The Role of the CEO and the Senior Team
That the active support and involvement of the senior management team is the most important scorecard success factor is indisputable. Although there are myriad other contributors to an ultimately successful scorecard implementation, none is more influential than the role of the senior team. As Drs Kaplan and Norton rightly commented in their book The Strategy-Focused Organization, “Experience has repeatedly shown that the single most important condition for success is the ownership and active involvement of the executive team.”
Such is the importance of the senior team according to Kaplan and Norton that its role had been captured in one of the five principles of the strategy-focused organization – mobilize change through executive leadership.
The Critical Role of the CEO
But we can take a narrower scope and safely state that the single most important scorecard success criterion is the active support and involvement of the Chief Executive Officer (CEO). Our reasoning is simple. The Balanced Scorecard is a framework for articulating a strategy implementation roadmap, and for managing and monitoring that implementation. The executive team has collective responsibility for the execution of strategy and the CEO is ultimately held accountable for the success or failure of strategies. If strategies fail, disgruntled shareholders, through the non-executive, or supervisory, board of directors typically demand that the CEO pays the ultimate price. Such occurrences are everyday fare in the business news pages.
Put simply, the CEO and the executive team own the strategy. The Balanced Scorecard is a strategy implementation framework. If the CEO and their team do not own the scorecard then it is not a strategy implementation framework, it is merely another performance improvement tool vying for attention and resourcing with multiple other frameworks and tools.
Moreover, it is the senior team that must debate and design the enterprise-level scorecard system. Consequently, ownership and design of the scorecard cannot be devolved to lower levels of management and certainly not handed over to a consultancy, although the former will typically manage the scorecard process on a day-to-day basis and the latter can be invaluable in facilitating the scorecard start-up process.
Case Study Examples
Regarding senior management ownership and involvement, consider the words of Paul Melter, scorecard director at Saatchi & Saatchi Worldwide.
“Without having the unconditional, unequivocal backing of the senior executive team this will fail. All of the 45+ unit-based CEOs have mentors among the senior executive team and if there’s a feeling that the (scorecard) doesn’t have to be done this month, or if they believe that there is something more important then it will fade. But our three executive leaders make it clear to all the local unit CEOs that it is a great tool and this is the way we manage the business.”
And note too that the Worldwide CEO Kevin Roberts was a key instigator of creating the original scorecard system in 1997 and has been its champion ever since. Indeed, Melter comments that Roberts uses the scorecard to frame his discussions with Saatchi & Saatchi’s parent organization, the Publicis Groupe. Doing this sends a clear message to the organization of the importance he places on the scorecard.
As another illustration of the importance of the CEO demonstrating through behavior their commitment to the balanced scorecard, consider Remote Bank (not its real name). Whenever a piece of information came across the CEO’s desk that did not relate to a scorecard objective, he would ask two questions:
1. How important is this?
2. If it is important, why is it not on the scorecard?
As with Saatchi & Saatchi, Remote Bank has been a committed scorecard user for over a decade. This might have much to do with the early commitment of their respective CEOs and the effort they expended in ensuring that the scorecard became ‘the way we manage around here’ and of course the stunning successes that both organizations achieved through the scorecard.
As further example of the CEO leading the scorecard effort from the front, consider the Indian telecommunications provider XYZ Cellular (not its real name). Each of the 21 objectives on the Strategy Map has a designated owner from within the senior team who is held accountable for the performance of that objective. He or she must also champion the initiatives launched to achieve the performance targets. The CEO owns the primary business objective (the top financial objective). The Balanced Scorecard Manager comments:
“With the CEO owning and championing the primary objective it ensures he takes a keen interest in ensuring clarity in thinking as to which supporting objectives should appear on the map. It also goes a long way to ensure that the scorecard gets implemented as he can green-light, or not, the funding for the required initiatives.”
Leading What is a Major Change Program
Indeed, as we would argue that the strategic initiative is the second most important component of the Balanced Scorecard system (after objectives, but ahead of metrics and targets), the CEOs’ willingness to fund the widespread efforts to drive performance toward success against strategic objectives is a litmus test of their commitment. Nigel Penny, a Brisbane, Australia based scorecard consultant, and previously Executive Vice-President, Asia-Pacific, for the Balanced Scorecard Collaborative notes:
“For those organizations contemplating a scorecard I would ask ‘Is the CEO prepared to lead from the top and reengineer the management process within the organization?’ The answer to this question is the differentiator between successful scorecard using organizations and the rest.
“To be successful, the scorecard must not be a project happening on the periphery of the enterprise. If the scorecard is to determine everything that happens within the organization (crucial to translate strategy into action), then this will include complex and potentially stressful and politically sensitive interventions such as process reengineering and structural reconfigurations.”
Clearly, only the most senior executive team has the clout to effect large-scale change. Those leaders who truly recognize the power of the Balanced Scorecard system will first and foremost see it as a tool to drive organizational transformation and to achieve breakthrough performance. When this is recognized the scorecard can be used to its full as a full-fledged strategy management framework, and not just as a narrow performance measurement system.
Recognizing the Importance of Non-Financial Metrics
A further crucial role of the CEO is simply the recognition that non-financial performance dimensions were as important as financial. Quite simply, nothing can kill a scorecard program quicker than a CEO waxing lyrical about the importance of non-financial measures and then demanding that heads roll when quarterly financials are down, even when performance to non-financial measures has risen (and remember that improvements to non-financial objectives might not impact financial performance until subsequent quarters). A key question is whether CEOs and CFOs of publicly traded organizations have the confidence and belief to communicate non-financial performance to shareholders and analysts with the same vigor as they do the financials.
A Caveat to our Argument
Now there is a caveat to our assertion about senior management ownership and especially that of the CEO. Although senior management (and in particular CEO) support has to be secured eventually, it does not necessarily have to be in place from the start. In the early stages it might be more sensible that early wins (through pilots) are secured to build the business case. Typically such early efforts will be championed by a member of the executive team, who will then present the benefits of the pilots as a way to gain CEO and other senior management commitment to building the enterprise-level scorecard and ordering a full organization-wide rollout. For instance, this was true at the UK-based development agency Scottish Enterprise.
But even the scorecard manager at Scottish Enterprise states that despite the successes they had with the scorecard, in hindsight they would have benefited from gaining CEO support more quickly than they did. That by doing so they would have speeded up implementation and more rapidly dismantled barriers. Clearly, it is the CEO who has the power and the clout to make things happen quicker and for ensuring that the Balanced Scorecard system becomes the ‘the way we manager around here’.