI (return on investment), 136–137
roles and responsibilities, 262, 325
Rother, Mike (Learning to See), 206
• S •
Sara Lee, 340
Sarbanes-Oxley, 134
Saturn division of General Motors,
216–217, 340
scorecards
adjusting scorecard balance, 313
collaboration, 51
communicating about, 66–67
competitive advantage, 329
creators, 10
defined, 10
359Index
scorecards (continued)
developing, 33
displaying, 34
executing, 328
feedback, 327–328
feed-forward loops, 327–328
flexibility, 55–56
foundation, 53–59
framework, 50
implementation, 50, 54–55
IT integration, 34
key performance indicators (KPIs), 59
launching, 61–66
measures, 50
pilot, 61–62
planning, 49–50, 328
priorities, 51
promoting, 63–65
resources, 51–52
roles and responsibilities, 325
self-assessment, 50
strategic planning, 63
strategies, 50
support for, 50, 52–53
sustaining, 62–63
tracking, 50
triggers, 58
scorecards for customers
analyzing, 107–110
creating, 103
markets, 104
operational-level, 105–106
strategic-level, 103–105
tactical-level, 106–107
scorecards for financials
common mistakes, 173–176
creating, 159
operational-level, 159–160
strategic-level, 159
tactical-level, 160–161
scorecards for internal business processes
Cause and Effect Diagram, 233–234
common mistakes, 241–242
Five Whys technique, 234
Input-Process-Output diagram, 232–233
measures, 230–232
operational level scorecards, 236
strategic level scorecards, 235–236
tactical level scorecards, 236–238
scorecards for knowledge, education, and
growth
adjusting, 301–302
analyzing, 300–303
common mistakes, 302–304
creating, 291–294
examples, 294–300
Sears, 290
selecting
customer measures, 90–92
financial measures, 15–16, 152–156
self-assessment, 50
seminars, 82
sending mixed messages, 337
sending personal letters to customers, 88
senior executives, 67–68, 157
senior managers, 157
setting strategies, 324
Shewhart Cycle, 41–42
Shewhart, Walter, creator of the Shewhart
Cycle, 41
Shook, John (Learning to See), 206
short-term versus long-term financial
gains, 17
Sinter Metals, 271
Six Sigma, 19, 47, 215, 240–241
Six Sigma For Dummies (Wiley Publishing),
240, 252
6-Hat Thinking methodologies, 57
skills
assessing, 275–277
defining needs, 274–275
developing, 171
filling gaps, 277–280
inventorying, 273
software-based dashboards, 185–186
Sony, 312
Southwest Airlines, 324
space, 34
spreadsheet-based dashboards, 184–185
stage-gate review systems, 343
startups, 127
steering committees, 325–326
360 Balanced Scorecard Strategy For Dummies
strategic leadership team, 29
strategic planning, 63, 220–222, 227
strategic-level dashboards for internal
business processes, 249
strategic-level scorecards
for customers, 103–105
for financials, 159
for internal business processes, 235–236
strategies
aligning your organization to
strategies, 36
Balanced Scorecards, 50
customers, 85
developing, 33
financial, 15
financial measures, 144–145
knowledge, education, and growth,
281, 307
linkages, 326–327
making strategies everyone’s daily job, 36
mapping, 297
setting, 324
translating strategies into operational
terms, 35
turning strategic deployment into a
continual process, 36–37
strategy map
developing, 33, 38–40
reviewing, 41–42
Strengths, Weaknesses, Opportunities, and
Threats (SWOT) analysis
decision making, 171–172
liabilities, 269–272
strategies, 40
stretch goals, 9
sub-optimization, 17
successes
celebrating, 343
pilot for scorecards, 62
supervisor training, 340
support for Balanced Scorecards, 50, 52–53
supporting financial measures, 141
surveying customers, 82
surveys, 98–99
sustaining scorecards, 62–63
SWOT (Strengths, Weaknesses,
Opportunities, and Threats) analysis
decision making, 171–172
liabilities, 269–272
strategies, 40
systems thinking, 222–223
• T •
tactical planning, 33, 227–228
tactical-level dashboards for internal
business processes, 250
tactical-level measures, 47
tactical-level scorecards
for customers, 106–107
for financials, 160–161
for internal business processes, 236–238
tactical-level team, 29
tactics
customers, 86
financial measures, 144
knowledge, education, and growth, 283
Takt Time, 19
teams
operational-level, 29
strategic leadership, 29
tactical-level, 29
teamwork, 258
technology, 28, 200, 204–205, 218–219
Theory of Constraints, 215, 241
3M
communication with employees, 327
innovation, 259
worker’s ideas, 265
time, 34
total cost, 139
Toyota, 265
Toyota Production System (TPS), 215, 241
TQM (total quality management), 215
tracking
Balanced Scorecards, 50
customer dashboard, 120–122
customer losses, 77–78
internal business processes, 19–21
performance, 340
361Index
training, 34, 171, 340. See also knowledge,
education, and growth
transactional processes, 201–202
translating strategies into operational
terms, 35
transportation, 201
treatment of customers, 77
trends, misinterpreting, 303
triggers, 58
TRIZ, 240–241
truth, 315–316
turning strategic deployment into a
continual process, 36–37
TV industry, 302
Tyco, 170
• U •
unbalanced companies, 31
understanding customers
customer satisfaction, 80–81
customer service, 78–79
difficulty of, 75
doing right by your customers, 79–80
feedback, 79
focus groups, 82–83
levels of customers, 76–77
listening to, 84
losses, 77–78
needs and wants, 82–83, 324
surveys, 82–83
unofficial communication chains, 260–261
updating
customer dashboards, 122–123
financial measures, 152
internal business process dashboards, 244
U.S. Army, 57
U.S. Marines, 344
• V •
value streams
current state, 205–206
defined, 206
financial measures, 129–130
future state, 206–207
internal business processes, 205–207
mapping, 206, 241
Varian, 340
variation, 210–211, 234–235
Vinfen not-for-profit human and health
services organization, 163–164
vision, 32, 324
VitalSmarts, 213
• W •
waiting, 201
Wallace, Michael (Quality Control For
Dummies), 19
Wal-Mart, 139
warning signals, 47, 189
waste, 200–202, 233
weakest links in internal business
processes, 219–222
Webber, Larry (Quality Control For
Dummies), 19
what-if scenarios, 48, 253–254
workers
aligning workers to organization’s goals
and needs, 263–264
assessing competency of, 275–277
competency levels, 275–277
customer service, 78–79
education, 34
empowering, 339–340
force, 342
getting to know, 276–277
messengers, 342–343
motion, 201
motivating, 334, 341
performance improvement, 260
process workers, 69, 200, 203–204
productivity, 258, 260
roles and responsibilities, 262
training, 34
362 Balanced Scorecard Strategy For Dummies
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