Architecting a Balanced Scorecard requires organizations to master four techniques – effective strategic mapping, selection of the right strategic measures, selection of the appropriate strategic targets and choosing the right strategic initiatives.
This article focuses on the last, namely, choosing strategic initiatives.
Next to the identification of the strategic objectives, selection of strategic initiatives is the most important component of the Balanced Scorecard framework. They are more important than metrics. While the Strategy Map describes the logic of the strategy and the Balanced Scorecard identifies measures and targets for each strategic objective, managers can achieve objectives and targets only by identify the right strategic initiatives required to deliver performance outcomes. In fact, the work of performance management and strategy implementation takes place through strategic initiatives.
Before explaining how organizations can master this critical technique, the article examines why organizations don’t get this part of Balanced Scorecard architecture right. Moving on, the article points out that organizations need to support strategic initiatives with scarce resources. To help organizations do this effectively, the article provides examples from three scorecard cases and offers a way for prioritization of strategic initiatives – classifying them into a three-tier hierarchy of essential, important, and beneficial. Then, the article also discusses the question of responsibility for strategic initiatives and concludes with a checklist of tasks and issues for better identifying strategic initiatives.
Choosing Strategic Initiatives
This is the final of four articles that collectively provide key learnings for the basic architecting of the Balanced Scorecard. The first, second and third articles considered strategy mapping, choosing strategic measures and selecting strategic targets. This article considers choosing strategic initiatives.
The Importance of Strategic Initiatives
Apart from the identification of strategic objectives, the selection of strategic initiatives is the most important component of the Balanced Scorecard framework. Initiatives are much more important than metrics, which are simply a mechanism for monitoring progress toward strategic goals.
Viewed sequentially, the Strategy Map describes the logic of the strategy, delineating the critical objectives/themes that create value. The Balanced Scorecard identifies measures and targets for each objective in the Strategy Map. However, objectives and targets are not achieved simply because they have been articulated. For each objective and target on the map/scorecard, managers must identify the strategic initiatives required to deliver the performance outcomes. Indeed, initiatives are “where the rubber hits the road,” as Americans would say. Put another way, it is where the real work of strategy implementation takes place.
Despite the absolute importance of identifying strategic initiatives for succeeding with a Balanced Scorecard implementation, it is not unusual that less attention is given to this component of the system than the other three. This is often because initiative selection is conventionally the last part of the scorecarding process. As so much energy may have been expended on objective, metric and target setting, not enough effort is channeled into the complex challenge of initiative selection.
Further, choosing strategic initiatives is often more problematic than the other three scorecard dimensions because once an initiative is chosen it then must be funded – both financially and in terms of human resource allocation. What’s more there are hidden cultural obstacles to overcome.
Linkage to the Strategy Map
When choosing strategic initiatives the overriding criterion is that they must directly link through the Balanced Scorecard to objectives on the Strategy Map. Simply, no initiative should be launched or funded unless this link is unequivocally proven. This is because the purpose of an initiative is to close an identified gap between actual and required levels of performance to achieve a strategic objective.
Crucially, the process of initiative selection typically leads to the jettisoning of well-established, and often expensive, projects. It is not unusual that anywhere between 40% and 80% of existing projects will be cancelled as a consequence of a properly architected Balanced Scorecard framework.
Canceling high-profile projects may lead to resistance from the senior executive that sponsors the project. Describing through the scorecard why the initiative is no longer strategically relevant may help overcome this resistance. If not, then it is the responsibility of the CEO to order project cancellation – the political complexities in giving such an order clearly demonstrated why the CEO must not just pay lip service to the scorecard, but demonstrate support with clear action.
More, there’s a further bunch of initiatives where several departments are tackling the same issue, and are unaware of each other’s efforts. The transparency of performance and activities resulting from the scorecard creation enables managers to bring these teams together and so reduce the number of initiatives and cost burden.
Case Example: Wells Fargo
As one example, when the US-headquartered Wells Fargo Online Banking launched its scorecard in the late 1990s, its initiative identification process began with an itinerary of the projects already under way. It discovered 600 initiatives organization wide. Through the scorecarding effort this was reduced to 100, which enabled greater strategic focus and significantly reduced costs.
At Wells Fargo a comprehensive initiative scoring process was put in place that included per percentage weightings (and scores) of the initiative according to strategic importance, business case (including cost and net present value) and implementation (complexity and time).
Case Example: Royal Canadian Mounted Police
As a further example, the Royal Canadian Mounted Police created an initiative ‘funneling’ process. This began by setting criteria for a qualifying strategic initiative – as a result, non-strategic initiatives were immediately abandoned.
Next, all qualified initiatives were mapped against strategic objectives and ranked according to priority. Higher-ranking initiatives, but with a need for a stronger business case were deferred, while the highest ranking initiatives were prioritized and rationalized. Those with the lowest priority have no chance of securing scared human and financial resources. This ensured that strategically aligned initiatives had the first call on resources.
Case Example: State of Washington
As a further example consider the Department of Revenue, State of Washington. When building its scorecard the Department put in place a three-tiered hierarchical system for initiative prioritization, and therefore for resource allocation to initiatives. The three tiers are:
Tier 1: Essential – initiatives with the Department’s highest level of commitment, which are certain of funding
Tier 2: Important – those that are very important, but must be considered against others if funds are limited
Tier 3: Beneficial – initiatives that are only pursued if they do not infringe upon higher level priorities
Within the Department of Revenue, initiative identification begins with brainstorming in each of its divisions, after which the executive coordinating team, comprising divisional heads, selects initiative candidates. Team members individually sort these candidates into the three-tier order with the final priorities being agreed to by consensus within the group.
As a result, the Department has created a common understanding of resource priorities amongst the senior team. If budgets need to be scaled back during the year for any reason, it is clear which initiatives will be affected first.
With initiatives selected and funded, responsibilities for project delivery are assigned to appropriate managers (and for high-level initiatives, accountability will lie with a senior manager) with progress monitored against specified milestones. Crucially, as part of ‘reading’ performance to the scorecard, the impact of initiatives to targets/objectives must be closely tracked.
The following checklist might provide a useful steer for the strategic initiative identification process.
|Strategic Initiative task||Issues|
|Create a list of all organizational initiatives||A simple exercise in identifying existing initiative is a crucial first step in prioritization. Most organizations have far too many initiatives.|
|Establish criteria for aligning initiatives with scorecard objectives||Use a weighting, or other explicit scoring system, for comparing the value of initiatives and establishing the business case.|
|Prioritise strategic initiatives in line with scorecard objectives||A robust system is required to ensure that the most valuable initiatives are launched and funded first.|
|Abandon non-strategic initiatives||Deal with the political fallout from senior management commitment to abandon initiatives.|
|Rationalise, where appropriate, overlapping initiatives within the organization||Create unitary teams where staff is working in parallel on the same projects.|
|Assign responsibility for initiative execution||Managers must be made accountable for delivering strategic initiatives.|
|Monitor progress and impact||Progress must be monitored and close attention be paid to ensuring the initiatives are impacting scorecard targets/objectives.|
As a final overview of the four articles on the architecting of the Balanced Scorecard, consider the words of Dr Norton and Professor Kaplan in their book Strategy Maps (1):
“Integrating the Strategy Map with Balanced Scorecard measures, targets and initiatives provides a complete description of how value is created – that is, a complete description of the organization’s strategy and its successful execution.”
1. Strategy Maps: Converting intangible assets into tangible outcomes. Robert S. Kaplan, David P. Norton, Harvard Business School Press, 2004.