Introduction to Interview
In August 2008, Memory Nguwi, Partner and Principal Consultant for Organisational Excellence Consultants (Pvt) Ltd. Zimbabwe interviewed Paul Niven, Balanced Scorecard expert, management consultant and author. This is the text of that interview.
In my experience implementing the Balanced Scorecard I normally encounter a lot of enthusiasm from management at the beginning of the project but watch it fade away after a few months of use. Managers completely ignore the Scorecard, or they will participate without commitment. What advice can you give to my clients? How can we make sure the Scorecard culture is embedded in the organization's way of doing things?
Paul Niven (PN) response:
Your point regarding enthusiasm at the outset of a Balanced Scorecard implementation is well taken and echoes my own experience over the last dozen or so years. I would go so far as to say that in some cases the initial release of the Scorecard is greeted beyond enthusiasm and borders on the zeal reserved for an intervention that will surely prove to be the organization’s panacea. That is mistake number one – believing the Scorecard alone will cure all that ails the organization. While it has been widely demonstrated that the Scorecard is perhaps the single best tool in the fight to execute strategy, it can’t take that hill alone. The implementation must be supported by a number of supporting flanks, for example: a guiding rationale for the Scorecard, the unwavering support of senior leadership, and the commitment to putting strategy at the center of all you do, to name just a few.
A word choice in your question also reveals a problem in many Scorecard implementations. You said, “…enthusiasm from management at the beginning of the project…” To be successful in maintaining Scorecard success you must not think of it as a project. Projects by their very nature are typically short-term in duration with a defined scope and budget, and pre-determined start and end dates. The same cannot be said of the Scorecard. Since it’s primary goal is to assist in the execution of strategy, and since strategy must emerge and evolve as circumstances dictate, the Scorecard too must grow, change, and evolve over time. It is never static, but rolls with the seas of change that every organization faces today.
To answer the final part of your question regarding specific advice on embedding the Scorecard in the organization’s way of doing things, I believe you’ve answered it yourself – embed it in the organization’s way of doing things. In other words, link the Scorecard to all major organizational processes, such as: budgeting (a natural and vital link), compensation if possible, corporate governance, performance reporting, and individual performance management. Doing so ensures you weave a strong thread of strategic thinking through everything you do.
What do you think is the link between the Balanced Scorecard and performance management?
In my books I’ve written extensively about the importance of terminology to Balanced Scorecard success, or any change initiative for that matter. As German General Carl Van Clausewitz noted over 170 years ago: “The first task of any theory is to clarify terms and concepts that are confused…Only after agreement has been reached regarding terms and concepts can we hope to consider the issues easily and clearly, and expect others to share the same viewpoint…” I share this quote because the Performance Management field is rife with terms and concepts that are often confused. What you call a key performance indicator I may refer to as a metric. An objective at your shop could be a critical success factor at mine. A matter of semantics? I think there is more to it. As Van Clausewitz reminds us, we cannot expect to share the same viewpoint until agreement has been reached on the meaning of terms and concepts.
That is a long preamble to say that in answering your question the first thing we must do is define “Performance Management.” Some consider it the domain of monitoring the performance of individuals within the organization. To others Performance Management is an umbrella term encompassing the entire spectrum of activities from mission and strategy development through management reporting. I will assume you are referring to the latter definition in your question.
As noted above, the chance of Scorecard success is significantly enhanced when the tool is linked to all major organizational processes. I believe that your Scorecard should become the connective tissue that binds the entire Performance Management process. Once the firm determines its core purpose (mission) that should devolve into a differentiating strategy. The Scorecard of course translates the strategy into action. At that point, all activities (budgeting, governance, reporting) must be conducted through the lens of the Balanced Scorecard.
I have found that strategy formulation is a ritual here in South Africa, but management still fails to implement agreed strategies. Based on your experience what can be done to increase strategy execution?
In some of their earliest writing and speaking, Scorecard architects Kaplan and Norton introduced a statistic suggesting that upwards of 90 percent of organizations don’t effectively execute their strategies. An alarming statistic, and one that begs for more information – why is it that organizations are so woefully deficient in this crucial task? Research and experience, note Kaplan and Norton, have identified four barriers to strategy execution (and I will offer a fifth). Each is outlined below along with recommendations on how the Scorecard may help you overcome it.
a. The vision barrier suggests that only 5 percent of the typical workforce understands the strategy. A well-constructed Strategy Map of objectives and Scorecard of measures will serve not only as a powerful tool in executing strategy but perhaps their primary function will be the simple and clear transmission of strategy to a workforce starving for such information. Strategy is no longer the nuggets to be mined from a hundred page document choking with 8 point fonts and dizzying charts. No, the Scorecard introduces what you need to do in order to execute in plain and simple language.
b. The people barrier suggests that only 25 percent of managers have incentives linked to strategy. The Scorecard can change that by applying incentive rewards to a broad spectrum of balanced performance drivers thereby eliminating the temptation of typical compensation plans to focus only on short-term financial metrics.
c. The management barrier suggests that 85 percent of management teams spend less than an hour per month discussing strategy. Perhaps nowhere else can the Scorecard provide greater value than in overcoming this sorry state of affairs. We’ve all been held captive in low (or no) value meetings that seem to drag on forever with no agenda, no follow through, and most importantly, no results. Put strategy at the center of your management agenda with the Balanced Scorecard and watch your meetings come to life. It’s not an easy change, years of organizational meeting inertia can often provide a brick wall of resistance, but with patience, tenacity, and well-armed attendees touting the most recent Scorecard results, the nature and substance of your meetings will change and grow. I’ve had a number of clients tell me this is the greatest benefit they have achieved from their investment in the tool.
d. The resource barrier suggests that 60 percent of organizations don’t link budgets to strategy. A budget lays out in painstaking detail your plans for the next fiscal year – what you’ll earn, what you’ll spend, all broken down to what seem like infinite levels of detail. If you’re not linking those numbers to your strategy, then I ask, what are they linked to? Probably, if yours is like most organizations, your budgets are built on the shoulders of two factors: what you did last year, and which managers are most adept at playing the numbers game. Neither of these will lead to a document that provides any real substance. Your cascaded Scorecards throughout the organization should be the link to a budgeting process that puts strategy at its core.
In addition to the points above I must reiterate the importance of linking the Scorecard to processes throughout the organization as noted in questions one and two.
Lastly, what advice can you give to those executives who do not take the issue of managing performance seriously?
It’s difficult to imagine executives operating in today’s turbulent environment not taking the issue of managing performance seriously, but of course there are degrees of commitment to the process. You’ll forgive the colloquial nature of this response, but simply put, some people get this (managing performance and using the Scorecard) and some people don’t. And further, even for those who appear on the surface to get it, they often have only a cursory knowledge of the Scorecard system and its many intricacies and subtleties.
If your executive team is mired in the past, using only financial numbers as the gauge of success, then selling the Scorecard may prove a difficult challenge. However, the capacity to change resides within all of us, and if presented with the right circumstances, even the most reluctant executive may be enlightened and recognize the value of balanced performance measures.
I would suggest you begin by simply sharing with your executive team the unquestionable results other organizations have achieved by following the Scorecard path. The Balanced Scorecard Hall of Fame is overflowing with stories of organizational turnarounds sparked by the recognition of benefits awaiting those who examine success from a balanced perspective. It’s difficult to summarize a course of action in just a few words (I’ve written 3 books on the process) but beyond demonstrating the power of the Scorecard to your executives, you must then harness interest into action and action into commitment. Examine your mission and vision statements, translate them into a simple yet compelling Strategy Map. Develop measures, targets, and initiatives on a Balanced Scorecard and share it widely. Then, and most importantly, lay the bricks to strategy execution day in and day out by linking the Scorecard to everything you do.
Note from Paul Niven: I am happy to share my responses with you. If you have any questions regarding the Balanced Scorecard, please send them along.