Creating A Public Sector Scorecard
Building and implementing a Balanced Scorecard Management System within a public sector organization comes replete with many challenges that are different than those faced by their private sector counterparts. For instance, public sector organizations typically place ‘customer’ as the top perspective as opposed to financial.
In this first of a two-part series, we describe the key challenges of using the scorecard within a public sector organization. In part two we outline the solutions.
Built for the Private Sector
The Balanced Scorecard has been an enduringly popular framework for private sector companies since the concept was launched in 1992. And it is safe to acknowledge that the scorecard was purposefully developed for commercial organizations. After all, the original premise behind the year-long research program in 1990 (involving 12 private sector companies such as Analog Devices, General Electric and Shell Canada) that led Drs Norton and Kaplan to fashion the Balanced Scorecard was the emerging realization that financial metrics alone were no longer adequate for managing organizations. The research focus was how best to predict future financial results – a preoccupation of commercial organizations.
Public Sector Pioneers
But by the mid-1990s, the more pioneering public sector organizations began to assess the applicability of the Balanced Scorecard to their own performance requirements. The City of Charlotte in the US and the City of Brisbane in Australia were among the first to implement the scorecard in a public sector setting. Both would later be inducted into the Balanced Scorecard Collaborative’s prestigious Hall of Fame.
The Challenge of the Finance Perspective
Yet both of these organizations grappled with a problem that would become a core concern for virtually all subsequent public sector scorecard users. The design of the classic Balanced Scorecard reflects the priority of public sector organizations to make money for their shareholders. This is why the financial perspective is at the top. The rules for the operation of public sector organizations are different and arguably more complex. While finance and budgets are perennial preoccupations, other obligations and goals are regarded as taking at least equal, but more commonly greater, precedence. These include satisfying citizen, community or other stakeholder expectations. Lisa Schumacher, a budget analyst at the time City of Charlotte introduced its scorecard said in the 1998 report: Building and Implementing a Balanced Scorecard (1):
“We first tried to create the scorecard along the traditional format of the non-financial perspective interacting through cause and effect relationships to impact financial performance. However we had real problems with this as it didn’t fit the way we work. Although financial responsibility is of course important to us, the customer is more important. Therefore we changed the order of important and put the customer at the top. Just making that small change made a huge difference to us.”
Placing Customer at the Top
A cursory scan of the scorecards in use within public sector organizations shows that customer, or some other stakeholder representation, is typically the top perspective. The UK council, the London Borough of Barking and Dagenham, for example, has at the top of its scorecard a ‘Community first’ perspective with objectives such as raising pride, cleaner, greener, safer and better education and learning for all (these represent long-term council priorities). Next in the scorecard hierarchy is a ‘customer first’ perspective with objectives such as meeting customers needs first and provide accessible, local services.
Subordinate Courts Singapore has ‘community’ as its top perspective. But remarkably it works without a dedicated financial perspective whatsoever. Finance is subsumed into an ‘organizational’ perspective, which also includes the conventional internal process perspective. In the original pilots that preceded Courts’ wide rollout, finance was a perspective, but it failed to resonate with the culture of the organization and so was amalgamated.
At Singapore Prison Service the financial perspective remains intact, but is placed at the base of the scorecard, thus representing a complete flipping of the conventional private sector quadrant hierarchy. “The financial perspective is at the base and not at the top because we use the budget to train our people, to invest in technology and resources,” explains Titus Kong Ling Cieeh, head of the research and planning unit. “The people in turn deliver the objectives and create value for our stakeholders. The cause and effect is as evident as in a private sector scorecard but we are looking for ultimately different outcomes.”
The Challenge of Meeting Contradictory Objectives
Yet even when finance is relegated down the perspective hierarchy to be replaced by more important outcomes for public sector organizations, there are still other challenges to overcome. For instance, while it is relatively straightforward to identify a single, and unifying, outcome of private sector performance – such as profit (which is well understood and simple to measure), this is not the case for public sector organizations, who typically have myriad and often competing objectives that they must deliver. As examples, for a local government ‘protect the environment’ is a typical key objective, as is ‘growing the economy’. As the latter will usually mean attracting new businesses (and sometimes ‘dirty’ as in some manufacturing or process industries) it compromises the former objective – but both must be delivered for the overall health of the city or area.
The Challenge of Causality
Another problem that strikes at the very heart of the scorecard premise is a problem with causality. In his thoughtful article on Beyond the Balanced Scorecard, Peter Ryan, Performance Manager at Christchurch See Council provides an illustration of how causality falls down in a public sector setting. Ryan used the example of a council that he called New Albany. Ryan writes:
‘After reading various publications and attending some conferences, New Albany decided to stick with the orthodox view of a not-for-profit scorecard. They realized that private sector companies needed to put finance at the top of the scorecard value chain, but that a different situation applies to most government agencies.
So their customer perspective went to the top of their scorecard value chain. There was general agreement that this was a good, sensible and obvious thing to do.
However, it wasn’t long before this approach began to cause angst at many levels of the organisation. Services and projects which were widely known to be failures showed up on this form of scorecard as successes.
One very large IT project was a classic example: the project was on track and delivering the intended service to the community more or less on time. Consequently its scorecard Key Performance Indicator looked successful (or green on the scorecard).
However, everyone knew that the cost of the project was millions of dollars over budget. It was widely regarded as an embarrassing reflection on the executive team, so its status as a ‘green light’ on the corporate scorecard raised eyebrows. It also raised cynical questions about the worth and integrity of the scorecard model.’
As we can see from Ryan’s illustration, causality made little sense. Attaining, and maintaining, ‘green’ measures and objectives within the top perspective was not in any way dependent on ‘green’ measures objectives within the other perspectives, which would be true of commercial organizations.
And this observation has been made by other public sector scorecard practitioners. For example, Norbert Weidinger, a quality manager at Austria’s City of Vienna Administration, Department of Finance says this about its scorecard.
“We are less interested in mapping cause and effect through the perspectives than we are in knowing that we are delivering to key, and diverse, objectives. Unlike the private sector we are not driven by the achievement of financial outcomes so cause and effect is much less of a concern.”
The key point that Weidinger and Ryan are making is that given the diversity and complexity of stakeholder requirements that public sector organizations must deliver to, a conventional cause and effect Strategy Map may not be appropriate – or even helpful. Indeed Ryan was instrumental in implementing the BSCol Hall of Fame winning Balanced Scorecard system into the City of Brisbane. He was also the prime mover in its removal to be replaced with a new and in-house designed balanced performance management system. Increasingly he became frustrated with the shortcomings of a Strategy Map.
So if a Balanced Scorecard Strategy Map (which serves as the steer for metric, target and initiative selection) is not appropriate for a public sector setting, then should the scorecard be applied within such organizations?
The answer is an unequivocal ‘yes’. We explain how to make the Balanced Scorecard Management system work within a public sector organization in part 2 of this article.
- Building and Implementing a Balanced Scorecard, James Creelman, Business Intelligence, UK, 1998.