Read The Balanced Scorecard: Translating Strategy Into Action Online
Authors: Robert S. Kaplan,David P. Norton
Tags: #Non-Fiction, #Business
The Balanced Scorecard: Translating Strategy Into Action (29 page)
Communication to employees about an organization’s vision and strategy should be viewed as an internal marketing campaign. The goals of such a campaign are identical to those of traditional marketing campaigns: to create awareness and to affect behavior. The communication of the Balanced Scorecard should increase each individual’s understanding of the organization’s strategy and enhance motivation for acting to achieve strategic objectives. One executive described her organization’s education program as a “campaign to win the hearts and minds of our people.” She recognized that an essential part of successfully implementing the strategy was a shared vision among those who must execute it: “If they don’t understand the vision, they can’t share or act upon it.”
A business unit implementing a Balanced Scorecard can have as many as 10,000 to 15,000 employees. A communication program to this many people requires a sustained, comprehensive plan. Some organizations, however, treat the Balanced Scorecard as a one-time event. Having just spent several months developing the scorecard and a shared consensus among the senior management group, they rush to share their new insight with all their employees. But they never follow up the initial publicity splash, and the employees treat the announcement as just another program-of-the-month that can be safely shelved and eventually ignored.
Several companies have prepared brochures to communicate their strategy to the workforce. For example, see Figure 9-2 for the brochure used by a major European airline. The brochure identifies seven major corporate themes and communicates both the outcomes the airline wishes to achieve, as well as the drivers that will enable those outcomes to be achieved. Instead of a statement of broad, general themes, the brochure describes the specific measures the executives use to monitor the success of their strategy. The airline updates the brochure periodically to report trends and current performance along each of the seven goals, and to describe the initiatives the airline is using to accomplish its goals. In general, we encourage companies to communicate the objectives, measures, and targets embodied in the unit’s Balanced Scorecard by distributing such brochures throughout the organization.
Many organizations use the company newsletter to embed the Balanced Scorecard in their ongoing communication programs with employees. Pioneer Petroleum devotes a section of each monthly newsletter to scorecard information. In the beginning of the program, this section was used to educate employees. Each issue reviewed one scorecard perspective, explaining its importance, articulating the reasoning behind the specific objectives that had been selected, and describing the measures that would be used to motivate and monitor performance for that perspective. After communicating the purpose and content of the scorecard in the first few issues, the section shifted from education to feedback. Each issue reported recent results on the measures for one perspective. Raw numbers and trends were supplemented with stories on how a department or an individual was contributing to the reported performance. The vignettes communicated to the workforce how individuals and teams were taking local initiatives to help the organization implement its strategy. The stories created role models of individual employees contributing to strategy implementation through their day-to-day activities.
Figure 9-2
A Strategy Brochure Based on the Balanced Scorecard
Electronic networks and groupware, like Lotus Notes, provide additional opportunities for organizations to communicate and gain commitment to Balanced Scorecard objectives. We envision companies in the near future posting the complete set of scorecard objectives and measures on their electronic bulletin boards. The textual presentation can be enhanced with video clips of customers, internal processes, and employees, and audio recordings of the chief executive explaining why a particular objective has been chosen, and the rationale for the measures selected for each objective. Actual results and trends of past performance on each scorecard measure can be updated and displayed monthly on the groupware and internal electronic network. To encourage dialogue and debate, bulletin boards would be established for each scorecard measure, allowing managers and all other employees to comment about the root causes for exceeding or falling short on any particular measure.
Brochures, newsletters, and electronic bulletin boards are the tools of a communication/education program. To be effective, however, these tools must be woven together into a comprehensive communication effort that is directed at achieving strategic alignment over the long term. The design of such a program should begin by answering several fundamental questions.
- What are the objectives of the communication strategy?
- Who are the target audiences?
- What is the key message for each audience?
- What are the appropriate media for each audience?
- What is the time frame for each stage of the communication strategy?
- How will we know that the communication has been received?
Figure 9-3 is an example of the comprehensive communication program used at Kenyon Stores.
The corporate communications director, in partnership with the director of strategic planning, developed a program tailored to the needs of each constituent. The communications director was responsible for the communication process itself, while the strategic planning director supplied the content for the messages to the various constituents. The two directors then monitored the effectiveness of the program with a quarterly employee survey, which solicited feedback about how well and how pervasively the education process was working.
Figure 9-3
A Comprehensive Communications Program—Kenyon Stores
While open communications about strategic priorities are a prerequisite for implementation at the local level, such programs must also deal with the legitimate needs for secrecy and confidentiality. As we described in
Chapter 7
, a good strategy should be explicit and not generic; it should identify particular customer and market segments that have been targeted for aggressive building of market share, and the particular mechanisms that will be deployed to take market share away from competitors. Were such a strategy to be clearly disclosed to thousands of employees throughout an organization, it could soon be known by rival companies—through terminated or disgruntled employees, by managers and employees hired by other organizations, or even by casual discussion by employees unaccustomed to having access to highly sensitive information (as the wartime expression goes, “Loose Lips Sink Ships”). Premature disclosure of the new strategy could enable competitors to blunt its impact.
Each business unit must assess the relative benefits of extensive communication, commitment, and buy-in from all organizational employees versus the potential costs of disclosure and the possible loss of competitive advantage. One approach is to communicate the generic outcome measures (market share, customer satisfaction, retention, and acquisition) and generic performance drivers (quality, response time, and cost performance) to which the organization is striving. But the executives would restrict, on a need-to-know basis, the particular customer segments and competitors that the organization is targeting. Indices can also be used instead of actual numbers.
The Balanced Scorecard, as the embodiment of business unit strategy, should be communicated upward in an organization to corporate headquarters, and the corporate board of directors. Conventional rhetoric declares that a principal responsibility of the board is to provide oversight of corporate and business unit strategy. In practice, however, corporate boards spend more time reviewing and analyzing quarterly financial results than engaging in detailed strategic reviews and analysis. When
the primary communication between senior corporate executives and its outside board of directors consists of short-term financial measures, it is not surprising that meetings focus more on short-term operational results than long-term strategic vision.
Jay Lorsch, among others, has argued that boards of directors must play a more active role in monitoring corporate strategy and corporate performance.
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outside directors [must] have the capability and independence to monitor the performance of top management and the company; to influence management to change the strategic direction of the company if its performance does not meet the board’s expectations; and, in the most extreme cases, to change corporate leadership
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If boards are to be effective in evaluating the CEO and approving corporate strategy, they need to develop knowledge not only about the company’s financial results, which are an indication of past performance, but also about the company’s progress in accomplishing its strategy. That means understanding progress in developing new technology and new products and services, and in entering new markets. It means understanding changing customer requirements and what competitors are doing. Similarly, directors need the data to build knowledge about the organizational health of the company. In essence, they need their own version of the “balanced scorecard.”
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The Balanced Scorecard can and should be the mechanism by which senior corporate executives present their corporate and business unit strategies to the board of directors. This communication not only informs the board in specific terms that long-term strategies designed for competitive success are in place. It also provides the basis for feedback and accountability to the board.
Ultimately, the question is whether the Balanced Scorecard should be communicated beyond the boardroom to external shareholders. Historically, companies have been reluctant to disclose information beyond the minimum required by regulatory authorities. This reluctance stems from several sources. First, executives are properly concerned that anything beyond minimal disclosure could benefit competitors more than existing shareholders. Especially if the Balanced Scorecard is a clear articulation of business unit and corporate strategy, its public revelation could enable competitors
to sabotage a well-formulated and executed strategy. A second concern is with liability, particularly in today’s litigious environment. By voluntarily communicating the scorecard, managers fear that failure to achieve or improve on these “supplemental” measures could become the basis for shareholder suits. Class-action securities lawsuits are often triggered by even a mild deviation from projected goals. A third reason comes from the apathy of much of the investment community about nonfinancial information, especially when that information explicitly communicates long-term goals (for many analysts, anything beyond next quarter’s earnings is a long-term goal). One company president whose organization was an early implementor of the Balanced Scorecard described an experience with financial analysts:
I was giving a presentation to a group of analysts of a major mutual fund organization that, collectively among all its funds, owned up to 40% of our shares. As long as I was describing plans and forecasts for next period’s earnings, the analysts were on the edge of their seats, hanging on every word I said. When I started to talk about our program to improve quality and customer response times, 90% of the analysts got up to make phone calls.
If financial analysts remain indifferent to measures of a company’s long-term strategy, we are not optimistic that Balanced Scorecard reporting will become part of an organization’s communication program to outside shareholders.
We believe, however, that the best financial reporting policies will eventually be derived from the best internal reporting policies. At present, most companies are still experimenting internally with developing, communicating, and evaluating performance using the Balanced Scorecard. As senior executives become more experienced and confident about the ability of scorecard measures to monitor strategic performance and predict future financial performance, we believe they will find ways to communicate these measures to outside investors, without disclosing competitively sensitive information.