Está en la página 1de 5

Strategic focus —

does your scorecarding system have it?

According to
preliminary results of an
international
scorecarding study,
many organizations
around the world aren’t
realizing the full benefits
of their scorecarding
systems. A failure to link
the system to strategic
planning may be the
missing link between
the winners and the
losers.

By Raef Lawson,
William Stratton, &
Toby Hatch

S
corecarding systems are the subject of heightened International scorecarding survey data
interest in organizations wanting to improve their We address the issue using data from our international on-line
performance. These organizations approach the scorecarding survey. This survey examines, among other
deployment of scorecarding systems from several things, the adoption and use of scorecarding systems worldwide
directions. Some, spurred by Robert Kaplan and (for more information or to participate in the study, go to
David Norton’s work in developing the Balanced Scorecard www.graziadio.pepperdine.edu/shaps). Available on the web in
and strategy maps, are implementing strategy-focused systems. eight languages, the survey is sponsored by CMA Canada and
Other organizations take a more tactical approach, focusing on other professional and consulting organizations around the
reporting results for key performance indicators (KPIs), often world. (Other survey sponsors include the AICPA, Balanced
without explicit ties to strategy. Scorecard Netherlands, CAM-I, CIMA,
An unresolved issue is whether organizations that have CompetitiveScotland.com, Deloitte Germany, Hyperion
strategy-focused scorecarding systems receive the same, Solutions, IMA, Van der Leer, and Yacsa.com.) The role of
greater, or fewer benefits as organizations whose systems are these non-financial sponsors was to solicit their members’ or
more tactical. In this article, we examine this issue using the six clients’ participation in the survey.
main principles identified by Kaplan and Norton as being A total of 382 usable responses from 44 countries have been
important when building a strategy-focused organization. We received so far. Of these, 193 (51%) respondents indicated that
also use these principles as a framework to explore possible they had a scorecarding system. (Survey respondents were
causes of scorecard system success.
CM A MANAGE ME NT 35 October 2006
asked to use their own definition of a scorecarding system when Possible interpretations include:
responding to the survey questions.) 1. Since the rest of the world lagged behind North America in
As part of the survey, a series of attributes were provided implementation of scorecard systems, they learned from
from which respondents could identify those they currently errors reported by North American organizations.
include in their scorecarding system, and those they think 2. From a cultural perspective, North American organizations
should be included (as possible future enhancements). Also tend to be more tactical than strategic in focus; hence, they
included in the survey are a series of questions regarding the would have less success, given that strategic focus equates to
link, if any, of respondents’ scorecarding systems to their better results.
organizations’ strategies. We matched up the list of attributes
The next step in our analysis was to investigate each group to
and questions to the Kaplan and Norton six key principles of a
measure the degree of compliance with K&N principles. The
strategy-focused organization. We then analyzed responding
results of this analysis were revealing. While all six principles
organizations in terms of the principles that they are (and are
were captured in our analyses, we will highlight three: link
not) following, and the benefits received from their scorecard-
strategy and budgeting; make strategy a continuous process;
ing systems.
and link and align the organization around its strategy.
Kaplan and Norton’s six principles Link strategy and budgeting. We asked respondents of both
The Kaplan and Norton (hereafter K&N) principles and groups if the measures in their scorecarding system are the
selected key attributes as they apply to a scorecarding system same ones on which annual and longer-term goals or objectives
are as follows: are set during the planning and budgeting process. The average
response to this question on a scale from 1 (strongly disagree)
1. Build an executive leadership team to mobilize change. to 7 (strongly agree) was revealing. The best practices group
This includes developing a vision and strategy. had much greater integration of scorecard measures in the
2. Translate strategy into operational terms. This includes budgeting process. In fact, 83% of the best practice organiza-
creating strategy maps. tions strongly agreed or agreed that scorecard measures were
3. Link and align the organization around its strategy. This used in the budgeting process. Only 25% of the no-benefits
includes creating scorecards for various units and levels and group agreed with the same statement (none strongly agreed).
linking them. Make strategy a continuous process. An important part of this prin-
4. Make strategy everyone’s job. This includes communication ciple is ensuring there is discussion about results and there is
and education to create awareness, personal alignment, and strategic learning. Strategy-focused organizations need mecha-
incentive compensation linked to targeted scorecard nisms to continually assess, debate, and update their strategy.
measures. We asked respondents in both groups if their scorecarding sys-
5. Link strategy and budgeting. This includes linking strategic tem enhances feedback to responsible managers so that adjust-
initiatives and related costs during the planning process. ments to their strategic plan can be made during the operating
6. Make strategy a continuous process. This includes tracking period. The average response to this question for both groups
performance against short-term and long-term goals and (on the same scale as before) demonstrates that this feedback
initiatives for improvement. exists to a much greater extent in the best practices group.
Seventy-eight per cent of the best practice organizations
Defining and analyzing the groups
strongly agreed or agreed that their scorecard system adhered
To investigate the impact of having a strategy-focused score- to this principle. Only 17% of the no-benefits group agreed
carding system, we looked at two groups that reflect the with the same statement (none of them strongly agreed).
extremes of the scorecarding experience.
Link and align the organization around its strategy. There must be
The best practice group includes organizations that:
a link from strategy to an organization’s human resources. We
● have had a scorecarding system in place for more than one
asked both groups to describe how their organizations link
year (The average was 4.5 years),
strategy to the scorecard system. If an organization used one or
● drive vision with the scorecard,
both of the methods below, the link was considered strategic:
● have a scorecarding system that facilitates sustainable align- ● The responsibility for implementing actions or initiatives of
ment, and
the strategy is assigned to people (teams, departments, etc).
● realize significant benefits from their scorecard system.
Initiatives are supported by measures. These measures are
The no-benefits group includes organizations that have on the scorecards of the responsible person(s) and therefore
scorecarding systems but answered somewhat disagree, disagree are aligned with the strategy.
or strongly disagree to the statement “Our organization has ● Each scorecard rolls up to the next level and therefore we
realized significant benefits of our scorecarding system.” believe this supports our strategy.
The percentage of North American respondents in the over-
Seventy-eight per cent of the best practice group chose one
all survey is 35%. We might expect that the percentage of “best
or both of the strategically linked options versus only 33% of
practice” and “no-benefits” organizations would be approxi-
the no-benefits group.
mately the same. In fact, the percentage of best practice organi-
Similar findings were discovered for each of the six princi-
zations from North America is 28% and the percent of the
ples. Figure 1 compares the number of K&N strategic-focus
no-benefits group from North American organizations is 50%.
CM A MANAGE ME NT 36 October 2006
frequently (83%) was principle 3 (link and align the organiza-
Figure 1: Strategy-focused scorecard system tion around its strategy), followed by principle 4 (make strategy
and benefits everyone’s job, including communication and education to cre-
ate awareness, personal alignment and incentive compensation),
100%
which was present in 58% of the systems in this group. All the
16%
90% other principles appeared only 25 - 42% of the time.

80% 78%
Figure 2: Norton/Kaplan principle frequency
70% 25%

60% 100%
90%
50% 80%
40% 70%
60%
30% 59% 50%
20% 40%
17%
30%
10%
20%
5%
0% 10%
0%
Best practice group
1 2 3 4 5 6
No benefits group Principle number
Strong strategic focus
Moderate strategic focus Best practice group
Weak strategic focus No benefits group

principles that were associated with each group. Those organi-


zations that were in compliance with five or six were considered Benefits of a strategy-focused scorecard
to have a strong strategic focus; those in compliance with three
There are many benefits that can be attributed to a strategy-
or four had a moderate strategic focus; and those in compliance
focused scorecarding system. Organizations were asked to
with less than three had a weak strategic focus.
select the benefits they had realized from their scorecarding
An overwhelming conclusion is evident from Figure 1.
system. The most frequently cited benefits for the best practice
Organizations with a strong strategic focus to their scorecard-
group were: increased communication, the ability to measure
ing systems are more likely to achieve significant benefits from
performance, and understanding measure and strategy cause
their systems than those that have
systems that lack this focus. Many
companies clearly aren’t using
Figure 3: Benefits achieved by the best practices group
their scorecards effectively.
Seventy-eight per cent of the Strategice decision making
best practice group exhibited a
strong fit to the strategic focus
Align behaviour
principles, while a mere 16% of
the no-benefits group exhibited
the same. Understanding cause and
effect
Figure 2 summarizes the find-
ings by principle. In the best prac- Link to rewards
tice group, most of the K&N
principles were in alignment with Measure performance
characteristics of their systems
most of the time. The one princi- Communication
ple that appeared slightly less fre-
quently (73% of the time) than Reduce costs
the others was principle 2 —
translate strategy into operational Increase revenues
terms (including creating
strategy maps). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
In the no-benefits group, the % of companies
principle that appeared the most

CM A M AN AGE ME NT 37 October 2006


and effect. Other benefits included:
● Organizational alignment
● Increased revenues
● Decreased costs
● Ability to link performance to compensation
● Ability to align employee behaviour with strategy
● Ability to make strategic decisions faster with better data
Figure 3 summarizes the frequency of the cited benefits for the best practice group.
Survey participants were also encouraged to submit comments about additional benefits
realized. One company from the best practices group commented that their scorecard-
ing system “has facilitated a unified focus on office priorities through easily generated
performance reports. It has also highlighted the interrelationships between different
functions and how best to coordinate efforts to achieve goals.” Another organization
noted: “It is much easier to allocate human and capital resources and share these
resources across the organization now that everyone actually sees how this positively
impacts the organization as a whole.”

In many cases a lack of strategic focus, a lack of


understanding of the strategy by the employees,
and insufficient management buy-in were cited as
a contributing factors to the failure of the system.
Finally, along with conceptual benefits, other organizations in the best practices
group were able to express the impact of scorecarding systems numerically. Some
examples include:
● We had a productivity improvement of over 200% and a 75% reduction in unit cost.
● Focusing on scarce investments guaranteed an average annual growth of 36% in revenue
with the same average margin.
The no-benefits group also submitted comments that were helpful in understanding
why their scorecarding system had failed to produce benefits. In many cases a lack of
strategic focus, a lack of understanding of the strategy by the employees, and insufficient
management buy-in were cited as a contributing factors to the failure of the system.
Some of the comments include:
● The system makes employees confused without specific strategy.
● Too many subjective measurables and the manager was given no input as to the measurables.
● Had acceptance at a high level, not accepted at departmental level as other [different] measures
were tracked.
● Very basic — no real buy-in as the items in the scorecard were not thought through
particularly well.
● Very little manager input into criteria and still have subjective portions of the scorecard.
In this article we used the data from our scorecarding survey to examine the impact of
the existence of a strategy focus on the effectiveness of scorecarding systems. We found
that the vast majority of best practice scorecard organizations have a strong strategic
focus in their scorecard systems. These same organizations enjoy significant benefits
from these systems. Most organizations that have not realized significant benefits from
their scorecard systems have a weak strategic focus in their system. It is thus clear that
organizations that are considering deploying scorecard systems should give close atten-
tion to the level of strategic focus when designing and implementing their system to
optimize the value received. ■

Raef A. Lawson, Ph.D., CMA (IMA), CPA (rlawson@imanet.org) is director of research for the Institute of Management
Accountants. Previously he was a professor of accounting at the University of Albany, State University of New York. William
O. Stratton, Ph.D., CMA (IMA) (stratton@dixie.edu) is a professor of accounting at Udvar-Hazy School of Business, Dixie
State College. He has held faculty positions at the University of Washington and Pepperdine University. Toby Hatch
(toby_hatch@hyperion.com) is a domain leader for business modeling and performance scorecard with Hyperion Solutions.

CM A MANAGE ME NT 39 October 2006